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FINTECH-The parallel universe of Indian fintech-B-AIM PICK SELECTS

Of the sci-fi movies I’ve had a chance to catch recently, Coherence, a gripping thriller leads the list with a brilliant premise (if you are a sci-fi fan!). In it, a cosmic event opens the door to alternate realities on Earth – to parallel universes where things look the same on the surface but where events unfold in very different ways. That’s also a pretty good way to describe the India fintech scene, in comparison to markets elsewhere in the world. At first glance, it may seem similar to what we see globally but it is actually quite different in terms of the opportunity, challenges, and the types of outcomes it is likely to yield. The fintech opportunity drivers in developed markets are well known. They include millenials and their distaste for incumbent financial service providers; tech-savvy startups reimagining individual product lines (the well flogged unbundling concept); slow moving incumbent banks burdened by compliance, regulation and archaic legacy systems. US fintech startups alone have attracted over $20B in funding over the past five years (CB Insights data). However, the opportunity in developed markets has a common backdrop – high financial services penetration. For example, the US has 70- 90% penetration across major categories such as auto insurance, lending, credit scoring, bank accounts, health insurance and more. For the most part, western fintech innovation is unlikely to dramatically increase total demand or create significantly larger markets. It’s hard to imagine overall consumer lending increasing by 20x in the US, a currently well-penetrated market with readily available credit. The opportunity is very large – Goldman Sachs estimates $470B of profits at risk for traditional financial services firms due to fintech invaders. The nature of innovation is to make solutions better, faster and cheaper – using technology to vastly improve consumer experience and value. This is what one sees in the early success of a Kabbage, Prosper, Wealthfront, Betterment or Klarna – firms that effectively used data and analytics to provide a high-quality digital consumer experience. By becoming the platform of choice for a whole new generation of customers, fintech companies in developed markets can gain significant market share from incumbents, and over time reallocate profits in their favor.

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