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    Outlook 2021: Challenges and expectations from Fintech Industry

    Outlook 2021: Challenges and expectations from Fintech Industry

    Outlook 2021: Challenges and expectations from Fintech Industry
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    By CNBCTV18.com Contributor  IST (Updated)


    2020, owing to the COVID-19 pandemic, has not only upended normal life but also has severely disrupted businesses across the globe.

    It won’t be wrong to presume that 2021 is the most awaited year. 2020, owing to the COVID-19 pandemic, has not only upended normal life but also has severely disrupted businesses across the globe.
    While the end to the pandemic could be visible now with vaccines being rolled out, its rippling effect on the economy and the severe impact on businesses across all sector alike will be the next big challenge at hand.  2020 has been a mixed bag for the fintech industry with certain sectors witnessing unprecedented growth and others grappling to recover from the aftermath.
    I believe people would be cautiously optimistic about the space at large and individual businesses and their models would be judged on its own merit. The outlook for 2021 will be predominantly about COVID-19 after effects and new avenues of innovation and growth.
    COVID-19 Impact
    While the fintech companies in the payment space witnessed a second spurt of growth after the demonetisation, the lending companies have been severely impacted because of COVID-19.
    It is expected that by the fourth quarter (Q4), companies will start witnessing GNPA levels touching 3 to 4 times of pre-pandemic level and there could be some spillover even into the next fiscal year. These high delinquency numbers across the industry might impact investor confidence in the first half but things will gradually improve in the second part of the year. Some of the smaller companies might find it difficult to survive during this period with high NPAs and difficulty in raising capital, but it will also be the year when a couple of clear winners will emerge though not unhurt.
    With expected liquidity squeeze in the initial part of the year, collaboration in the co-lending space will be a major theme for the coming year. Wanting to reach pre-COVID-19 levels of volume in Q4 and then subsequent growth, a lot of players will look for large partners in the banking space but their collection efficiencies and performance during these testing times will be the determining factors.
    During the pandemic, a lot of companies focussed on product and process innovations to become more customer-centric and build the capability to handle large disruptions. We are going to witness some of the outputs of these efforts with innovative products getting launched and companies exploring physical models to bolster collection management capabilities.
    Changing Industry Landscape
    The fintech landscape in India has been changing at a lightning speed in the last couple of years and has become one of the world’s largest fintech markets after US, UK and China. Though some of the subsegments have been severely impacted by COVID-19, everyone still remains bullish on the long-term growth prospects of the industry. While the first wave of companies was witnessed in payments and subsequently in lending space, 2021 headlines will be dominated by the new segment – neo banks powered by open banking APIs. We have already witnessed the entry of a few players this year, but many of the new players will be either coming out of beta mode or launching their services across customer segments, in retail starting from Gen Z customers to MSME space.
    Many of the existing players will look for horizontal expansion to bring multiple services on a single platform through integrations to increase customer wallet share. Customers looking for financial services can turn to a single platform for various requirements from loans, investments including payments.
    There have been several contributing factors driving innovation and growth in the fintech space and the key has been the country’s developed public digital infrastructure, forward-looking and innovation-centric regulator and policy regime. There have been two new additions to the list of enablers, the account aggregator framework and OCEN which have the potential of driving the next set of innovation in digital lending and financial inclusion. In the coming year, these initiatives will witness traction with many LSPs including large incumbents and neo entrants joining the platforms and introducing flow-based lending products designed based on unique customer requirements.
    Technology Trends
    Fintech companies and the financial industry at large has always been at the forefront of adopting new technologies. Today, ML models are widely used in the fintech space to underwrite loans based on alternative data. While the focus of these models till now had been in use cases related to underwriting and fraud identification, ML models will start finding their place in collection management also.
    In 2020, there was an increased focus on reducing costs and driving efficiencies and companies would like to maintain this focus even next year while pursuing growth again. Robotic process automation (RPA) will be widely explored to automate back-office processes and reduce costs.
    Blockchain technology is another cutting-edge technology which could be the foundation for next fintech business ideas. The new buzzword in the space is decentralized finance (DeFi) and we should witness some of the innovative business models being tested in the coming year but this will be subject to regulations and government policies.
    As per a study conducted post the 2008 crisis, 20 percent companies emerging from recession were called ‘resilients’ who were able to manage a small lead during the downturn by reducing costs and increased revenue through speed and decisive decision making and they were able to extend this lead for the next 10 years. In 2021, we will identify the ‘resilients’ of the Indian fintech landscape emerging from the current crisis which have sound business models with a clear focus on innovation, robust processes and strong customer-centricity. All in all, while 2020 was all about tackling the volatility brought about by the pandemic, 2021 will be the year when the resilience of incumbents will be tested.
    Sovan Satyaprakash is Head - Strategic Programs at Aye Finance. The views are personal
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