Wrap of Week #2 of 2017: P2P, Cloud computing, Next Money Aussie fintechs, Lemonade, Dabbawals.

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We started the week reporting from the original and genuine perspective of lenders on P2P platforms. In Back to the future of P2P Lending, we interview one of those peers, Hector from New York shares his journey.

We looked into the positioning and involvement in Fintech of cloud computing providers like AWS, IBM, Microsoft and Alibaba.

We reported on the Australian Fintech finalists that will participate next week in Next Money Fintech Finals 2017 in Hong Kong.

Don’t miss out on our thoughts on Insurtech in Parsing Lemonade PR to see if P2P insurance is game changer or a mirage.

We ended the week with a global theme around Food and Fintech. Enjoy The dabbawalas in India point to future e-commerce and payments.

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Wrap of Week #52 of 2016 & Week #1 of 2017

2016-2017

Happy New Year. 2017 will be faster than 2016, and we will all be held accountable for managing the fast pace of change. Financial services will continue to transform in various regions at different paces.

Daily Fintech crossed the 15,000 subscribers mark before Christmas and the P2P knowledge platform, the Fintech Genome, is growing with impressive engagement in great global conversations (check out the conversations with the highest engagement rate – Replies).

For the last week of 2016, we traveled to India and covered the main reasons it has gained and will continue to maintain a special spot in the Fintech evolution – read Why India is the country to watch in Fintech. We discussed Indifi & the rise of the Indian SME lending matchmaker; covered more than one Indian mobile provider in Mobile Wallet Sumo wrestlers face off in India; and focused on Mobile Microinsurance in India.

To begin the New year with an entertaining money playlist, check out the January 1 Daily Fintech post and enjoy.

On the first business day of 2017, we could not but cover a bitcoin related subject as the unbelievable steep ascent of bitcoin continued. Check out Another bitcoin ecosystem health check as we slide into 2017 and engage in the global conversation on “Help refine this bitcoin ecosystem health check methodology” on the Fintech Genome.

On the second business day of 2017, we chose to discuss about “Our Data” as a major topic that we, the GAFA people, should be aware of. Read Fintech solutions to problems of #GAFA people.

On the third business day of 2017, we chose to highlight the unstoppable automation trend through the AmazonGo grocery store example.

On the fourth business day 2017, we reviewed Insurtech Exits enabling Claims Management As A Service.

We ended the first business week of 2017, with a look into the huge mortgageTech market mostly in the US.

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Mobile Microinsurance in India

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Consider these numbers to see the scale of the opportunity for mobile Microinsurance. In a developed market like the UK, 80% have some kind of Insurance. That goes down to 10% in India and 2.5% in Africa. It is pretty clear where the blue ocean market is.

These millions of new insurance customers won’t buy the legacy insurance products. The new products will need to be a) mobile end to end (i.e. not a mobile front end that requires you to use a laptop/desktop to complete a process) and b) available in very small amounts for very low cost (“microinsurance”). Whether these new mobile Microinsurance products are delivered by Insurtech entrepreneurs or agile established carriers remains to be seen.

Like Microfinance, Microinsurance is key to the transition from subsistence farming to a middle class life. One uninsured disaster and families face financial ruin. An insured borrower is also a better credit risk, so the two markets are connected.

Insurance Comparison Sites 

Sometimes, the simplest innovation wins. In India we see a lot of comparison sites. This makes sense in market such as India, where lots of consumers are buying insurance for the first time. Compison sites also have a proven revenue model.

Examples include:

Policy Bazaar

My Insurance Club

Compare Policy

Policy Bachat

However, these comparison sites assume that the insurance product fits market needs and just need to be marketed, discovered & compared. The existing Insurance products meet the needs of those who are already in the urban middle class. This is a big growth market, but still small compared to the millions emerging from subsistence farming into the lower rungs of a middle class life (what we will call the “aspirant middle”). That market needs some innovation at the product level, not just at the marketing level. For that we need to look at Mobile Microinsurance. But first, the one product they need most – crop insurance.

Crop Insurance – the government approach

Crop insurance is what the aspirant middle needs most. One bad harvest leads to ruin. So, it is no surprise that the Indian Government is proactive on this front. In February 2016, they launched the Pradhan Mantri Fasal Bima Yojana (Prime Minister’s Crop Insurance Scheme). The premiums will be fixed, depending on the type of crop. The Indian Government clearly don’t want a repeat of rapacious loan terms from some of the Microfinance players.

Crop Insurance – the private sector approach

Crop Insurance could use some of that Blockchain & big data magic that we see brewing in startups. Something as simple as flood insurance is no longer simple, now that climate change forces a rethink on existing models. We have looked at big data ventures going after this market such as Meteo and Praedicat and then we looked at how blockchain is being used for catastrophe swaps.

So, there is plenty of innovation help for any insurance companies that want to offer crop insurance at those Government-fixed rates. It is likely that meeting those Government-fixed rates and turning a profit will need an entirely new generation of insurance, with innovation front to back. For that we turn to mobile microinsurance

An idea whose time has finally come

Mobile insurance is nothing new. It emerged in India way back in 1997, when telecom operators launched mobile based insurance (dubbed “mInsurance”). This has not been a great success story. Often an idea is simply ahead of the market reality. In this case, the market needed mass penetration of mobile – tick in the box for that today. It also needs new entrants, not just Telecom operators which have to date not been as successful as they could have been at leveraging their network and customer base and billing relationship into a big position at the application layer.

BIMA – Mobile Microinsurance but not in India

India has the ingredients to be a leader in Mobile Microinsurance, yet so far the action seems to be elsewhere. BIMA Mobile comes from Sweden, has an office in London and operates in many markets including nearby ones such as Pakistan, Sri Lanka and Bangladesh – but not yet India.

BIMA bridges the gap between Telecom operators and Insurance companies.

Given the scale of the market and the digital infrastructure being laid down by the Modi Government, one can expect to see BIMA come to India soon. Whether it will be new Carriers or old Carriers who the partner with remains to be seen.

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Why India is the country to watch in Fintech

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Sure, we are all watching China, but to win in dynamic markets you need to be both right and contrarian and it is accepted wisdom that China is the country to watch in Fintech. It is, but because fewer people see India as the country to watch, we decided to spend a week shining a light on Fintech in India. While many of our readers will be celebrating Christmas or Hannukha we reach out to those who did their celebrating at Diwali or Ramadan. 

What is happening in India does not only impact the fastest growing large economy in the world – that is a big deal – it also impacts how Fintech develops around the world.

India finally has all 5 Aces

20 years ago, after spending a few years living and working in India I wrote this article. (It is no longer available where it was originally published, so I reproduced it on my personal blog).

My thesis at that time (in 1997) was that India had only one ace – low cost labor – and faced Western Competitors with 5 aces:

1. A large domestic market

2. Access to intellectual capital

3. Reliable, low cost telecommunications

4. A culture that rewards innovation and risk taking

5. A well-developed venture capital industry

In short, India in 1997 had a tough road ahead.

10 years later – in 2007 – I reviewed these 5 aces in an article on ReadWrite and concluded that India was doing a lot better. At that time, the biggest problem was risk aversion because a well-paid job in an outsourcing company looked like a better option than doing a startup.

Yet, as is usual, things take longer than we think (but the eventual change is also bigger than anybody forecasts). For the last 10 years, India as an innovation hub was far more promise than reality. Yet now, as we slide into 2017, it looks like India as an innovation hub is in great shape and that Fintech is where that innovation will happen first.

How the Fintech India story developed on Daily Fintech

When the Fintech City Tour first went to India two years ago January 2015, I found some innovation but missed the big story.

Only a few days later, the big story appeared in India’s first Fintech Unicorn – Paytm.

In May I dug into why Paytm was getting so much traction in mobile payments.

In September, I looked at the mobile payments battle in India as it relates to Uber.

Later in September came the really big news about the 11 new banking licenses.

A few months ago, I looked into the critical plank in the Fintech revolution in India – Aardhaar, digital ID at scale.

For more on the infrastructure behind this Fintech revolution we turn to one of its architects – Nandan Nilekani.

Three reasons you should pay attention to Nandan Nilekani

1 He was a cofounder of Infosys in 1981. Their current market cap is over $30 billion and they did not take a dime of VC money to get there.

2 He led the Aadhaar initiative. This is biometrics based digital ID at massive scale – over 1 billion issued in 5.5 years, making it the fastest digital service growth in history. (Android hit 1 billion in 5.8 years; WhatsApp took 7 years.) Think of the impact on financial inclusion; this is transformative for millions of people.

3 He led the Finacle business at Infosys. This is the least well known part of his story. Finacle is a core banking software product; it was unusual at that time for an outsourcing business to get in the product game. Finacle is significant as part of this story because this background makes Nandan Nilekani so well qualified to understand the Fintech revolution in India today. (I had the good fortune to meet him about 20 years ago during my Misys core banking days).

You can hear Nandan Nilekani describe Fintech is India’s WhatsApp moment in this 30 min talk.

 

5 enablers for the Fintech revolution in India

– Aadhaar. Already described above. It is hard to overstate the importance of this. Without this, all the other enablers would only impact the urban middle class. Aardhaar really brings the power of digital to 1 billion people. It is an incredible achievement combining vision, tech smarts and drive.

– Mobile leapfrogging. There are 900 million mobile connections and Indians spend 45% of their incomes on mobile technologies and platforms (Americans only spend 11%), because mobile is the main point-of-entry to the Internet (PC penetration is 5% vs 75% for mobile).

– Immediate Payment Service (IMPS). This is a real-time inter-bank payment system through mobile phones that is a) net payment (unlike RTGS) and b) works 24/7. It was launched by the National Payments Corporation of India (non-profit, Government funded) in 2010.

– Payment Bank licenses. This enables entrepreneurs to deliver regulated payment services without becoming deposit taking banks.

– Unified Payments Interface. This enables Mobile wallet interoperability (read this post for why this is so critical).

This shows how positive change can come from the right mix of public policy, new technology and entrepreneurial drive.

Demonetization is the Fintech moment for India

All this was already driving rapid change, but then the turbocharger kicked in a few weeks ago when the Modi government declared the 500 and 1,000 Rupee notes to be no longer legal tender. This action was labeled “demonetization”

Sopnendu Mohanty of the Monetary Authority of Singapore (MAS) called Demonetization the “Fintech moment for India” in an interview in The Hindu Business Line.

“The Indian fintech story is different. The Indian government has a massive problem with an opaque, cash-based economy that has dominated the country for decades. With the majority of its citizens lacking access to formal banking services, India had nothing to lose by encouraging out-of-the-box innovation that would seem insane to the U.S. financial services establishment.”

Demonetisation applied a turbocharger to the already rapid acceleration of mobile money in India. According to Hindustan Times, Paytm transactions exceed combined usage of credit and debit cards in India. Paytm is seizing the day with a new ad targeting demonetization that has ignited controversy (read, free media).

Thanks to Unified Payments Interface (UPI) delivering mobile wallet interoperability, this is not a winner takes all market. Paytm is doing very well but they have plenty of competitors and UPI creates a level playing field. UPI is an example of Tech Smart Regulation. In this post on PSD2, we defined the 3 levels of regulatory maturity:

  • # 1. Paper. Created in haste by politicians and lawyers after a crisis. Result = lawyers get rich. Examples: Sarbanes Oxley & Dodd Frank.
  • # 2. Great Idea. Using a disruptive tech without implementation help. Result = uncertainty. Example: SEC Mandate for XBRL.
  • # 3. Tech Smart Regulation. Using a disruptive tech with implementation help. Result: level playing field that drives innovation. Examples: PSD2 and UPI.

Demonetization certainly creates a lot of short term pain and damage to the economy and has drawn a lot of criticism. There is a lively debate on this thread on the Fintech Genome.   Prathamesh Godbole from Mumbai expressed the negative view on demonetization very well:

“A big chunk of business is done in cash largely because its frictionless, and not necessarily to avoid taxes. This has been hit quite badly. Uber, Ola and other startups with deep pockets still process most of their customer payments in cash. On average, cab drivers, shops and small business owners I’ve spoken to said their business has dropped by 40-50% with no rebound even after a month.

The measure may be well intentioned, but it’s been pushed prematurely. Based on govt numbers, it is going to take anywhere from another 5-10 months to restore the currency supply. Personally, I’ve not seen much change in attitudes towards digital payments- small businesses have started accepting cards/mobile payments but will drop it the moment card companies charge a transaction fee. For now, most card processors and wallet companies have waived off fees.”

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Disruptive change does not happen in a linear fashion. It happens in short explosive bursts after long periods when nothing seems to happen. Fintech in India is going through one of those short explosive bursts of change.

Durinh the rest of the week we stayed with India:

Wednesday = SME Lending

Thursday = Mobile Micro insurance

Friday = Mobile Wallets

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Wrap of Week #51: Daily Fintech week of 2017 predictions

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A thematic week on Fintech trends in all the areas that we track. Ahead of the New year that will be exciting and complex, we dedicated the entire week to general Fintech trends, to WealthTech and Consumer Banking predictions, to Small Business and InsurTech forecasts.

Enjoy the holiday season.

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Wrap of Week #50: Digital Identity thematic week

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Digital Identity permeates all Fintech verticals. It is multi-dimensional and not easy to solve in the centralized financial market structure.

In Introducing Digital Identity Week on Daily Fintech we outlined the concepts involved (Governments, biometrics, portability, privacy, FIDO).

In Capital Markets and IDs we outlined the four ingredients of a killer digital ID app and referred to Credits, an Isle of Man fintech.

In Where’s the Watson of credit risk? We inquired into AI and ML as a way to recognize the identity of a small businesses.

In Strong user authentication could enable big companies to get insurance from cyber crime we covered the theory of “insured internet”.

In The past, present and future of KYC for Banks we looked into digital ID from a bank’s point of view.

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Wrap of Week #49: Traditional & Emerging Fintech, Regtech with Trump & Brexit, Virtual reality and Banking, Bitcoin in insurance, Bitcoin & EY

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We started the week with insights on How Traditional and Emergent Fintech could converge and change Finance.

We looked at Augmented and Virtual reality in banking in Banking on a virtual and augmented future.

In Regtech thrives on change: welcoming Trump, Brexit and China we looked at the impact on the sector from political and policy changes.

We ended the week with two insights around Bitcoin going mainstream. In Watch Season II of the Swiss Bitcoin Reality, with EY leading, we discussed how EY in Switzerland is putting their money where their mouth is. And in Insurance helps Bitcoin become safer for mainstream consumers we highlighted how crypto currency Fintechs offer insurance in an invisible way.

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Join the conversations on the Fintech Genome. The global community is sharing insights, creating great conversations, and business is starting to happen.

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If you enjoy reading the Daily Fintech insights by our experts è Subscribe to this newsletter.

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