Banks, NBFCs, fintech firms and their investors seem obsessed with doling out loans to Indians and getting them to pay EMIs. Photo: Mint
Indians are savers. Collecting coins in a piggy bank as kids, keeping aside a part of one’s pocket money as a teenager or stashing notes in a locker as an adult, all of it comes naturally to us. Despite India’s cultural tilt towards saving, more than 40% of the number of investments in the Indian fintech sector last year, was in lending companies.
Whether it be traditional banks and NBFCs (non-banking financial company), mobile-based credit scoring and lending companies, peer-to-peer lending platforms, essentially most Indian fintech companies and their investors seem to be obsessed with doling out loans to Indians and getting them to pay EMIs.
The aspirational motivation to take loans is well-understood. However, several aspirational goals can be met through a disciplined savings approach. The 300 million newly opened bank accounts, since the launch of the Jan Dhan Yojana in 2014, and the ₹80,000 crore, or $12 billion, of deposits in them have presented a whole new universe of innovative savings opportunities. About 70% of these accounts were created in the rural and semi-urban regions of the country, an indicator of the quantum of wealth in those areas. Can this spur a generation of fintech start-ups focused on savings and investing? Easier said than done, fintech start-ups attempting to capture a share of the common man’s wallet in India, today face several challenges.
Indians save for “life-events”—weddings, in particular, or for medical emergencies. This makes physical assets, such as gold, extremely popular, as jewellery or to be pawned for cash. Cultural biases impacting savings habits vary across the country; for instance, the southern states have a high proportion of their savings, and about 40% of their debt exposure, in gold. Essentially, changing behaviour patterns or cultural biases is an uphill task for digital investment platforms.
Irregular cash flow
A large section of the Indian population works in the informal segment where erratic incomes are a norm. Standard financial products with rigid contractual terms simply don’t work for them; a product that offers micro-savings and flexible tenures may be the answer for this segment.
Dearth of financial data
The dearth of financial data on individual investors is the largest pain point for start-ups attempting to get the Indian masses to invest proactively. Innovation in data collection methods is the key to providing relevant financial planning recommendations at affordable prices. On the positive side, with the proliferation of companies, such as Paytm, the digital footprint in the rural and semi-urban areas is increasing rapidly.
Low financial literacy
A large chunk of the country’s population has little or no access to resources to improve their financial literacy. A significant segment of the population is more comfortable with vernacular languages, adding to the complexity of this problem. Fintech start-ups providing financial literacy, preferable in regional languages, as a hook to get people to eventually invest, are the need of the hour.
There are several start-ups attempting to wade through these challenges and get Indians to save and invest. Some have taken the mutual fund route, with an aim to disrupt distribution and ensure mass-scale adoption.
Mutual funds: Baby steps to investing
Mutual funds are an attractive option for personal savings, especially for those going beyond bank deposits and venturing into equity markets. They offer an opportunity to invest in a diversified, professionally-managed basket of securities at a relatively low cost. Jargons aside, while mutual funds have existed for decades, they are still not easy investment options for the common man.
Complicated fund names, terms, fees and the even more complicated investment process, make it a difficult option for the masses. While this is the general perception of mutual funds, the industry seems to be headed in the right direction. The assets under management for mutual funds, beyond the top 15 cities, grew at a staggering rate of 38% in a year.
The #MutualFundsSahiHai campaign, launched to position it as an investment option for the masses, seems to be gaining significant mind-share. But can fintech start-ups build on this momentum and make mutual fund investing as easy as buying shoes on an e-commerce site?
Tackling challenges one step at a time
The challenges faced by fintech start-ups are multi-layered and intermingled. What will it take for fintech start-ups to get Indians addicted to saving digitally? Using technology to disrupt how financial services are delivered, offering digital financial literacy platforms in vernacular content and structuring investment options for the non-salaried segment may be the answers to some of our savings woes. Solving each of these uniquely Indian problems is a massive opportunity in itself. Are Indian fintech start-ups up for the challenge? The “lending obsessed” venture capital world is waiting for an answer.
With inputs from Arunima Rai, investment professional, Unitus Ventures.
Sneha Rajan is a senior associate at Unitus Ventures.