Kicking off the first edition of the ET Startup Awards Dialogues, PhonePe chief executive Sameer Nigam, Paytm president Madhur Deora, ZestMoney CEO Lizzie Chapman and RBL Bank executive director Rajeev Ahuja deliberate on key regulatory and business paradigms shaping India’s emerging fintech landscape, in a panel discussion moderated by
ET’s Samidha Sharma. Edited excerpts:
The pandemic has accelerated the adoption of digital banking and financial services, but also brought vulnerabilities in the systems to the fore. How can we continue scaling while ensuring robustness in infrastructure?
Nigam: The pandemic has created an artificial boost for digital payments and digital banking. I think what’s really happened is, as we are seeing an unprecedented amount of new consumers adopting new channels, systemic issues are propping up in terms of mass outages. Volumes on UPI are doubling at a massive pace, to 2 billion in a span of four months from May. This has enabled one of the fiercest competitive environments I’ve seen in any industry.
Deora: A few years ago, we were convinced that payments were going to come at the forefront of consumer interactions. We believe that the payments bank model for us has been very successful because it helped us solve transaction failures. Paytm Payments Bank has the lowest failure rate of any bank in the country right now. This kind of innovation is useful.
Ahuja: We started migrating many of our applications to cloud-based systems over the last one and a half years. If we hadn’t done that, I think the last six months would have been very, very problematic. All of us are adjusting to a new reality in a new market where the slope of the curve is very high.
Chapman: We’re seeing a lot of great product innovation, some really fantastic bank-tech partnerships coming up. But, really, we need a much bigger concerted effort to push that last-mile credit distribution in a completely digital way.
What are the key regulatory changes that are shaping up the landscape in this sector?
Nigam: I think the licensing regime is getting more relaxed, which means there’s more competition coming up, which in general is really awesome. I don’t have a problem on the capping side (30% volume on UPI) as much as I have a problem with the zero MDR (merchant discount rate). I don’t like regulation because it makes it non-viable for a new startup like a PhonePe or a Paytm of tomorrow to enter and get to the top.
Chapman: What you get from the RBI is a deep understanding of what worked and what didn’t work in other markets. You only have to look at the ANT Financial IPO to understand the challenges of ambiguity. If you leave grey areas in a credit regulatory regime, it eventually will hurt players.
Ahuja: Many aspects were not fully fleshed out (in the RBI committee recommendations on allowing corporate houses into banking). The supervisory function of the RBI needs to be strengthened, so that the risks emanating from the non-financial business do not seep into the financial business. But one recommendation from the working document is that the Indian banking industry has to be enlarged. I think if you take a 10-year view, India will need much more banking capacity, a lot more banking, and adequate capital as well.
Deora: I think building financial services at scale, companies should be regulated strongly, and not just for the sake of it. If you’re having a large impact, then building that in the regulated framework, so that the regulator has general comfort with what’s happening.
How can we solve frauds and cybersecurity risks?
Deora: The industry has to come together, and bring together layers of technology, financial and security literacy to rid this menace over the next 5-7 years.
Ahuja: Adverts and literacy campaigns are all good, but we need more outreach for education. You know, eight of ten complaints today are related to basic mis-sharing of financial info. On the lending side, any form of credit is better to do person-first. It is an evolving paradigm and far from perfect.
Chapman: For fraudsters, cash-based frauds are more lucrative. As soon as a body of product gets popular, hacked versions emerge. We believe that if we lose customer trust, it’ll be hard to get it back. We need banks, UPI and lenders to come together.
ZestMoney CEO Lizzie Chapman
Nigam: There are areas at a very urgent level where policies need to kick in. We are not the first industry to tackle this but the stakes are much higher now. Props to Paytm for their fight against the telco industry; we joined later, but it was bold. There is another problem specific to developing markets: law enforcement. A cybercrime racket where 200-300 people are wiping SIM cards of lakhs of customers, (but) it ultimately comes down to four jobless kids going to jail for six months. The punishment is not proportionate to crime.
How do you view the rising competition from BigTech in payments and banking? How do you feel they should be regulated in India?
Deora: India is the last big Internet market. Clearly, there’ll be competition and it will draw interest from all sorts of players — global giants, BigTech and Indian corporates. The key differentiator from foreign players is that Paytm is willing to comply and be regulated unlike some big tech players in the market.
Paytm president Madhur Deora
Nigam: Fintechs’ time is now. Hence there are products being created in India. UPI is being replicated around the world. Every market is thinking about regulations concurrently. It’s the perfect storm. The only force ever heard in technology advancement is politics. Every antitrust movement — be it Microsoft or ANT — was triggered when companies became more powerful than governments. That’s what is happening with the BigTechs now. I don’t think it’s India vs foreign; it so happens that most companies are foreign.
Chapman: I can reflect only from a credit perspective. It is different from payments in that the benefits of scale can be counter-productive. If you give too much money to too many people without sufficient risk assessment, you can lose money. Therefore, it cannot be monopolistic. An example is Chroma which is a Tata business, and yet Bajaj does 60% of its financing, not Tata Capital. It’s unlikely, therefore, these giants will become credit monsters. Credit is an idiosyncratic business.
Ahuja: From the perspective of BigTech vying for NUE (new umbrella entities) licences: there is an old saying — whenever there are licences given out in India, there is a line. We have to understand there is room for a few more players here. India is tremendously underserved and we need more innovation. NPCI (National Payments Corporation of India) has done a great job. We can do more — small business, cross-border supply chain, so many areas are untouched.
What are your expectations from 2021 in the fintech and digital banking ecosystem?
Nigam: Just because of some of the signals, I feel 2021 is when regulators open up the ways for tech to meet banking in a meaningful way for the first time.
I’ll make a random and bold prediction now. If the vaccine hits the population by summer, we will start seeing the decline of social media for good. I feel human beings have saturated their brains with useless information and hopefully we’ll revert to some more meaningful forms of communications. Social media will be dead and hopefully we’ll all go back to newspapers.
Chapman: This is going to be the year of what we call contextual credit — breaking down the credit and delivering it where it is needed the most, and delivering it through transactional services.
Deora: I’m sure everyone is looking at WhatsApp how they will build the product, enter the market. Our ambition is to scale in scope both on consumer Internet as well financial services, and become a super app.
Ahuja: I think what I would like to see one important startup, regardless of the sector, list itself in India. It’ll bring legitimacy to the efforts of so many people here. We’ll also start seeing the worlds of banks and fintech converge a bit more.
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