Here's why India's fintech sector could boom

Here’s why India’s fintech sector could boom

India’s prime minister, Narendra Modi, announced on Tuesday that existing R500 ($9.93) and R1,000 ($19.86) banknotes would no longer be legal tender from November 9, with airports, railway stations, and hospitals only accepting them until November 11.
The government made the surprise move in a bid to combat “black money,” or currency that is unaccounted for, and counterfeit currency. Consumers have until December 30 to exchange their R500 notes for new editions with enhanced security features, while limited numbers of new R2,000 ($39.70) notes have been issued. A replacement R1,000 note will be introduced in “due course,” according to a government official.
Here’s how the government’s move could benefit the fintech sector:
Limited availability of cash will drive people to digital alternatives. The government is restricting the number of notes a consumer can exchange to R4,000 ($79.40). There are also restrictions on ATM withdrawals, and huge queues have already formed outside of post offices and banks, according to the BBC. This means people may not be able to retrieve the new cash they need before official businesses stop accepting the old bills, which could force them to turn to other methods of payments they have not previously considered, including mobile wallets and P2P solutions.
The unbanked may now have no other options except digital payments. Many segments in India are unbanked, especially drivers, small grocery store (kirana) owners, small retail shop owners, and travel agent businesses, according to Forbes. With a suddenly diminished availability of cash, these segments will be compelled to find alternatives — and many will likely turn to mobile wallets as they are typically easier to acquire than bank accounts with debit cards.
More digital transactions will generate more customer data. This will allow online lending platforms, alt lenders, and other fintechs to make better assessments of potential borrowers’ creditworthiness. As a consequence, availability of credit from these fintechs may increase.
A boost to the fintech sector could help another government policy succeed. The Indian government has been promoting digital finance for some time. Earlier this year, the Reserve Bank of India (RBI) launched United Payments Interface (UPI), a tool that allows users to access multiple bank accounts and merchant payments within a single mobile app. The government is keen on a transition to a cashless economy because it could be cheaper to run, help reduce the underbanked population, and reduce financial crime as electronic payments are easier to track. Growth of the fintech industry, and increased use of fintech products, will only further drive the move toward a cashless economy.
We’ve entered the most profound era of change for financial services companies since the 1970s brought us index mutual funds, discount brokers and ATMs.
No firm is immune from the coming disruption and every company must have a strategy to harness the powerful advantages of the new fintech revolution.
The battle already underway will create surprising winners and stunned losers among some of the most powerful names in the financial world: The most contentious conflicts (and partnerships) will be between startups that are completely reengineering decades-old practices, traditional power players who are furiously trying to adapt with their own innovations, and total disruption of established technology & processes:
Traditional Retail Banks vs. Online-Only Banks: Traditional retail banks provide a valuable service, but online-only banks can offer many of the same services with higher rates and lower fees
Traditional Lenders vs. Peer-to-Peer Marketplaces: P2P lending marketplaces are growing much faster than traditional lenders—only time will tell if the banks strategy of creating their own small loan networks will be successful
Traditional Asset Managers vs. Robo-Advisors: Robo-advisors like Betterment offer lower fees, lower minimums and solid returns to investors, but the much larger traditional asset managers are creating their own robo-products while providing the kind of handholding that high net worth clients are willing to pay handsomely for.
As you can see, this very fluid environment is creating winners and losers before your eyes…and it’s also creating the potential for new cost savings or growth opportunities for both you and your company.