Digital Disruption underway

November 30, 2020

The world is changing at a rapid pace and with the explosion in digital technology initiated by mobile technology many business models are being torn apart and new models are emerging. At a recent Fintech Innovation convention in Bengaluru, Nandan Nilekani gave a glimpse of the coming disruption in financial technology which has already started changing the way business transactions happen in the banking and financial system.

He spoke about the some of the trends that are happening in India

  1. Financial services in India is going from low volume- high value-high cost to high volume-low value -low cost
  2. Electronic clearing has surpassed paper clearing and is growing at 50% a year.
  3. Costs of switching from service providers is coming down which will encourage churn within service providers. You can no longer take your customers for granted.
  4. Lending -From uniform lending rates to individual pricing of risk. Change will happen from lending against assets to lending against cashflow. This will reward businesses which develop efficient cashflows but are low on assets.
  5. Business – From fee income to data. Software companies sold software eg. Microsoft; but Google gave its software free and is making money on data and through google advertisements
  6. Public sector banks – Will suffer shrinking market share. From the current market share of over 70%, their market share is expected to shrink to 63% in the next 5-6 yeas. The market capitalisation of the entire PSU banking sector is near Rs. 4 lakhs crore while that of the private banking system is Rs. 17 lakhs crore.
  7. Cashless changes everything. The Indian economy is witnessing a spurt in digital payments and when it’s possible to digitally transfer funds from a particular account to an investment account faster, bank branches/ point of service become irrelevant. This also reduces the dependency on ATMs and hence the ATM network expansion will need to be relooked at due to this digital disruption.
  8. Interest rates will converge: There is currently a huge spread in the interest rates between the formal and the informal economy which will converge going ahead. This will ensure that the informal sector also gets formalised and becomes part of the main economy. Everyone benefits from this converge.
  9. Aadhar authentication: With more than a billion Aadhar accounts having being opened, the aadhar network can authenticate nearly 100 million transactions per day which is likely to reach a billion transactions in the coming years. So online authentication through aadhar is for real and it does away with a lot of paperwork which used to be the order of the day. This is probably the only network in the world which provides real time online authentication at a massive scale.

As an entrepreneur one needs to be aware of the changes which are unfolding in India as well as globally to gain the first mover advantage. It’s also possible that competition can replicate your business model within no time. The challenges are many and so are the opportunities. It’s very apt to quote Victor Kiam “Entrepreneurs are simply those who understand that there is little difference between obstacle and opportunity and are able to turn both to their advantage.”


Steven Fernandes

SEBI Registered Investment Advisor

Founder – Proficient Financial Planners