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How Are the Fintech Companies Evolving In India: An Interview with Madhusudanan R.

Founder and CEO, Transfin.
Oct 26, 2020 4:23 AM 3 min read

We speak with Madhusudanan R., Co-founder of YAP, an API platform for fintech companies while he reflects on the rise of UPI, its role in creating new opportunities, while stifling innovation and competition in India’s payments ecosystem. Mr. Madhusudanan strongly believes in the power of the data and digital to disrupt lending for the future, especially in untouched niches like at point of sale to consumers or receivables oriented borrowing for SMEs. 


Q. What are the biggest opportunities and challenges you see within the Indian fintech market?

Mr. Madhusudanan:

India is going through a rapid evolution in the fintech sector. Over the last few years, we have seen consolidation of various payments businesses largely led by standardisation of product offerings. UPI, for example, has standardised the payment methods but led to few players controlling over 90% of businesses. Likewise, we have a few other areas where public infrastructure will lead to newer players coming in, creating new opportunities, as well as challenges in terms of stifling innovation as consolidation in the hands of a few, will lead to no room for smaller players. But the opportunities around many of the other areas that fintech can serve, far outweigh the challenges, and we are in the golden era of Indian fintech ecosystem over the next decade or so.


Q. How would you characterise the regulatory environment for online lending and payments? Would you say that UPI is challenging them by disrupting payment economics?  How far have they come and how can they improve things? 

Mr. Madhusudanan: 

All types of lending are currently guided by the regulatory framework created by either the banks or by NBFCs. What has changed is the approach to making this process fully digital and online. 

There is significant opportunity in the consumer space around consumption-based lending at the point of sale,  lending for SME based on GST, invoice discounting etc. We are still scratching the surface as far as digital lending is concerned. There is immense potential for this to be ramped up, given the ensuing roll out of the account-aggregator framework. 

Payments have evolved to a stage of being treated as a utility, considering there is little or no money to be made on UPI-based payments. This will force incumbents to offer other services like book-keeping, lending etc. To remain afloat and monetise the user base. But, payments alone will not make money. 


Q. Global tech giants Google, Facebook, and Amazon are entering the Indian fintech industry, especially in the payment and financial product segments. How do you see their models evolve?

Mr. Madhusudanan:

As I mentioned earlier, standardisation will lead to consolidation of business in the hands of a few. The large companies with a significant customer base or distribution will be able to offer better products, due to their ability to be embedded in the lives of the customer. Their CAC or Customer Acquisition Costs will be almost zero and will have payments as one of the products rendered. Embedded financial services are here to stay and increasing numbers of large distribution companies will lead the race.


Q. How can traditional banking institutions navigate the disruption that is expected to ensue? 

Mr. Madhusudanan:

Thankfully in the Indian banking sector, the regulators have ensured that Banks continue to hold the customer balances and therefore, all innovation will revolve around the banks and will be complementary to the banks by design. There could be few banks that will win this race, but that is how banks have traditionally competed with each other and won. Disruption in the short run will lead to a few banks integrating the disruptors into their own workforce. 


Q. What is the next big technological trend you are watching closely within the Indian fintech industry? 

Mr. Madhusudanan: 

The evolution of the data play! Given that DEPA (Data Empowerment and Protection Architecture) and the ensuing Data Protection Act will pave the way for data-led products and services, this will lead to a paradigm shift in the delivery of financial services. Much like the GDPR (General Data Protection Regulation) in Europe, a strong data protection law will be the foundation on which Indian fintech ecosystem will thrive over the next few decades. 


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