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Image Source He was the architect of Aadhaar – a biometric identification database of 1.3 Billion Indians that was put together in just over a couple of years. Nandan Nilekani, the co-founder of Infosys, is now back in the headlines discussing India’s “Account Aggregator”. An open banking-isque concept, Account Aggregators (AA) would consolidate financial information […]
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It’s an emotional week for Indians – for most of them atleast. It’s a week when India crashed out of the cricket world cup, that they were favourites to win. While I was looking for “India news” to cheer myself and my family up, I spotted an important trend worth talking about.
The rise of Blockchain in India doesn’t come as a surprise to me. It is the third most active innovation ecosystem in the world, next to the US and China. 2018 had $35 Billion of PE/VC investment in the country, and that has risen over the years at a rapid pace. However, with Blockchain, most of the initiatives have a public sector organisation driving it.
Most Indians would admit that public sector organisations in India are super dysfunctional. So, this is indeed a sign of new times. Perhaps, the state governments are taking inspiration from the centre’s initiatives with payments and other technology innovation. Let us look at the three key trends that we have identified across the states.
The map also identifies several other use cases like Organ transplants (as the black market in India is thriving), IP Protection and Cybersecurity. I am surprised that there is no line item for Self Sovereign Identity. India has the world’s largest citizens’ database in Aadhaar. Loading it up on a permissioned Blockchain, and providing citizens the ability to share their data in a controlled fashion would be a major building block.
But that initiative needs to come from the central government. It cannot be a state government driven agenda. Also, despite all these developments, the action from the central government around Blockchain initiatives is missing. The central government needs to intervene to standardise state government based initiatives across the country.
The other elephant in the room is the cryptocurrency ban in the country. I believe, this has pushed India behind its global competition by a few years when it comes to Blockchain innovation. The country has a buzzing startup ecosystem. The centre has taken several steps even in the most recent budget to support innovation.
But when it comes to cryptocurrency, the Reserve Bank of India has taken a very binary approach. I spoke to Lizzie Chapman (CEO of ZestMoney) a few weeks ago on lending fintechs in India. During that conversation, she mentioned that the Indian regulators have been quite collaborative in setting policies for the industry. That approach seems to have been lost somewhere with Cryptos.
The challenge that India has is that of talent. With lack of innovation happening in this space, Blockchain skills will start running out pretty soon. Yes, the big tech consulting firms looking to build Blockchain skills can do so. But that doesn’t necessarily translate to leadership within Blockchain innovation.
The other challenge is global competition. China and other top economies have allocated $ Billions towards emerging technologies such as AI, Quantum computing and Blockchain. China and US fight it out for the top place in the world’s patenting charts across these technologies. India is only in 6th position in the world for the number of Blockchain patents, and without private sector innovation, will soon risk being left behind.
In essence, the centre needs to wake up to this new era in the country. It’s time for leadership at the top, much like they did with payments. They should get initiatives kicked off on Blockchain and its standardisation across states. They should ensure that the regulations are clear for the crypto community.
With just those two steps, the country should be back on the map in a much bigger way with Blockchain. The mistake (crypto ban) could be turned into an opportunity. Onwards and Upwards!! Cheer up India!!
Arunkumar Krishnakumar is a Venture Capital investor at Green Shores Capital focusing on Inclusion and a podcast host.
I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.
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The post The Rise of India Blockchain, Cryptos lagging – Mistake or Opportunity? appeared first on Daily Fintech.
A few days ago, I had a LinkedIn discussion with Richard Turrin on QR Codes and their relevance in today’s go-cashless world. A few commentators on the post felt QR codes were the thing of the post, and I had a different view. I believe, in a world that’s getting digitised in a hurry, QR code is what bridges the digital world with brick and mortar.
QR Codes have gone through ups and downs since they were first created in 1994 by Japan’s automobile industry. QR – stood for “Quick Response”. However, those were days when mobile phones were clunky and the user journeys weren’t as friction-free as the ones we have these days.
When a customer scanned a QR code, an app or a website would be launched on the mobile using EDGE or GPRS. Once the website came up, users would have to use the clunky interface to fill in relevant details. I guess, that was enough to kill the QR code – or so many thought at that time.
QR Codes are more efficient than Barcodes because they are able to hold more information than Barcodes. This is because, QR codes have a two dimensional layout, where as with Barcodes it is just a one dimensional horizontal layout. And purely from a marketing perspective, QR Codes can be customised with a firm’s brand on it, unlike bar codes.
Utility of QR Codes seem better than Barcodes. But are they safe to store our information? For example, can I store my bank card details in a QR code and claim it is more secure? It certainly is – atleast in most scenarios.
Credit card thefts and frauds come in different shapes and forms. Even in a contactless payment mode, account details are still transmitted to the point of sale (PoS) device. So if the PoS device is hacked, hackers can get hold of the customer’s payment details. If at the point of sale, there is an issue with the internet, the customer experience could be poor.
The other hiccup is the case of lost devices, as QR codes do not check for user identity. This can however be overcome by asking for biometric information from the user at the time of registering. It could also be a selfie of the user at registration. At the point of sale, the device using QR codes, may have to use some ways of identifying the user.
Since QR codes rely on Wi-Fi networks, a hacker could get into the network and overlay fake QR codes. And then there is this issue of different variations of QR codes released by different vendors. There needs to be standards for ease of use from a customer’s stand point.
Despite some of these downsides, what makes QR codes special?
With better internet access and smartphone penetration, QR codes have become more common place in Asia. Smartphone penetration in China has risen to 63% and to 35% in Asia as a whole. In Latin America (Argentina), customers have taken to QR codes as it is a simple interface for the unbanked to perform digital transactions.
Pictures showing Alipay and WeChat QR codes in China and PayTM QR Codes in India have brought the concept back to life – in a big way. In India, PayTM are running campaigns to get millions of small and medium entreprises onto QR Codes. In Africa, firms like Dumapay are using QRCode to simplify the point of sale payments process. It has become easy for a roadside shop to accept payments using a QR code print out and no Point of Sale device.
Apart from payments, QR Codes can be used for several other interactions. They can be use for
China has taken the use of QR codes to a whole new level, as observed in the picture below. A quick google search on China and QR Codes reveal some really cool use of this tool.
As QR Codes are versatile, most top apps like Pinterest, Snapchat, Wechat and device manufacturers like Xiaomi, Motorola, Samsung, Huawei all have inbuilt QR Code readers.
But in the wrong hands, QR Codes can be used to lead a customer to a malicious page and get hacked in the process. There is definitely caution needed when using QR Codes.
It may be hard for the west to embrace QR Codes like Asia, Latin America (in some parts) and even Africa. But several firms across the world are creating their own customised QR Codes to stay relevant. QR Codes may not have succeeded in the past and they may not be the future either. But they most certainly have a place in the present.
Arunkumar Krishnakumar is a Venture Capital investor at Green Shores Capital focusing on Inclusion and a podcast host.
I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.
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2016 was a pivotal year in India’s digital economy. Demonetization was deemed a execution failure by many experts. However, it has triggered a digital payment boom in the country. In the last two years, transaction sizes in India have grown 50 times to $2 Trillion (143 Trillion INR). Some claim demonetization wasn’t the reason for the payment boom. If not causation, there is definite correlation between the two.
When we talk about Asia Fintech/Payments, China’s $40 Trillion market perhaps takes precedence over the other economies. However, if India continues to grow at the current pace, we may see yet another leap frogging Asian Fintech economy. I must confess, I was pretty excited when I first read about the 50X growth of the payments market.
Several global players have set up shop in India. Google, Amazon and Alibaba have all taken part in the payments boom in different ways. While these tech giants keep clashing, the Indian government has led the way in setting up the core infrastructural elements through the Unified Payments Interface (UPI). This is perhaps one of the few instances where a government has pioneered innovation at this scale.
I recently spoke to Elizabeth Chapman, CEO of ZestMoney – a fintech lender in India. As a Westerner, now running a startup based out of India, she is perhaps best suited to assess the developments there, especially in comparison to the west. There were two key developments she was very pleased about.
One, getting a digital identifier for 1.3 Billion people. Getting the Aadhaar programme up and running in under two years, was no mean feat. The data base has been linked to several governance aspects, like tax for example. The other development Liz was impressed about was the UPI, which has catalysed the payments boom.
Now coming back to India payments, Facebook is a key player. Whatsapp payments was tested with a limited audience in India. While the uptake was very good for the functionality, regulatory support was missing. The Reserve Bank of India (RBI) initially came up with a rule that customers’ payments data can’t be stored outside of India.
The Government of India also imposed a rule that any data classified as critical personal data cannot be stored outside of India. Most international technology firms have expressed their dissatisfaction with these data protection rules. One of the key reasons why Whatsapp Payments didn’t take off in India was because of this rule.
In an emerging markets context, consumers care less about data protection and privacy. As long as they get to be part of the banking system and the financial ladder, getting paid is all they care about. Which is why QR codes and PayTM wallets have become so commonplace on Indian roadside shops.
In a recent Linkedin conversation, one of the comments were about decentralised ways of storing assets in a wallet. It is a great concept in the west, and I love to talk about it till the cows come home. However, this was hyped as a great development in an emerging markets context. I don’t believe that is true.
Emerging markets consumers DO NOT care about decentralisation. I am not talking about the college graduate in south east Asia who is writing a Blockchain and has 10 different wallets to store cryptos.
I am talking about the lady who is selling the turmeric in the picture above. All she cares about is an easy way to get paid, so that she can cook dinner for her kids, and pay their school fees. They care about how inflation could take away all their wealth in Latin America and parts of Africa. Therefore, a solution that solves their day to day problems will see massive uptake.
We have already seen the rise of digital payments in India. With the removal of these data localization rules by RBI and the Government of India, there will be more explosive growth. With Facebook’s Libra (Sorry, couldn’t help mentioning it) around the corner, getting rid of the data localization rules, may not necessarily be a bad thing.
For Facebook, India is the biggest market – be it based on population or internet growth, or middle class income or financial inclusion. All the metrics point to India for Facebook.
For me, Financial Inclusion comes ahead of Data Protection. We thought Identity with Aadhaar – we didn’t think decentralisation. Let’s get them all on to the next generation payment network, get an economic identity created for them. Data protection, privacy and decentralisation will soon follow as awareness of the risks of the digital economy becomes more prevalent. For now, let us just help the lady selling the turmeric get paid.
Arunkumar Krishnakumar is a Venture Capital investor at Green Shores Capital focusing on Inclusion and a podcast host.
I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.
Subscribe by email to join Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research).
Fintech India saw a boost in 2018 with over 132 investments in startups, with a large proportion of them going into Lending and Insurance. The total investment was about $2 Billion as of Nov 2018. Sequioa, Omidyar, and Kalahari capital were the top investors in the sector.
The New Year opened with a bang as 11 Indian banks have now come together to form a Blockchain consortium to address the under served SME lending market.
The rise of India Fintech in comparison with the likes of China, is still dwarfed. However, the policy makers have provided ample support to the innovation ecosystem to thrive. Initiatives such as NPCI (National Payments Council of India), Digital India Programme have helped.
The Reserve Bank of India (RBI) has approved 11 fintech firms
who could now be payment banks that offer deposit, savings, and remittance services. Unified Payments Interface (UPI) has been the bedrock of the digital payments boom in the country.
You are probably thinking – too many TLAs (Three Letter Acronyms), but the impact of all these measures on digital payments and lending in the country has been significant.
Inspite of all this, the SME lending market in India has been particularly challenging. SMEs in the country relied on a complicated supply chain that was broken and lacked transparency. A Blockchain network would provide lenders with public credit data, that they could use for their underwriting decisions.
The Micro SME lending market is about 17.3% of the overall corporate lending market in India. And after the recent IL FS scam, the corporate lending market needed a boost to tap into the under served SME sector. The 11 banks involved in the Blockchain consortium would first reach out to supply chain vendors and get their records digitsed.
The consortium includes names like ICICI, AXIS and State Bank of India, who together make up a big proportion of the lending market. Getting them all on a single network along with digitised supply chain information, should allow them to make near real time lending decisions to Micro SMEs.
Arunkumar Krishnakumar is a Venture Capital investor at Green Shores Capital focusing on Inclusion and a podcast host.
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The Theme last week was about Online Insurance Marketplace.
The Theme this week, is about emerging markets. Emerging markets are about hopes, potentials and future growth. When a market grows huge enough, it could evolve into something better.
For more about the Front Page Weekly CXO Briefing, please click here.
Incumbents embracing InsurTech is a common theme in our posts. This time, it’s about customer engagement.
Story 1: Global reinsurance giant drops “emerging market” label for China
Extract, read more on Asia Insurance Review:
“Global reinsurer Swiss Re no longer places China as an emerging market, but instead views the country as a important strategic market, according to Mr John Chen, head of Reinsurance China and China country president for Swiss Re.”
What is an emerging market? According to Wiki, an emerging market is a country that has some characteristics of a developed market, but does not satisfy standards to be termed a developed market. And according to Insurance Information Institute, China’s insurance market by annual premiums has been top 2. It’s safe to say China was huge enough to graduate from the identity of emerging market.
Story 2: Allianz launches reinsurance business in India
Extract, read more on Verdict:
“Allianz Global Corporate & Specialty (AGCS), part of German insurance group Allianz, has set up reinsurance operations in India after securing regulatory nod.
The new reinsurance branch will be located in Mumbai. It will provide facultative, proportional, and non-proportional reinsurance solutions for property, liability, marine, financial lines, construction and engineering, as well as energy.”
India, despite of the biggest population, is more like an emerging market than China. According to IRDA, India’s premium income in 2017 is 98 million USD which can’t make top 10 worldwide. But the population is in place, therefore the potential.
Story 3: Allianz to Enter Vietnam Insurance Market via Joint Venture with IT Firm FPT Group
Extract, read more on Insurance Journal:
“Allianz announces its intention to enter the general insurance sector in Vietnam through a digital joint venture (JV) to be set up with the FPT Group – driving long-term success in the market and expanding Allianz’s footprint in Asia.
FPT Group, as the strategic technology partner, will support Allianz in the fast-growing Vietnamese insurance market to develop innovative digital insurance products and services to meet the protection needs of local customers.”
Vietnam is one of the most promising emerging market in the world as it is likely to become a next world factory after China. Insurance, as a financial infrastructure, is an attractive treat for top insurers like Allianz.
Since the developed markets have a sophisticated operating system for insurance. Gaining old policyholders’ attention can be intense. The emerging market is a great new battlefield for international insurance superpowers. I think we will see more and more top insurers tapping into emerging countries in the years ahead.
Zarc Gin is an analyst for Warp Speed Fintech, a Fintech, especially InsurTech-focused Venture Capital based in China.
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At the Singapore Fintech Festival last week, the Indian Prime Minister Narendra Modi, delivered an amazing key note speech with Financial Inclusion at its core. During the speech he touched upon several of his achievements, including Aadhaar. In the last 4 years, he claimed the banked population in India has gone up from 50% to almost most of the country.
I am a big fan of Modi. He has managed to achieve some major milestones with Aadhaar and meaningful steps for a country where 70% of its population still earns from agriculture. However, in times of natural disasters, in a country dealing with 1.3 Billion people, one ambitious and dedicated leader can only do so much.
Earlier this month, my home state in India, and some of the neighbouring states were hit badly by a storm named Gaja. Gaja in the regional tongue refers to Elephant. In my state, the most hit districts were the most fertile parts, that are called the delta region (of the river Cauvery). On top of human casualties (33) and about 75,000 being relocated, the storm hurt farmers massively.
Image Source – Whatsapp
Many farmers in the delta region had moved from cultivating paddy to coconuts as paddy is considered water intensive. This farming tactic has heavily hurt them, as coconut trees took 10-15 years to grow, and the damage caused by the storm was to their decade of hard work – which were not insured.
I come from that part of the world, and had the privilege of going to school and University with many, whose parents were farmers. One of them sent me texts post the storm, this is the summary.
Tall coconut trees were just twisted and broken right in the middle. Wind speed seem to have been around 100 kmph. Interior delta regions don’t get exposed to this level of winds. Usually Only the coastline takes the brunt.
People weren’t prepared and seem to have been caught by surprise. The last time something similar happened in the interior areas was in early 50s. But back then this area primarily had paddy cultivation.
Years of effort in tending to them (coconut trees), watering them.. at least for us it was just additional income. For many farmers we know, the 10k or 15k INR, they get out of these coconut farms every month is their only income.
I understand, this is not a weather news channel – so back to crop insurance and Blockchain.
So what has been done by the Modi government for Crop insurance?
In January 2016, Prime Minister Narendra Modi launched a revamped crop insurance scheme, his government’s flagship scheme for farmers, the Pradhan Mantri Fasal Bima Yojana (PMFBY).
How does the insurance work?
The premium is subsidized for farmers who own less than two hectares of land. Insurance coverage is for two aspects,
The claim is calculated on the basis of crop cutting experiments carried out by agricultural departments of respective states. Any shortfall in yield compared to past 5 years average yield is compensated. In essence – a very manual process.
The insurance is mandatory for farmers who take loan for their needs. For the rest of the farmers it is not.
What has happened to the Crop insurance industry since then?
These were the key findings,
Points one and two clearly highlight where the monies are going – insurance providers are having the last laugh – at the cost of the farmers.
Also, If one season fails, and farmers didn’t get their claim money in time for the next season, they don’t have funds to buy seeds for the next season. So timing of the release of claim money is critical.
There are several other issues with the current process that include lack of transparency, errors in setting yield thresholds, poor awareness amongst farmers, complex criteria and documentation.
What could we do in future?
Well, we seem to have got a silver bullet in Blockchain. I have written about how Blockchain can help crop insurance before, but will revisit some of those points again. In an Indian context, this is how I see it working.
This would still need state/crop level data on yield thresholds, which is apparently decided by the local authorities post every season. But apart from that data point, most other information can be automated. The customer (the farmer) should have a frictionless experience.
They don’t have to understand insurance, they just need to know they are protected and taken care of when disaster strikes. Blockchain can create that trust in the process.
Once the confidence in the system comes back, number of farmers enrolling for the scheme will easily go up.
During the Singapore Fintech festival, Mr.Modi mentioned how Blockchain was a hot trend amidst VCs. If he had advisors for his financial policies, who were half as good as his PR team that wrote his speeches, the nation should soon see some relief from its dysfunctional financial services.
Arunkumar Krishnakumar is a Venture Capital investor at Green Shores Capital focusing on Inclusion and a podcast host.
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Arunkumar Krishnakumar is a VC investor focusing on Inclusion, a writer and a podcast host.
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The free money era is over. Atleast until the next recession. Its time India and its financial markets woke up to that. If they didn’t before, atleast the IL&FS crisis would have been a shock to the system. Infrastructure Leasing and Financial Services (IL&FS) are one of the top corporate debt issuers, and have 3% of the market.
Let’s first look at the wider market factors before delving into the issue and its implications for Fintech.
Interest rates rise across the world has become the norm, and India is not alone. The Reserve Bank of India have already raised interest rates twice since June, and there is an expectation that by the time this article gets published, there might be another rate hike.
Rupee has taken a tumble this year. A 13% fall from the start of the year with a record low of 73.8188 recorded this week against the USD, doesn’t help. Rising oil prices is another factor. With all these macro factors stacking up, its hard for corporate borrowers, who have perhaps got a bit spoilt with the free money decade we have had since 2008.
Now, coming to the IL&FS crisis, these are the key points:
But the bigger worry, and probably the relevance for Fintechs is the failure of credit agencies that saw IL&FS as a safehouse. India Ratings and Research (A Fitch subsidiary) corrected their ratings on IL&FS from AAA to D after the defaults happened. Pointless.
There were so many warning signs. The debt size of IL&FS was $12.6 Billion. Infrastructure loans were notorious for non performance for the past three decades. And these infrastructure projects have been largely funded by short term debts. DEJA VU.
Its a failure in governance and is just a repeat of what we saw 10 years ago. If only the credit agencies had better technology to perform better analytics on firm, market and alternate data, this crisis could have been addressed differently.
What Lehman Brothers episode did to the Western world in the form of Fintech, the IL&FS saga could do to India.
My view is that the ripple this will create in the non banking financial services in India will open up new Regtech and Fintech opportunities. Some of the hyped up Fintech players in the lending space who are poorly capitalised and have bad credit models will disappear, and the fittest will survive. Better credit engines and underwriting mechanisms well supported by data analytics covering a bigger set of data to perform real time diagnosis would start to emerge.
I hope IL&FS is a blessing in disguise for Fintech in India. Once the dust settles, Fintechs should make the most of the inefficiencies in the debt markets.
Arunkumar Krishnakumar is a VC investor focusing on Inclusion, a writer and a speaker.
Get fresh daily insights from an amazing team of Fintech thought leaders around the world. Ride the Fintech wave by reading us daily in your email.