Reforming Indian business and politics

It’s been a week since the concept of demonetization has been implemented. While there may be much debate about the viability and implementation of the concept, it’s here to stay. But maybe we should look at what it implies for both financial intermediaries and for businesses, at large.

Banking Sector Reforms 

It’s a great opportunity for the likes of banks and fin-tech companies in the payment space. While banks have lost out in the initial round to the likes of PayTM, Freecharge, Mobikwik and others, they have a great opportunity to drive adoption of mobile banking applications, UPI infrastructure and RuPay cards. In fact, this is a glorious chance for the government to create a push for deployment of UPI and RuPay among the financially underserved. With Jan Dhan Yojana accounts getting used and a large number of the masses having to access banks/ postal bank, it’s a chance to drive financial inclusion policies and connect it to building a money multiplying effect.

From the PSU and private bank’s perspective, this is also a great way to re-connect with the younger generation who might use an ATM when forced to, but stick with the likes of PayTM and Uber. By providing viable options and creating an ecosystem of local vendors (in the dining , travel and grocery space), banks could leverage their knowledge of the local vendors and businesses to provide greater value to both established customers and add new customers in the millennial segment. This can work much better than the Social Media and Hashtag banking efforts tried in the past to get people to connect with the bank.

Local Business Reforms

Apart from the obvious threat to jewelers, real estate developers and small time contractors who operate on a cash only basis, the policy is a huge threat to e-commerce companies and lifestyle brands. With COD being given a death strike, it’s going to be tough for e-commerce companies to push up revenues in the next quarter. However it’s a good time for e-commerce firms and retail brands to stop discounts and focus on customer experience and build lifetime customer value.

It’s a great opportunity for local vendors, be it dining / grocery/ service providers to break the hegemony of the aggregators such as Swiggy/ HouseJoy/ Big Basket. By partnering with local banks and other B2B payment players, local vendors can provide a personalized touch with a cashless experience for customers.

Political Funding Reform

With political parties losing access to black money for rallies, helicopter rides and pompous posturing, this is a great opportunity for India to establish protocols for donations to political parties. Either  on the lines of PACs that are created in USA or having clear defined rules for political donations and funding. By creating transparency in the political funding process, it can be easier for us to see how the donated money is utilized.

The next step could be empowering the Lokayukta to investigate not just politicians and public officials but also how public projects are being implemented. This can be a check on impromptu projects such as the Bangalore flyover which came up alarmingly close to a set of elections and had no logic for a two fold increase in the funds allotted.

 

The struggle to stay relevant

It’s been a veritable bloodbath this year. Cisco is firing around 7% of their workforce and Microsoft , HP and Intel have also announced that they will be streamlining their workforce. In India, IT behemoths like Wipro, Infosys, IBM and others have also announced that they are looking to automate many roles and make middle and lower level employees redundant.

While there is a lot of outrage amongst employees about how it is unfair to remove jobs or fire people, they fail to understand that this is just part of the usual technological upgradation cycle. Be it the introduction of spinning jennies which disrupted the lives of cotton weavers, to industrial automation which led to the firing of thousands of factory and foundry workers, every technological innovation has an effect on employment.

To stay ahead of the bloodbath which will happen in the Indian IT and industrial sectors, it’s important we turn towards new skills, soft or technical. Students should move away from joining engineering and look at focusing at UI/UX and design courses. They could also look at understanding how the application of automation and artificial intelligence/ data science is going to change existing roles.

For example, if we look at the traditional role of a business analyst in many organisations, it requires understanding an industry and then analyzing and representing data to identify insights and drive business decisions. However this can also be accomplished by artificial intelligence and IBM Watson and Wipro Holmes are already attempting the same. So it’s essential we understand what are the drawbacks of AI / data science so we can build up expertise which will be relevant and complementary for organisations.

Another key area for India to focus should be hardware design and manufacturing. While the Make in India initiative has just started, it should be a priority to convince major semi conductor companies to start R&D and manufacturing units in India. States should look at not just providing land and tax benefits but also pair these companies with educational institutions ( IIMS / IITS/ IISERs) to increase the no of research publications from both students and researchers.

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If we were to compare China and India, we lose not just in terms of access to organisations like Intel/ Samsung but also in terms of research conducted. Similarly if we are to take the lead in research in AI/ Data science/ Deep learning, it will be a great opportunity to create a rival ecosystem to Palo Alto, which will in turn drive investments and create opportunities for Indians, whether it be in terms of jobs or in terms of career growth.

 

Falling to bits

In the last few months, I have come to read some interesting reads on Bitcoin and Ethereum. On one side, you are seeing more investments in fintech startups in India, both in terms of wallets, p2p lending and financial technology firms, while on the other front, both bitcoin and other financial innovations seem to be facing challenges, whether it be from a security perspective or from adoption in emerging marketings.

While I have spoken about this in the past, I keep wondering whether this leapfrogging of regular financial systems to pure play digital approaches can return to bite us in the long term. While banks and new age companies speak glowingly about new technology(be it blockchains or mobile wallets), few seem to want to acknowledge the fundamental issues in emerging markets. Equally importantly, a lack of regulations opens up customers to exploitation.

Firstly, i foresee poor liquidity for bitcoin and other virtual currencies in India. Even if we were to have server farms churning out bitcoins, it’s not going to drive a proper exchange , which allows people to perform transactions without fear of facing delays in payment/ withdrawal.

Secondly, how do we ensure this is not exploited by hawala networks/ criminal networks and politicians who might consider this a great way to whitewash money collected through illegitimate means?

While the RBI has brought in regulations for mobile wallets and p2p lending companies, I wonder if these regulations are aimed more at helping established institutions to catch up with startups, then helping customers. Rather than focusing on educating customers about the benefits and pitfalls of fin tech, the RBI and the GoI seems to be focused on helping banks and financial institutions reach parity.

We have seen PayTM extend loans to individuals and tie up with retail and offline institutions. Insurance companies are looking at pay as you want policies, modeled on the sachet approach of FMCG companies. While these incremental steps are useful, there is yet limited focus on extending financial access to rural and semi urban regions. Maybe instead of focusing on the urban middle class, it may make sense for some of these fintech companies to understand how the other half of India banks.

Remittances, household purchases and savings need to be the focus on new age fintech startups. Be they in cryptocurrency/ lending / payments, the key is to understand how we can tap into these and provide a secure yet intuitive setup. For example, WeChat enables Chinese p2p lending while providing a secure infrastructure to enable transparency and ease of access for liquidity. Maybe India should consider something similar using WhatsApp (but without Facebook forcing their version of free internet on people).

It’s come out that rural folks consider access to Internet using data packs as importance as certain neccessities. Maybe it’s time India enshrines this right to Internet as a fundamental right, ensuring that it becomes the base of an efficient and transparent digital currency initiative.

 

The need for CSR in unicorn startups

In the last few years, a lot of “unicorn” startups have sprung up. With insane valuations and a lot of PR around them, they seem to be the pathway to a new future where we will have self driven cars, intelligent homes and mobile phones which can probably do our work better than us. But in the middle of all this, I see something lacking – a dedication to improving the lives of those not so fortunate.

While certain occasions (natural disasters like the Chennai floods or acts of terrorism like the Paris attacks) do seem to bring out the best in these brilliant companies, there is no systematic approach to employing the skills of these startups for a greater good. While each startup claims to want to change the world, none seem to have a small program to do pro bono work which will change a small neighbourhood or a small town.

There are multiple ways in which startups can help the disadvantaged or the unemployed. For example, say startups in the food space could donate excess food at restaurants to food clinics or homeless shelters. Alternatively startups can look at vocational training for orphans / underprivileged children. In fact startups could even look at donating a lot of the old technical equipment/ excess stationary to schools and vocational institutes.

The possibilities are endless. It takes but some time for each startup to possible come up with ideas on how they can use their operational expertise to come up with a part of a solution to a larger problem.

Sidekicks galore

The origin of the word sidekick comes from old pickpocket slang in London from the 19th century. The kick was the nickname for the front part of the trousers and grabbing someone’s wallet from the side pocket on the front was considered a tough task. Hence the side-kick was the gentleman’s safest bet.

In recent times, it seems like most startups , specially those in the hyperlocal and food space, have decided that their sidekick is the digital wallet. Most companies are spending huge amounts of money, through discounts, freebies , cashback and other initiatives to get people to register on their digital wallets and store money. While I understand the logic behind converting people to their own wallet (greater control over transactions, ability to track usage and transaction flow , money earning interest) , I feel that that many brands are making a mistake by spending an effort on their own wallet.

Currently we have a couple of major players in the digital wallet space(PayTM, Mobikwik, PayU, Airtel Money) and we can also consider Ola Money and Flipkart’s former initiative. It makes sense for newer players to either tie up with one of them(PayTM/Mobikwik/Ola Money) or ask a Visa / Mastercard to provide an alternative. Managing a wallet comes with it’s own set of hassles and regulations and the net gains from getting some players on your wallet is lost by the effort put in.More importantly at some stage, we are going to reach the same point faced by credit card companies some years back. As more and more brands and companies started issuing their own loyalty cards, people were worried about which cards to keep and which to give up. Thus at the end of the day, only a few top loyalty/credit cards were retained while a large number were used once or twice and then given up.

From a customer standpoint, there are 3 problems –

a) People are going to only stick with a wallet as long as they are getting cashback/discounts/ benefits. Once the wallet is no longer able to provide those, they may give it up or if it becomes the major player they will keep using it when necessary

b) People are going to wonder what is going to happen with their money if they are not using a wallet or if the brand discontinues the wallet. Will the money be returned directly to the account or will it be given in form of credits or lost?

c) While digital /mobile wallets do make it easier for the customer, why will a shop owner pay the credit card company/payment gateway and the wallet company for a transaction? Thus overtime, the customer will see lesser traction from outlets and vendors which defeats the idea of a cashless economy

While I am not against the concept of a cashless economy and support digital wallets, I think the time is apt for banking institutions to create a consortium which will provide a single wallet standard. Banks can create apps/ methods for using the wallet standard while ensuring interoperability. If the banks provide the product, it can be an additional payment mechanism for vendors so they do not end up getting hit twice while customers need not have to share data with multiple parties.

Green Cars

Ford has just jumped onto the Tesla bandwagon by opening up it’s patents for all companies to use. I don’t think a Mahindra could follow suit, considering all the money they have invested and someone like a Toyota would be skeptical of such an initiative.

The important question, however, is not whether the patents are free but whether electric cars are truly good for the environment. Currently , electric cars are more a hobby horse of the truly rich and not something for the Aam Aadmi. There remains much for improvement in terms of mileage, reliability and durability. That said, they do provide a useful alternative to existing fossil fuel cars.

However, we ignore a key factor while lauding the lack of pollution from the electric car industry. Though the electric cars themselves may not pollute, we fail to account for the pollution created while generating the electricity for these cars. In India, summer months are taxing for the power network as Air Conditioning and Fridge usage rises. Add to that, usage of electricity for charging Electric cars and the strain on the network may rise manyfold. Indian electric plants generate power through burning fossil fuels/ oil. We have not tapped into natural resources or nuclear energy to an extent where they can replace fossil fuel plants.

In such a scenario, not only are we raising the cost of power , thus making electric cars even more unviable for the ordinary customer but we are also polluting our atmosphere more by burning the very fossil fuels we wish to avoid using in our cars.

The key is for the Government to come up with a clear strategy and policy for electric car manufacturers. Not only are they to provide alternative sources of power generation to ease the load on regular power networks , but also a clear direction for car manufacturers to look in other alternatives such as new fuels or mechanisms to reduce vehicular traffic and consolidate into public transport. This would also help improve productivity and standard of living for the general masses.

Right to broadband

There has been a lot of debate about Net Neutrality in recent times. We have telcos fighting for their requirements and we have a lot of ordinary folks explaining why it’s important we raise our voice to TRAI to help enforce Net Neutrality.
I think the fundamental root problem is in the Internet/Broadband being treated as a commodity / product. In the modern world, access to the internet is essential not just for work but also for personal requirements. Over time, many standard and essential requirements are being fulfilled over the internet and through private organizations using the internet, be it delivery of groceries and retail products to researching new cures for diseases and ensuring healthcare solutions.
The question for us to ask is not just about Net Neutrality which is about ensuring David doesn’t get crushed by the Goliaths. It’s about ensuring that the Internet is as easily accessible to everyone as say, Electricity, Water, Air and Public transport. One might say, nationalization is not the solution but might be a hindrance. But I am not speaking of Nationalization, as much as marking Internet as an essential utility.
There are 3 major benefits to titling the Internet as a utility –
a) Laws & Rules –

We will have much clearer laws and rules governing usage and distribution. Currently we have exceptional Internet coverage in urban areas and limited /poor coverage in rural areas. Further, private organizations who do distribute the internet have poor systems in place to cover outrages and technical issues. There are also frequent complaints on customer forums on how many of these Internet/Broadband organizations have cheated customers

b) Pricing and Speeds of Internet/ Broadband will improve considerable

Though 3G pricing is fairly competitive, as compared to prices abroad, the regular broadband and internet pricing in India is horrifying as compared to prices and speeds abroad. We seem to consider 50 MB/second as a marvellous speed when countries such as Vietnam and South Korea have speeds 10 times that easily available at much better rates. Prior to fighting the 3G battle, we must ensure wired broadband improves after which we need to improve the infrastructure for 3G . Infrastructure improvement will also be easier if Internet is treated as a utility, rather than a luxury. Public planning can incorporate Internet infrastructure while designing urban growth and redevelopment plans.

c) Making it easier for startups and small businesses –

One of the chief points about the Net Neutrality battle is how an Amazon/Google will be able to lord it over small companies once there are fees attached. It’s a valid point but currently the broadband situation, though tolerable in urban regions has much scope for improvement. With Internet being termed as a utility, access to the internet across India will improve, thus giving many people a chance to start their own businesses and drive the economy further. Rather than a urban centred growth story, this can actually change how India as a economy grows and thrives.