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.


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.

An Apple a day keeps Retailers away

Recently Walmart and other retailers announced that they would not be supporting Apple Pay. (for more details, read here) This is a trend which is likely to increase for multiple reasons.Firstly, retailers have realized that in many cases, they will have to shoulder the burden of the credit card fees, which will rise rapidly once Apple Pay gets prevalent. Financial Institutions may be all for Apple Pay , because it increases the average ticket size of credit card transactions. However Retailers are coming up with an alternative payment model(CurrentC) with no fees whatsoever.

Equally important, which may not be a concern for retailers and customers currently, is that Apple will have an overreaching presence in terms of data collection across retail channels and financial instruments. This means that there will be a lot of data about purchase patterns and individual retail habits, both of which could become part of a retail analytics package provided by Apple (though this would be different from their retail focus model). However whats important is how safe that data is. Apple has been pretty lacklustre when it comes to protecting users and data (multiple instances abound of people getting hacked or Apple being ridiculously easy to bypass through social engineering). Such an important collection of data would require Apple to invest heavily in security and data encryption, neither of which it seems to be doing currently.

Last but not the least, retailers need to keep in mind that Apple accounts for only a small percentage of the overall market share of smartphones. Thus it makes more sense for mid level and mass retailers to focus on platform agnostic solutions rather than stick to Apple Pay. Ideally their current approach of designing a mobile payment app, solves both the issue of payment fees and reduces data worries.

From a user perspective, Apple Pay has limited value if the number of retailers endorsing it are few in number. It may be a great user experience but what with most smaller outlets thinking twice about the associated costs and major chains endorsing CurrentC , it may end up on the lines of the early Mobile money products.