You may have heard the popular narrative on how Starbucks has more cash reserves than some banks. You may also know that Amazon and Uber process over a million transactions each, every day.
Due to their proximity to consumer money, marketplaces are also close to opportunities. And technology is what turns that opportunity into more money. Amazon India now offers loans and payments, Starbucks has cards, and Uber now offers financial services to its drivers.
Open fundingand integrated financing are the two core technologies that allow every business to become a fintech company. Both technologies are relatively new in the global fintech timeline, and even newer in the Indian context.
I’ve spent over a decade observing this interplay of finance and technology, and it’s finally time for every business to become a fintech company.
My name is Kumar Srivatsan and I am the founder and CEO of Fego and a member of the Technology Service Provider (TSP) Steering Committee at Sahamati. Our team is building some of the technology that will enable every business in India to be a fintech company and bring powerful financial products and services closer to Indian consumers.
In this article, I will explain why it makes sense for digital marketplaces to be the first to become a fintech company.
Why is this change happening now – Open finance
Why aren’t all companies already fintech? Because there was no infrastructure available until recently. This changed with the Account Aggregator (AA) framework in India, which enables consent-based, digital and real-time access to a consumer’s financial data. AA is the foundation on which open finance will be built in India.
I will dwell on the details, there are too many. The image below is from the official Sahamati website and explains what AA unlocks technically.
Sharing Data with India Account Aggregation Framework [source]
Getting real-time access to consumer transaction data seems like a simple idea, but it’s been inaccessible and unreal for centuries. AA changes that – It allows businesses to request digital consent from consumers and, upon approval, access financial profiles.
Essentially, your consent to access your financial data for meaningful purposes will enable any entity to create powerful financial products and services. From easier onboarding for bank accounts and accessible credit, to engaging financial experiences and personalized recommendations – AA enables it all.
The image below is a very limited view of companies and initiatives that AA has already activated, I can bet you are somehow associated with at least a few of them:
Account Aggregator Framework Participants [source]
How will this change spread in the market – Integrated financing
India’s open finance adoption curve is a hockey stick – Massive budgets and investments have been earmarked for open finance experiments by companies and funds of all sizes.
But the barrier to entry exists – from knowing the framework to building solutions on top, and of course the compliance overhead. Given enough time, say a decade, almost any business would be able to build a fintech solution on their own.
Is there a way for the market, which is hungry to experiment with open finance, to lower the barrier and gain faster access to opportunity? Yes, with integrated finance.
In-vehicle technology is nothing new to us, it’s the exact same technology that makes our washing machines and ovens smarter. Integrate a programmed chip into an otherwise mechanical machine and make it interactive.
In the same way, embed a crowdfunding solution into an otherwise non-fintech business and make it talk to consumers about money. The idea behind integrated finance is to bundle competence, engineering, and compliance overhead into a single solution and connect it to a potential opportunity. Here’s an example of how Fego integrates everything needed to create engaging personal finance experiences into an API or SDK for developers to plug into their app and launch a fintech initiative.
Buy it now and pay later at checkout, your favorite food delivery app’s prepaid wallet, are all a manifestation of integrated finance.
Marketplaces – Already close to many wallets
Marketplaces give thought to at least two stakeholders in money – the buyer and the seller. It is a source of income for one and responsible for an expense on the bank statement for the other. This fact alone provides a ton of opportunities for marketplaces to experiment with integrated finance. Here’s a limited view of what the Opportunity Map looks like:
Here are some strong pillars to support the business case for marketplaces:
- Improvements in key business areas: Payments exist on both sides of the market, adding credit lines will directly impact key business areas such as inventory, AOV, transaction frequency/volume, etc.
- Stronger matchmaking, higher conversions: Real-time intelligence on each side will improve matchmaking algorithms in a marketplace to produce significantly higher conversions.
- New revenue, low friction: With integrated financing significantly reducing barriers to entry and the overall cost of deployment, revenues (and therefore return on investment) from new products perfectly complement market revenues.
- New product, pre-built distribution: Successful marketplaces have a solid distribution already built. Financial products are a great way to leverage existing reach for high-value, long-term engagements with consumers.
- Retention strategy: Marketplaces, especially in India, are struggling with repeat purchases. New products such as personal finance tools, etc. are a better way than unsustainable discounts and incentives to increase retention and build market loyalty.
Amazon, Swiggy, and Zomato, along with other big players, are already moving closer to consumer finance with in-app payment, credit, and personal finance features.
With technology also making it easier for everyone else in the market, it will be interesting to see which markets take the first step and how open finance and its applications react with the entropy of the Indian market.