The Indian financial services market is among the fastest growing ones. The fintech sector in India is the third largest after the US and China. BLinC Insights estimates that fintech in this country is growing at 22% annually and can reach nearly $70bn by the end of 2025 (as compared to $31bn in 2021). BCG predicts that India's digital payments market will more than triple from $3 trillion to $10 trillion by 2026.
The financial services market in India has huge potential since about 15% of the local population remains unbanked. In comparison, in the United States, this share is 6%. What do young fintech startups need to know to avoid unpleasant surprises after entering this promising market? Having launched an online lending platform in India, Viva Money shares its insights.
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Lesson 1 - Don’t underestimate the self-employed users
India can boast of a great number of self-employed citizens. The Indian structure of the labour force is different from that in Western countries. The proportion of hired hands is significantly lower than the proportion of those who are self-employed. In the country as a whole, the ratio is three to one in favour of the self-employed; in urban areas the ratio is approximately one to one. There are no such high levels of self-employment in Western labour markets. The market potential is huge as this category of citizens is considered unserved in terms of financial services. There is less competition in the market for these clients, but they are solvent and pay their loans well. This should be taken into account when building a product targeting strategy.
Lesson 2 - Get ready for fraud attacks
People of India are pretty tech-savvy. Unfortunately, this is also true for scammers. As soon as we launched the project, we faced an avalanche of frauds, even though we didn't advertise much. Scammers started attacking us, which we successfully hunted down. We noticed the wide variety of fraud and the fact that the scammers are technically savvy and have different databases. For example, compared to Russia, the fraud rate of the 30+ days overdue indebtedness after the first three payments is comparable to similar players in Russia, but fraudsters in India are more technically-savvy.
Lesson 3 - Lost in translation: English alone is not enough
The target audience we work with, i.e. those with an average income of Rs 25-40,000 per month, often do not speak English that well. So English alone is not enough to work in the lower middle class segment. To communicate with the customer, we often engage a specialist who talks with them in the local language. This problem does not exist in Premium Banking where clients have income of 200K+. In 99% of these cases, English is enough to communicate with the client.
Lesson 4 - Financial literacy: There are points of growth
We face the fact that the level of financial literacy leaves much to be desired. Clients tend to miss the deadlines of a grace period, they also don't always have an understanding of revolving products. They take out lines of credit immediately and then pay on an annuity scheme. In terms of earnings, this can be valuable for the lender, as they earn interest, but the risk of the client going into arrears increases.
Lesson 5 - Length of service allowance: Recruitment considerations
The Indian labour market also has its own peculiarities to consider when hiring staff. In India, potential employees expect to be paid on the basis of seniority rather than their merits. For example, a person with a 5-year experience but with much knowledge can be hired cheaply. Just compare, a person with 10 years of experience who may be able to do all the same things, but not much development-oriented, wants twice as much - simply because they have longer work experience. Young and qualified specialists in India do not expect to be hired for a high position, whereas in Russia, for example, the appointment of a 30-year-old specialist as head of a department can be a frequent occurrence. The second point is that potential employees exaggerate their abilities at the interview. Until a person is on the payroll, it is impossible to say how efficiently he or she can work.
Lesson 6 - Vendors: expectations vs reality
The technical documentation of Indian vendors rarely reflects the real state of the software. They may tweak something in the software but forget to inform the customer about it. Support services are optional, technical interaction and service is lower than what is common in European IT companies. Perhaps the level of support differs depending on the size of the client and may not be what is expected for small companies like us. If we were a big customer like a big bank, the service level might be higher as we would generate more revenue for the vendor.
Lesson 7 - Regulation: Predictable and democratic management by RBI
The regulator in India is quite predictable and does not take any drastic steps that would radically change the entire market. If any changes are planned within the existing rules, the regulator starts communicating with the market in advance and collects players' opinions on them. The regulator can introduce new rules for some segments that have not been regulated before. For example, the p2p market appeared in India 10 years ago, and 5 years ago the RBI started to regulate it, and the market began to adjust to the new rules.
