Are start-ups giving entrenched market leaders death by a thousand cuts?

If you look back to where we were in 2006, you will realise how much has changed over the last 10 years. Take any big industry for example. In 2006, main channels to consume News were ToI and HT newspapers. Today, the main channels are NewsInShorts, Facebook, Feedly, etc. Newspaper and Magazine sales have fallen drastically, and people are now even moving towards video news consumption slowly. In 2006, main channels for entertainment were via TV. Today, we entertain ourselves via TVF, NetFlix, YouTube, etc. TV viewership has fallen in cities and major studios like YRF have also started making short online series like Bang Baja Baarat. In 2006, we used to listen to music on CD players or by downloading them on phone. Today, we consume it online via YouTube, Saavn, Gaana, Soundcloud and Spotify. I doubt if people even have CDs today. Any artist can launch themselves and reach the customers without going to costly music houses who controlled everything. In 2006, we used to mostly use costly SMS and calls to communicate, today we rely heavily on Whatsapp, Skype, Snapchat and Messenger. Revenues from SMS have fallen drastically for telecom companies and so have call volumes. In 2006, we used to travel via Bus or Auto or Personal Cars. Today, car sales have fallen, taxi and auto unions are on strike with the advent of players like Uber and Ola Cabs. Every industry from Telecom to Transport, from Music to Retail, from Travel to Media, has been disrupted. Imagining our life without these services is impossible today.

Now think about what has not changed – Banking. We use Banks today the same way we used to do 10 years back. True they now have a Mobile app and Internet Banking, but have things changed significantly? In every industry that we saw being disrupted above, the start-up provided a platform that general public could use to earn money and become service providers themselves. Example – Hilton, Hyatt, etc. are big Hotel chains. These companies have huge networks, budgets and infrastructure to sell their service (rooms) to customers and because of their high overhead structures and monopolistic kept, they charge a lot of money for providing these services. Enter AirBnB. Most people have empty homes or rooms that are lying vacant. Why can’t they rent it out to customers for staying and earn some money too? Case in point Uber. Use your car to earn some money by driving other people around. Let’s take another example – Flipkart. Why do you need to set-up up shops in costly malls to sell your product line? Simply become a vendor on Flipkart and distribute your product line to customers. Anyone can do it now. Every single industry has been disrupted via similar entrants, and Banking is begging for a disruption.

The question is – how to defeat a giant? The same way that David defeated the Goliath. Not by directly engaging the giant, but by putting small cuts all over his body, again and again. Overall startups are disrupting the Retail banking industry by focusing on specific activities associated with a bank and trying to perform them better. Almost every financial service that is offered by a bank (wealth management, money transfer, loans, savings, and so on) is now also offered – or soon will be – by a financial technology (fintech) company. For the consumer, this means that for the first time ever, there is a real alternative to the banks. Banks make a huge proportion of their profits in consumer banking by opaquely bundling services together. Bringing in customers through free or heavily subsidized savings accounts, they then use hidden charges on the bundled services to make a profit: everything from overdrafts to fixed transactions every month on ATMs; from late fees to prepayment fees. The nature of the current “bundled” model of banking is fundamentally unfair. These unnecessary fees and charges hurt the customers with a INR 50000 bank balance more than the HNIs. The role that new fintech startups are playing within the system is, effectively, to provide high quality financial services at a fraction of the cost and hence save money for people through almost zero fees. And now the general public can also participate in instruments that were once available only for the financial elite.

New technology and innovative business models have led to springing up of new services like Robo-Advisory, Real time credit scoring, Real time money transfer, Peer 2 Peer Lending and so on, disrupting the way Lending, Investment, Saving or Money Transfer are being done presently. In five years’ time, the financial services sector will look completely different with a host of new providers and innovative new services. In ten years, it will be transformed. The main shift will be in our expectations and behaviour as consumers; the result will be the true democratisation of finance. What does all this mean? More people will enjoy better pricing and a vastly improved system. It took Skype ten years to secure 40% share of the telecommunications market. In five – ten years, we can expect fintech companies to achieve the same in the financial sector.

~This post was the part 1 of a series. The writer of this post is the CEO at Trustio – a new age community lending platform for alumni-backed loans.

Reference:

  1. https://medium.com/@tanayj/the-state-of-consumer-fintech-8ae5a1644b5b#.kf93qzhfe
  2. https://techcrunch.com/2015/05/29/the-unbundling-of-finance/
  3. https://transferwise.com/gb/blog/how-technology-is-democratising-the-financial-services-sector

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