New oil, new gold and many such metaphors have been heaped upon good old data. In fact, it is the banks who have traditionally had the data advantage given that they had reams of credit history. But considering that cash still accounts for about 90% of all transactions, how people spent their money was a black box. That’s something that payment companies can peek into now. And almost exclusively.
Imagine this, you have Rs 1 lakh in your bank account. Till the time you used your card or net banking, banks knew where you spent that money and how much. But the minute you use the same net banking solution to transfer money into a wallet or now possibly into a payment bank, banks suddenly lose visibility of how you spent that money in that wallet.
(It’s another matter that few did anything remotely meaningful with that data.) And the fintech firms with their algorithms and analytics prowess would know not only where you spent it but also how much of what you bought, was it a routine spend or a one-off purchase.
Banks’ loss, wallets’ gain
“If you are using MobiKwik, I know your location, which bank you’re using to load, I know what is your average spend. If I know what is your electricity bill, I can also know your income,” says MobiKwik’s co-founder Upasana Taku. The more you continue to use MobiKwik, the better it gets to know you.
If that wasn’t enough, companies like MobiKwik can always get more data from the stores by making small changes to the software, which banks will find tough to do, say many payment experts. Compared to banks, which update their banking software very rarely, fintech and wallet startups update their software almost every other day, adding new features, fixing bugs and learning from past user behaviour.
Online lenders like Capital Float have already disbursed close to Rs 1200 crore in 60-90 day loans. It was set up three years ago to lend to small and medium business. It now also lends to entrepreneurs like cab drivers and kirana shop owners based on their spending and earning patterns driven by data sourced from partner ecosystems, says Sashank Rishyasringa, co-founder and managing director of Capital Float. He adds, 99% of his 7000 borrowers repay their loans.
The impact of fintech firms using this kind of non-traditional data has not scaled much as yet. Looks like one just has to accompany the Indian bankers to China to see what data can do in the hands of new-age banks.
Internet giant Tencent Holdings’ immensely popular instant messaging chat service WeChat, which has over 600 million users’ social data, knows their every move literally. And this social behaviour came in mighty handy to offer ‘tiny bits of loans’ when Tencent set up the first online bank, WeBank in 2015.
And in India, payment banks seem poised to be that kind of data miner.
Paytm and Jio declined to participate in this story.
There are numerous restrictions on what payments banks can do (no lending; can take only Rs 1 lakh of deposit; should invest 75% of the deposit in government securities). But nothing stops them from partnering with other Non-Banking Financial Companies (NBFCs), mutual funds, insurance companies and other fintech firms to extend their entire suite of services. Think of them like magnets for numerous small firms that could ride atop payment banks and the data they bring in.
And that can be the real challenge for banks, says a senior executive from a top management consultancy, who didn’t want be named to avoid angering the very same banks it counts as clients. “Fintech firms by themselves won’t be a threat for banks. But the combination of payment banks and fintech firms will be, as they will have access to very rich and contextual data,” he says.
Banks like HDFC Bank are not perturbed. Chugh believes that few will move money into an account that offers some services, which anyway a bank does in addition to many others.
But a Sanford C Bernstein survey shows that young Indians use a wallet more for the convenience of it.
A senior payments executive who is not authorised to speak to the media anticipates that users will migrate to a payments bank for all payments less than Rs 2000, and for higher value, stick with the bank.