India has 40 cities with more than one million population and close to 400 cities having population in the range of one lakh to 10 lakh. So, is there an opportunity for startups? Indeed – A huge opportunity especially for FinTech startups.
FinTech startups may cash in on these opportunities if they can target the middle-class segment helping them on various financial needs including but not limited to insurance, loans, different instruments for savings/investments and even trading in stock market.
Many financial institutions are offering these services using their online platform but there is an opportunity for disruption leveraging the latest technologies like Artificial Intelligence (AI), Machine Learning (ML), Augmented Reality (AR), Virtual Reality (VR), Blockchain etc.
India ranks very high in terms of mobile penetration, thanks to availability of smart phones and even the mobile data, at a very low cost.
Many FinTech startups are already having good customer base in Metro cities and the natural growth for them lie in tier-2 cities, given the vast population that India has in these cities.
Indian consumers are already adopting technological changes when it comes to different services being offered to them, thanks to unicorns like Flipkart (eCommerce), PayTM (Digital Payments), Swiggy (Food delivery), Ola (Taxi cabs) etc., who have got huge number of users into their platform over the past few years.
FinTech startups could leverage this technology adoption and target consumers in tier-2 cities as long as there is real value add to them at a nominal cost of service. Some of the services could be given without any charges to consumers by accommodating that cost from the vendors’ side.
New Areas/Market for FinTechs
Robo Advisory software market: With the advent of chatbots and voice bots (leveraging AI), there is huge opportunity in the area of customer service for financial service providers, especially with a target of reducing the customer call volume and thereby reducing the cost of customer service.
FinTech providers could leverage machine learning software to analyze vast customer data and advice consumers without any bias.
Through technologies like Augmented/Virtual Reality, customers could get the feeling of real banking without having to travel to the Bank.
Another area is providing services in their respective languages. With technology supporting vernacular languages rather easily, FinTech startups could reach out to a whole new segment and make them financially included in the system.
Challenges specific to Tier-2 cities
Startups focusing on Tier-2 cities need to understand the difference between a metro city and a smaller city.
Population Density (number of consumers within sq. km) is much lesser in Tier-2 cities is one parameter, which is impacting the cost of service for financial institutions as they are spending higher amount for servicing a customer compared to metro cities.
Also, the per capita income in smaller cities is less than 1/4th compared to that of metro cities; this impacts the business volume, which, per customer, could be significantly lower compared to that of metro cities.
Currently, these challenges are a pain point for service providers; however, with technology changes and adoption, some of these challenges may not be big concern as the cost of service comes down significantly.
Advantage for consumers
FinTech space is largely untapped in India especially in Tier-2 cities. With more startups entering the FinTech domain, consumers are definitely going to benefit with various services.
Consider the example of mobile payment/transfer of funds. Paytm reported a whopping 600% growth in UPI transactions over six months period in 2018. With more players entering digital payments (Google Tez, PhonePe, Whatsapp payment etc.,) consumers would have good number of choices as well.
Consumers could expect availability of many more services at the comfort of their home/phone – be it buying an insurance product or investment option or any banking service.
Considering the opportunity for FinTech startups and advantages for consumers, it’s a great time in India’s history with a win-win scenario for both.
Whether a startup is in the B2B space or in B2C space, if they can build a product/service that can cater to consumers in Tier-2 cities, they have huge market and it’s just a matter of time before someone captures the huge chunk of this market.
The author is Co-Founder of Eagle10 Ventures, an early stage investment group in India focused on technology driven startups. The views expressed in this article are that of the author and not of moneycontrol.com or its management.