In Conversation
with InnoWise Founders

Q1) 2020 has been a disruptive year for businesses, but the industry of fintech has been one of the outliers. What do you think were some of the biggest themes of 2020 in the fintech industry?

Mahadkar: Fintech is one of those verticals that has largely benefited from the pandemic and in some ways has seen an inflection point including a rise in online payments, democratization of light investments and digital banks. In the face of the pandemic, consumers started relying on online payments for activities ranging from food deliveries and fitness classes to digital learning and grocery needs. Due to the ramp-up of online services, companies which had been working on their digital plans for a long time, saw a sudden acceleration in their businesses. Democratisation of light investments is another trend that was seen in 2020. Banks, both new and established, accelerated their services such as mobile banking apps, digital check deposits and other activities for which people usually used to visit their banks.

Q2) There is a belief that the Biden presidency could bring in golden years for fintech. What do you think about it?

Mahadkar: There is a risk of increased regulations as traditional democrats usually lean towards it, which is not a good thing for the fintech industry. The fact is that fintech is not as regulated as other financial services and some of the banks would love Fintech to be more regulated. But the model in the U.S. is such that fintech now partners with banks to give them regulatory and compliance dimension and they deliver technological platform services. No one, however, wants to go back to the earlier model because the vaulations of banks are terrible. In the past few weeks, the Trump administration has been trying to pass a regulation that will make bitcoins a bit more restrictive, and they've increased some requirements on bitcoins. So there is probably an upside, if Biden decides to slow down the restrictions on Bitcoin.

Q3) Could online payment services become an alternative for traditional banks? Will there be an increase in financial inclusion?

Mahadkar: Players like Google are looking at how big the market is for them in Asia, Africa and Latin America, for offering an easy digital bank account. It is sort of a traditional banking license behind them as a partner. It is as simple as going to your Gmail account, and having a bank account that you can interact with. The other trend that has been happening, and is going to get amplified because of players like Google and others entering, is more sophisticated credit scoring. There is behavioral based credit scoring, so people who are doing micro payments, on their bills, are now being tracked in real time. Traditional lenders may or may not lend money to these people. Looking at patterns of someone who is running a small business or a small farmer, small sums of money may be lended in a timely manner.

Q4) 2020 was the year which saw the progress of biometric in fintech. Do you think we will see a similar progress in payroll fintech in 2021?

Mahadkar: Payroll fintech will accelerate, but it is inevitable that payroll should arrive on the exact same day or almost the exact same time as it leaves the doors of the company, in your bank account. There are also a few companies that are extending lending based on outstanding payroll to the consumer into companies based on outstanding stock options. And then the risk is calculated and then extend credit based on that. So payroll fintech will progress, but I don't see that as a next year thing. I think I see that in three years.

Q5) What new trends will be seen in 2021 in the fintech industry?

Mahadkar: 2021 is going to be about a couple of things. We will get to see which seeds at a macro level are going to grow fast or stay at scale and which companies will succeed competitively. For example, it will be interesting to see if Robinhood, which made it easy for consumers to trade, will continue to gain market share and gain customers if the stimulus checks stop. Will the older generation which started using online means of payment, or people ordering food online continue when covid risks go away? Another thing to watch for the current year is the concept of banking and credit line. An example would be Amazon, offering not just payments, but also a credit line to the sellers in their marketplace. From that, these sellers may offer consumers a line of protection or an extended credit or they could get into investments, others. For the longest time, we've had a smaller view of banking, doing all transactions physically or digitally. But now what I will watch out for is how that is going to be broken up into different services. So that a consumer would go for their investment in one place and your cash flow management and treasury services in another place and payments to a different place.