If 2018 dawned full of promise for fintechs, 2019 is all about uncertainty. Adjusting to a new reality. One where they can’t bank on the convenience offered by Aadhaar. One where they can no longer count on reams of data from Facebook and Google. And one where they can’t rely on a single source of capital for lending. Come 2019, fintechs will have to rethink their reliance on the underlying infrastructure they took for granted to do business.

What a marked change from 2018. Back then, WhatsApp was still to launch payments. Payments companies pinned their hopes on the impending updated version of the Unified Payments Interface (UPI) payments system, which was rumoured to have an automatic payments feature. This would allow users to instruct merchants to debit their bank accounts automatically at predetermined intervals, thereby helping payments companies scale further. With scale would come higher valuations.

Companies hoped the Reserve Bank of India (RBI) would stop viewing eKYC as merely a stop-gap way of doing KYC. The potential of eKYC led all kinds of companies to think of ‘lending as a feature’. If messaging app Hike had plans to lend, so did ride-hailing app Ola. All told, 64 lending companies received over $400 million in funding during 2018, according to data from startup database Tracxn.

But by the time the second half of 2018 arrived, things took a turn for the worse. UPI 2.0 arrived. Without automatic payments. Non-Banking Financial Companies (NBFCs) plunged into a liquidity crisis, casting doubt on whether they could, in turn, lend to fintechs. And then the Supreme Court delivered the straw that threatened to break the fintech camel’s back—the apex court’s verdict on Aadhaar banned private companies from using Aadhaar for KYC purposes.

These setbacks, along with what lies ahead—an election year, a change of guard at the RBI, the possibility of a global recession affecting access to foreign capital—makes 2019 a year when fintechs with flimsy business models will be found wanting. Starting with lending companies.

Distress call

Within the fintech ecosystem, lenders will probably have it roughest. Just when NBFCs were shaping up to be a valuable source of credit, the liquidity crisis struck. In September, infrastructure behemoth Infrastructure Leasing and Financial Services (IL&FS) defaulted on its loan obligations, spooking banks and mutual funds into halting lending to NBFCs. Fintechs, which are dependent on NBFCs, have also been impacted.

“We held back on long-term loans for a short period,” says Akshay Mehrotra, co-founder of instant loans company EarlySalary. “Luckily for us, just that weekend we got a series-B tranche [of $7million] and that will help tide us through this time.” However, Mehrotra understands that this respite is only temporary.

AUTHOR

Arundhati Ramanathan

Arundhati is Bengaluru-based. She is interested in how people use money in the digital age and how new economies will take shape based on that interaction. She has spent over 10 years reporting and writing on various subjects. Previous stints were at Mint, Outlook Business and Reuters.

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