Why Personal Finance Startups in India Do NOT Survive
We reported about the shutdown of InvestoPresto and earlier, a very lovable product, MoneySights shutdown and so have others (like Paisa.com etc etc). The trend is clear – none of the startups have managed to survive this industry.
And why is that so?
Personal financial services is becoming a case where finding a scalable product-market-profit fit for mass market consumer remains elusive. Large number of people don’t and probably won’t take money as seriously as entrepreneurs want them to for long time to come. Non-serious = non-paying. only regulatory moves that create incentives that change habits happen, things may remain same.
The problems here are multi-fold – consumer, industry, regulator – all come together & create a mess out of it.
Consumer isn’t interested in personal finance on her own, in holistic way.
Barring a few people who get exposure to stock market or general best practices of looking at money from right perspective, people are busy in spending the earned money. The consumer is interested in “earning income” BUT she isn’t at all bothered about “managing the earned income”. If its about cell phone, apparels, etc. – she wants to BUY NOW, BUT when its about investing money, thinking of Taxes, etc. – she will do it next week, or next year or maybe never!
And she may be right in her thinking – why should she care? There is strong absence of instant gratification – the basic premise on which consumerism works. Managing Personal Finance or NOT doing investments has IMPACT ONLY in long term. These days markets are such that long-term has become 8-10 years from the earlier 3-5 years. So, the consumer maybe RIGHT in her approach towards personal finance.
Even if there is sizable married-couple-with-kids population who after BUYING a home struggle to manage finances, resort to personal finance tools – they get scared with the complexity of doing it, thanks to what the regulator & industry have created for themselves & then in-turn for consumer from every angle.
Plus, let’s not forget that India is still not a DIY market (read : Why Indians do not buy online).
Plus, add the industry jargons and buying complexity.
What About Regulators and Regulation?
It’s like the telecom regulator, TRAI of 2011/ 2012 & 2013 – but difference between TRAI & SEBI is simple – TRAI & DOT created the market, allowed telecom players to experiment for a decade before clamping down with some bull-shit.
SEBI on another end has been pre-occupied in “regulating” the industry (i.e. Mutual Funds) & “intermediaries” rather than growing the market, driving use-cases for investors to create need of investments, education, etc.
They just think that pro-customer moves are by “limiting” the industry.
The problem with regulator(s) are that they are themselves Fixed Deposit kind of investor, so how they will make something balanced for all parties involved. The regulator decides what’s the margin a manufacturer earns, he decides what commissions can be passed on to intermediaries & he also decides how manufacturer innovates on Products. So, when regulator is God, manufacturer is a puppet.
And because manufacturer is a puppet, the margins are heading towards ZERO. How can an industry flourish when it comes to consumer & intermediaries when the manufacturers are bleeding?
Imagine: Flipkart Without Sellers, An InMobi Without Apple
Would there be an InMobi when there was No Apple who invented iPhone, or NO google who copied & made Android free.
Would there be a flipkart when all mobile handset manufacturers are loosing money?
The point is the eco-system is poor and hence the players are getting poorer. The startups therefore who are intermediaries won’t make money unless there is HEALTHY ecosystem around it.
Why is Moneycontrol surviving?
The model of moneycontrol is very different – it’s the media business. Every startup that entered this model, i.e. Moneysights, Investopresto, iTrust – were all distribution plays.
Plus, let’s not forget that Moneycontrol is also very well integrated with CNBC. Because lesser people watch ET NOW, lesser go to economictimes for stocks, and same goes for NDTV profit & others.
Let’s not even compare the models.
Why VCs Don’t Care
The personal finance illiterate customer that we have in India today would pay ONLY when you offer guarantee of CAPITAL-PROTECTION + FIXED DEPOSIT kind of rate assured. Economics of this business make sense for ONLY boutique agent business. Hence, distribution, as a business model – isn’t worth the VC money.
There are pockets of opportunities BUT they aren’t 100Mn dollar ideas. They are all sub-50Mn or even lesser after 5-7 years play….if VCs aren’t keen there, its unfair to blame them.
After all, aren’t they better off investing in entrepreneurs who are chasing NON-REGULATORY businesses. The Regulation & Market vagaries make even a 100Mn dollar potential plays way too risky. [Mentions an Entrepreneur who was in the same shoes]
Personal finance is a classic case of industry where great products do not translate to great business.
Plus, by virtue of being in consumer space, there is an expectation of a scalable product-market fit, which is actually missing in the reality.
What are your thoughts?
[This piece has been written by Team NextBigWhat (Ashish) along with few other entrepreneurs from personal finance space who chose to remain anonymous]