Within the first 10 hours of the demonetisation announcement, I had offers for everything — from iPhones and annual gym memberships — at throwaway prices for ‘your black money’. I almost wished I had more than the Rs. 2000 in my wallet, in 500 and 1000 notes, to make the most of these ‘flash sales’.
The nature of this policy change has obviously brought financial technology startups, particularly those enabling cashless payments to the forefront. However, to look at the impact of demonetisation from a fin-tech perspective only would be to trivialize the broader implications. For starters, in the three weeks since the announcement, we have already seen a few novel business propositions emerge:
- Converting black money to white, for a “commission” of 30% no less
- Tracking nearby ATMs with cash, or merchants who accept digital wallets
- Allowing customers to use now, pay later (which I discovered as a rather pleasant surprise when a Housejoy employee told me I didn’t need to pay him then and that he would send me an online payment link the next day. Trust your customers much?)
- Book a ‘Chotu’ to stand in the ATM queue to withdraw cash.
Researchers at the Imperial College Business School in London have found that in India, for every registered business, as many as 127 shadow businesses are hidden in the darkness of the black economy.
There are many merits to the argument that the black economy in India will continue despite the demonetisation, and the primary casualties of this policy change have not been black-money hoarders but honest citizens excluded from the digital ecosystem. However, in its ambition to challenge the existence of black money, the initiative offers us an unprecedented opportunity to witness a significant proportion of India’s many shadow businesses and business models being incorporated into the formal economy.
Allow me to paint a picture of what this represents for the future of India and its entrepreneurs and startups:
First, more and more people will see the merit in filing income taxes (a win for ClearTax, I would imagine), pay their utility bills on time (payment apps, digital wallets and payment gateways will rejoice at this) and not default on their loans (banks and digital lending companies can now aim for lower NPAs). When you combine this behaviour with the power and ambition of India Stack, you realize that mapping out everyone’s digital identity and behavior may not be an unattainable dream.
Second, the increased inflow of taxes, payments and loan repayments will create a government surplus, which would imply a wave of investments in infrastructure and core services (think public health, education etc.) and/or cause an eventual reduction in the tax burden borne by the citizens (Wait…what?). One of the most significant investments would be the effort to democratise internet access, either through mobile SIM cards (the Jio way) or public WiFi (the Google way).
Third, with a shadow economy career (which would typically mean a traditional, cash-centric business, or a ‘career’ in crime or illegal activities) now seeming less attractive, more and more of the employable population will seek education and professional skills to improve their prospects of formal employment. The India Stack becomes even more potent. Remember the IT revolution led by the likes of Infosys, TCS, HCL and Wipro that created millions of white-collar jobs in India? We might well be on the cusp of the next revolution, when many of the millions of ambitious Indians enter the job market through blue collar/pink collar positions at leading startups in spaces of logistics, e-commerce, on-demand services, healthcare etc.
Fourth, within the realms of the shadow economy, cyber-hacking suddenly looks like a great career prospect with massive rewards for those who can pull it off. Citizens and enterprises will therefore value their data security a great deal more now.
Finally, a digital map of every individual’s identity, behavior, skills and consumption will also offer unique opportunities in advertising and product design that is made to achieve product-market fit. However, will Indian e-commerce companies feed off of this data, or continue to exhaust their marketing budgets to companies like Google and Facebook (or front-page ads in Times of India)?
If some of these statements sound too far-fetched, consider the possibility that StoreKing might already be incorporating some of these themes into a model built from the ground-up to initiate rural Indian consumers into e-commerce and digital consumption.
A word of caution though: most startups typically enter the market for early-tech adopters who value novelty. Regardless of the use case, the positioning and the product ethos has often played on hedonistic consumption behaviour that has valued convenience. Such users tend to be patient and accepting of lags, glitches, bugs and even overall product failure. If we are to build products and businesses for the former shadow economy, we must understand that for a majority of these new users, positioning around convenience or “coolness” is irrelevant. For them, any product or service they choose to adopt is much more intimately tied to feelings of utility and survival.
The next generation of startups will have to build products for an audience that is perhaps 10 times the size of the current audience, and for an audience that expects reliable service every single time, and will be unforgiving of failure.
It is a fabulous gauntlet for the truly world-class entrepreneurs to accept.
It is also a great time to be an entrepreneur, and therefore a venture capital investor.