Kuldip Maity

As I start writing the second part of the blog, focusing on cryptocurrency, let me start with a disclaimer that I do not want to influence your investment decisions in any way. Neither do I endorse, nor am I opposing the cryptocurrency trade, but would request all of you to follow the government regulations.

For those who are still not aware of cryptocurrency, it is a virtual currency that is traded digitally and secured by cryptography, making it nearly impossible to counterfeit. The name is derived from the fact that all of its transactions are highly encrypted, making the exchanges highly secure. Many cryptocurrencies use blockchain technology to decentralize their trading. We also must keep in mind that cryptocurrencies are generally not issued by any central authority. This makes it theoretically immune to government interference or regulations.

The trading pattern of cryptocurrencies is that of direct transfer between two parties, without the need for a trusted third-party intermediary, thus saving in transaction costs, but also increasing the risk typical of zero regulation.

Broadly, there are three ways of obtaining cryptocurrencies. They can be bought on an exchange, received as payment for goods or services, or one can virtually “mine” them. Mining is a process that cryptocurrencies commonly use to generate new coins and verify new transactions, through decentralized networks of computers around the world to verify and secure blockchains. Users can add their mining computers onto the network to aid the process. In return for their contribution to processing power, the computers on the network are rewarded with new coins.

While the first decentralized cryptocurrency, viz. the Bitcoin, was first released as open-source software in 2009, the year 2021 saw a defining moment where it come under tremendous focus with more than 9,000 other cryptocurrencies coming into the marketplace, of which more than 70 had a market capitalization exceeding $1 billion.

Trading in cryptocurrencies is gaining popularity as it involves cheaper and faster money transfers. The decentralized systems used do not have a single point of failure and can be well assumed as immune to total collapse. However, we also need to be cautious about its extreme price volatility and high energy consumption for mining activities. Typically, as a rule, a high-speed and high-volatility currency might be a concern for those who are not financially secure in life, but that is a universal observation and not specific only to cryptocurrencies.

From what we have been reading, the lack of regulations through any centralized authority has started witnessing a lot of use of cryptocurrencies in criminal activities. This makes me think that very soon we shall find regulations coming in to monitor the trade. How and when it comes and whether it facilitates or hampers the speed will be interesting to watch.

In my last blog on financial trends, I deferred the discussion on blockchain and cryptocurrency, as, I felt, it needs some elaborate explanation for those who are not intrinsically associated with the financial industry. These are two terms that have not only taken the world by storm but also created a lot of confusion as they break somewhat the barriers of our traditional mindset.

To start with blockchain, let me first clarify that the same term is commonly used in two distinctly different contexts—one is a technology, while the other is a cryptocurrency company. In this blog, I will briefly try to explain the technology.

IBM defines blockchain as ‘a shared, immutable ledger for recording transactions, tracking assets and building trust’. An asset can be tangible (a house, car, cash, land) or intangible (intellectual property, patents, copyrights, branding). Virtually anything of value can be tracked and traded on a blockchain network, reducing risk and cutting costs for all involved.

All businesses run on information, hence the speed and accuracy with which we receive the information are extremely critical for the success of any business. This is where blockchain adds value. It is ideal for delivering that information because it provides immediate, shared and completely transparent information stored on an immutable ledger that can be accessed only by permissioned network members.

In a blockchain, the ledgers are stored over distributed clusters of computers, where all participants have access to the information without having to store it separately, thereby eliminating any redundancy of data. Records stored are sacrosanct. No one can alter the data once it is stored. Even if the data stored is found to be incorrect, we have to store a fresh set of data and both will be visible at all points in time. This eliminates any chance of data manipulation. The third element of the blockchain is a ‘smart contract’. These are a set of rules which trigger automatic transactions, making the entire technology faster.

It is not difficult to understand why blockchain is getting adopted at such speed. Traditionally we had found that speed was the first aspect we sacrificed when we wanted to make the system more secure. But even with the compromise, there have always been regrettable incidents of security breaches. With blockchain, as non-members of the network are restricted from participation, we can be assured of the accuracy, but no compromise is made on the timeliness of the information. It is a big step towards the long-desired transparency and trust in information networks.

This section is the first part of a two-part blog that I have put together to explain the concepts. The next part will be on cryptocurrency.

Till around a few years back, before we adopted digital technology on a mass scale, financial discussions were restricted to those who had a formal education. Financial institutions were extremely scared of connecting to the rest of the world. There were also days when we saw banks have a separate computer to access email, out of the local area network which had the ‘work’ computers.

But the world seems to be changing rapidly, and it is also having its impact on the financial industry, with Fintech companies encroaching into the space of Finserv.

For those who are not clear about the two terms, Finserv is an abbreviation for the traditional financial companies which offered us financial services. These would include our banks, NBFCs, insurance, stock/commodity/mutual fund traders, etc. FinTech, on the other hand, is an abbreviation for “financial technology”, used for companies that leverage technology to provide financial services. These are normally the new technology start-ups operating in the financial space.

While it seems deductive that Fintech companies will chalk the future of finance, I feel that Finserv will also transform itself through the adoption of new technology, helping the consumer with easy access to cost-effective services.

The second buzz that we find around us is Artificial Intelligence and personalization. In today’s world, we expect organizations to know us well, through our past behavioral patterns, and offer us solutions that suit needs specific to us. With the trend of shrinking available time, customers are hardly ready to wait. They seek real-time and proactive financial experiences from the financial institution they approach. Traditional approaches towards customer management will not be of much help for more days to come.

To get hyper-personalized services, even the customers are willing to share personal data, as long as they get the confidence that their specific details will not be misused or sold elsewhere.

Artificial Intelligence and Machine Learning based solutions are available to collect consumer interaction data, demographical information, and normal usage patterns to provide hyper-personalized experiences that go much beyond just seeking and answering questions. Nowadays customers need financial institutions to anticipate their needs and provide them with relevant and holistic guidance, even when their query is totally on a separate track. After all, finance is a matter that touches upon every aspect of our daily lives and our decisions should take them all into account.

Recently I came across an article that stated that IDC has predicted that, by 2026, 85% of organizations will use AI and ML in some capacity or other, to augment their foresight, resulting in a 25% increase in productivity. This space will be interesting to watch.

With all this happening around us, a traditional aspect that keeps constantly ramping up and getting modernized is that of information security. Without proper cyber and data security measures in place, consumer trust in such a rapid progression of technology may hit a major setback. Let us hope that we do not see such a day.

Another important topic that seems relevant here is that of Cryptocurrency and Blockchain. But let’s park that for another day.

We keep discussing the digital transformation of micro-enterprises. But most of the time the discussion stays confined to the go-to-market strategies.

I feel digital transformation can have a much larger purview.

First, we should look at how digital solutions can improve processes in micro-enterprises. For example, several agri-tech startups are using digital technology to bring improvements to traditional agriculture. These affordable solutions will improve productivity in the micro-enterprises. Next are IoT-based solutions, which can bring a level of automation to repetitive tasks. It is wrong to think that common micro-businesses cannot afford these solutions.

Then comes a cultural change that can be driven through digital transformation. Here, the first aspect that comes to mind is communication. Knowledge from the entire world has come into our hands through the smartphone and easy access to data. I am not only referring to YouTube advisory videos here, but they also play a great role in learning. Even support of equipment can be managed through a virtual network and what would have taken days for an engineer to reach may get resolved in minutes through digital communication. At VFS also we brought in the cultural change by shifting the majority of our transaction-based processes to digital solutions. Feedback from the field indicates that our customers have largely appreciated the shift.

Though I started saying that we should broad-base our discussions on digital transformation, we can never ignore the aspects of business transformation through a digital solution. And go-to-market strategies are definitely impacted on a large scale. Even the remotest village can now get products or services through eCommerce, and can also sell online. Many organizations are readily extending their hand, either as a part of their corporate social responsibility or at a nominal cost, to help the rural micro-enterprises set up their digitally enabled sales channels. I have come across solutions where no upfront cost is being charged for such purposes. These unique solutions have made it affordable for micro businesses to grow and transform into the next higher level.

A major roadblock seems to be ignorance of the solutions. Many startups, even with good solutions, are not able to reach the right audience or speak the language that is easily understood in rural segments. We need to actively look at resolving this aspect so that the micro-enterprises can benefit from the available digital technology solutions.

Whenever we discuss innovations in business forums, we tend to discuss large businesses. Maybe that is because most of our exposure to business is oriented toward urban enterprises. But the level of innovation that I come across while interacting with the owners of micro-enterprises amazes me.

From whatever I could gather from experience in the industry, innovation in the micro-enterprises is not as much about technology as it is about the owner’s willingness to accept change and outlook for growth. If both are on the positive side, the rest falls in place. After all, owing to the size of the enterprise, small innovations can have large benefits.

Once the entrepreneur starts dreaming of growth, she will be enterprising enough to reach out to the right places. Furthermore, with the increasing popularity of digital channels such as YouTube, it has become easier for entrepreneurs to know about all that is happening in their space. Getting the innovative solution, once identified, is hardly a task. Sometimes the hurdle may be a financial one, but VFS customers hardly worry about this score. The associated aspects of training, maintenance, etc. will never be a roadblock for the enterprising business owner. Last, but not least, we always have the ‘Great Indian Jugaad’ to fall back to.

Such is the story of Sukla Das, from Hooghly, West Bengal. Traditionally her family has been in the business of manufacturing puffed rice (muri, as they call it in Bengal). The family used to employ the traditional methods of heating the rice grains in woks and stirring them manually till they puffed up. While everyone was comfortable with the process, the production capacity was determined by the manual labor available. But personal expenses increased with new members getting added to the family and inflation. Something needed to be done!

Sukla’s found that muri can also be made with machines. It opened up the prospect of multiplying their capacity with the same manpower. The demand was already there, so they knew that the plan was a sure bet. VFS approved Sukla’s application and she bought a machine. As mentioned earlier, Sukla fit the profile where training and other enterprising necessities were never a roadblock. Micro-enterprise owners, with a vision and hunger for growth, equip themselves with the necessary training, on-the-job or even off-the-job to gain the experience that helps their business.

We are happy to learn that Sukla is looking for additional finance to grow further.

As I keep mentioning, business schools and forums need to provide more space for learning the trends of innovation in micro and small enterprises. With MSMEs contributing to a substantial part of the country’s economy, learning about their innovations to bring customers, suppliers, and other entities together for and development of new products/businesses will help transform micro and small enterprises into medium and large companies.