Uberization of Fintech (Part 01)
Today, the word ‘Uberization’ has become commonplace. Every startup seems to want to uberize something. But what does it really mean? Let’s start with the definition. The best one I could find was at Wikipedia, which defines it as
“the utilisation of computing platforms, such as mobile applications, in order to facilitate peer-to-peer transactions between clients and providers of a service, often bypassing the role of centrally planned corporations.”
It further defines the three main elements of this business term to be “(1) The use of a digitalised platform enabling peer-to-peer, or quasi peer-to-peer transactions, (2) Minimising the distance between the provider and customer of a service, and (3) The use of a rating system for the quality of the service provided by a provider.” This also has to inherently work for the platform providing these services, which at marginal costs and economies of scale, provide an ever improving experience to both parties, and make the use of this new medium faster, better and cheaper than the traditional methods of connecting buyers and sellers.
In the Fintech space, this definition gets most frequently applied to Peer-to-Peer (P2P) lending, which uses digital platforms to save time and money and reduce the distance in the entire process of loan distribution, for both borrowers (may they be individual borrowers or small businesses) and for lenders (may they be private lenders or institutional lenders). It builds higher trust both ways based on how quickly and smoothly the loan is processed, disbursed and tracked, and how the entire payback/collections are tracked and managed.
Another interesting example in lending is from startups that are disrupting payroll by providing advances to employees based on ‘earned income’ ahead of their scheduled payday. By providing this service digitally, they are reducing the distance between the paycheck and the employee through a digital platform that connects directly into their employer’s payroll system. Such a system can allow employers to come onboard the platform and provide earned income details about employees, and allow both salaried and contract/part-time resources to instantly draw against the effort put into their respective jobs. For SMEs, this even eases the cash flow requirement they need to keep on their books for loans they need to advance to employees, and allows employees to keep a check on what they spend against what they have earned. For the platform, this is a quasi-collateral based lending, as the loans are linked to the employee payroll, principal and interest gets deducted from next months regular payroll disbursement, and enables them to earn several times through marginal interest rates from small, short-term loans.
But what about beyond lending? Can this concept be applied to other areas of Fintech, such as Wealthtech, Insuretech, Regtech, Payments, etc? I think it can, and in many ways where it has just not been christened as “Uberization”. In my next article, I will elaborate more on how some of these other Fintech verticals have been Uberized, and continue to be so. Are there other parallels in your industry where you can think of Uberization of a traditional way of working? Do share your thoughts in the comments below.
