Finance as a harbinger of data... and products (an engineer’s take)
Financial institutions are an important pillar for the growth of the economy. Individual, SMEs and large enterprises — all need access to capital to grow a step further from where they currently are, the services for which are provided by financial institutions.
But financial institutions have been there for ever, how does it concern an engineer or product person?
Financial services —a running track, but also a spring board
While providing financial services could be a good business in itself, and can be expanded to grow horizontally serving many different domains, it could also give an opportunity to someone, to go deep and transform a sector.
Just like people are willing to share their personal data to get free access to social interaction, similarly people and companies are more than willing to share data to get easy and efficient access to capital.
So entrepreneurs trying to get an in in a domain can start to use capital and financing as a way to get access to a market, collect data and create products using that data — thus creating a virtuous circle. It also gives them an available customer-base, and capability to influence behaviour about products using access to capital as a lever.
EXAMPLE 1 — OH THAT HURTS!
Lets say you are trying to change how bone fractures are treated. Instead of the plaster of paris (or similar synthetic materials) casts that are messy, unhygienic and really itchy, you come up with a product for swanky 3D printed orthopaedic casts. Now you can go to market in two ways-
- Do some market research and build a product. Go to an orthopaedic doctor, demo the product, give him some commission, train the staff, and hope the doctor recommends and uses this for his/her patients. However, here there is lesser incentive for a doctor to change his status quo, and any commission would have to be borne by the patient at the end of the day, driving up the price of the product.
- Tie up with an orthopaedic doctor to provide loans for medical procedures. The doctor is happy because he can get payments quickly and can up-sell his services, the patient is happy because he can manage his unplanned expenses. Collect lots of data around procedures, costs and requirements, and incorporate that into the product. Possibly provide better plans to doctors and patients for using this product.
EXAMPLE 2 — WHERE IS THE MILK?
You want to bring about a change in the animal husbandry industry, but don’t know where exactly to start. Here are two scenarios to proceed-
- Talk to a few farmers and breeders and identify a problem. Create a product for them, get it tested with some early users and then find a channel to reach more people with the problem you have solved. Test your product-market fit.
- Start with micro-financing for farmers and animal breeders. Collect lots of data around their practices, produce outputs, costs, raw materials, etc. Find issues in their processes that increases their uncertainty and cost. Design a product around it. Provide better financing rates to them for using your product.
Health care, agriculture, education, electronics, automobiles, etc.. — similar philosophies can apply to many domains. And given a lot of these sectors are traditionally underserved categories, they would be very attractive for financial institutions (like banks and NBFCs) to partner as well.
Data is the new soil
Last decade has seen a monumental rise in data collected via various kinds of social interactions. A lot of products around personalization were built using that data. Data from finance promises to be much more potent to build interesting products — not only for individuals, but also for businesses and complete sectors.
Flip side
This access to data, however comes with its own set of problems. Building a business is not easy, and in finance there are additional challenges around regulations and wariness about novelty.
Also, for startups which are typically resource-strapped, does it make sense to diffuse their focus to build a financial service in addition to building the product. Is data enough of a reason to build a financial service?
In addition, with all the data collected as part of providing financial services, there is also an obligation to protect the privacy of the customer. Using the data in a manner that protects the privacy of a consumer while providing useful insights is a very active research area currently.
So for a startup looking to build a product, one way could be to start with providing financing options in that domain. This not only allows for capturing a lot of high quality data about the customer, which would be otherwise unavailable, but also lets the startup stay in constant contact with their customer base.
