Financial technology, popularly branded as fintech, is an economic industry comprising companies that use technical know-how to make financial services more competent. Oxford dictionary defines the word ‘fintech’ as Computer programs and other technology used to support or enable banking and financial services. Fundamentally, fintech is used to assist companies, business owners and consumers better handle their financial actions, processes, and lives by employing specialized software and algorithms that are used on computers and, increasingly, smartphones.
Since the internet and smartphone transformation financial technology has developed tremendously. Although fintech was initially understood as computer technology used in the back office of banks or trading companies, it now explains a comprehensive category of technological interventions into individual and business finance. Many financial sector administrators and experts are of the opinion that the new evolving fintech has the ability to disrupt the conventional banking segment. It is a well-known fact that the traditional banking amenities are nose-dived to attract the customers and also not handy when equated to those provided by the fintech segment. This has compelled the banks to rediscover their customer services. The fintech zone has made the banking service available 24/7 to the customer all 365 days. New entrants in the fintech are offering plentiful effective banking solutions which are not being provided by the traditional banking sector.
Did you ever enjoy the process of getting a bank loan? Perhaps this question has no ‘yes’ answer. The major part of you might have wished that I would not have involved in the process due to burdensome processes, boundless paperwork, countless authorization checks, and old-world ways of functioning. These factors influenced many to embrace the digital paths. This experience summarizes much of the first era of fintech interference, which saw products and services that were dispensed on paper or in branch move online. This revolution brought prevailing methods of working into a digital setup.
Presently, we are positioning on the crossover of fintech’s second major wave of disruption and this will be the real game-changer. Products, processes, and methods of functioning are devised for digital and have payments technology inserted in the user experience from beginning to end. Consumer-facing entities can solve numerous issues by bundling the general services like payment into the tech heap and provide a superior experience to their consumers. Digital wallets will be at the heart of this revolution. They are the empowering technology that will permit payments to sit in the background, independent of the banking structure, making everything more smooth and faultless.
India – An international Fintech giant
At par with the above global tendencies and payment system, the Indian banking industry has also been in the media captions in recent times. Unlike the worrying developments in non-performing loans by Indian banks, the news on the spread of fintech has been producing healthy waves. Fintech has been disrupting the financial sector in its various segments from bank transfers to payments to loans. Thus, it has many distinct components from substituting men with machines in the banking industry to financial inclusion.
India has the uppermost fintech adoption level universally and is among the quickest growing fintech markets in the world. Along with China, India ranked the highest internationally in the fintech adoption rate. The overall digital payments value of $65 billion in 2019 is projected to grow at a CAGR of 20% till 2023 and touch $140 billion. By 2023, India will contribute 2.2% to the world’s digital payments market and the value of such transactions is anticipated to reach $12.4 trillion globally by 2025.
India has surpassed China as Asia’s topmost fintech funding target market with investments of approximately $286 million across 29 deals, as compared to China’s $192 million across 29 deals in 2019. Important growth driving forces for this development are extensive identity validation initiatives like Aadhar under which around 120 crore people got enrolled, a high level of banking through the Jan Dhan Yojana initiative which has around 100 crores bank accounts, high smartphone penetration plan which has around 120 crores subscribers, increasing disposable income and key government schemes such as UPI and Digital India.
Moreover, by 2030, India will insert around 14 crores middle-income and 2 crores high-income households which will drive the demand and growth in the Indian fintech segment. Actually, India has transpired as one of the speediest-growing fintech hubs in recent years and shelters roughly 3,200 startups at present. Consumer awareness in the segment is increasing and the highest usage of fintech is transpiring in line with payments and money transfers, with above 70% of consumers selecting such services in comparison to only 18% five years before.
The new pandemic caused by the novel coronavirus bolted people in their homes and supported fintech companies to modernize their offerings and make their resolutions more digital and mobile-affable. According to the newly released report of Mckinsey, investors trust fintech start-ups will become a momentous force in the future and that future has reached, although digital technology and big data or analytics have been quaking up the financial-services sector. The arrival of fintech players had made banks a little bit conservative in the beginning. However, banks are now joining forces with fintech startups to elevate their present systems and facilitate softer operations to deliver a finer experience for consumers. Also, by leveraging data analytics, fintech have stimulated collaboration between many financial service providers and helped them to distribute products and services through an open architecture.
As mentioned earlier, once upon a time, it was very challenging to get a loan or borrow money from the bank with no trouble. This scenario has motivated fintech entities to introduce effective tools to push the boundaries of existing business models. Fintech companies have also come up with inventions like the credit line, even though digital loans can be accessed through smartphone applications by going through a seamless paperless submission. A credit line grants borrowers to request a loan amount of up Rs 5 lakh and pay back it in the form of convenient EMIs through different routes, unlike traditional banking that was limited to a few choices like cheque and cash. The best part is, the borrower has to pay interest only on the amount actually utilized rather than on the total loan amount. Likewise, there are other inventive credit solutions, including Buy Now Pay Later (BNPL), EMI Cards, and others that were lately introduced by fintech players in the country to support customers to shop anytime from anywhere without bothering about money or making payments instantly. Thus, credit is available in ways that were not even visualized 10 years before. With the digital advancing revolt of today, bringing the “time to get an approval” is now in minutes and time to cash to less than 24 hours in several cases.
Furthermore, the fintech companies are constantly expanding methods in which they can automate their procedures, from loan applications to disbursal and everything else in between. All these modernizations created by the fintech startups show their ability to further transform the financial sector in India by making them more handy, simple, and hassle-free. As technologies progress, these players are expected to bring more such breakthrough remedies to the table, steering India towards a truly digital-first economy.
By Shivanand Pandit: a tax specialist, financial advisor, guest faculty, and public speaker based in Goa.