Technology and banking have a long and close association. Both have been benefitted immensely by this association. Technological developments have been changing the way the banks and financial institutions and their customers interact. These developments have created opportunities for new entrants, not necessarily new bankers, to disrupt traditional business models and penetrate new markets. The plethora of technological products and services have helped emergence of FinTech companies who offer different ways of performing traditional services, in more efficient ways.

The buzz around FinTech has gained substantial attention of traditional financial institutions, startups, venture capitalists and regulators. Banks and regulators are hard-pressed to revisit their operating model and policies respectively to create a conducive environment of collaboration and dynamism amidst the participants in the FinTech ecosystem.

 ‘FinTech Defined’ – Financial Technology, nowadays better known under the term ‘FinTech’, describes a business that aims at providing financial services by making use of software and modern technology. It is observed that Innovation and technology have brought about a radical change in traditional financial services. The world has seen the emergence of more than 12000 start-ups and massive global environment of USD 19 billion in 2015 in the FinTech space.

FinTech start-ups firms engage in external partnerships with financial institutions, universities and research institutions, technology experts, government agencies, industry consultants and associations.

Also, the term can refer to startups, technology companies, or even legacy providers. The lines are blurring, and it’s getting harder to know where technology ends and financial services begin. It is basically coming together of disruptive finance and pioneering technology. Since the time, it has made presence felt on the technological startup scene, it has consistently added newer dimensions to money transfer methodologies, fundraising campaigns, mobile payments and an array of other fiscal transactions.

FinTech covers diverse areas across banking and caters to new business models, including newer forms of currencies, which are known as cryptocurrencies. It encompasses the full gamut of innovations in financial services, where technology is the key enabler.

FinTech Sectors:

• Payments and currencies – technology used to make payments in new ways. These may be online payment systems or mobile payments and emerging technology such as cryptocurrencies
• Software – new processes and programs designed to improve back and middle office processing for a variety of businesses, making them more efficient and effective
• Platforms – online systems designed to allow users to perform a variety of functions, such as peer-to-peer lending and comparing products through aggregators
• Data and analytics – technology which gathers and/or analyses data to produce usable information to improve business and target customers more effectively. Includes the use of telematics, biometrics and compliance.

Why FinTech?

India is transitioning into a dynamic ecosystem offering FinTech startups a platform to potentially grow into billion dollar unicorns. Thus, from tapping new segments to exploring foreign markets, FinTech start-ups in India are pursuing multiple aspirations. The traditionally cash driven Indian economy has responded well to the FinTech opportunity, primarily triggered by a surge in e-commerce, and smartphone penetration. From wallets to lending to insurance, the services of FinTech have redefined the way in which businesses and consumers carry out routine transactions. The increasing adoption of these trends is positioning India as an attractive market worldwide.

Lately, it has been observed an enhanced interest in FinTechs is mainly because of two of the key FinTech innovations viz. the Market Place financing and the Blockchain.

Market Place Financing is also known as 'Crowd Funding' and generally refers to a method of funding a project or venture through small amounts of money raised from a large number of people, typically through a portal acting as an intermediary. There are numerous forms of crowd funding: some are charitable donations that provide no financial returns; others, such as equity crowd funding would fall within the domain of financial markets. Person to Person (P2P) lending is a form of crowd-funding used to raise loans which are paid back with interest. This disruptive innovation has indeed caught the attention of many analysts, opinion makers and influential thinkers. They talk of bank-less economy or banks-free economy; as a consequent version thereof they dream of the death of regulators as well.

Likewise, the Blockchain Technology is also another disruptive innovation. The blockchain is an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value. Blockchains are an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way.

India’s FinTech firms are focusing more on untapped customer segments and are certainly fulfilling the needs of the customers. Businesses with unfavorable financing requirements from traditional banks have turned to unconventional lenders for funding. This under-developed consumer banking system has paved the way for FinTech firms to approach the unbanked population who are seeking better offerings elsewhere.

Further, the developing technology infrastructure in the country has also given FinTech firms an impetus to flourish. Omnipresent connectivity in major cities and unprecedented changes in the government policies have translated to mature digital penetration in payment methods. With payment cards to digital wallets, FinTech firms have led the way in retail disruption.

Regulations governing the FinTech

The government of India along with regulators such as Securities Exchange Board of India (SEBI) and Reserve Bank of India (RBI) are in the mode of transforming the Indian economy in to digital cashless economy that will emerge as strong FinTech ecosystem via both funding and promotional initiatives.

In India, we have seen that RBI has been instrumental in enabling the development of FinTech sector and adopting a cautious approach in addressing concerns around consumer protection and law enforcement. The key objective of the regulator has been found creating an environment for unhindered innovations by FinTech, expanding the reach of banking services for unbanked population, regulating an efficient electronic payment and providing alternative options to the consumers.

The significant approaches that have been seen in the recent past made by RBI for encouraging FinTech preparations - Introduction of “Unified Payment Interface” with NPCI, which holds the potential to revolutionize digital payments and take India closer to objective of “Less-Cash” society, Approval to 11 entities for setting up Payments Bank and approval to 10 entities for setting up Small Finance Banks that can significantly run in favour of cause for Financial Inclusion.

Global Impact of FinTech

FinTech has gained significant attention across the globe - with hubs evolving across Americas, Asia Pacific (APAC) and Europe. Different countries are making substantial efforts to build a robust environment for FinTech for different reasons. Emerging economies in Asia are aiming at a high level of financial inclusion of the unbanked and under-banked, while developed economies like the U.S. and the U.K. are more focused on efficiency, cost-savings and personalized customer services.

A right mix of numerous factors are driving growth in these FinTech hubs. The availability of right technical skills, significant growth in capital investments, emergence of government policies, and an entrepreneurial and innovative mind-set are the driving forces to eastablish FinTech as an enabler.

Conclusion

FinTech companies are accelerating the pace of change and are reshaping the financial services industry radically. Financial service providers like banks are recognizing the potentials of the FinTech. It is clear that the disruptive innovations of the FinTech cannot wholly eliminate or completely decimate the traditional banking or finance. However, there are immense ways in which the FinTechs can collaborate with BFSI entities to usher in efficient and transparent platforms and best value for the financial service customers.

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