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
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.
start-ups firms engage in external partnerships with financial institutions,
universities and research institutions, technology experts, government
agencies, industry consultants and associations.
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.
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.
and currencies – technology used to make payments in new ways. These may be
online payment systems or mobile payments and emerging technology such as
– new processes and programs designed to improve back and middle office
processing for a variety of businesses, making them more efficient and
– online systems designed to allow users to perform a variety of functions,
such as peer-to-peer lending and comparing products through aggregators
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.
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
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
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.
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.
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.
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
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.
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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