The Evolution of FinTech In India

Jul 2018 | Team Rubique

India, a country with over 1.3 Billion population, is moving towards a revolutionary Tech-Finance alliance. This collaboration between finance and technology is upgrading the way transactional operations are handled. Basically, FinTech is the amalgamation of technology in finance that offers more effective financial solutions than traditional institutions.

Initially, FinTech started its trial by setting its operating base in the banking industry. But over the last five years, it has seen tremendous development and has expanded to insurance and asset management companies as well. By leveraging machine learning, FinTech companies are looking to analyze customer expectations and their responses. This will create the ability to forecast demand and provide customized supply services through technology.

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The Evolution

For a high cash concentrated economy like India’s, the first major shift towards electronic means of managing money began in the early 1990s with the introduction of EFTs. Citizens gradually opened up towards adapting FinTech services in their daily lives. Eventually, mobile phones and the internet started to replace conventional financial transactions. This activated the shift to a more advanced and fast-paced economy. Now, new business propositions are emerging from the growth of FinTech.

Catalysts of FinTech Success in India

There are multiple stakeholders that have led to the success and growth of this industry within the Indian economy. Some of these stakeholders are:

Banking Sector:

Banks have actively been supporting technology platforms such as e-wallets from the very beginning. The reason is simple, they provide smoother back-end operations and customer-friendly services. Some banks are taking it even further by collaborating with start-up FinTech organizations to provide better financial services.

Another way the banking sector is promoting the FinTech industry is by adopting its innovations. One major example of this is blockchain. A path-breaking system that is used to store large ledgers of data virtually, blockchain is one of the key trends in India today. By shifting the entire gamut of data storage online, blockchain technology will eventually replace the traditional methodologies of making payments, lending funds, and updating KYC documentation. There will no longer arise a need for human intervention to process regular financial transactions.

Start-Up Companies:

In a developing nation like India that encourages innovation, FinTech startups have a great potential for expansive growth. Start-up companies are paving the way and creating initiatives towards digitizing India. With the recent demonetization that encouraged citizens to go cashless, the digital movement has transformed into a reality.

One obstacle for start-ups, however, is their need to prove to regulatory bodies that their software or service can actually benefit the society and uplift the existing economy. Currently, across segments, there are over 600 FinTech Startups in India that could potentially improve quality and make financial services more cost-effective.

Government Bodies:

It is not an easy task to keep up with the rapid technological updates taking place in a financial industry. However, the Indian Government has not only kept pace but has also created an initiative called ‘Startup India‘ and has provided a dedicated fund of USD 1.5 billion to support upcoming and innovative Indian startups.

Another example is UPI, Unified Payment Interface, which is a system set up by the Government of India. UPI channels multiple banks accounts into a single mobile interface in an attempt to unify the citizens towards the ‘cashless India’ motive. Further, the National Payments Corporation of India is soon going to launch UPI 2.0. This revised app has additional features such as increased transfer limits and promotion of merchant transactions. Compared to its predecessor, enhanced security, and a user-friendly interface are two major modifications that the 2.0 offers. It is an admirable fact that the Government has constantly been standing behind every move and has been diligently supporting the FinTech revolution.

Similarly, RBI came up with a peer-to-peer (P2P) lending scheme in 2016 that uses crowdfunding as a base to raise funds between borrowers and lenders within India. At present, there are 30 peer-to-peer lending companies in our country that bring individuals together on a common platform.

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Impact of FinTech on Lending

The growth of FinTech has changed every aspect of loan processing. While lending used to be exclusively limited to banks and credit unions, now even FinTech companies are extending loans to consumers. The ability to provide personal loans, mortgages, business lines of credit, etc. has taken FinTech to the next level. Now, market-based lending platforms are developing technology solutions online to simplify lending procedures, both for individuals and for businesses.

Automation plays a key role in reducing operating costs. Because of this, FinTech companies are proposing competitive interest rates. Further, the use of technology to collect consumer insights has reduced the background verification process to a couple of minutes. This has made the evaluation of a consumer’s creditworthiness and repayment capacity instant. Hence, FinTech companies have an added advantage over traditional lenders as they offer quick application approvals and fund disbursements.

The Challenges 

Data security is one of the major concerns within the FinTech industry. With digitization, confidentiality of data is exposed to increased levels of risk. Protection has to be the topmost priority to make sure that customer information is not vulnerable to cybercrime.

Customer trust is another obstacle that FinTech companies will need to overcome. The main challenge is to build the assurance required for consumers to look beyond their conservative mindsets. This will encourage them to change the way they have always been availing financial services.

Regulations could act as a threat to the innovation that the FinTech segment thrives on. The more stringent the rules are, the more difficult it will be to create value out of advanced technology. However, if implemented the right way, regulations can also help promote the way FinTech companies will function in India.

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FinTech: The Future

Already, blockchain has made an entry into the market and shows a promising future, with other mammoths like robo-advisory services and bank-in-a-box following closely behind. Financial inclusion will now become a reality as technology will allow for integrated penetration into rural India. Per NASSCOM’s report, by 2020, the FinTech industry is expected to grow by 1.7 times and be valued at approximately USD 8 Billion.

Overall, FinTech has tremendous growth potential in India, due to the country’s inclusive economy, broad consumer expectations, and developmental scope. One thing is certain, and that is that digitization will make FinTech the future of monetary transactions across the globe.