The Modern Rules of Fintech

512 Views Updated: 24 Dec 2018
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The new term Fintech has left all wondering as to what is fintech. Fintech is a combination word derived from financial technology and describes the financial services sector of the 21st century. Previously this term was used to describe the back-end dealing of financial institutions. At present this term now includes any innovation in the financial industry which is due to technology. It has redefined each and every aspect of money matters. Fintech adoption rate of India is approximately 52% which is second to China according to a report.

Fintech revolution in India started in the year 2015 which saw new fintech startups emerging through public and private investments. It was achieved through technical skills, investment, and passion for innovation. This along with the regulatory framework and government policies were also present in order to establish financial technology in India. Although India is still adapting to the financial technology by transforming its financial ecosystem.

Ecosystem of the Indian Fintech sector:

The ecosystem of the Indian fintech sector comprises of the government, investors, financial institutions, and users. We will look into each of these and understand as to how these ultimately lead towards the establishment and growth of fintech India.

- Government

The government is the most important factor for financial technology in India. The Indian government is in full support of fintech revolution along with regulators. By providing the funding, programs for financial inclusion and enablement, tax surcharge and relief the government is lending a helpful hand to support this industry. The start-up India was launched in January 2016 with an amount of USD 1.5 billion funds for start-ups. Tax initiatives involve tax rebate being provided to those merchants who have more than 50 percent transactions digitally, providing an income tax exemption for the first three years to start-ups, and a rebate of 80 percentage on patent costs for start-ups. The government is also providing the infrastructural support through its Digital India and smart city initiatives to promote digital infrastructure along with attracting foreign investments.

- Regulators

The regulatory support in India for the development of fintech industry has been phenomenal. Since fintech in India is in areas such as wealth management, lending, payments, and security. The regulatory initiatives involve introduction of Unified payment interface which has the ability to take India towards a cashless environment, setting up Small finance banks and payments banks. The most regulated fintech sector in India currently is payment space.

- Investors

Since financial technology is quite a new concept and it will take time to develop complete understanding about this. What the investors need to know is that this is much more than being a payments technology merely.

- Technology firms

Without the support of technology firms, fintech cannot flourish in India. Some technological firms are already working in areas such as innovation, investment and incubation along with capability development. Besides this they are also collaborating with the new entrants in the market in order to strengthen fintech India.

- Financial sector

The most affected sector due to the advent of fintech is BFSI (banking financial services and insurance sector). The positive aspect, however, is the fact that this community is making the necessary changes in order to adopt this technology. The BFSI sector has adopted a four-way strategy to develop this industry further. The strategy involves investment, market factors, collaboration and partnership.

- Users

The Indian customers are adopting fintech offerings at a rapid pace. Due to the increase in the use of smartphones users are now looking for something which will help them to explore better option and avail better services for their banking needs.

Fintech impact on the financial sector

 Since fintech, in particular, has a lot of impact on the financial industry it is important to understand as to how this impact will create changes in this industry in future.

1) Lending services

These companies are trying to use alternative techniques in order to provide faster access to capital and data sources.

2) Payments and remittance service

The objective of these payments companies is to allow users to make online payments without fraud using websites and smartphones. The payment is directly transferred into the payee’s account. Whereas the remittance companies aim at resolving all the remittance issues whether inward or outward remittances.

3) Personal finance

These fintech companies provide payments solutions to individuals using their own finances. They have different market competitive packages to choose from.

4) Banking infrastructure services

These fintech companies have revolutionized access to information, using blockchain, digital data and analytics. Blockchain technology is the real game changer of financial technology. It is basically a distributed ledger which maintains huge data of customers. The aim of blockchain technology is to facilitate transactions using cryptocurrency to record and transmit ownership of data, currency and non-digital assets.

5) Equity funding services

Crowdfunding is a great opportunity for new start-ups since it allows them to borrow capital at lower rates as compared to the market rate.

6) Crytpocurrency

This is an emerging field in India holding a promising future.

Future of fintech India

The future of fintech India is bright. With developments taking place in major areas of fintech it is predicted that India will adopt this technology completely. Alternate lending, robo advisory, and digital payments will become the norm. Although there are threats which exist such as cybercrimes which can be mitigated through strict and efficient security measures.

 Nevertheless, the banking sector should look forward to the digital revolution as it will also bring new business opportunities.

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