FinTech in India and the world: Evolution, Impact, and Uses

With this piece, we take a look at everything you possibly need to know about Fintech in India and the World. We take a look at the Evolution, impact, uses followed by a few Fintech Startups in India. But before we look at all that, we need to understand “What is Fintech?” Let’s jump right in the piece!

Financial Technology or FinTech is a subdomain under Finance that comprises enterprises that uses technology to make the Financial services seamless. Simple, yeah? The definition for FinTech given by Merriam Webster Dictionary is – “products and companies that employ newly developed digital and online technologies in the banking and financial services industries”. These can even be businesses that use or create such technologies.

The first recorded use of the term FinTech was way back in the 1980s by Peter Knight, the editor of a business newsletter in the Sunday Times. He used it to describe a bot that had altered his mailbox. The scope of the FinTech space grew manifold from its days of inception. It spans from payments to wealth management, from peer to peer lending to crowdfunding. And today, this space encompasses new finance-related tech ventures or startups and is one of the fastest-growing spaces in the world.

FinTech space in India

Though the epicentre of this new trend is mostly in the developed economies, the impact and adoption rate is seen to be higher in the developing economies of the Asia Pacific. According to a study across 20 global markets, the markets with the highest adoption rates were found to be China (69%) and India (52%). The reason for this success being, their ability to tap into tech-literate but financially under-served populations. The FinTech industry was long under the purview of Investors and Banks, but owing to its rising demand and acceptance, the regulatory bodies are now trying to bring the sector under its radar.

FinTech Services

Money transfer and payments: 50%

• Online foreign exchange
• Pay via cryptocurrency
• Overseas remittances
• Online digital-only banks without branches
• Non-banks to transfer money
• Mobile phone payment at checkout

Insurance: 24%

• Car insurance
• Insurance premium comparison sites
• Activity-based health insurance

Savings and investments: 20%

• Peer-to-peer platforms for high-interest investments
• Investments in equity crowdfunding platforms and rewards crowdfunding platforms
• Online investment advice and investment management
• Online stockbroking
• Spread betting- Spread betting is a derivative strategy, in which participants do not own the underlying asset they bet on, such as a stock or commodity. Rather, using the prices offered to them by a broker, these bettors simply speculate on whether the underlying asset’s price will rise or fall.

Borrowing: 10%

• Borrowing using peer-to-peer platforms
• Borrowing using online short-term loan providers

Financial planning: 10%

• Online budgeting and financial planning tools

Sectors in FinTech Industry

Crowdfunding Platforms

These are unique online platforms that allow a large number of users to pool in their money and fund another entity or person in the platform, in small increments. This is an easier way for companies to raise funds for their projects.

This is the preferred mode compared to traditional banks as it is hassle-free and it brings together people with similar interests and usually the investors will be very much keen on the projects they fund.

Example- Faircent, Ketto

Blockchain and Cryptocurrency

Cryptocurrency exchanges like Coinbase and Gemini connect users to buying or selling cryptocurrencies like bitcoin or Litecoin in exchange for the traditional fiat currency or other assets.

Blockchain in addition to crypto plays a major role in maintaining the database of transactions and thereby preventing fraudulent activities. Blockchain service like BlockVerify is an example of how blockchain technologies can be used to prevent counterfeiting.

Related: Take a look at the advent Cryptocurrencies in India

Mobile Payments

Mobile payments are regulated modes of payment that take place digitally through your mobile device. Mobile payment encompasses mobile wallets and mobile money transfers.

Mobile wallets are the digital version of the wallet that you can carry in your pocket. It stores credit or debit card details and cash balances which can be used to make payments.

Mobile Payments use technologies like Near field Communication (NFC) for the transfer of money.

Example- Paytm, PayUMoney, ICICI Pockets

Related: Take a look at the Paytm case study 

Insurance/Insurtech

Insurtech is a subset of FinTech. It includes anything and everything related to insurance, from car insurance to home insurance and data protection. This innovation is therefore helping people to Buy, Sell, and store policies online.

Insurtech in play can be seen in novel Smartphone apps, wearables, claims processing tools, online policy handling, and automated processing, etc. Insurtech is also useful in collecting and analysing customer data hence enabling the provision of better and hassle-free services.

Example – Acko, PolicyBazaar

Robo-Advising and Stock-Trading Apps

Robo-advising is a class of financial advising which takes place with minimal or no human intervention. It has disrupted the asset management sector by providing algorithm-based asset recommendations and portfolio management that have increased efficiency and lowered the costs.

Using stock trading apps, investors can buy and sell stocks at the tap of a finger on their mobile device. These apps are inexpensive and have made the experience seamless.

Example- Robo Advisory apps- Groww,5nance

Stock trading apps- KITE App, Upstox PRO app

Budgeting Apps

Budgeting apps provide the convenience of having all the financial data in one place, which helps in easily monitor the spending of the user.

Before, consumers had to create their budgets, gather checks, or navigate excel spreadsheets to keep track of their finances. These budgeting tools have revolutionized the way consumers think about their money.

Example- Walnut, Monefy

Regulatory Bodies in India

RBI

The primary regulatory body for FinTech in India is the Central bank -The Reserve bank of India. Non-bank payment service providers should comply with the KYC norms similar to those prescribed to Banks.

Ombudsman Scheme for Digital Transactions by RBI: RBI has issued an Ombudsman scheme for digital transactions on 31st January 2019. This scheme has RBI officials as ombudsmen who will enable customers to report complaints against these non-bank entities participating in the payment system. FinTech entities should appoint nodal officers who will represent them before the ombudsman.

UIDAI

The Unique Identification Authority of India (UIDAI) is a statutory body responsible for administering the Aadhaar Programme. The UIDAI has played a pivotal role in the use of Aadhar by FinTech players as a means of customer identification.

Anti-Money Laundering

To avoid the risk of money laundering, FinTech has to fulfill its Anti-money Laundering (AML) obligations in the regions they serve.

Impact of FinTech on Financial services

According to the paper by Hiroshi Nakaso, the Deputy Governor of the Bank of Japan, the impact of FinTech can be seen in the following ways-

• Unbundling and Restructuring of Financial Services

Traditional Financial services work by borrowing and lending money, this regimen is not true for the fintech space as there are companies that solely work on payments. This transformation will eventually change the course of traditional financial services in a country.

• Globalizing Financial Services

FinTech will globalise the financial services by providing basic financial services through mobiles and the internet.

• Personalizing Financial Services

FinTech will facilitate personalised financial services through personalised tools like smartphones. By combining Bigdata the fintech industry can provide more customised products.

• Virtualizing Financial Services

The emergence of virtual banks will happen which has no tangible infrastructure but uses the internet, smartphones, cloud computing, artificial intelligence (AI), Distributed Ledger Technology (DLT), etc.

Conclusion

The day when the world will completely move away from the fiat currency regime is not far. This shift will change not just the lives of the users but all other entities that are part of the financial ecosystem of the world- the Central banks, Exchange markets, Banking network, Forex, and whatnot. All these innovations are towards a common goal, to make the experience seamless and comfortable.

The Author

This piece was penned by Ajmi Fathima N S, a student at IMI New Delhi; she’s a Finance enthusiast and loves writing about Fintech, banking and economy in general. Drop a thank you when you can!

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