The Rise of FinTech: How It's Revolutionizing the Financial Industry

The term “FinTech” was first used in 1972 by a New York banker, and it refers to companies that provide financial services using technology. FinTech services encompass a wide range of offerings such as payment methods, online lending, mobile applications, financing, foreign currency exchange, remittances, investment management, digital currencies, mobile wallets, and technologies such as artificial intelligence and robotics, as well as crowdfunding insurance, and wealth management. The FinTech industry has evolved to include other technology solutions such as digital identity, biometrics, wearables, and regulatory technology (RegTech). Emerging technology-enabled trends are significantly impacting and influencing the financial services sector, supporting innovation.

The 2016 report by Ernst and Young titled “Capital Markets: Innovation and the FinTech Landscape” outlined nine technologies and technology-driven trends that are propelling innovation within the Fintech industry. These technologies comprise blockchain, smart contracts, artificial intelligence (AI), the internet of things, advanced analytics, robotic process automation (RPA), robotic process externalization (PSE), robotic process automation (RPA), robotic process automation (RPA), and cloud technology (IoT).

Exploring India’s Fintech Ecosystem: Start-ups on the Rise

KPMG’s 2016 report highlights India’s emerging fintech ecosystem, which offers start-ups a potential platform for growth into billion-dollar unicorns. Fintech start-ups in India are exploring new market segments and expanding into foreign markets, driven by a surge in e-commerce and smartphone penetration. NASSCOM forecasts that the fintech software market in India will grow to USD 2.4 billion by 2020, doubling its current size of USD 1.2 billion. The Fintech sector in India has shown a positive response in the traditionally cash-driven economy. According to industry reports, the Indian fintech sector is projected to witness a remarkable growth rate in the coming years. The transaction value is estimated to surge from USD 33 billion in 2016 to USD 73 billion in 2020, indicating a robust five-year compound annual growth rate (CAGR) of 22%.

In 2015, investors were primarily interested in high-tech cities in India. Among these cities, Bengaluru received the most attention, with 11 investment deals totaling $57 million. Bengaluru’s reputation as the start-up hub of India has drawn significant investor interest, with the city securing 17 fintech deals in 2019. This has propelled Bengaluru to the 15th position in the global start-up ecosystem. Bengaluru has become a popular destination for fintech start-ups due to its skilled workforce, supportive regulations, and access to funding.

India’s Fintech Sector: Unlocking Opportunities for Growth

India’s fintech sector is not as advanced as other countries, but it has potential for growth because of the availability of skilled and cost-effective technology workers. Fintech services, such as digital wallets, lending, and insurance, have transformed the way people do transactions, and their popularity is making India an attractive market globally.

Fintech has already revolutionized the financial services industry in India, and fintech entrepreneurs have disrupted the industry in many ways. In the future the following sectors in fintech are expected to see the next wave of innovation:

Blockchain: In the past, transactions required third-party validation, but blockchains have eliminated the need for third-party reconciliation and provided cryptographic security. While bitcoins have already gained popularity using blockchain technology, blockchains are expected to expand into different sectors beyond payments, banking, and finance. These sectors may include media, telecom, travel, and hospitality.

Alternate lending: In the past, traditional banking institutions have found it unprofitable to lend to small entrepreneurs. Fintech entrepreneurs have taken advantage of this opportunity by diving into Peer-to-Peer (P2P) lending and building web platforms to connect lenders and borrowers at lower interest rates. Experts expect this trend to continue, and they anticipate the emergence of other alternative lending avenues, such as crowd funding.

Robo-Advisor: Before the advent of Robo advisory, intermediaries played a crucial role in facilitating transactions between the stock market and investors, but this often led to problems such as non-traceability and inefficiency. However, with the development of Robo advisory, the stock market is becoming more accessible, transparent, and efficient. Robo advisory is expected to provide added value to investors who are well-informed and seek smarter investment opportunities.

Digital Payment: Fintech startups have improved the speed and ease of making payments through digital methods. Mobile wallets are already replacing traditional wallets in many areas and will continue to grow with even better and faster payment options. This trend may eventually make ATMs obsolete.

Insurance Sector: The insurance sector has already seen the emergence of online marketplaces that allow customers to compare policies and make informed decisions. Fintech innovations will further revolutionize the insurance value chain by introducing automation powered by data, this will reduce operational costs and expand the range of products available in the market.

Fintech Adaptation in India

Digital Payment: After demonetization in India, there was a significant increase in the adoption of various cashless payment methods. The government also played a role in promoting the use of digital wallets, Internet banking, and mobile-driven point of sale (POS) systems.

The financial sector in India underwent significant restructuring through the implementation of Aadhaar card linking, eKYC, UPI, and BHIM. Following the ban on 500- and 1000-rupee notes, there was a reported increase in digital transactions by up to 22%. Fintech startups like Paytm experienced a surge of 435% more traffic to their websites and apps, leading to growth opportunities for many other fintech startups in India.

Digital finance firms in India have received significant support from government startup policies, including an easy process for launching a fintech startup facilitated by the Reserve Bank of India (RBI). Additionally, the government provides financial assistance of up to 1 crore for startups. As a result, customers have become more accepting of digital currencies for both personal and commercial use.

Artificial Intelligence: The integration of Artificial Intelligence (AI) has brought significant changes to the finance industry, particularly with the rise of FinTech. Before AI, only a few industry leaders could handle the quantifiable nature of today’s technology-driven world. However, AI has been a game-changer for FinTech, as evident in various use cases. FinTech companies and financial institutions have incorporated AI and machine learning to boost efficiency and provide customers with personalized, cost-effective, and easy-to-use financial products and services to fulfill their banking requirements.

Blockchain: The rise of Fintech is causing primary disruptions in the financial industry and companies in the blockchain development sector to have an edge in this field. The Indian government has also recognized the importance of blockchain in Fintech, highlighting four blockchain applications in a recent report on Fintech-related issues. Blockchain technology is transforming the Fintech industry by reducing operational costs and time, improving identity verification processes, and removing the need for intermediaries.

Cloud Computing: The use of cloud computing in fintech has helped companies save money and improve their services while meeting regulatory requirements. Meanwhile, chatbots using natural language processing (NLP) are expected to improve customer service and mobile banking experience by providing quick and practical solutions to customers’ questions.

Conclusion

The Fintech industry in India has a vastly untapped market with a significant number of people still dependent on cash transactions and without access to banking services; This exposes a different opportunity for fintech start-ups to capture a substantial market share in various segments. Government initiatives are facilitating the growth of industries, such as promoting digital payments, providing financial assistance to start-ups, and simplifying regulations for fintech companies.

The fintech industries offer fast and convenient financial services and products to consumers through digital wallets, online payment platforms, robo-advisory, and P2P lending. This has made the industry increasingly significant for both the Indian and global financial sectors. The adoption of innovative fintech technologies, including blockchain, cloud computing, AI, and NLP-based chatbots, is expected to drive further growth and innovation in the industry.