The last decade saw India becoming one of the biggest hubs for fintech startups globally and how fintech transformed the way businesses and people avail banking and financial services. There has been a tremendous confluence of technology and finance to bring about fintech services such as video KYC, paperless onboarding of customers, card-less cash withdrawals, ‘tap and pay’ via mobile.
A report by FICCI and BCG posits that the fintech sector will grow to a valuation of $140-$150 billion in the next 5 years. Let us delve a little deeper into why this decade will belong to fintech in payments.
Fintech and Banking: A Collaborative Relationship
The last decade witnessed the shift from the physical to the digital, while hybrid banking seems to be the trend in the current decade. Banks and Fintechs are all for a collaborative relationship rather than a competitive one. Since the onset of the pandemic, the fintech and the banking sector seem to have entered into an evolution stage. The financial institutions are seeking partnerships with technology companies to lend agility and efficiencies to their existing systems, embrace innovations, and enter new markets and product segments.
On the other hand, fintech companies are all in for joining hands with financial institutions to extend their client network, gain more industry and regulatory knowledge, expand into new markets in order to go mainstream. No wonder the rise of fintech has led to changes in consumer behaviour and disrupted the traditional financial and insurance industry.
#1 The Next Step Towards Financial Inclusion
The current collaboration between the fintech companies and the banking sector has led to the democratization of financial services taking banking to the remotest corners in the country. Mobile banking applications have made fintech services accessible to the unbanked. The easy onboarding and the superior user experience that fintech applications offer are making more and more people join the digital revolution in banking across geographies and demographics.
When compared to traditional financial institutions, fintech companies can often deliver the same solution at a lower cost by using technology to automate tasks. Today, you can easily find no-fee bank accounts and no-commission stock trading apps while mobile payment UPI apps have become the norm even in small retail transactions. Fintech companies are helping to lift people out of poverty and creating a more financially inclusive world by providing access to basic financial services such as mobile money and e-wallets.
Fintech is revolutionizing financial services in continents like Africa, where companies like M-Pesa and Tala are changing the way people manage their money. M-Pesa has already assisted 194,000 Kenyan households, or 2% of the population, to escape poverty.
#2 Instant Payments and Lending
The penetration of affordable internet services in the cities and hinterland in India is one of the major reasons people have started looking up digital payments as an option. The last decade had Indians depending majorly on cash payments. Only after demonetization and governmental digital initiatives did we see the rise of fintech payment solutions. Covid-19 and lockdown restrictions acted as the final catalysts towards this digital shift.
The shift from B2B to B2C-focused payments solutions made fintech organizations innovate further to deal with KYC bottlenecks and bring in new technologies for instant payments and cash transfers across borders. No doubt, the current fintech solutions have changed the way people shop and spend, thereby increasing accountability.
Fintechs have collaborated with banks and NBFCs to provide various lending platforms that provide instant loans and salary advances to their customers customizable according to their needs and preferences. Artificial Intelligence and data analytics are used these days to assure the creditworthiness of the borrowers across multiple data points before a loan is granted.
#3 Neobanking: A Tool for Personal Finance
Neobanks or digital banks without any physical branches are fast gaining the trust of the masses post-pandemic. Such banks provide a wide array of affordable financial services to the customers such as savings accounts, fixed deposits, instant loans, mutual funds, among others which can be accessed online via a website or a dedicated app.
Neobanks such as Salt simplify how we manage our money, whether our finances or investments. Financial education and literacy are being promoted by revolutionary startups like Chime and Robinhood, which are building the future of financial tools and promoting financial education and literacy. More people will reduce their debt, understand the importance of budgeting and saving, and invest for the future if their financial literacy improves.
#4 The Decade of APIs, Voicebots, and Advanced Tech
API-led banking is extensively being used by the government and banking institutions to promote digitization in B2C and C2C dealings. To perform their functions digitally and seamlessly, banks need to integrate their services with a third-party app. APIs act as the connecting bridge between banks and these third parties to connect safely and augment each other’s offerings in real-time. An example of this can be the mobile wallets used to send and receive payment requests to banks during a transaction.
Technologies like AI/ML(Artificial Intelligence/ Machine Learning) are employed in complex financial activities like analytics, lending, and fraud detection. Fintech offerings, such as voice bots or voice assistants, interacting with customers using voice recognition technology based on AI and natural language processing will soon replace the existing chatbots in banks. Other technologies such as thumb impressions to validate payments, biometric authentication, Iris, face and voice recognition as passwords are already being used to strengthen banking processes in India.
Earlier, large corporations used to have an advantage when it came to utilizing the most recent technological and financial tools. In today’s world, this is no longer the case. Even a solopreneur can now use some of the tools that the big companies use, such as Square and Stripe for payment processing or Xero or QuickBooks for accounting. Innovative fintech products allow small businesses to expand their services while increasing efficiency and scale.
#5 Safe and Secure Transactions
Some people believe that when it comes to security, fintech services aren’t very trustworthy. This, however, is simply not the case. Traditional banks and financial institutions, on the other hand, may be more susceptible to security issues as a result of their slow adoption of new technology and cybersecurity measures. A single cyberattack can render the entire functioning of a bank useless given its centralized nature. However, this isn’t the case with fintech applications that prioritize the privacy of information and the security of transactions.
Fintech firms ensure that every transaction made on their platform, including all customer data and personal information, is secure. Many fintech organizations have introduced ground-breaking features that are better at protecting users than ever before. From instant spending alerts to location-based security, there’s something for everyone. Fintech firms do a decent job of keeping you and your information safe.
Fintechs, soon, will play a critical role in supporting long-term economic growth in terms of job creation, investment inflows, innovation, thought leaders, and laying the groundwork for digital talent. The sector has risen to become one of the most dynamic in the economy. Several fintech products will find mainstream adoption shortly, thanks to offerings backed by blockchain technology, artificial intelligence, machine learning, and data analytics. Given the current rate of innovation, a product that has yet to be released could become the foundation of certain banking services within the next ten years.