Growing Influence of FIN-TECH on Indian Financial Services

Fin-tech is usually referred to the synergy between finance and technology, which is used to augment business operations and distribution of financial services. Fin-tech can take the shape of a software, a service, or a business that provides revolutionary advanced technological ways to make financial processes more effective and efficient by disrupting conventional methods.

 The buzz around “Fin-tech” gained momentum in India around 2015 with the advent of various Fin-tech incubated start-ups which were funded by public and private investors, venture capitals and private equity firms. Innovation and Automation have brought in tremendous developments in the traditional financial services and have simulated established financial institutions like banks to revamp their operating policies and ensure pervasive adoption of Fin-tech in the ecosystem. India is trying to buck up in the global race for embracing Fin-tech to create a dynamic eco-system in its digital journey.

India has the highest Fin-Tech adoption rate at a whopping 87% which is significantly higher than the global average rate of 64%.

Fin-Tech in India is in its inceptive stage but is also rapidly turning into an imperative element. In wider perception, it is providing lucrative opportunities for the needy and the unbanked which is definitely yielding a win –win situation for both the individuals and businesses. It has also played a predominant role in the upliftment of the MSME Sector of our country which is a key contributor to the Gross Domestic Product (GDP) to the extent of 24.63% in the service sector and approximately 33.4% in the manufacturing sector. The total addressable credit gap in the MSME segment is estimated to USD 397.5 billion reveals data from the IFC Report. According to an Omidyar Network report, by 2023, MSME digital lending could increase between 10 and 15 fold to reach INR 6-7 Lakh Crore ($80-100 billion) in Annual Disbursements.

Consumer Banking is on the verge of extinction and there should be greater focus on the consumer. Traditional banks are yet to embrace a customer-centric model while FinTech players have recognized the increasing demand for customer-orientation and are serving to the evolving preferences of customers by offering customized, targeted products and services. FinTech start-ups offer convenience, personalisation, transparency, accessibility and ease of use which are the important factors that empower customers to a great extent.

IMPACT OF COVID-19 ON THE FIN-TECH SECTOR-

Covid-19 can be termed as the “Demonetization Moment” for digital services in India. The adoption of digital payments was accelerated by the lack of hard cash or currency notes during the demonetization policy with a pre-established national tech infrastructure. Now, we are witnessing an equally unanticipated macroeconomic shock of a different variety and entrepreneurs across the country are pivoting business models in unexpected ways and leveraging technology to solve meaningful challenges for their consumer and small business customers arising from the significant health and resultant economic crisis in India.

 The consequence of a standstill economy has been felt in the lockdown with the prospering Fin-Tech industry being no exception. As economic distress continues, consumers are cutting back on discretionary consumption. Credit start-ups have shifted their focus to improving deliverables and incentivising borrowers to repay loans while driving the lenders’ efforts to raise fresh lines of capital to serve more borrowers. The RBI has taken steps to ensure optimal liquidity in the system through its targeted long term repo operations and by inducing banks to lend to more agile non-bank lenders. How banks utilize this fresh liquidity to ensure financial stability of their ecosystem partners will be a critical component of financial sector recovery.

The best businesses and ideas emerge during the most elusive and dubious times and Indian start-ups have been quick to cope up to the rapidly changing environment. In addition to core financial services offerings, digital fintech platforms have leveraged their delivery mechanisms to meet consumer needs during this challenging period. As demand for essentials spiralled, companies like PhonePe (majority owned by Wal-Mart) have enabled virtual stores on their mobile app to enable local businesses to sell products online. Bangalore based start-up Niki is incorporating voice chat in local vernacular languages including Tamil and Gujarati for its users in underserved Tier 2-3 cities which is facilitating Indians to conduct otherwise-offline household transactions digitally during the lockdown.

 The Government of India also simultaneously has ramped up its digital finance efforts as part of the COVID economic response and is actively endorsing the use of the real-time Unified Payments Interface (UPI) for transactions. The Jan Dhan bank accounts that comprise of a key element of the Honourable Prime Minister Narendra Modi’s financial inclusion initiative over the past few years have been extremely advantageous during these times for direct cash transfer by the government to the most vulnerable and susceptible sections of the society.

Fintech has now become closely linked with even the most remote areas of India and has emerged as a potent and dependable component of economic relief.

TRANSFORMATIONS AND OPPORTUNITIES POST COVID-19

It is plausible that social distancing is driving the usage of internet more specifically mobile channels to keep a check on the finances of an individual. This poses a brilliant opportunity for Fintech firms as they are customized for such channels, as they are adept in offering the right user interface (UI), onboarding and also help in providing the right context for transactions.

There are numerous ways in which the Fintech sector can grow and yield benefits in the Post Covid-19 scenario:

·     Expanding Partnership Strategies

Fintechs can collaborate with financial institutions which can derive huge advantages in terms of capital, infrastructure, compliance and most sought offer digital solutions. There is immense potential in holistic financial services that integrate the need and the behaviour of the consumers.       

·     Accelerating Economic Relief Efforts

Various payment companies can help in rapid disbursement of government relief funds and play a significant role in transferring funds to the needy and destitute.

·     Harnessing Internet Of Things (IoT)

Internet Of Things (IoT) can capacitate contactless payment facilities like connected cars or phones that allows individuals to pay for their required services without handling any potentially infected surface as Covid-19 will undoubtedly boost IoT enabled payments and services.

CONCLUSION

FinTech is categorized as one of the most flourishing sectors globally in the present market scenario in terms of business growth as well as employment generation. The FinTech software and services industry is estimated to touch $ 45 billion by the beginning of 2021, growing expeditiously at a CAGR of 7.1%, reveals data from NASSCOM. India, too, is experiencing this ‘FinTech Boom’ and is estimated to be valued at USD 2.4 billion by the end of 2020. The post COVID-19 era will see a major shift in the burgeoning preference for digital and contactless payments, reviewed emphasis on savings and investment to create a cushion for unpredictable times, and rising interest in health and life insurance to manage future unforeseen financial trauma.

 In a Post-COVID world India’s early stage tech start-ups will focus on tackling their cash flows more conservatively than recent years where the key focus was linked to venturing in areas that included remote work practices and building products that solved livelihood issues for Indians across the socio-economic spectrum. While this crisis has introduced ample challenges for India’s thousands of digital fintech businesses, many will emerge more resilient and prepared for a global stage with Indian innovation leading the way.