market research agencies in mumbai
23 Jan 2023

What Makes FinTech the Way Forward for Indian Banking?


Businesses all over the world now have a huge potential to improve and adapt their financial systems to enable greater inclusivity, efficiency, and equitable growth. This is largely due to the ongoing large-scale digitalization of the financial services sector and the widespread prevalence of fintech.

It has been established that the fintech sector plays a role that is more evolutionary or transformative than disruptive. Numerous bank-fintech partnerships have developed that use the technology to enhance how the banking sectors function rather than displace or compete with already existing organizations.

The fintech sector has the capacity to streamline the operations of the traditional financial sector and enhance efficiency, reduce costs, and make financial services accessible to more customers. And the good news is that this sector is growing at a steady pace in the country.

There are numerous factors driving the growth of the fintech sector in India

  • Stable economic growth that is expected to accelerate household consumption and income levels
  • Low penetration of financial services in tier-2 and tier-3 cities
  • Increasing development of digital infrastructure (internet and smart devices)
  • Ubiquitous mobile connectivity and low-cost computing and data

Due to these factors, the fintech sector is already disrupting the Indian banking landscape and it’s safe to say that it’s the way forward for Indian banking. Here are a few fintech-enabled services that are transforming the financial services landscape in the country.

Lend Tech

Fintech businesses, in contrast to traditional banks, need little documentation in order to lend. This makes obtaining credit from them easier and quicker. Using factors like income and spending patterns, fintech companies also utilize AI to analyze the risk of clients with little to no credit history.

Buy Now Pay Later (BNPL), personal loans, salary loans, gold loans, vehicle loans, school loans, and P2P lending are some of the consumer-focused services available in this market area. Business-focused services, on the other hand, include corporate cards, fixed-term financing, and trade financing.

Collections management, credit bureau, alternative credit scoring, lending as a service, loan origination system (LOS), and loan management systems are among the fintech services used in this market area.

Open Banking

Open and embedded banking keeps the financial service landscape competitive by leveraging payment security, White label solutions, card networks, and payment gateways. Consumer-centric open banking services include third-party application providers, prepaid cards, QR code payments, payment aggregators, and POS. On the other hand, business-centric open banking services are corporate cards, invoice payments, and B2B payments.

Aadhaar lowers the costs and risks of exchanging customer information. Common standards for digital payments are made possible through its subsidiary, United Payments Interface (UPI). Additionally, Aadhaar offers a testing ground where banks and fintech can try out cooperative business ideas.

Fintech is able to provide better-designed, more individualized services thanks to the data, and embedded banking makes it possible to build platforms that are tailored to particular markets, like an HR portal that makes it easier to set up employee bank accounts. These services' main advantages are that they are rapid, secure, and paperless

Wealth Tech

In order to provide customers, companies, banks, and other organizations with a better understanding of investment and purchasing risks earlier in the process, fintech is also making inroads into the wealth management sector. Utilizing algorithms created to identify trends and hazards, AI and machine learning are used to process enormous volumes of data.

Neo Banks

Even though the RBI does not yet award banking licenses to purely digital banks, the drive for cashless transactions in the economy has fueled the growth of digital-first banks, or "Neo banks," with nearly all large banks now offering some sort of mobile banking. Moreover. over the course of a year, digital payments grew by roughly 29% nationwide.

Fintech – Threats and Challenges

While fintech is undoubtedly ground-breaking in the banking space, it does come with its own threats and challenges. Among these, the challenge of data privacy and application security is the most critical.

Due to the nature of their business, fintech companies keep vast quantities of extremely sensitive customer data, including credit card numbers, income & investment data, and more. This information is always vulnerable to transit because phone and online banking services are being used more frequently.

To tackle this issue, fintech companies need to develop a robust risk mitigation framework. In addition to this, customers also need to be made aware of the best practices and how to avoid online financial scams. This is where regulation comes into the picture. Regulatory bodies need to come up with a protocol that ensures that users are able to leverage the convenience offered by fintech services while avoiding the risks.

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