Fintech And Its Challenges

There’s going to be more changes in Financial Services Industry in coming five years than there’s been in last 50 years !!!

Thanks to Fintech Revolution!!!

Fintech is a new trend in the market disrupting the financial services industry and making conventional leaders lose their sleep. 

In layman’s terms,Fintechisdisruption in financeservices industrydriven by advancement in technology, Industrialization of Artificial Intelligence & Machine Learning and availability of cloud computing.Based on the which problem is being solved, Fintech might be further classified asbanking tech, Insurance tech,Regtech.

Recent announcement by Apple to launch credit card has posed significant concerns among banking leaders as Credit card remains one of the most profitable product and if Tech leaders like Apple, Google take away this pie of the cake, then banking industry which is already struggling to meet its means could lead to devastating impacts.

Technology is changing the way people transact and do banking transaction.Advancement in technology, penetration of Smartphone and internet has made consumers more demanding. Today consumers are looking for 24*7 services which brick and mortar based banking industry isn’t able to meet.The sector is getting a strong push from the Government.

PayTM is a good case study in Indian Context which made best use of demonization and expanded to almost every corner of  India.  Post demonetization, mobilepaymentshave risen exponentially with significantreduction incash transactions. Government is also involved in digitalization of financial system via connecting Aadhar to PAN and it becomes mandatory to link them with each other. Mandatory E—KYC for all the bank accounts. This integrated ecosystem is going to produce a lot of data which will help Fintech tomeetthe challenge. 

Each Industry goes through its own set of challenges and in my view Fintech has it’s hurdles to navigate:

1. RegulatoryLandscape- Most of theFintechsectorsare looking for clear set ofregulations from their Regulators whether it’s RBI or SEBI or IRDA or any other.  RBI grantedPayment Banklicenses to 11 FinTech startupsthat provide deposit, savings and remittance services. RBI has issued few regulationsin mobile/eWallet & P2P lending space but there is  lot more clarity required. P2P lending and payments need to beclarifiedon a priority basis as public money is involved over there.  Regulatory uncertainty in this space making itvery risky to operate.
   
   
2. Financial Ecosystem:The relationship between FinTech startup and traditional Financial Institution has changed from competition to collaboration. Financial Institutionsareworking with start-up in many ways like Partnership, Acquisition, Incubation etc. However, there are a lot of hurdles in collaboration. Both have their own set of rules in terms of efficiency, size, acceptance etc.Tradition FI can’t afford to be left out else it’s a matter of time before they become Nokia of FI industry. It’s time both Fintechs & conventional FI open their arms and explore synergies.All parties of financial ecosystem i.e. Banks, financial institution, Regulatory body like RBI, SEBI, Trai etc need to respond with the pace of technology innovation. Easier said than done !!!
   
   
3. DataSecurity& PrivacyRisk- As we know, data is the new oil.  In this space, huge data will be gathered by Companies.To avoid Cambridge Analytica like situation which can lead to closure of companies and prosecution of founders, it’s important that Data Security & Privacy is taken seriously.

4.Consumer Confidence- Indian customerareknownto beconservativeand price sensitive, especially inmaking a financialdecision.  A long way to go by  FinTech startupsto gain confidence among Indian customer. 

5.Lack of awareness-  More than 70% population of India live in the villages and use of these digital payment platforms are done by most of the urban people.  This sector needs to make its way through awareness in rural India. 

6.Cash Market- Despite demonization, India remains highly cash intensive country. It becomes difficult for FinTech Companies to get data about customerand transactions which are off the book andinvolve cash. 

In Summary,FinTechs are the future, it’s not a question of ‘if’ but ‘when’.  Fintechs are planned to disrupt Financial services industry the way Smart Phones did to Nokia & Kodak.But it’simportant for regulators to protect consumersand promotetheEcosystem. India’s huge population and vast underbanked and new to the bank will create opportunity in this sector.  India has made a good start and moving in the right direction. Let's see how the FinTech revolution is going to the changes the habit and behaviour of Indians. 

Anuj Modi

Guest Author The author is qualified Chartered Accountant, Insolvency Professional and an alumnus of IIM Calcutta. He has experience of more than 12 years in the field of Financial Planning, System Analysis & Design, Taxation, Startup Consultancy etc. He is also Co-founder of MarketBills – an online Supply Chain Finance Company.