Redrawing The Lines: How FinTech Is Driving The Financial Services
We are living in an era of disruptions and FinTech is the face of this disruption! After almost a century the world faced one of the greatest pandemics ever to occur on the face of planet earth, when economies collapsed and the industries were at a halt, the situation shone like a golden opportunity for FinTech to rise in the financial service segment and acquire 35% of the market share.
FinTech came in with one basic motive, that is, to make the complex financial activities simpler! In every segment, FinTech gave users a sea of opportunities to trade, lend, borrow, store, pay, etc easily. It is not rocket science anymore! With ample benefits there attracts other consequences too.
For a broader insight on the topic, in another interesting episode of #DigitalSuccess Dialogue in association with The Economic Times, we have invited five experts to share their views on the topic, Deena Mehta (Managing Director, Asit C. Mehta Investment Intermediates Ltd.). Govind Saboo, (Principal, IndiaNivesh Fund Managers Pvt. Ltd), Joydeep Dutta, IT Strategy Consultant, Ex-CTO, ICICI Securities, CDSL India, Yagnesh Parikh, (Advisor – IT and Digital, ICICI Securities), and Abhishek Rungta, (Founder and CEO, INT,) and Arun Gupta, ( IT Advisor, Shalby Limited) moderated the session.
Technology has become the key enabler to digital transformation and the transformation we are talking about has opened many more opportunities not only for startups that come up with unique ideas and challenge the status quo but also for the big tech giants like Google, Amazon, and Facebook who are also heavily investing in the financial sector.
When asked about people’s responses regarding the disruption taking place across the industries, Deena Mehta shared her experience during her long association with each of the development that took place in the Indian ecosystem such as the online trading system in BSE, CDSL- digitization in the depository services and NPCI. “The transaction during my initial days of NPCI was 17 lakh but now it went up to 2 Cr per day” Mehta added.
During the trend of faster development where plug-play brings innovative ideas, Deena adds “For instance in today’s world where a company wants to have eKYC and it is not that hard to get eKYC done. In Fact, a business module is readily available along with a comprehensive dashboard to complete the process faster”. She also added how earlier one needed to develop a system from scratch; today it is as simple as completing a puzzle with different pieces from various places. Thus making the entire development process faster. For her, this is one major shift that took place in the digital world of India.”
The established banks today were once the early digital adopters looking to keep up with the pace of the changing technologies. Yagnesh shared his experience of how in his early days with ICICI Bank, “banks were about focussing on providing 24*7 facilities to the people, which was coined as Universal banking. Back then the aggressive projects were implemented, such as deploying ATMs to every possible corner of the street and awareness of internet banking.”
At every phase, the financial sector strived to improve the banking system for scaling up the customer experience and FinTech revolutionized the financial service sector. During those times, banking facilities were not widely available but with the introduction of FinTech, it was made possible. Today even the remote places with no banking facilities are being reached and the basic banking facilities are available for everyone.
Regulators and the Government are also the major contributors to the growth of FinTech in the Indian financial ecosystem. For instance, we have a UPI that took electronic payment to the masses of India and that also attracted global and local players.
Though it is too early to share the opinion on whether the three major players such as Traditional banks, FinTech, and Large techs, sharing a new space will compete or collaborate. Abhishek when asked to share his viewpoint, mentioned “ Together FinTech and Banks will show cooperation as they would work together aiming to overcome the hindrances faced by each of the sides.
Banks have an advantage of huge capital adequacy, secured risk management abilities, and strong processes whereas FinTech is good at understanding consumer challenges, consumer processes and they also aim at creating a niche product. These competencies are complementary. Thus we might see more collaborations or MnAs”.
He also mentioned “The challenging part is to keep the flexibility and agility of these FinTech companies alive and not be a part of the similar old structure that the bank traditionally utilized. The competition will exist between big techs and the bank and FinTech together. “
Amazon has made investments in 50 FinTechs, whether big tech guys such as Amazon, Facebook, Google will be major competitors in the segment or not is a big worry for the banks. Though regulators play a major role when it comes to hardcore financial activities. In line with it, Joydeep Dutta added “ BFSI is a highly regulated industry and any new player that comes to participate in the new ecosystem has to go through a regulated system. Even the big techs if they want to offer financial services, will be needing a regulator’s permission. Currently, they are working at the periphery of the system and not the core. Thus in my view, big techs won’t be much of a competition in the next 2 to 3 years for the big established financial institution in India.”
Govind concluded with great insight of credit cards by citing “It took 40 years to have 50 million credit cards and still expected to grow at the rate of 20 percent which means the digitization that happened in the last 40 years will happen in next 4 years.” The pace at which the change is taking place is magnificent. There will be coexistence as well as healthy competition. There will be large traditional banks going through transformation for the digital needs of the customer, alongside FinTech with the innovative product and creating a larger need of their own niche, and then the big techs who will try to enter the market through other disruptions.
The dialogue series also involved a segment where the future of cryptocurrency was discussed, in which the speakers discussed what they felt about cryptocurrency. The discussion was led by Deena ma’am where she explained: “that she was completely against the idea of cryptocurrency, she said no country would want its currency to compete with cryptocurrency”. She also mentioned the fact that she doesn’t think RBI would allow many sorts of cryptocurrency to compete with the INR. Joydeep mentioned that there was a need for a regulatory body to take care of the flow of the cryptocurrency, he highlighted the risks that surrounded the phenomenon of cryptocurrency and also stated the fact that if there is an emergence of cryptocurrency RBI would lose control over the monetary policy and financial stability.
The four broad segments that FinTech today is working on are, Intermediation where lots of financial services are intermediated by technology such as Stock exchange, Payments where we noticed the digital transformation of physical payments, and then Data repository and evolving Lending segment. “If we integrate all four we will see a successful branchless FinTech bank with one comprehensive platform” added Saboo.
Overall the session was a very enriching one covering a range of topics, starting from FinTech, the risks involved with fintech, the challenges faced by the new companies, the emergence of UPI, the future of cryptocurrency, and some more interesting topics. FinTech has its roots well into the entire financial sector and is changing the dynamics of the entire economy, It is driving the Financial Services of the entire country.
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