Topic of the Month


Role of Fintech in Inclusive Growth

-Ashutosh Dubey, Lead Business Analytics NPCI

From last decade, India is increasingly considered as a leading global innovation hub in the financial technology space. There is a great interest shown from governments, investors and global enterprises to not only invest in this sector but also mingle with ecosystem for collaboration and creation of Fintech enabled India.

Many times while trying to make payments using a credit or debit card, one finds that the payment has failed. This could be due to any reason, one of which is lack of internet connectivity. Unable to establish connection with the payments platform could also be a reason. However, soon, users could be making offline payments using cards and mobile devices.

The RBI has proposed to allow a pilot scheme for small value payments in offline mode with built-in features for safeguarding the interest of users, liability protection, etc. Under the pilot scheme, authorised Payment System Operators (PSOs) – banks and non-banks – will be able to provide offline payment solutions using cards, wallets or mobile devices for remote or proximity payments.

India’s evolution as a progressive FinTech nation is not a miracle and during the COVID times the investment done by Government, Regulators and Industry reap its benefits and lead to the emergence of next level Fintech environment in India.

In a recent report, by Research and Markets, as of March 2020, India, alongside China, accounted for the highest fintech adoption rate (87 percent), out of all the emerging markets in the world. So why Fintech are speculated as driver of next level Digital growth of India?

The answer to the question lies in 5 major trends which will not only support the ecosystem but also drive it to next wave of adoption:

  • Ease of doing payments
    More the customers get on the digital board, Fintech’s will have to focus on building trust and consumer engagement. The more they use technology to their advantage, the stronger the brand they will create; thus, surviving difficult times. Especially given the time when cybersecurity is extremely vulnerable. To be critical and to stay ahead of the competition than other fintech brands, it is necessary to focus on the security along with making the procedure simple for consumers.
  • Importance of Communication and Consumer awareness
    Digital payments methods take physical payment methods such as cash, debit and credit cards, completely out of the equation—creating a convenient and speedy experience. The demand for cashless transactions in this pandemic-hit economy is expected to create more opportunities for digital wallet and payment system operators. The transactions that are digitally linked will not just help to boost transactions but will also help the industry in collecting data. This data can then be used to offer new services. Thereby, creating new revenue streams, providing unbundled offers, and building cost-effective set-ups for businesses to grow.
  • Emergence of Super App
    One thing a consumer prefers the most would be, multiple services across one platform. Many Fintech brands have already rolled out this process of offering multiple services across one app, but the increase in offerings of robust solutions through powerful API integrations will add on.
  • New technology frontiers
    Opensource, Cloud, Machine learning and Big Data are the technologies in full swing, but they are also two complementary technologies. According to experts, brands adopting burgeoning new technologies will benefit the most. Financial services will be able to reduce fraudulent activities, phishing attacks and ensure secure payments. According to Autonomous, a financial research firm, “AI is projected to reduce operating costs by 22 percent around 2030.”
  • Emergence of Standards and Framework
    Regulators pays a critical in standardizing the financial services. As the needs and demands for financial transactions are increasing, payments and the banking industry have been evolving also continuously and likely to setup the required standards. The best kind of consumer experience and quick responses to regulatory changes will matter the most. Now, it is only a matter of time to see how high the Fintech market will continue to grow and at what scale.

Almost 80% of financial institutions have entered into fintech partnerships (A McKinsey report). While collaborations between banks and fintech companies at different levels; public and private will be on the rise, other mutual synergies will also play out in favour of the industry with fintech start-ups as well as incubators or support systems making the fintech journey in India extremely sustainable. A recent PwC research shows that 44% of those who earn less than $75,000 per year would trust a technology company for peer-to-peer payments, and this rises to 68% among earners making more than $100,000.11. This number shows the growing trust of customers on online platforms.

Recently Multiple FinTechs are driving the agenda of Financial Inclusion by the means of Credit lending to last mile. For instance, a personal loan needs to be a three-year loan and if you prepay you still have to pay a charge. That has not changed. Therefore, apart from digitising there is a big opportunity for FinTechs to completely re-imagine the product suites that are being offered. Continuing on the same, standard interest rate norm today on credit cards is 36%, the annual percentage rate (APR) nobody has changed despite becoming digital and if someone is coming along and creating products and services which fundamentally redefines the credit card business, there is a very big opportunity which comes up for Fintechs to lead in this marketplace and drive opportunities which are sustainable and cheaper.

NPCI is also driving several initiatives like API Accelerator platform, Hackathons along with knowledge sessions to make the ecosystem equipped with requirements of last mile and products which will cater those needs of future India.

Source:

https://gomedici.com/research-categories/global-fintech-exits-report

https://inc42.com/resources/a-vision-for-fintech-in-2020-the-future-looks-bright-for-bfsi-sector/

https://www.spglobal.com/marketintelligence/en/documents/an-introduction-to-fintech-key-sectors-and-trends.pdf

https://www.bloombergquint.com/business/rbi-to-set-up-department-that-would-focus-on-fintech-digital-transactions

https://www.livemint.com/industry/banking/fintech-companies-can-re-imagine-banking-products-says-vaidyanathan-11595418188745.html