Fin-Tech is a segment of the financial services sector that is disrupting the traditional financial services. Fin-Tech is an omnibus term used to describe emerging technological innovations in the financial services sector, with increasing dependence on information technology. It has expanded to technological innovation in the financial sector, including innovations in financial literacy and education, retail banking, investments, etc.
The Fin-Tech Ecosystem
Fin-Tech companies are reconstituting the competitive landscape, shading the identity of other players in the financial services sector. Below are the sectors in Fin-Tech that are the key areas in the next wave for innovation.
The Indian Fin-Tech market is forecasted to touch USD 2.4 billion by 2020 from a current USD 1.2 billion, as per NASSCOM. The transaction value for the Indian Fin-Tech sector was estimated to be approximately USD 33 billion in 2016 and is forecast to reach USD 73 billion in 2020 growing at a five-year CAGR of 22%
Total Venture Capital/Private Equity Funding in India in 2018 was USD 1.83 billion. The number of Venture Capital/Private Equity Deals in India in 2018 is 165.
The Government of India and the Reserve Bank are actively promoting financial inclusion with schemes like Start-up India, Digital India Program, Jan Dhan Yojana, Aadhaar enrolment and licensing of Payment Banks/ Small Finance Banks, to give some examples. The Fin-Tech companies across the nation are taking advantage of these initiatives for expanding financial inclusion in the following areas by leveraging technology. Over the last five years, more than 50 schemes have been started by the government to promote start-ups in the country.
Start-up India initiative currently has more than 182 start-ups funded to date which testifies the GOI’s power push for Indian Fin-Tech start-ups. RBI launched a peer-to-peer (P2P) lending scheme in 2016 that works as a base to exchange funds between borrowers and lenders within India. Thirty peer-to-peer lending firms are expected to bring people together in our country on a common platform.
Challenges in the Fin-Tech Industry
• Data protection is one of the major concerns in the Fin-Tech industry. The confidentiality of data is exposed to high levels of risk because of digitalization. Security is the topmost priority to make sure that customer information is not exposed to cybercrime.
• Another obstacle that Fin-Tech companies will need to overcome is the Customer trust. The challenge is to create the much-needed assurance for consumers to look beyond their conservative mind-sets.
• Regulations could serve as a threat to the Fin-Tech industry. It will become difficult to create value out of advanced technology if the rules remain stringent.
Impact of Fin-Tech on Lending
The growth of Fin-Tech has changed the way of lending. Earlier lending used to be only limited to banks and credit unions. Now Fin-Tech companies are also extending loans to consumers. The ability to give mortgages, personal loans, business lines of credit, etc. has taken Fin-Tech to the next level. Market-based lending platforms have developed technology solutions online to simplify lending procedures, both for individuals and businesses.
Automation plays an important role in reducing the operating costs of the business due to which Fin-Tech firms are offering competitive interest rates. The use of technology to collect customer insights has reduced the background verification process. This made the evaluation of a customer’s creditworthiness and repayment capacity instant. Hence, Fin-Tech companies hold an advantage over traditional lenders as they offer fast application approvals and fund disbursements.
Fin-Tech - The Future
In a developing nation like India that promotes innovation, Fin-Tech start-ups have great potential for extensive growth. Since demonetization in 2016, citizens have been encouraged to go cashless and the wave of digital movement transformed into reality.
Now, blockchain has made an entry into the market and with other services like Robo-advisory services and bank-in-a-box shows an encouraging future. The Fin-Tech industry is now focusing to enter into the rural market of India through digitalization.