In India, fintech industry is being encouraged by the various government initiatives such as Jan Dhan Yojana, Aadhaar and the emergence of UPI.
By Rabindra Shrestha
India is finally catching up with its neighbour and biggest competitor China. The country now has the second highest fintech adoption rate of 52%, only behind China’s 69%, which also throws a huge opportunity for India to not only make best out of financial services sector but also to disrupt it.
Majority of this innovation in India is start-up led. Start-ups in early stage may lack data to test the innovative solutions or a corporate partner or funding. This presents a significant opportunity to look at increased fintech collaborations.
In India, fintech industry is being encouraged by the various government initiatives such as Jan Dhan Yojana, Aadhaar and the emergence of UPI which provide a good foundation to boost financial inclusion in India. However, there is a need for better understanding of regulatory standards to achieve credibility and scale of business. Countries are forming fintech bridge to share research findings, to reduce barriers to start-ups to scale internationally and share regulatory insights.
Fintech had potential to disrupt financial services sector following the 2008 crisis and its influence on the broader financial services system is changing. In year 2018, Fintech segments that have continued to rise and grow more valuable can be regtechs which are capitalizing on a slew of new regulations that incumbents are struggling to cope with, personal finance management services are finding their propositions perfectly suited to an open banking environment and rapid change in the payments industry continues to be a valuable. Regtech may still be relatively immature and would further adopt to compliance of industry. Collaboration between start-ups and industry may lead to further innovation.
Fintech’s have core attributes of well-defined market opportunities in its major segments, long-developing innovation cycles and significant growth opportunities amid the best-developed segments.
Few emerging technologies which are rapidly capturing the market and are proliferating the digital landscape are artificial intelligence, open banking and blockchain. Banking and financial institutions are collaborating with technology companies for migrating from the current AI deployment model aimed at low-impact rule-based processes to high impact cognitive and predictive process.
Banks which were traditionally confined to closed ecosystems are now collaborating with third parties to access data in real-time through open banking standards. Open application program interface is leading to an open digital economy. Blockchain can redefine open and shared economy across areas such as payments, trade finance, know your customer, frauds reduction, clearing and settlement.
Growing landscape of fintech industry can bring transparency to governance as more payments are made through digital means. Increase in transparency can facilitate businesses to formalize and reduce the size of the informal sector.
In year 2019, Fintech industry may evolve with time and challenges for stability of the financial industry. Data security could be a potential area of focus for achieving trust and growth. Fintech tends to decentralize, undermining the role of banks and insurance institutions and decentralization of conventional institutions does not necessarily signal democratization but rather can represent a hidden risk of industry segmentation.
Several fintechs are being forced to make adjustments for the future. Most neobanks which are creating market place of financial services products gained popularity by offering free services but now face pressure to monetize leading to business model changes. Robo-advisors are finding increasingly creative diversification strategies to fend off growing competition from incumbents. Alternative lenders are moving away from marketplace lending and toward balance sheet models in an effort to insulate themselves against market fluctuations.
As fintech continues to amalgamate with financial services, more unsolved problems are going to be detected and newer fintech segments can be expected to be forged. Survival during the economic changes will highlight the weaknesses in fintechs’ business models and force them to consider how to make themselves sustainable, viable enterprises, which will benefit the broader financial ecosystem and consumers. Scalability will enable fintech to be integral component of the broader financial services ecosystem it set out to disrupt.
(Rabindra Shrestha is Managing Partner, Prestellar Ventures. The views are the author’s own)