The tech-led financial services industry

The financial services industry has always been at the forefront of innovation and has continued to witness numerous digital disruptions across the value chain
"Financial technology (better known as Fintech) is used to describe new tech that seeks to improve and automate the delivery and use of financial services."
"Financial technology (better known as Fintech) is used to describe new tech that seeks to improve and automate the delivery and use of financial services."Special arrangement

In the last decade, there has been considerable development and widespread adoption of FinTech globally, and India has come to be recognised as a strong FinTech hub.

A fast-emerging sector, FinTech has immense potential to augment the functioning of the banking and financial sectors by improving efficiency and promoting equity and reducing the problems of inequality in society.

With the highest FinTech adoption rate, India is already leveraging the viable opportunity presented by this sector for the future of the economy.

Financial technology (better known as Fintech) is used to describe new tech that seeks to improve and automate the delivery and use of financial services.

​​​At its core, fintech is utilized to help companies, business owners, and consumers better manage their financial operations, processes, and lives by utilizing specialized software and algorithms that are used on computers and, increasingly, smartphones. Fintech, the word, is a combination of “financial technology.”

When fintech emerged in the 21st century, the term was initially applied to the technology employed at the back-end systems of established financial institutions.

​Since then, however, there has been a shift to more consumer-oriented services and therefore a more consumer-oriented definition. Fintech now includes different sectors and industries such as education, retail banking, fundraising and nonprofit, and investment management, to name a few.

During the COVID-19 pandemic, when the economy experienced a slump, the FinTech sector thrived in India owing to the increase in contactless transactions.

This growth can be attributed to the collaborative ecosystem which is supported by key government initiatives. Currently, India boasts of more than 6,000 start-ups working in the FinTech sector.

These numbers are expected to maintain their upward trajectory as the entrepreneurial landscape in India continues to evolve and grow.

The sector has various subsegments – payments, lending, wealth management, regulation, insurance and neobanking – each of which is unique and has the ability to revolutionise society and the economy.

Rapid digitalisation, increasing penetration of smart devices, emerging technological solutions for imminent problems, a conducive cultural landscape and favourable Government policies have facilitated unprecedented and large-scale adoption of FinTech solutions.

The next wave of emerging technologies is centred around the themes of decentralisation, efficiency gains, immersive customer experience and security.

According to PwC’s Global CEO Survey 2022, the increasing adoption of blockchain technology can be attributed to factors such as global concern over privacy issues and information flow, as corroborated by 49% of global CEOs who considered cyber risk as the top threat to their organisation.

This has led to the faster adoption of blockchain globally, as well as in India. Some of the major reasons for accelerating the growth of blockchain as a solution are high transparency and increased efficiency.

These blockchain technologies have given rise to new financial services models including decentralised finance (DeFi), crypto currencies and token-based economics.

The financial services industry has always been at the forefront of innovation and has continued to witness numerous digital disruptions across the value chain. This has further accelerated post the pandemic.

The conventional methods of banking and other financial services continue to be disrupted by FinTech start-ups that provide alternative digital methods which are more customer-centric, customised, efficient and cost-effective.

Moreover, customers are more accustomed to the improved experiences offered by digital products that are interactive, have user-friendly interfaces and robust support systems.

The tech-enabled financial services ecosystem has been changing the way end users interact digitally in their day-to-day life. Also, it has significant influence on how companies design products, enhance customer experiences and facilitate processes that improve business models and unit economics. This fast-paced digitisation is regulated and driven by a positive policy and regulatory environment provided by multipoint ecosystem stakeholders.

In 2022, there have been considerable shifts in the financial services industry, which is gradually moving towards prudently adopting the value gains from the next wave of emerging technologies.

Technologies such as artificial intelligence, cloud computing and blockchain have already established innovative use cases in the financial services industry.

Other emerging technologies such as quantum computing, edge computing and the metaverse are still in the early phases of adoption at present.

These may have large future implications in areas like customer experience, cybersecurity, portfolio optimisation and risk modelling. Currently, many organisations, especially FinTechs equipped with such emerging technology expertise, are all set to revolutionise the entire value chain within various financial services.

It is important for incumbent and emerging financial institutions to adopt these technologies in their product portfolios in order to stay competitive and secure the overall progress of the industry.

Partnerships between various incumbents and FinTechs offering emerging technology solutions are on the rise. Recently, more than a dozen banks in India came together to form a new institution that will employ blockchain technology to process inland letters of credit (LCs).

The LCs – which would take four to five days to process previously – will now be processed within four hours. This will also mitigate the potential risk of fraud since the LCs will be encrypted via blockchains, and there will be no way for two LCs to be issued on the same invoice – a common drawback of the traditional process.

As the emerging technologies continue to see traction and global adoption, policymakers and regulators need to shape this adoption and usage to enable growth and safeguard against possible risks.

The policies, interventions and guardrails that can foster the growth of FinTech models and emerging technologies in a responsible way should fulfil all the major goals like reforms must enable the building of a supportive infrastructure to promote services by encouraging the use and adoption of such infrastructure, rules and guidelines must be formed and implemented to monitor the use of technology by market participants to ensure that no segment is being exploited and also the policies to protect vulnerable sections of the society and at-risk customers as well as to prevent money laundering and terrorism funding are also needed.

(The author is a regular columnist)

Disclaimer: The views and opinions expressed in this article are the personal opinions of the author.

The facts, analysis, assumptions and perspective appearing in the article do not reflect the views of GK.

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