Technology has evolved to become nearly omnipresent across all aspects of finance, making fintech a buzzword worldwide. Fintech simply means financial technology or technology that is being used to cater to a financial product or service.
Let’s look at what fintech in India entails.
Uses of Fintech in India
Banking Services
As the use of technology in financial services is becoming widespread, visiting a bank physically or conducting time-taking payments via cash deposits, cheques or demand drafts is becoming a second preference. People are adopting banking digitally, using technology to open and manage their bank accounts.
India’s banks have developed robust digital banking infrastructure in the form of mobile applications and websites that provide seamless digitized access to bank accounts and banking services connected to your account. Basic activities you can conduct via your digital banking include:
- Checking your account’s balance
- Keeping a tab on your day-to-day transactions
- Opening and liquidating deposit schemes such as fixed deposits
- Investing in mutual funds by linking your bank account to your demat account
- Making service requests such as ordering a cheque book, change your correspondence address, among many other features.
Neobanks
A result of the burgeoning impact of technology on banking is the onset of neobanks, which refers to a kind of digital bank without any physical branches. They are fintech firms that are entirely online and provide a wide range of banking services, including those relating to bank accounts.
All banks in India are allowed to run by the federal government only upon acquiring a banking licence. As of now, banking licenses are issued only when the central banking authority, the Reserve Bank of India, invites and approves a non-banking financial company to acquire a banking license. This means neobanks aren’t allowed to run as independent banks. Rather, they rely on traditional bank partners to operate in the country.
This segment of banking services is relatively nascent in India as compared to developed economies. Some companies that have set shop in India include RazorpayX, Niyo, InstantPay and Open.
Insurance Technology
In the past, India’s senior population largely had access to insurance services from state-owned insurance companies, such as the country’s largest insurance provider—Life Insurance Corporation. These companies largely followed traditional means of insurance processes, such as relying on agents for information about various policies, procurement of policies and process claims and reimbursements. This changed with the adoption of fintech in insurance services.
In the last decade, India saw the federal state open doors to private companies and public-private partnerships to revolutionize and expand the scope of insurance in the country. As a result, Indians are now witnessing data-driven predictive algorithms used to determine which policy suits their requirement the most. To top it, the digital availability of insurance services has led to better choices, pricing and service, benefiting you as a consumer.
Insurance companies have developed digital infrastructure similar to banking companies in the form of websites and mobile applications that provide all the required information on policies and allow consumers to directly purchase them on the website, as well as follow the end-to-end process of a claims settlement.
Technology is building the blocks for the expected disruption in the insurance sector in India, which is acutely underpenetrated at up to 2.74% insured for life and less than 1% having access to non-life insurance as of 2018. Among India’s fintech innovations in insurance are insurance marketplaces and digital-first insurance providers.
Insurance Marketplaces
Digital marketplaces that help you to buy policies and take advantage of insurance services online have emerged in big numbers in India. Aggregator platforms such as PolicyBazaar, Coverfox, InsuranceDekho and PolicyX, among others, allow you to compare and buy policies from various insurance providers. This has dramatically improved consumer experience as they are no more reliant on agents and can make informed choices at their ease and comfort.
Digital-First Insurance Providers
New-age digital-first insurance providers in India, such as Acko General Insurance and Digit Insurance, are attempting to innovate insurance products to meet the shifting demands of modern consumers. They’re doing this by introducing micro-insurance policies for segments such as travel and insurance coverage for mobile phones and other electronic devices. This is in addition to offering evergreen policies like health and term insurance.
Loans and Credit Services
The use of technology in the credit and lending arm of finance has completely changed the way Indians consume loans.
Historically, a large reliance on traditional banks for loans existed. It meant fewer choices, making getting a loan or credit application a herculean task.
With the use of digital tools and data, consumers have started availing loans via websites, making applications and processing loans more transparent. This move is led by technologically-advanced, new-age companies that are also helping robust traditional lenders innovate to offer digital solutions to their customers.
Loan Startups
India-based startups such as Capital Float, Kissht, MoneyTap and Faircent, among many others, are working to provide better underwriting, penetration, reach and general customer experience.
All segments of lending—from personal loans to business loans, point-of-sale financing and supply chain financing—are being catered to using fintech via mobile applications and web-based portals.
Payments and Remittances
Payment technology may be familiar to many consumers, given its active use in our daily lives.
The Indian federal government and the central banking authority, the Reserve Bank of India, have developed a wide network based on financial technology to help Indians pay and remit with the click of a button using IndiaStack, the largest open API-based technology in the world.
IndiaStack uses Aadhaar, a verifiable 12-digit identification number issued by the Unique Identification Authority of India (UIDAI) based on a customer’s biometric and demographic data, to verify customer’s financial details and help them process payment instantly.
International companies such as Google and Amazon have forayed into the payments space in India on par with domestic players such as Paytm, PhonePe and PayU to tie up with IndiaStack’s offering, most prominently the Unified Payments Interface (UPI) that aids inter-bank transactions via an instant real-time payments infrastructure.
Point-of-sale (PoS) systems, which help you make a financial payment for a purchase instantly, have seen technological innovation led by several players, including PineLabs, Mswipe, and EzeTap, to make credit and debit cards payments seamless.
Remittances, both domestic and international, have seen active adoption of fintech via companies such as Oxigen, Fino Payments Bank and Payworld.
The massive opportunity at hand has encouraged India’s banks to establish technology-led mechanisms to help you make payments and remittances in a simple, cheap and hassle-free manner.
Wealth Management and Investment Services
The use of technology has taken center stage in the wealth management space, given how technology exposes the financial offering to a much larger audience and aids in investment in big volumes.
India’s largest brokerage company Zerodha, an app-based brokerage company, is among the biggest examples of how technology can disrupt India’s investment services space.
Other new-age companies—including Paytm, Kuvera, Groww and Upstox, which focus on delivering brokerage services using digital means such as their mobile applications and technology-driven insight into managing wealth—have brought investing in public markets and capital management to the forefront.
All of these companies have intuitive mobile applications that ease the investment process and portfolio tracking.
Regulation Infrastructure
All technology-based innovations in finance would not be possible without a robust back-end infrastructure that ensures transparent compliance regulations are met. In India, this infrastructure is being helmed by “RegTech” and “SupTech.”
“RegTech,” or regulatory technology, are applications that make compliance within the financial industry more efficient. They focus on areas such as regulatory reporting, risk management, identity management and control, compliance and transaction monitoring.
Similarly, “SupTech,” or supervisory technology, is technology that is used by government agencies and regulators. Supervisory agencies define rules and regulations and need to ensure compliance by various stakeholders. SupTech uses technology to support this supervision, including early detection of fraud and data theft.
The consumer, which is you, is directly impacted by growth in this space.
Challenges in Using Fintech
Fintech is empowering but has its own set of challenges. These include:
Data Security and Fraud
The flipside of ease-of-access to consumers is the same ease-of-access for fraudsters. A common issue today is “phishing attacks.” Phishing is a cybercrime in which consumers are contacted by email, phone or text by someone posing as a bonafide institution to lure individuals into providing sensitive data such as usernames, passwords, banking and credit card details and other such sensitive information.
They often direct users to enter personal information on a fake website that matches the look and feel of the legitimate site. Initiatives such as leveraging celebrities for customer awareness campaigns and safeguards such as one-time passwords (OTPs) can help prevent some of these frauds.
However, building trust with the Indian consumer is going to continue to be a key challenge that India’s fintech sector companies will have to work towards. Building robust data security and fraud detection frameworks is a step in the direction.
Cash Economy
Despite technology seeping into day-to-day financial transactions and processes, India is still predominantly a cash economy. A vast majority of Indians still trust physical cash compared to technology-driven alternatives, which may be easier to use.
The Indian federal government first attempted to curb the active use of cash by its citizens via demonetisation, a move that invalidated billions of 500- and 1,000-rupee banknotes overnight in the year 2016.
Lack of Awareness
The slow adoption of technology and the lack of awareness remain deterrents to fintech realizing its full potential in India.
While many more Indians now have smartphones, most of them struggle with operating them beyond rudimentary activities functions like basic phone functionality and messaging. Some others do not trust digital transactions. This is counterintuitive as digital transactions involve several intervening steps aimed to minimize user errors and automatically create a trail to help trace transactions.
Bottom Line
Despite the enormous interest of the government and private companies to experiment with varied technological innovations for all kinds of financial offerings, percolation to the bottom of the pyramid in a large country like India is a long road.
However, it would also be fair to say the early shoots of growth look promising with Indians fast adopting the smartphone and exploring ways to conduct financial processes digitally. For the country to better manage its finances, technology could provide the assistance they have been looking for.
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