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Opportunities and Challenges of FinTech – Reserve Bank of India

Dashmeet Kaur

| Updated: Nov 13, 2019 | Category: NBFC, RBI Advisory

Financial technology also abbreviated as FinTech is the technology and innovation which aims to revamp the traditional methods of delivering financial services. From startups to well-established companies dealing in the financial sector, every key player prefers to harness the technology of FinTech. Entrepreneurs who seek to add an edge to their business services count on FinTech to provide agile and efficient experiences to the end-users. However, there are many opportunities and challenges associated with FinTech that are inevitable.

The advancement of this technology has the potential to give a complete transformation to the financial landscape.  It can build such an environment for the consumers where they get an extensive set of options at competitive prices. Also, it helps financial institutions to improve efficiency through lower operational costs. FinTech has covered everything from mobile banking and insurance to cryptocurrency and investment apps.

How does Financial Technology Works?

FinTech is a dynamic technology which has rapidly evolved and still progressing until today; thus, it’s not a new industry. The technology has always been a part of the financial sphere; whether it’s about the development of credit cards in the 1950s, functioning of ATMs, personal finance apps or creating electronic trading floors, technology had it all.  

Since the Internet has revolutionised the whole system of networking, it indirectly gave a sudden boost to FinTech. Originally, Financial Technology got applied in the back office of the banks or trading institutes, but now it has broadened its domain. FinTech has brought so many technological interventions into both personal and commercial finance.

The current scenario has changed the definition of FinTech now one can perceive this technology in all day to day activities like:

  • Perform and check money transfers via smartphones
  • Bypass a bank branch to apply for credit
  •  Raising funds for setting a business
  • Automatically managing the investments, without the assistance of a person.

As per EY Fintech Adoption Index, 2017, about one-third of consumers avail at least two or more FinTech services and their numbers are increasing enormously. India has the second-highest adoption rate for FinTech products which estimates over 59% of its total population.  

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Top FinTech Companies in India

Fintech has flourished into a robust industry with a bright future ahead. As the adoption rate of Financial Technology in India is so high in contrast to other countries having 33% of adoption rate, it has become an ideal industry for startups. Many Fintech startups have transformed the mode of payment. Here are some of the most successful FinTech startups in our country:

  • Paytm
  • PhonePe
  • MobiKwik
  • LendingKart
  • Paytm Money
  • PolicyBazaar
  • Freecharge
  • PayU

Technological Services provided by FinTech

Fintech has enlarged the scope of financial services through digital platforms. Let’s have a look at the primary service offerings of FinTech:  

Peer-to-Peer (P2P) Lending– Companies use several data sources and alternative credit models to render business and customers faster and easier access to capital. P2P lending enables online services that directly connect suitable lenders with borrowers.

Payment Options- FinTech Companies has simplified the process of cash flow. By developing an online portal to accept payments over the mobile and web, FinTech has eliminated the need for merchant accounts.  It facilitates direct transfers to the bank account by linking it to the payee and safeguard against fraud, such as Paytm and Oxigen Wallet.

Retail Investment Services: Fintech companies revolves around the need to provide customized financial services and information to individuals. It helps to manage, save, and invest one’s finances as per the specific requirement of people such as PolicyBazaar, FundsIndia.com, Scripbox, and BankBazaar.

Equity Funding Services: Equity funds are the crowdfunding platforms that allow Entrepreneurs to obtain funds for their new projects or business ventures. It gives an option to raise funds from a large number of people. Such internet-mediated platforms are gaining worldwide popularity because people often consider access to capital venture challenging to secure. These users of such services are mainly initiated at an early stage of business.

Cryptocurrency: India still embraces the conservative ways of transaction where cash continue to overrule. The utilization of digital financial currency like ‘bitcoin’ has not gained much popularity in the local markets as compared to the international markets. Besides, there are a few bitcoin exchange startups in India namely, Coinsecure, Zebpay, and Unocoin.

Miscellaneous Software: Some companies are experimenting with a different range of software like cloud computing to enhance the accessibility to financial products. Hence, increasing efficiency in everyday business operations.

Fintech has widened its scope at macro and micro levels. Presently, it renders an array of services like online accounting software and crafting specialized digital platforms to connect buyers & sellers in specific industries.

Opportunities and Challenges of FinTech

FinTech companies have made a significant change in the financial sector and got enough support from the Government pro-startup policies. Along with the flexible regulatory conditions of the Reserve Bank of India (RBI) that encourage several institutions to establish a legacy which is irreplaceable.

The biggest challenge that FinTech startups face while dealing with Indian customers is their lack of indulgence. So, it is essential to gain trust among Indian customers who dedicatedly follow conservative practices in their financial preferences.

If you also want to run a FinTech company, then you must know the market needs and research for the factors which can influence financial behavior. A gap in your knowledge can turn into the biggest challenges which you might have to face in the future.

Final Thoughts

Financial Technology develops an opportunity for traditional banking to expand by adopting digital products while using their existing customer base. Nurture a strong financial bond with your customers by improving your service efficiency.

The potential growth of Fintech firms can provoke the modernization of the traditional banking sector. It can become the reason behind increasing the size of the banks. The reputed banks of HDFC and Axis have accepted to the opportunities and challenges of FinTech by launching applications to ease digital transactions.

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Dashmeet Kaur

Dashmeet Kaur is an experienced content writer, having proficiency in writing Legitimate content with comprehensive research. She also has a keen eye to detail and incorporating accurate facts.

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