How Fintech is Paving a New Way to the Future of Finance

Janifha Evangeline | Tuesday, 13 April 2021, 17:33 IST

“Fintech is not only an enabler but the driving engine,” said Pierre Gramegna, the Minister of Finance of Luxembourg. Fintech - the amalgamation of finance and technology is paving a new way to the future of the financial world. Used for many of payment apps such as PayPal or venomo to even cryptocurrency, Fintech has not only combined the latest technological developments with financial services or applications, but has also helped businesses, especially startups disrupt the industry and render better financial services to businesses and individuals alike. Fintech industry has come up with many innovations and trends.

Some of the Fintech trends & Innovations include:

Autonomous finance

Multitasking can usually be overwhelming, especially when it comes to paying numerous types of bills such as utility bill payments, insurance, cable subscription, etc. This is where autonomous finance comes into the picture. What autonomous finance does is that it removes the burden off the customers’ shoulders and helps in making financial decision by automating the financial decision-making processes with AI & ML. Through this, people will be able to delegate recurring tasks to fintech solutions.

The reason why Autonomous finance is on the top of the list of outstanding fintech innovations is owing to the use of Artificial intelligence and automation, which delivers personalized optimized experiences specific to the financial services industry. Therefore, this will require a shift in how companies approach operations and will need them to digitize what was once analog and on paper.

How important is Autonomous finance now to finance industry and what are the implications for financial services customers?

Since the customers as well as the employees were forced to stay home during the pandemic lockdown last year, all face-to-face interactions of employees and customers and transactions moved to remote and virtual experiences and while most of the financial service institutions struggled with the rapid changes, customers suffered due to these sudden changes.

One of the American cloud-based software companies, known for its Customer Relationship Software service, conducted a survey recently. From the survey results the company discovered that around 2800 leaders who participated in the survey stated that autonomous finance is the key to financial services success.

The report divides survey respondents into two groups. They are classified mainly based on how they are addressing the issues they face. While respondents in the stabilize group are focused on mitigating immediate risks of the crisis and are more concerned with short-term wins, participants of the growth group are more focused on long-term relationships. The growth companies are more likely to have digitized operations and automated processes that enable them to better offer customers the experiences they expect. However, both groups which are 87 percent of all respondents agree that the key to improving customer experiences and future industry success is with autonomous finance.

Open Banking

As we all know that traditional banks are most notable for safeguarding people’s money. However, today, with growing awareness of financial education, people want to invest their money rather than keep it in the bank. Moreover, third party financial institutions are providing the traditional banks a run for their money, that too in offering flexible high-income-generating investments and therefore, consumers are keying into it through open banking. Through Application Programming Interfaces for investment purposes consented by the consumers, Open banking offers third-party financial service providers access to consumer banking data.

Furthermore, the damages could be avoided with the collaborative efforts of the stakeholders involved in the process, though security concerns about the exposure of consumers’ data in open banking may arise.

Open banking – the new driving force of innovations in the banking industry, helps financial services customers securely share their financial data with other financial institutions by relying on networks instead of centralization.

Digital-only Banks

Long queues at the banks are still found despite the provision of online banking, this is because of the limitations of the online services. Accessing funds virtually happened to be a survival need that conventional banking could not meet completely and the total elimination of physical contacts for banking transactions seemed far-fetched until the pandemic hit.

A study conducted by McKinsey depicted that digital payment is one of the biggest fintech products and new generation financial institutions rose to the occasion by leveraging fintech solutions to offer convenient digital-only banking services that required no physical contact. Not just that, the increase in competition among financial institutions in rendering digital-only banking services is good news to consumers since they have an array of enticing offers to choose from.   

Fintech Challenges

While most of the self-employed people with a steady source of income do not pass conventional bank loan screenings owing to strict and outdated credit scoring criteria, some of the famous credit rating fintech companies are taking a new approach by considering alternative data points such as social signals and percentile scoring amongst similar borrower groups.   

While Fintech start-ups are revolutionizing the financial services landscape in India, increased and growing internet penetration in the country along with numerous players in the market, and governmental policies mainly focusing more on digitization, have led to a surge in investments in the Fintech sector from venture capitalists.

Mobile wallets and the UPI platforms are the recent innovations in this landscape and contribute significantly to the adoption of mobile technologies in financial transactions recently and furthermore, a sudden surge in the number of Fintech startups in the Indian finance sector has contributed to the growth of many other sectors through their efficient financial strategies.

Although Fintech innovations are letting the financial institutions to serve customers in novel and unexpected ways there are multiple challenges that fintech start-ups in the country face every day and a few are as follows:

Regulatory and compliance laws

Since many laws contribute to the slow-down of the Fintech startups in Indian financial markets, inevitably, not only are these regulations challenging to cope with, but they also make it difficult for Fintech players to enter the Indian markets and compliance laws are laid in place as a restrictive regulatory framework to prevent fraud. However, these also serve as massive barriers for the new Fintech entrants and there is a huge list of formalities that Fintech start-ups need to fulfill before they even start operations.

Cyberthreats

While multiple cybersecurity threats lead to massive monetary losses during online transactions, unfortunately they are entirely unwarranted for customers and especially in the fintech industry, the fintech enterprises deal with sensitive customer data. The technology that offers convenience also opens up people’s online accounts to fraudsters looking to steal their assets, which is a constant stream to the popularity of Fintechs, hence, fintech requires to fortify against any challenge posted by hackers. Moreover, an enormous amount of financial data of both individuals and companies is made available digitally, which increases the risk of cybersecurity breaches.

The Reality  

Most of us tend to consider banks and fintech start-ups as opposing forces that are fighting for their share of the market, as technology is becoming a central part of the finance industry. While fintech start-ups have taken funding from banks and to deliver their core products, most often rely on banking, insurance, and back-office partners, Banks, on the other hand, have either acquired fintech start-ups or invested in them to leverage new technology and ways of thinking to upgrade their existing operations and offerings, therefore, the reality is that both the bank as well as the fintech start-ups need each other, as much as they need to compete with each other.

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