FinTech, short for Financial Technology, has taken the market by storm. No matter who you are, where you live, or what you do, there is a stronger probability that you would have used one or other FinTech products or solutions. Mobile money, peer-to-peer (P2P) or marketplace financing, Robo-advice, insurance technology (InsurTech), and crypto-assets are examples of FinTech innovations that have evolved worldwide.
Do you know India is a global FinTech Superpower? India is amongst the fastest-growing Fintech markets in the world. Do you know of the 2,100+ FinTechs existing in India today, over 67% have been set up in the last 5 years. That’s the pace of the industry.
India has over
17 Fintechs that have gained ‘Unicorn Status’
As per Invest India, the Indian FinTech industry was valued at $ 50-60 Bn in FY20 and is estimated at ~$ 150 Bn by 2025. Of late, financial services are being transformed by digital innovation. Fintech has already improved retail consumers’ access to and convenience with financial services during the last decade.
Meanwhile, AI, cloud services, and distributed ledger technology (DLT) are changing wholesale markets in sectors as varied as financial market trading regulatory and supervisory technology. A slew of new companies has cropped up to address customer demand with the latest technology.
Most incumbents say digital transformation is a strategic goal. To compete with fintech and big technology (big tech) enterprises that have also entered the game, prominent banks are rapidly closing gaps in the digitalization of internal operations and client services.
Here are 12 things you should know:
1. Markets have become more diversified, competitive, efficient, and inclusive
Technology is a major game-changer. Innovation has led to more competition, making inclusion possible, particularly in growing markets and developing economies. Fintech flourished in places where financial systems were less established. However, the basic economics of intermediation, in combination with new technology, may lead to consolidation among both old and new financial services providers. Big digital is already being probed for monopolistic or anti-competitive behavior. Regulators are grappling with how to regulate best and supervise a landscape of new players and business models, to address potential threats to financial stability, financial integrity, fair competition, and consumer protection as financial services.
2. COVID-19 pandemic expedited the digital transition
The need for digital connectivity to replace physical interactions between consumers and providers and the processes that produce financial services has become increasingly important. The pandemic, for example, has hastened the transition to digital payments. It has also boosted e-commerce, which might help huge IT companies and their financial operations. In the aftermath of different phases of Covid-19, countries with stricter social distancing rules and regulated community mobility saw a higher spike in financial app downloads.
3. Transformation of finance rooted in innovation
It has allowed providers to handle long-standing difficulties of financial intermediation, such as asymmetric information, uncertainty, imperfect markets, constant and variable production costs, etc.
4. Minimising hazards in terms of competition
These developments and possible results in terms of industry structure provide policymakers with insights into how to take advantage while minimizing hazards, particularly in terms of competition and market structure. The focus is on economic and technical variables that affect the financial services industry. It acknowledges that the sector comprises a diverse variety of products and services.
In the financial services sector, there are a lot of economic frictions and pressures at work. Market interactions on the production and consumer sides are characterized by hazards in the lack of total confidence between parties due to principal-agent issues and inadequate or asymmetric information, for example.
Contracting, search and verification charges put fees on both institutions and customers to decrease risk and build confidence. Lenders must identify the risk profile of potential borrowers and also must monitor borrowers’ repayment ability; information asymmetries characterize lending. Maintaining track of payment commitments and verifying the identity of account holders or the authenticity of payment tokens is a core component of payment marketplaces.
5. Customers demand trustworthy counterparts with whom to lodge cash and dependable methods for their delivery
The payment processing chain must trust that the counterparties will not expose them to fraud or liability. Uncertainty about future outcomes, adverse selection, and moral hazards are all factors that affect financial market investment and insurance. To provide a quality product to their consumers, those that create investment products rely on solid underwriting and execution services. On the other hand, customers must have confidence in the investments and processes that underpin their capacity to purchase and sell.
6. Aligning all operations
Incorporate operations within a single financial services organization, like in other sectors, addresses principal-agent and asymmetric information concerns, allowing interests to be aligned and actions to be monitored. Interactions between teams are trustworthy. Deposit-taking and lending are linked, allowing asset and liability management to be closely coordinated. When payments execution and account management are combined, the provider can ensure the availability of money before executing transfer orders.
7. Market Conditions and Investor Preferences
Firms can build new investment products in response to market conditions and investor preferences by linking underwriting, trading, and sales. Some borrowers may have to pay higher interest rates to compensate the lender for projected (but not necessarily actual) losses, costly insurance may be required, or they may not grant some loans at all. More broadly, the difficulties of adapting goods to the specific needs of diverse consumers, whether owing to asymmetric knowledge or uncertainty about outcomes, implies that price, maturity, and other terms will necessarily be less than ideal for specific customers. They may turn down the offer, or the middleman may determine that particular portions aren’t financially feasible. In any case, some consumers will be turned away.
8. Handling Information gaps and frictions
Financial services firms handle specific information gaps and frictions throughout the intermediation process. Banks are in place to meet the maturity transformation difficulty caused by a lack of information about depositors’ future liquidity needs. They also handle the transaction costs and risk management requirements of intermediating investments between persons who do not have direct knowledge of other counterparties.
Banks spread their risk among many borrowers to better manage the risk of unpredictable outcomes. Individual issuers and investors can reduce information asymmetry by listing requirements and publicizing prices. At the same time, exchanges and brokers can provide infrastructure and services to match and permit transactions between buyers and sellers who don’t know each other.
9. Services need not only knowledge and funds but also physical resources
By company kind, the mix of labor, physical capital, financial capital, and trust capital will vary, and it has been changing fast. Nonetheless, the same frictions that impact manufacturing in other industries, such as natural resource indivisibility and fixed costs, affect financial services products to various degrees. While financial intermediation has its own set of information and transaction frictions, it is also susceptible to the same economic factors that affect other industries.
10. Connectivity has improved
The capacity to send information and engage remotely, both between organizations and directly with consumers, has quickly risen thanks to the Internet and mobile technologies. Technology has enhanced access to efficient direct delivery channels. It offers lower-cost, personalized financial services, thanks to the near-ubiquity of mobile and smartphones.
11. Due to digital innovation, cost barriers have been removed
Allowing new and smaller firms to enter the market. Many fixed expenditures have been eliminated and reduced variable and switching costs. Low-cost suppliers can now enter the market, subject to local regulations. Even though must still be built a trustworthy reputation, small businesses are flourishing due to the availability of Fintech. Platforms have allowed entrepreneurs to bootstrap their businesses without acquiring capital quickly.
12. Cloud computing, data processing, and software platforms for Finance
In reality, new scales have evolved in networking and computing, as well as in other fields. New players may make day-to-day financial oversight more difficult. It’s all about the chains. Rules for data control and which data are permissible for certain services must be set – preferably in a way that provides individuals choice, balances competition and efficiency with privacy and consumer protection, and improves financial inclusion. It will be necessary to comprehend and combat new types of prejudice and bigotry. To respect social preferences in different countries worldwide and within diverse communities, we must achieve a unique balance between consumer protection, privacy concerns, and stability and integrity.
Existing antitrust and competition policies may not be well suited to digital financial services, as pricing and concentration measures for a single market or business may have become less relevant. Authorities will need to work together to efficiently navigate this new area and achieve the appropriate policy goals.
Conclusion
The authorities in charge of data protection cooperate on a global scale and collaborate to exchange financial regulation experience for both new entrants and established players incumbents and coordinate policy initiatives. Given the current state of affairs, this is becoming increasingly crucial. The potential for antitrust and data governance rulings to have cross-border ramifications and increase service efficiency by harmonizing standards in areas like Cybercrime prevention, data security, and interoperability are priorities.
