The term Fintech is used to denote technology integrated with providing financial services which were traditionally rendered by banks. With increased use of smartphones and mobile apps, there is a high preference for self-service financial application as well. Fintech applications are increasingly used for financial services like making online transaction, investment advisory, and payment of bills; resulting in enhanced customer experience, saving time and money. Most commonly used fintech in India are Paytm, Oxigen wallets, Freecharge, utilized in ecommerce transactions, travel payments in IRCTC and in mobile applications such as MakeMytrip, BookMyShow, etc. What makes fintech a hot topic now? Driven by digital technologies, analytics and exceptional customer experience, these companies are competing with the major banks of the industry.
Fintech also caters to newer forms of currencies, which are known as crypto currencies, like bitcoins. The fintech market in India is expected to double to US$2.4 billion from US$1.2 billion in the next four years. The PwC Global Fintech Survey 2016 suggests that consumer banking, and fund transfers and payments are likely to be the most disrupted sectors by 2020. Fintech companies are into providing many financial services, which can be broadly grouped under three major categories- Payment solutions, Customer engagement and Process involvement. There are many fintech start-ups looking at things differently and solving problems in brand-new ways with the help of technology. Some of them are given below.
Fintech covers diverse areas across banking and caters to new business models. One of such innovative model is peer-to-peer (P2P) lending. It is an online platform which matches lenders and borrowers according to loan amount and cost of obtaining that loan. It marks a good revenue model for the fintech companies as well as reduced interest rate for the borrowers using the platform. It is predicted that loan originations will reach 1 trillion USD by 2025, with the share for marketplace lenders growing exponentially from the current 2%.
This is expected to affect the core business of the banks, which has major source of income from money transaction and loan borrowing. This technological disruption is fueled by government initiatives such as Aadhaar and the direct benefit transfer (DBT) payments by banks. Government has also set up committees and boards like Unified Payments Interface and the Bharat Bill Payments System (BBPS) to encourage and protect the users of fintech services. BBPS recently granted licenses to 33 companies to operate under the system through which customers can pay their electricity, water, gas and telephone bills. Few ones to have confirmed the license include PayU India, PayTm, Oxigen, SBI, ICICI bank, HDFC bank, Kotak Mahindra Bank, Bank of Baroda, Axis Bank and RBL Bank and TechProcess.
Majorly, banks are looking to obtain the license than non-bank companies. Around 75% of the banks have a notion that fintech companies could be made strategic partners to enhance the customer relationship, detect fraud, and anti-money laundering using artificial intelligence and machine learning. Some major banks like HDFC bank, Axis Bank, ICICI Bank, SBI and YES BANK have already partnered with many fintech start-ups to digitize their operations and delivering services to their customers. That way, banks and fintech companies won’t be competing each other to serve the same customers common to both, reducing market share of each other. Rather they’ll be collaborating to render better services to the same customers. It is a win-win situation for both. Those banks which are not keeping up with the pace in digitizing their operations are most likely to lose the race.