The current focus of the RBI is on – regulating licensing of payment aggregators, regulation of payments data, and discussions around regulating cryptocurrency and digital lending.
Technology changes have brought exciting changes to the world of investment. FinTech has changed people’s perceptions of money, and cashless businesses are rapidly growing around the globe. Chatbots and artificial intelligence, blockchain and crypto assets, neo banks, and other technological advancements have altered how banking and other financial transactions used to be done earlier. Here are five points to look at how FinTech is shaping India and the way forward.
Regulation and compliance will continue to increase in importance
With the evolution of technology, regulators are trying to keep pace with the latest developments and curate the FinTech laws accordingly. Regulatory attention will continue to increase as more frauds and cyber threats are on the rise with the adoption of the latest technology resulting in the need to tighten grip on the sector.
The current focus of the RBI (Reserve Bank of India) is on – regulating licensing of payment aggregators, regulation of payments data, and discussions around regulating cryptocurrency and digital lending. Regardless of the approach, FinTech companies can increase their potential for success by introducing strong risk management controls in internally. Customers will put their trust in a FinTech company that adheres to industry standards, and that differentiation may open doors for the company’s market share and revenue growth.
Costs of compliance will decrease due to technological innovation compelled by policy changes
With the innovation of the latest technologies, KYC, and other formalities to open an account and maintain data have become more cost-effective for banks, as everything has moved from physical to digital. To improve the efficiency of Know Your Customer (KYC), the banks have adopted processes that use automation, artificial intelligence (AI) and natural language processing.
According to experts, Digital KYC can reduce onboarding costs by 70 per cent and reduce turnaround time by as much as 90 per cent. KYC is an important regulatory requirement for FinTech companies. Banks are expected to reduce costs by 22% by 2030, saving approximately $1 trillion, as they adopt newer technologies, lower operational costs, and adapt to digital modes of transaction. Many FinTech firms are researching the areas of AI that will be helpful for banks and their fraud detection processes, customer service, credit service and loan decisions.
Pressure to reduce transaction costs will drive more businesses to adopt technology innovation
In today’s extremely competitive business environment, all businesses must invest in technological upgrades to stay competitive and save costs. To be successful, the bank of the future will need to embrace emerging technology, remain flexible to adopt evolving business models, and put customers at the centre of every strategy. Cost-cutting is critical for all businesses to increase profitability, and technology adoption helps in improving efficiency, reducing labour costs, operating costs, and connecting the back end with the front-end effortlessly.
Moreover, technology enables faster transactions, saving both money and time in the long run. Banks, to compete with FinTech companies, are also embracing emerging technology for customer acquisition, seamless customer servicing and cost reduction. FinTech companies have a cost advantage over traditional large-setup banks. FinTechs are leveraging their technological prowess and lower operating costs to provide more features that banks do not typically offer.
The future will be about distribution rather than banking/capital storage
Neo banking is all about the CASA balance. In the future, the manifestation of CASA will undergo a complete transformation (blockchain, virtual accounts, etc.)
A lot is changing at a fast pace in the banking space. Neo banks, which are online-only FinTechs without any physical presence, have been gaining traction over the last few years. While traditional banks also offer digital banking solutions, neo banks address a particular aspect of banking like account opening, savings, or investments by providing superior customer experience through product innovations and by leveraging technology. Paying utility bills or using digital finance assistance to check how much is spent on ordering food or travel is much easier with the neo banks.
While traditional banks are omnichannel, neo-banks are disrupting the traditional banking system by leveraging technology and AI to give consumers a choice of personalised services. Right from customer acquisition to traditional banking services such as remittances, money transfers, utility payments and personal finance, neo-banks offer a wide range of offerings to customers across retail and small-to-medium enterprise (SME) categories.
Banks focuses on launching Fintech Products for Gen Z
Millennials are more tech-savvy and have grown up with the Internet and smartphones in their hands. Millennials want everything seamless, flexible, and quick and on their terms. The FinTech companies have understood this need and are offering complex financial products in an uncomplicated way to them. A few FinTechs are also offering traditional products like gold investments.
Not only do millennials desire a seamless experience, but they are also a powerful force capable of redefining India’s consumption story, according to a recent report from Morgan Stanley Research. In India, there are 440 million millennials, who account for more than 46% of the workforce and generate more than 70% of household income.
The author is Founder and Managing Director of airpay Payment Services Pvt Ltd. Views expressed are personal