The pace of innovation and technological advancement in financial services is exceptional around the world. India was at the forefront of this global revolution. This rapid growth has been accelerated by widespread internet use in both urban and rural areas, cheaper mobile phones, cheaper 4G subscription fees, and digital penetration accelerated by the pandemic.
With this increasing globalization and consumerism, the expectations of customers and regulators have also increased dramatically. Demands for easy-to-use, trusted, fraud-resistant, consent-driven, and more inclusive systems are some of the most important.
This increased demand for end-to-end financial services, better customer experiences and cost-effective solutions has further accelerated the growth and impact of technology-driven financial services. They are broadly categorized as TechFins in Fintechs.
Covid-19 has wreaked havoc around the world as of 2020, the global economy is still struggling and slowly returning to normal. Economies have diverted their expansion plans, businesses struggled to stay afloat, higher unemployment rates, people forced to stay on bare essentials, but for digitally-led businesses, this has accelerated operations at a remarkable pace, putting them several years ahead .
During the pandemic, with human social interaction completely restricted, the entire customer segment has drastically moved towards online forms of communication and work. Financial services firms say over 77% of customer interactions have been digital, triple the pre-pandemic level.
There is no doubt that technology is at the forefront of this fintech revolution. The contribution of New Age inventions to taking over the segment at the top of the popularity leader cannot be overstated. While digital wallets, UPI payments, prepaid cards, and BNPL (Buy Now Pay Later) services are the leading services that have been at the forefront of this acceleration, below is the list of new-age technologies catalyzing these disruptions :
1) Quantum Computing: According to IBM, financial services have a long history of successfully applying physics to solve their toughest problems. The Black-Scholes-Merton model uses Brownian motion to price financial instruments such as European call options over time. Therefore, if we apply emerging quantum technology to financial problems, particularly those dealing with uncertainty and constrained optimization, it should prove hugely beneficial for first movers as well. For example: Imagine being able to do calculations that reveal dynamic arbitrage that competitors can’t see, better compliance, using behavioral data to improve customer retention, and faster response to market volatility are some of the specific benefits we can expect from quantum computers.
2) Artificial Intelligence (AI): A Deloitte survey of financial analysts shows that a whopping 86% believe AI is essential to driving their company’s growth over the next two years. Additionally, McKinsey & Company predicts that AI has the potential to create up to $1 trillion in additional value for the global banking industry. This clearly implies that those industry players lagging behind in the AI mindset risk losing their relevance and could face an existential threat in the future. By assimilating disparate data, connecting complex patterns, and building linkages across ecosystems, new-age technology may change the face of the fintech industry in the near future.
3) Blockchain Technology: Distributed ledgers have already ushered in a new era of efficient and secure operations for fintech companies. In the future, the technology will help to store, process and distribute data in the entire value chain at the same time. As many blockchain networks now achieve interoperability, the exchange of data between networks will allow different payment processing systems to become even more efficient and faster than before. Additionally, the continued advancement of smart contracts, distributed data storage, and zero-knowledge protocols will significantly drive fintech growth and popularity in the years to come. No wonder Market Research Future, a research and advisory organization, projects that blockchain applications in the fintech sector will be worth $31.4 billion by 2030.
4) Cloud Computing: The growing popularity of cloud computing will continue to accelerate as the technology is expected to generate the lion’s share of Fortune 500 companies’ EBITDA. The multiple benefits of cloud computing in improving cost efficiency, application development and reducing ideal time will continue to improve transaction speeds for fintech companies in the future. By offering services such as embedded security and full automation, cloud computing will also significantly help strengthen the integrity of the systems used by fintech platforms. Additionally, we could witness an expansion of cloud service formats as PwC and Microsoft have already announced the arrival of cloud-native digital banks.
5) IoT devices: As data becomes an asset of strategic importance, the fintech industry will see increased penetration of IoT devices in the future. The focus of this intensified use will be to provide fintech companies with a better understanding of their operating environments. By bridging the gap between the physical and digital worlds, the IoT will pave the way for greater growth and opportunity for the industry. Many emerging areas such as environmental, social and governance (ESG), carbon trading and voice support are expected to drive demand for IoT devices. IoT applications will also proliferate through connected wearable devices, on-demand liquidity and personalized support for better customer experiences. In summary, future IoT devices will focus on holistically communicating and distributing data in a more controlled and secure manner to help fintech reach new heights of success and user adoption.
However, the fintech ecosystem has its fair share of challenges to overcome while adopting all manner of disruptive technologies. The most important include:
Privacy and Leaks– Dhani – a listed NBFC that offers services through a mobile app, was scanned for showing anonymous loans on its mobile banking app, causing users’ credit scores to deteriorate. Players must implement strict rules and regulations and comply with the norms set by the government.
Lack of financial awareness Over 70% of India’s population lives in villages and is still not part of the fintech ecosystem. The industry must therefore raise awareness and spread financial education to the most remote corners of our country.
Management of multilevel compliance– Sambandh Finserve Pvt Ltd bank accounts have been frozen by ED in connection with financial fraud allegedly committed by its managing director Deepak Kindo and other family members. Allegations suggest that the Sambandh Finserve Pvt Ltd had raised funds in excess of Cr100 from some of the reputable institutions to be redirected but instead chose to redirect the funds to their sister organisations.
The fintech industry has always been at the forefront of technology adoption. This launch has helped industry players create innovative solutions for delivering enriching customer experiences. And now, with the advent of 5G technology, advanced handheld devices and wearable payment systems, technology will play a crucial role in propelling the industry’s growth to new levels of success.
Author: Shubhradeep Nandi – A first generation data scientist and entrepreneur.