Over the last three decades, technology and digitisation have seamlessly found a way into every part of modern human life. We’re now so used to needing technology that we completely take for granted how it has revolutionised our lives, especially in terms of our finances. When we think of finance and technology together, we immediately associate it with digital payment systems like Paytm, Google Pay, or the outlier, WeChat. We think of the convenience of net banking, where we can transfer money in minutes through an app, instead of the tedious process of writing a cheque and physically depositing it. However, the implications of FinTech go far deeper.
FinTech and Personal Finance
FinTech has completely democratised investment opportunities. A service that was formerly reserved for people with a big enough portfolio to hire an advisor, is now available to everyone. Companies like Scripbox, ETMoney, and Paytm Money are bringing small retail investors into mainstream wealth management. Platforms like PolicyBazaar have created a new marketplace for financial products. Robo advisors take this further – they insert your financial data into algorithms to give you a customised investment plan based on your risk-taking capacity, investable assets and financial goals.
In traditional lending, where institutions use limited data for risk assessment, a huge number of people are ineligible for a loan or charged higher interest rates. However, by inserting technology in the risk assessment process, more data can be factored into deciding the credit-worthiness of an individual, allowing millions more to access capital.
FinTech as a Disruptor
Where incumbent institutions focus on financial security and profitability, Fintech companies prioritise user experience. They focus on functionality, data, accessibility, customisation and convenience. While traditional financial services require tons of manpower, money and regulatory clearances to function and grow, technology-based financial services are more scalable. They use existing infrastructure, like mobile and computing networks, to reach their end consumer and their costs lie predominantly in software development.
FinTech in Business
According to data from Venture Intelligence, while B2C FinTech startups attracted more investors in the past, in 2019, B2B FinTech companies attracted $657 million, $40 million more than their B2C counterparts. A reason for this shift is the scale at which B2B FinTech platforms can problem-solve for businesses. With online credit systems, corporate payroll, treasury and invoice management and supply chain financing, FinTech startups have the potential to revolutionise how SMEs function.
For supply chain financing, there is a huge trust gap between banks and businesses in this post banking crisis, NPA-ridden world. Banks have become apprehensive in lending to smaller, potentially volatile businesses. On the hand, small businesses are wary about the red tape, lack of transparency and high interest rates involved with traditional banks. FinTech companies like CredAble, lend to smaller businesses, offering lower rates and greater transparency. Without the pressures of limited working capital, these SMEs can grow faster and generate a large enough profit to be lucrative to their new-age financiers.
Processes like invoicing and treasury management, that require a lot of manpower and paperwork, can now be streamlined using customisable software. For example, IBSFinance provides real-time reports to manage the finances of corporations that conduct business internationally. This helps them reduce exposure to foreign exchange. The process of accessing risk over multiple markets using various currencies was previously exposed to human error that could cost companies millions. But with technology, it is completely automated and seamlessly integrated into their day-to-day operations.
How the World is Adapting to FinTech
As the FinTech space grows, businesses are realising the need to digitize. If not, they face becoming redundant amongst digital natives who prioritise efficiency. This has created an industry-wide demand for Fintech tools. For example, paper-based KYC procedures are being replaced with video-based KYC and identity management technology. Smart contracts, which are managed via Blockchain, make transactions faster, less expensive and protected. Digital signatures are becoming legally binding. This reduces the time lag caused by regulatory requirements across the board – from personal banking services to business loan clearances.
However, developing intuitive websites and apps, while also automating native services and back-end operations, requires spending billions on new technology. As an alternative, banks like RBL Bank, Kotak Mahindra Bank and ICICI Bank have launched API platforms, which allow companies in non-finance sectors to cost-effectively provide financial products to their customers. In some instances, bulge bracket banks are also tying up with Fintech providers like CredAble, using their platforms to offer customised solutions to their clients.
FinTech and The Future As FinTech continues to disrupt the finance industry, consumers and businesses are getting used to the speed and efficiency that comes with automated services that they can access digitally. This means that there is close to no tolerance for any backlog or delays in processing for traditional financial institutions and businesses. In this ‘new normal’, the only two options incumbents seem to have is to adapt to the changing times or be forgotten completely.