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Digital payments and online transactions have witnessed very high levels of adoption.
Digital payments and online transactions have witnessed very high levels of adoption.

Opinion | Fintech – breaking boundaries to accelerate digital transformation

  • The Indian government has been encouraging the adoption of a cash-less economy and has offered a favorable environment for growth of companies that help accelerate this digital transformation

With the word 'fintech' making it to the dictionary, it is quite evident that it seems to hold a lot of potential for the future attracting investments more than ever. This has been observed in the Fintech Adoption Index published by EY, that one in three customers worldwide are at least using two provisions offered by fintech with the average customer awareness of fintech touching up to 84%. These pieces of information point accurately to what the world is heading towards. Fintech can be visualized as the conglomeration of companies and ventures who rely on technology as their spine to offer services to the consumers in the financial domain. The Indian government has been encouraging the adoption of a cash-less economy and has offered a favorable environment for growth of companies that help accelerate this digital transformation.

There are multiple technologies that contribute as layers in the construction of a fintech service. These infrastructural supports include artificial intelligence, big data in data analytics, machine learning, blockchain and robotic process automation. The artificial intelligence and machine learning algorithms are mainly deployed in verifying or assessing the players involved in a transaction helping in preventing fraudulent activities. They also help in automating the decision-making process of the system by understanding the needs and outlook of the user. Data analytics is a huge source of intricate insights for the companies to understand the behavioral nuances of the customers to design solutions accordingly. Also, with more information being held digitally, big data helps in storing the data safely. Blockchain attracts attention towards the decentralized framework it offers for averting cyberattacks through its reliance on ‘consensus’. Robotic Process Automation reduces human intervention in periodic tasks related to data maintenance and regulatory adherence.

Digital payments and online transactions have witnessed very high levels of adoption touching a value of $500 billion by 2020 as cited by the report published by Google-Boston Consulting Group. Specifically, under this pandemic crisis currently, almost 75% of the Indian consumers have resorted to the usage of these digital payment channels. These digital payments include internet banking, P2P transactions, e-wallet and mobile banking. The increased levels of flexibility and ease of access have helped gain the confidence of customers. With the ease of digital transaction growing multifold and instantaneous ratification of payments, crowdfunding has become a deal of minutes. On the other end, business ventures witness a higher growth in terms of investment as investors are now equipped with better information, verification methods and transactional channels. Fintech has indeed accelerated the growth of start-up and businesses at early stages by an increased number of investments routed into the company faster.

With UPI predicted to overtake global giants, Visa and Mastercard as a more preferred mode of payment in the next 3 years, fintech promises enormous levels of adoption and success in India. In July this year, UPI created the all-time high record of 149 crore transactions with transactional value of 2.91 lakh crore. NPCL moved the offering to the global market through NIPL with RuPay card. RuPay grew from 0.6% to almost 50% in market share under 5 years. The broad customer segment covers an entire spectrum from international to rural customers. The domestic clearing and settlement processes have significantly brought down the cost of a transaction to the end customer. With financial inclusion as one of the motives behind this initiative, the government has aided in higher adoption of these cards by increasing the holdings of bank accounts especially in Bharat under specific schemes such as inherent accident cover of 1 lakh for these cards. Easier processes for booking rail tickets, withdrawal of cash at point of sales and credit facilities for smaller businesses has helped in penetrating digital payment across all parts of the country. Also, the international presence has been improved by various strategic partnerships.

Holding the second largest number of start-ups in fintech globally, India is all set on the path of utilizing fintech to its fullest. With fintech seeming to present a very rosy picture, there also exists another side to it. The industry now relies on large banks for all the process adhering to the regulatory laws in place. With increased autonomy through fintech, it becomes less likely that the structure of the industry would remain the same. This calls for the development of an inclusive structure balancing all the partnerships. Also, with the Personal Data Protection Bill introduced in 2019, the processes in place would undergo further modifications to achieve regulatory compliance. On one side, it calls for robust technology in place and on the other, it requires cooperation of users and protection and maintenance of data.

We all know that fintech promises to redefine the market. But by when, still remains a question. Advancements in technology, regulatory formulations, compliance and customer awareness continue to be the strong pillars for the way ahead.

(Neelam Rani is associate professor of finance, and Pranishaa R Prakash is pursuing post graduate programme at Indian Institute of Management Shillong. The views expressed are personal and do not reflect Mints'.)

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