The Indian FinTech sector has witnessed substantial growth in the past few years and has rapidly transformed the financial sector. As per a study conducted by Boston Consulting Group and FICCI, the sector is likely to achieve a valuation of $150-160 billion by 2025. There are over 2,100 FinTech companies in the country, of which 67% were set up in the past five years. Traditionally, banks have served as the gateway to payment services. However, with the advent of technology and digitisation in the financial sector, this domination is gradually declining as an increasing number of Fintech companies enter the fray.
The payments infrastructure in India has witnessed substantial improvements, especially in the last couple of years, emerging as one of the world’s fastest-growing FinTech hotspots. This comes on the back of introduction of new payment interfaces and mechanisms such as the Unified Payments Interface (UPI), Immediate Payments Services (IMPS), Bharat Interface for Money (BHIM), etc. Government projects like Make in India and Digital India have also played a significant role in accelerating the adoption of Fintech services in the country. Furthermore, the Covid-19 pandemic has also hastened the digitisation and adoption of cashless payments, even in the remotest parts of the country.
With digital payments becoming a way of life, FinTech companies now aim to constantly innovate and evolve to serve their consumers better. Some trends that we can expect to drive innovation in the sector include:
Acceleration of New Payment Technologies
Faster transactions, newer payment methods, and improved accessibility are going to be the focus of FinTech applications in the near future. With increased use of AI in stores, and the rising popularity of contactless payment options due to the pandemic, customers are more inclined towards apps that offer services like tap and go payments, buy now and pay later, etc.
Furthermore, in an effort to reduce use of plastic, many banks/ NBFCs are now reducing focus on card issuance, while pushing for increased digital transactions.
The reliance on digital payments and self-serving banking facilities during the pandemic only reaffirmed the need for digitisation of the financial sector. Open banking is a technology-driven, API-enabled approach that allows banks and FinTech companies to deliver financial services using authenticated and aggregated customer data seamlessly. There are several countries that have introduced regulations that have compelled banks to deliver open banking in response to customer demands. In addition, FinTech companies everywhere are incorporating open banking standards into their products and services. Banks that don’t embrace open banking will limit their capabilities to service their clients better and limit their growth opportunities.
Rise of AI and Machine Learning
Machine learning applications are used to process large amounts of data sets and reach valuable conclusions that can help drive effectiveness and provide time-saving opportunities by using algorithms. Moreover, these applications analyse patterns in real-time, enabling quick decision-making. There are several banking and FinTech applications out there that have already adopted AI and machine learning practices for multiple functions, ranging from lending approvals, fraud detection to risk monitoring and investment predictions. Also aiding on this front is the increased adoption of blockchain technology. Although primarily synonymous with cryptocurrencies, blockchain has seen a lot of utilisation in the fintech space. Blockchain tech has helped alter rudimentary processes into extremely fast, highly secure, and very transparent processes. The financial sector is constantly growing, thanks to machine learning, and is likely to continue to be the top beneficiary of AI and ML adoption.
The emergence of Banking-as-a-Service (BaaS)
Innovations such as Banking-as-a-Service (BaaS) services and platforms have evolved and emerged as one of the most efficient and cost-effective ways to deliver financial services. BaaS enables FinTech, as well as non-financial platforms to partner with banks to offer financial services, wherein banks manage regulations and operations, while the platform leads client acquisition and servicing.
Digitisation of Employee Benefits with Fintech
With the combination of HR technology and FinTech applications, employers can revamp their employee experience and benefits strategies by offering services like on-demand pay-outs and earned wage access. Spurred by tech-favourable regulations and employee demand for faster pay-outs, fintech companies can aim to digitise cash-heavy industries, reduce physical checks, and pilot cheaper products.
These trends are, however, just the tip of the iceberg. As the FinTech industry grows and evolves, it will continue to shape the future of banking and payment services industry, delivering seamless consumer experiences and digitising the Indian economy.
The article has been written by Ajay Sharma, Vice President IT, Payments & Operations, Sodexo BRS India