Data science

Open Banking system will overhaul the banking ecosystem into digital powerhouses: Cashfree

India has the highest fintech adoption rate globally of 87% which is significantly higher than the global average rate of 64% and the blockchain market is expected to grow at a CAGR of 37% till 2024, according to Invest India.

The pandemic has accelerated the banking industry with more digital initiatives. Technological advancements have changed how we do nearly everything in our day-to-day lives. The shift towards digitalization reflected a practical need for more technology enablement. Fintech Industry is already disrupting the banking industry with technology trends like blockchain, AI, IoT, biometrics, 3D printing, and many more. In an interview, Akash Sinha, Co-Founder & CEO, Cashfree, tells about the current trends in Fintech. Excerpts:

DQ: How are you witnessing cloud and big data analytics playing a role in the growing Fintech industry in 2021?

Akash: With the importance of processing increasing amounts of data rapidly, and the need to provide increased accessibility to insights across enterprises, the use of hybrid cloud infrastructures will increase significantly in 2021.

Enterprises in the BFSI sector are progressively adopting cloud solutions to minimize risk, maximize output and offer innovative service delivery methods to customers. An analysis of GlobalData’s Market Opportunity Forecasts Model reveals that cloud revenue in the BFSI sector will grow at a CAGR of 8.2% during 2019-2024 to reach $27.8 billion in 2024. Given this data, we see cloud computing revenue in the Asia Pacific region significantly bolstered by Fintech innovation.

The fintech industry is one of the most data-intensive sectors in the Indian and global economies. Banks generate large sets of customer data including deposits, withdrawals, online transactions, loans, customer profiles, purchase patterns, etc. Big Data and Analytics offer a great advantage in understanding the needs of the customer, offer personalized products & services, and drive operational cost efficiencies that give rise to altered business models.

Banks, fintech companies, lenders, insurers are leveraging these data-sets to maximize customer understanding and gaining a competitive advantage. The fintech industry will create innovative models for assessing risks. Use cases where customers have a limited credit history, leveraging big data, machine learning, and alternative data to underwrite credit and develop credit scores will improve the penetration of financial services in India.

DQ: Will there be growth in digital-only banks in 2021?

Akash: Digital-only banks or ‘Neo Banks’ have gained popularity in 2020. The major reason is because Neo Banks offer the convenience of reducing paperwork and waiting in long queues and the need to physically visit a bank. They also provide competitive pricing, financial inclusivity and clarity of personal finances.

However, the Reserve Bank of India (RBI) does not allow a fully digital bank in the country yet, so Neo Banks are required to partner with traditional banks in order to seamlessly onboard customers. 2021 will see the rise of hybrid banking, with banks offering online and offline solutions and services.

Collaboration with innovative fintech companies will ensure banks can offer unique products to a larger customer base in India. In 2021, banks that leverage the efficiency, flexibility and convenience of digital banking while reaping the benefits of personalization, relationships, and in-person experience that digital self-service cannot provide, will stay ahead.

DQ: How do you see Reg-Tech taking off?

Akash: Banks and Financial organizations operate in a highly regulated environment to safeguard the financial systems and various stakeholders, and data of the customer. The pandemic has also brought specific RegTech opportunities to the limelight – online onboarding, data privacy, personal data protection, customer interest, identity risk management, online dispute resolution, and much more.

With RBI’s bolstered vision for Supervisory Tech (SupTech) and Regulatory Tech (RegTech), entities like commercial banks, cooperative banks, rural regional banks, payments companies and non-bank lenders among other actors will be monitored to avert risks.

DQ: Will there be growing space for open banking?

Akash: In the digital era, Open Banking is reshaping financial services. Customers expect more convenience and flexible access to services, driven by broader digital experience and the ability to access their financial data anytime, anywhere. Open banking enables customers to select from a broad portfolio of applications developed by third parties for their own financial benefit.

It allows financial organizations to modify these applications to specific individual preferences and requirements enabling financial establishments to innovate and to grow at their own speed. Adoption of the Open Banking system will overhaul the banking ecosystem into digital powerhouses functioning profitably. There is significant scope for openbanking to grow in the foreseeable future.

DQ: What will be the impact of blockchain on fintech for 2021?

Akash: India has the highest fintech adoption rate globally of 87% which is significantly higher than the global average rate of 64% and the blockchain market is expected to grow at a CAGR of 37% till 2024, according to Invest India. Market sentiment stipulates that future investments will focus on domains like payment gateways, lending, payment banks, blockchain, and similar areas.

RBI has also started testing blockchain-based applications. FinTech products employing blockchain can yield better credit risk analysis in the lending sector. A blockchain that can display CIBIL scores that cannot be tampered with will solve problems fundamentally. Blockchains can also act as a remedy to one of the biggest problems in cross-border remittances. Channel costs based on regulatory protocols and costs incurred by intermediaries are quite high. Blockchains can alleviate these issues by reducing transaction costs and eliminating the role of intermediaries.

DQ: What is the role for AI/ML and IoT in fintech for 2021?

Akash: AI, ML and IoT is transforming the face of fintech, allowing companies to use their data to automate repetitive tasks and gain valuable insights. Fraud detection and risk assessment are some of the primary ways that fintech companies will be utilising AI and ML in 2021.

Increasingly, fintech organisations across the board are adopting AI and ML to gauge risk and assess fraud. Algorithms can be created to analyse data across a set of parameters and AI tools can learn and map out user behaviour and find patterns to identify potential fraud.

Over a period of time, AI learns and adapts in order to weed out fraud cases. With Machine Learning, risk assessment systems are continuously being updated to better protect consumers and businesses in the fintech ecosystem.

For B2C fintech companies, IoT makes the process of data collection, management and sharing much more accessible. IoT will help manage data streams with a very large number of data entries. Distributed stream computing platforms have emerged as the future of IoT by helping with real-time analytics and pattern identification. Such data is invaluable to fintech mobility solution providers that develop P2P apps. The intersection of AI, ML and IoT will increasingly be seen in customer service as well, with increasingly customised solutions offered based on the macro data provided by the customer’s smart devices.

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