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ROLE OF FINTECH: IS IT A THREAT TO PAPER MONEY: ANUSHREE TAGDE


What is Fintech and how does it work?

A massive interest is observed in this fast evolving industry of Financial Technology hereinafter referred to as “Fintech”. According to TheStreet, Fintech is the term used to refer to innovations in the financial and crossover space, and typically refers to companies or services that use technology to provide financial services to businesses or consumers.[1] The evolution is quite drastic because Fintech when just surfaced above waters, it was understood to only a limited number of people and the idea was closely related to restrictive number of activities. This included international money transfers, virtual cheque deposition, more or less this industry played a back-end role in the early 21st century, but within a short period of time as the revolutionary computers, mobile phones and smart-phones emerged, and people utilized them in co-ordination with internet services, the industry grew and stands today like never before. From mobile payments app to cryptocurrencies and roboadvisors, fintech is now moving forward, broadening its horizons to financial education, retail banking as well as investment management.

Fintech is spread majorly in categories gaining a lot of popularity. These include crowdfunding startups like Kickstarter, blockchain and cryptocurrencies like Bitcoin, mobile payment apps like Paytm (apps like these showed phenomenal growth during and post-demonetization phase), stock-trading apps,B2B (Business to Business) service providers like Salesforce (CRM) and B2C (Business to Client) providers like Venmo, Paypal etc.

Fintech in India and around the world

According to a report from Delloite[2], Following China, India now stands in one of the top five markets for adding value to capital funding and investments in the sector (nearly $270 million), and according to National Investment and Promotion Agency, India has the highest Fintech adoption rate globally[3]. It is estimated that a jump of $65billion (2019) to $140 billion is to be recorded. As far as India is concerned, this endless topic is attempted to be categorized in four major segments

1.     Wealthtech (for Startups)

2.     Payments (mobile digiwallets and other digital finance institutions)

3.     Lending (without any heavy documentation load, consumer credit sector is witnessing digital financial institutions; helpful because less ‘loan sharks’)

4.     InsureTech (Acko is the best example)

This sector is prospering more and more every year in India because (mostly) countries like ours have a comparatively higher population of youngsters, who are inclined towards ‘digi-mode’ transactions as they are very convenient to the conventional methods, also because the sudden revolution of Fintech and the advancement of consumer-oriented technology (again as demanded by the late 90s generation) , both came into existence around the same timelines. India is also regarded among the top nations with most conducive environment for financial inclusion[4], states like Maharashtra are supporting 500 startups under the new economic policies, moreover, this sector is believed to be a pioneer and lead in India’s financial formalization. RBI is assuring regulatory sandbox for startups so the right kind of boost is given and optimum potential is triggered[5].

Not just India, Fintech is impacting the world at large. According to a study[6] 84 percent of Americans use Fintech to manage their finances. It is because of surprise stats like these that in UK, target audience basically are their already existing customers. China’s adoption rate to Fintech is 83.5%, it is also a very popular industry because once acting like a backbone of banking tech, it is now observed to flourish without banks at all, 1.7 billion people worldwide, are using Fintech with no bank accounts.

Fintech and COVID

The current pandemic has harmed every industry more or less, but it has helped Fintech to grow like never before. Only government lockdowns have led to a significant have led to a 10% increase (from 24 to 34) relative rate of daily downloads of financial applications. The consumerism of digital financial modes have only increased in this pandemic and financial inclusion has helped improve access to finance[7]. The consumers have benefitted but investors seem to have fevered on every round.

Reshaping of Financial Industry and the threat to paper currency

By this time you must be convinced that when conventional ideas are replaced by tech-savvy ones, they turn out to be revolutionary. Fintech as an industry in itself now is reshaping the already existing parent industry- Finance. The few examples of which are- Smart chip ATM cards embedded with EMV technology, biometric and iris sensors, MCA (Monetary Control Act) and ACH (Automated Clearing House) both assist in regulating and processing electronic banking payments, and not to forget chatbots, E-wallets and AI (all outrunning the conventional customer care supports), and all this have led to a threat to paper currency, but even inspite of all these, banks tend to passively respond to Fintech, in the opinion of Mr. Graham[8], if banks want to be active and not be completely disrupted by the fintech movement, there has to be a correct fight or flight response from their end. We will understand this but on a concluding note let’s deliberate on why is there a fear of disruption to the banks?

Conclusion

“The threat of Fintech is the impact it will have on customer expectations towards banking services” says Head of Department at one of the leading banks in the Netherlands. According to pwc, 73% of the financial sector executives see consumer banking to be ceased by virtue of Fintech. Many negative outcomes like credit systems disregarded by peer to peer lending, and blockchain making it difficult to track digital currencies like Bitcoin but still it is believed that paper currency is pertinent to organize society and a meticulous thought should be given before get rid of it. Although it is a popular belief that digital currencies will not replace paper currency soon.[9] It would change the banking system too drastically. Further, it is absolutely imperative for traditional banks to tread carefully, to make strategic investments in innovative technologies.

Bibliography:

“Financial Innovation and Deregulation in Perspective,” BOJ Monetary and Economic Studies, September 1985

https://www.cbinsights.com/research/coronavirus-fintech-financing-impact/

 

 

 

 


[1] Anne Sraders, What is Fintech? Uses and Examples in 2020 (Feb 11, 2020 3:02 PM EST) https://www.thestreet.com/technology/what-is-fintech-14885154

[3] Atharva mankotia, India- A globa Fintech Superpower, https://www.investindia.gov.in/sector/bfsi-fintech-financial-services

[4] India among top nations with most conducive environment for financial inclusion: Report, The Economic Times, Oct 31, 2019, 01:02 PM IST

[5] Kishan Sundar, FinTech Will Lead India’s Financial Formalisation, (27 Oct, 2019)http://www.businessworld.in/article/FinTech-Will-Lead-India-s-Financial-Formalisation/27-10-2019-178089/

[7] Supra

[8] Alex Graham Fintech and Banks: How Can the Banking Industry Respond to the Threat of Disruption? https://www.toptal.com/finance/investment-banking-freelancer/fintech-and-banks

[9] Fu, Jonathan and Mishra, Mrinal, The Global Impact of COVID-19 on Fintech Adoption (April 22, 2020). Swiss Finance Institute Research Paper No. 20-38, Available at SSRN: https://ssrn.com/abstract=3588453 or http://dx.doi.org/10.2139/ssrn.3588453 

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