FinTech: Practicality and Efficacy

FinTech is a relatively new term which has become popular in common parlance recently. The term is an of the words ‘financial’ and ‘technology’ and connotes modern and emerging technologies, generally utilized by businesses for delivering financial services in a faster and more efficient manner. FinTech covers a wide range of services that are available today, from enabling a customer to check his/her bank balance directly, from a mobile phone to paying for products and services without undertaking any immediate cash transaction.

In a wider sense, FinTech may be said to be an emerging industry which includes all business firms and companies that employ technology such as the internet, cloud services, software, mobile devices etc to provide financial solutions to their customers. One very popular example of FinTech would be the development and use of cryptocurrencies such as Bitcoin. Well known Indian FinTech companies include Paytm, ModiKwik and PhonePe, among others.

The term FinTech was originally used for denoting back-end systems of established financial institutions, later coming to represent industries involved in the delivery of financial services. FinTech companies have gained prominence quite recently, as the rapid pace at which technology is developing has made the availability and access to the of such technological advancement easier for the general public than ever before. This perhaps more in developing nations like India and China. In such countries, as is the case generally with most new innovations, the internet and its allied products and services were available only to those who could afford to pay for the new (at the time) technology. Yet unlike innovations, it did spread and become accessible to the masses, though comparatively recently, only in the last decade. With availability of ‘smart’ devices such as smartphones and tablets, it has been possible for FinTech companies to rapidly make inroads into the sphere of financial services.

Another crucial factor why FinTech businesses have been so successful, at least in a country like India, is the demography. The major portion of India’s population is made up millennials who are attaining adulthood in an age where technology and information have become almost synonymous. Such a population, which has access and availability of the latest and greatest technology, at least to some extent, a, has created an environment that is perfect for such businesses to thrive in. Such a youthful and tech-savvy population does not hold patience for- or are not very keen on always keeping some cash in hand for purchases and payments. It is these very specific requirements that FinTech companies have been successful in meeting which has resulted in their unexpected and expeditious growth.

Compared to traditional businesses, FinTech companies are smaller, are able to take decisions faster and suitably evolve and adapt to the ever-changing requirements of the economy. Thus they are able to disrupt traditional channels and methods used for delivery of financial services through innovations in an effective manner, offering better alternatives, more suited to the needs of the current era. A major benefit granted to the economy is that FinTech businesses inevitably lead to financial inclusion, by expanding the financial services offered to as wide a consumer base as possible. It also enables small players and new startups to participate in an arena which was traditionally restricted to major financial institutions and banks.

The scope of FinTech is not limited to just the financial services sector. It influences and impacts every other sector (as all sectors are ultimately dependent upon the financial sector). This includes education, health, entertainment, information etc. FinTech businesses have been able to capitalize on the present-day requirements of its clients, both individual customers, as well as other corporate establishments. Ease-of-use applications which are accessible on smart gadgets, combined with market and industrial links with other institutions like commercial banks and financial businesses, have enabled FinTech companies to offer a wide plethora of services, ranging from e-commerce to daily transactions. Compared to the period before which FinTech gained prominence, financial transactions took a relatively longer period of time, were costlier and were much more complicated. For a simple transaction, such as paying for grocery, customers earlier had to necessarily carry cash with them for making purchases. Now, with the convenience of their smartphone, they can even get their groceries delivered to their doorstep though online purchases. Similarly, the unprecedented success seen by the major e-commerce platforms like Flipkart and Amazon in India is a testament to the triumph of FinTech businesses.

FinTech businesses have transformed the very nature of providing financial services. While they exist side-by-side with commercial banks, they not only act as a complimentary provider of financial solutions, fulfilling those needs which banks cannot or will not meet, but they also act as competitors to some extent, in the tussle for gaining customers’ attention. Their method of management, though is drastically dissimilar from that of banks. Being present in almost all the various spheres of the economy, their focus lies in linkages with parties, and in highly efficient logistics. FinTech firms cater to customers by unbundling financial offerings from other financial institutions, and creating new markets for them. This has enabled them access to previously untapped markets.

FinTech is a financial trend which is here to stay. There are challenges in reaching out to the gentry who do not claim to be tech-savvy. But it must be noted that the way FinTech has had a meteoric rise in the Indian market, it will overcome all the hurdles and will evolve as an all-permeating gamechanger in the money-market.