SHORT NOTES

FINTECH
 FINTECH

The term FinTech stands for Financial Technology.

FinTech is technologically enabled financial innovation that could result in new

business models, applications, processes, or products with an associated
material effect on financial markets and institutions.

It denotes
technological
innovation having
a bearing on
financial services.

These are the companies that provides financial services through softwares or
other technology mediums and includes anything from mobile payment apps or
cryptocurrency.

In simple words, Fintech describes any

company using the internet, mobile
devices, software technology to
perform or connect with financial
services.

For instance, BharatPe, Paytm,

Policybazarr.com, Razorpay, etc.
Payments Lending Insurance InvesTech Blockchain Other

WHAT IS THE STATUS OF FINTECH SECTOR IN INDIA?

India is one of the fastest growing FinTech markets in the world. In

FY20, it was valued at USD 50-60 billion and is expected to touch
USD 150 billion by 2025. The sector has seen a cumulative funding of
USD 27.6 billion.

India recorded the highest growth in the digital payments segment

with the monthly volume going beyond 5.7 billion transactions in
September 2021.

Benefits of FinTech

Financial inclusion

It enables all individuals and businesses to get access to appropriate

and affordable financial products and services in a timely manner.

Economical

The services are provided through apps and other such digital modes.
With each innovation comes a potential reduction in cost as there2 are
no physical branches, which means no overheads to pay.
 Speed

The automated process not only saves cost but also helps get access
to services in a timely and quick manner.

Efficiency
Enhancement

The FinTech, because of their speed and economical ways of

rendering services played a key role in making the financial sector
more efficient.

Flexibility

FinTech companies allow you to carry out all kinds of operations from
whenever and wherever you want in a very simple way.

Personalized
Customer Service

If there is one thing that Fintech products have been able to

enhance, it is their ability to meet the particular needs of the user
and the company in a personalized way.

Associated Challenges of FinTech

Cyber-Attacks

Automation of processes and digitization of data makes fintech system

vulnerable to attacks from hackers.

Recent instances of hacks at debit card companies and banks are

illustrations of the ease with which hackers can gain access to
systems and cause irreparable damage.

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 Associated Challenges of FinTech

Data Privacy Issue

The most important questions for consumers pertain to the

responsibility of cyber attacks as well as misuse of personal
information and important financial data.

Difficulty in
Regulation

Regulation is also a problem in the emerging world of FinTech,

especially cryptocurrencies.

In most countries, they are unregulated and have become fertile

ground for scams and frauds.

Due to diversity of offerings in FinTech, it is difficult to formulate a

single and comprehensive approach to these problems.

Major Enablers of Indian FinTech

Penetration of internet and smart phones has given a boost to FinTech

Favorable Indian Demography is another enabler as the Indian market is

blessed with a higher proportion of young population, who are more likely to
trust and adopt FinTechs.

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The indigenous set of technologies and policies also act as enablers to
innovation.
• Let us have a look at such set of technologies

Fintech and Bank Collaboration

FinTech firms are no longer viewed by banks as disruptive forces but as

enablers of banking and finance. Banks are relying on a number of strategies
to embrace technological innovation ranging from investing in FinTech companies
to collaborating with FinTechs for various operational functions.

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 FinTech Innovations

Now, let us have a look at some of the most prominent FinTech innovations.

Mobile and web-based payment applications

Digital Currency

Digital currency is a form of currency that is available only in digital

or electronic form, and not in physical form. It is also called Digital
Money or Electronic Money

• Digital currencies are digital representative of value, currently

issued by private developers and denominated in their own unit of
account.
• They are obtained, stored, accessed and transacted electronically
and neither denominated in any sovereign currency nor issued or
backed by any government or central bank.

A cryptocurrency is another form of digital currency which uses

cryptography to secure and verify transactions and to manage and
control the creation of new currency units.

Distributed Ledger

A distributed ledger can be described as a ledger of any transaction

or contract maintained in decentralized from across different locations
and people.

Unlike traditional databases, distributed ledgers have no central data

store or administrative functionality.
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 Blockchain

A blockchain is a type of database. A database is a collection of

information that is stored electronically on a computer system.
Information or data, in databases is typically structured in table
format to allow for easier searching and filtering of specific
information.

• A blockchain collects information together in groups, also known

as blocks, that hold sets of information.
• Blocks have certain storage capacities, and when filled, are
chained onto the previously filled block, forming a chain of data
known as the “Blockchain”
• All new information that follows will be freshly added in any
block which is also added to the chain once filled.

It is the record-keeping technology behind the Bitcoin network. In

Bitcoin’s case, blockchain is used in a decentralized way that no single
person or group has control – rather, all users collectively retain
control.

Crowd Funding

Crowd funding is a way of raising debt or equity from multiple

investors via an internet-based platform.

It refers to the solicitation of funds (small amount) from multiple

investors through a web-based platform or social networking site for
a specific project, busines venture or social issue.

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Peer to Peer Leding

Peer-to Peer lenders connect lenders and borrowers using advanced

technologies to speed up loan acceptance. These technologies are
designed to increase the efficiency and reduce the time involved in
accessing the credit.

P2P platforms are different from banks because they do not take
position in loans. These platforms more directly match the risk
appetite of lenders with the profile of borrowers.

Smart Contracts

Smart contracts are computer protocols that can self-execute, self-

enforce, self-verify and self-constrain the performance of a contract.

Development of smart contracts in relation to financial services could

have a large impact on the structure of trade finance or derivatives
trading and could also be integrated into robo-advice wealth
management service.

E-Aggregators

E-Aggregators provide internet-based venues for retail customers to

compare the prices and features of a range of financial and non-
financial products such as standardized insurance, mortgages, and
deposit account products.

E-Aggregators also provide an easy way to switch between providers

and may become a major distributor for a variety of financial
products.

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 Cloud computing

Cloud computing is the delivery of different services through the

internet. These resources include tools and applications like data
storage, savers, databases, networking, and software.

Robo Advice

Robo-advisors are digital platform that provide automated, algorithm

driven financial planning services with little to no human supervision.

A typical robo-advisor collects information from clients about their

financial situation and future goals through an online survey and then
uses the data to offer advice and automatically invest client assets.

E-Trading

E-trading refers to a method of trading securities, financial

derivatives or foreign exchange electronically.

Both buyers and sellers use the internet to connect to a trading

platform such as an exchange-based system or e-communication
network.

Big Data

Big data refers to the large, diverse sets of information that grow at
ever increasing rates.

As more business activity is digitized, new sources of information are

becoming available, By combining these data sources with the
availability of increased computing power is delivering faster, cheaper,
and more comprehensive analysis for better informed decision-making.9
WHAT ARE THE GOVERNMENT INITIATIVES FOR THIS SECTOR?

Jan Dhan Yojana

*already covered in previous notes

Payment Mechanism and Interface

Real Time Gross Settlement

National Electronic Fund Transfer

National Payments corporation of India

Immediate Payment Service

United Payment Interface

*already covered in previous notes

• Aadhar Enabled Payment System (AePS) was launched in 2010 to deliver

the 4As for financial inclusion in rural areas:
1. Authentication of customer
2. Availability of services
3. Accessibility
4. Affordability

Cheque Truncation System was launched in 2011 to enable faster clearance

of cheques.

National Automated Clearing House was launched in 2012. It is a web-based

platform for inter-bank electronic transactions that are repetitive and of 10high
volumes.
Rupay is a global card payment network launched by the NPCI in 2012

National Unified USSD Platform (NUUP) or *99# is a mobile based banking

service that work on USSD channel. It was launched in 2014.

Bharat Bill Payment System (BBPS) started in 2014

BHIM or Bharat Interface for Money is a mobile wallet app developed by

NPCI based on the UPI. It was launched in 2016.

E-RUPI is a digital payments instruments that provides cashless and

contactless payment solutions. It is a person and purpose-specific solution. It
was launched in 2021.

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 Regulatory Environment for FinTech

• The primary regulator for FinTech is

RBI.
• There is no universal regulatory body
for FinTech entities in India. Depending
on the product or service different
regulatory bodies govern such entities.
However, RBI currently regulates the
majority of FinTech companies dealing
with account aggregation, Peer-to-Peer
lending etc.

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