Adoption of Fintech On Digital Banking: Exploring Trends, Prospects and Risk
Adoption of Fintech On Digital Banking: Exploring Trends, Prospects and Risk
Adoption of Fintech On Digital Banking: Exploring Trends, Prospects and Risk
ISSN No:-2456-2165
Abstract: This paper examines the theoretical literature procedures, or products that significantly affect financial
on the development of information and digital markets, institutions, and the provision of financial
technologies in the Indian banking sector. The purpose services". The term "financial technology" refers to a variety
of this study is to emphasis the function of financial of things, from the invention of digital money to double-
technologies or Fintech in the financial industry, entry bookkeeping.Fintech firms are designed to compete
particularly in the banking sector, using information with and ultimately replace existing traditional financial
collected from secondary sources on Fintech and Digital service providers by being more flexible, catering to an
Banking. The study review the overall idea of Fintech underserved market, or offering quicker and better
and Digital banking and also the initiatives launched by service(D'Acunto et al., 2019).
RBI recently. The Published data is used to understand
the pattern of fintech and digital banking services in A. Financial Technology (Fintech):
Indian Context. This study indicates a direction for The term "fintech" is not of recent origin.The financial
Fintech evolution in terms of changing industries and industry, information technology (IT), and innovation are all
customers. Over the past several years, there has been a connected by fintech. The phrase "Fin-Tech" was created by
significant increase in the usage of fintech in the banking combining the terms "finance" and "technology," and it
industry. This study gives a thorough review of the new accurately captures what the acronym truly stands for, which
opportunities that FinTech has opened up for the is the advancement of technology and innovation to enhance
banking industry, as well as the difficulties that may banking and financial abilities with the most recent
arise throughout the adaption process. technologies. Fin-Tech alsorefers to the interaction between
financial services companies like loans, payments, money
Keywords:- Financial Technology, Digital Banking, transfers, and other banks, and technology like cloud
Banking services, Digital initiatives, Opportunities and computing and mobile internet. According to (Chenet.al,
Threats 2019) Fintech is a process of emerging financial innovation,
which has been proved to be valuable yet dangerous in
I. INTRODUCTION recent evidence that it provides significant value to
investors.
Globally, the banking industry is now undergoing a
possible disruption due to recent advancements in FinTech. Fintech Ecosystem:
A number of variables, including as financial globalisation, Fintech ecosystems are groups of businesses that
technical development, the need for new business models, collaborate to accomplish a single objective. This often
and rivalry among service providers in an effort to meet refers to the creation and acceptance of innovative
increased consumer expectations, contributed to this technologies to enhance or undermine the conventional
transition. The banking industry is moving towards banking industry in the context of financial services.
operational innovation as a result of the financial technology Additionally, it may imply expanding social inclusion and
industry's fast growth in order to obtain a lasting economic progress for more people globally.
competitive edge(Zhao et al.,2019).
Fig. 2: Market size of India’s Fintech is $3.1 billion in the year 2021, third largest in world
According to the report by Research Dive Analysis, field of Information Technology. This innovation has lead to
the digital payments and digital sales are projected to more convenience and easy access to the digital payment
significantly increase in the coming years. This is due to the platforms.
fact that the sector has experience a lot of innovation in the
C. Key Initiatives launched during the Global Fintech Fest NPCI, RBI Governor Shaktikanta Das introduced three
2022: significant initiatives at the Global Fintech Fest 2022.
In the presence of Biswamohan Mahapatra, Chairman of RuPay Credit Card on UPI, UPI LITE, and Bharat BillPay
the National Payments Corporation of India (NPCI), and Cross-Border Bill Payments were launched as a part of
Nandan Nilekani, Chairman of Infosys and Advisor to the initiatives by RBI.
Source: NPCI
RuPay Credit Card on UPI : The Virtual Financial A. Fintech and digitalization:
Address (VPA), commonly referred to as a UPI ID, will Fintech has developed as a result of shifting global value
be linked to RuPay Credit Cards, enabling risk-free and chain drivers that have exposed flaws in banks' present
secure financial transactions. The first users of RuPay business models. This has helped highlight areas that require
Credit Cards with UPI and the BHIM App will be those change and encouraged adaption of such business models
who bank with Punjab National Bank, Union Bank of for future growth (Thurber, 2012). The survey asserts that
India, and Indian Bank. in 20 important worldwide regions where fintech adoption is
UPI LITE: Consumers will be able to complete low-value anticipated to reach 52% globally, fintech adoption is more
transactions more rapidly because of UPI Lite. Users of pronounced at the retail level (Ernst & Young,
the BHIM App who activate UPI Lite will be able to 2017).According to (Kaur and Dogra, 2019) the top 10
execute low-value transactions almost entirely offline. It Fintech entrepreneurial projects are investigated based on
is anticipated to reduce the load that debit transactions their goals and objectives, and growth analysis is done
place on the main banking system, boost transaction according to the source of funding. Finance for fintech firms
success rates, and enhance user experience. is increasing, which promotes healthy economic growth.
Bharat BillPay Cross-Border Bill Payments: For people India, which has the largest population and the biggest
who live outside of India yet own property in India, the percentage of unbanked and underbanked people, is a
governor created the Bharat BillPay Cross-Border Bill potential market for financial disruption. Disruptive
Payments, which would make bill payments simpler. innovation in the shape of fintech is revolutionising the
NRIs might use the service to cover their Indian relatives' established financial markets. For the past five years, fintech
energy, water, and phone costs. Bharat BillPay Cross- has been expanding in India, and experts predict that it will
Border Bill Payments will be accepted for the first time by continue to expand quickly in the next years (Priya and
Federal Bank in association with the Lulu Exchange in the Kanagala, 2019). According to (Vijai, 2019), the
United Arab Emirates. digitization of financial transactions is offered by the fintech
firm. The sought-after benefits of fintech services result in
II. REVIEW OF LITERATURE less time and money spent on operations. In terms of
worldwide comparison, India has the fastest-growing fintech
The digital revolution of the banking and financial services. The finance industry in India will undergo major
industries depends on fintech or financial technology. transformation as a result of the new fintech idea.(Gupta
Driving digitization in the banking sector involves the and Agrawal 2021) in their study demonstrate the positive
fintech sector. Fintech service providers significantly impact connection between end-user adoption of fintech and the
markets with their creative business structures and goods. worldwide COVID-19 epidemic. It indicates that the rate of
The following literature review is categorized into three fintech adoption has dramatically grown, indicating more
categories. financial inclusion and progress.Demir et al (2022) found
B. Digital banking and financial services: (Kholis, 2018) Several items that can simplify and
Vishnoi and Bishla (2021) the UPI system in India expedite financial transactions have been developed as
enables the elimination of black money, corruption, and the operational advances for the banking sector in Indonesia.
promotion of green transactions. The analysis indicates that One of them is digital banking, which is a service for doing
it only took India five years to surpass the United States in financial business via electronic or digital methods. Services
terms of real-time financial transactions. Arner et al through this facility, independent actions can be taken to
(2018)argued that in order to fully utilise FinTech for gather information, communicate, register, open accounts,
financial inclusion, a framework that supports infrastructure conduct banking transactions, and close accounts.
and an enabling policy and regulatory environment is
required. This framework must be built on a solid III. NEED OF THE STUDY
foundation of digital identification and electronic payment
systems. According to Baghla. A. (2018)India is moving The emergence of financial technology has both
more quickly towards a cashless society, but it will take a benefits and drawbacks for the banking industry. On the one
while before that is fully realised. Through government hand, it offers ways to improve the services that banks offer
initiatives, commercial institutions are launching e-wallet to their clients, with chatbots enhancing customer
apps like Paytm, Phonepe, etc. as a complement to the experience, mobile apps giving clients a real-time view of
digital payment system. Joshi and Desai (2017) After the their bank accounts, and machine learning securing against
subsequent demonetization, people's perceptions about fraud. On the other hand, fintech is putting traditional
digital payments altered, and they were replaced by banking and financial services under intense pressure from
alternative payment options including NACH, IMPS, UPI, all sides, endangering the long-term viability of some of our
and BHIM (UPI). Consequently, there is a chance that the most recognisable institutions. Fintech aids in resource
nation's digital economy may grow in the future. Khorshid management and finding useful applications for financial
and Ghane (2009) in their study examines the privacy, accounting data. Banks and other financial organisations that
security, and trust of consumers were recognised as frequently need to maintain high operational efficiency
difficulties resulting from e-banking challenges for bank across many industries benefit greatly from fintech.
management, and further study was undertaken on IV. OBJECTIVE OF THE STUDY
prioritising these challenges. Customers identified
reputation of the bank, compliance with rules and To understand the concept of Fintech and digital banking
regulations, and ease of access as the primary obstacles to and its emergence in the todays digitalized world.
the growth of e-banking.Uppal and Chawla (2009) To analyse and interpret the trends associated with digital
Customers of public sector, private, and foreign banks in the financial services
Punjabi district of Ludhiana were found to be interested in To explore various opportunities and threats of Financial
e-banking services, but they were also struggling with issues Technology (Fintech) on the Banking and financial
like poor knowledge, a bad network, a lack of infrastructure, services.
an inappropriate location, misuse of ATM cards, and
difficulties opening accounts.Sharma and Avasthi (2001) V. RESEARCH METHODOLOGY
According to a research, technological advancements will
revolutionise how the banking industry operates. The The research design used in our study is exploratory
distribution methods used by banks for retail banking have cum descriptive research. The data collection used in our
changed as a result of technology. Additionally, it has an study is from secondary sources collected using annual
effect on bank markets. The report also looked at the reports of RBI, NPCL, articles, research papers, magazines
problems that the banking sector and its regulator have. and websites. For the study of trend in financial services,
Shukla and Shukla (2011) said that using e-banking data has been collected for 5 years to interpret the results.
provides a better level of ease for handling accounts, even
from a person's bed. However, it still poses threats to one's
financial security and private life.
Table 4: The Volume and Value of the services like RTGS (Real Time Gross Settlement), NEFT(National Electronic Funds
Transfer) and Mobile Banking are stated below:
December RTGS (Crores) NEFT MOBILE BANKING
month of Volume Value No. of transactions Amount Volume Value
every year (Lakhs) (Crore) (Lakhs) (Crore) (Lakh) (Crore)
2022 21503150 13736057.18 4854.8 2981681.2 7465027.275 1991760.73
2021 19278396 12966990.79 3763.4 2724980.1 45286 1359381
2020 16347917 10659120.35 3076.1 2558304.2 25199 899401
2019 13601582 10316936.81 2336.9 1942230.7 14322.09 493143.67
2018 11317114 116423.73 194.8 19570.4 6614.30 277633
Source: RBI Annual Report
(The data is taken for the month of December only including all the types of banks for five years)
Interpretation: The above table shows the digital increasing trends in both the volume and value. This
transactions that occurred in the month of December shows that the digital transactions gives a favourable
every year for 5 years. The study depicts that there has results in the digitalization of banking industry. The study
been an increasing trend in all the three digital banking. analyse a positive relationship of digital transactions in
RTGS/NEFT and mobile banking has experienced an banking industry.
Table 5: The volume and Value of Digital Transaction and credit card transaction
Year Digital Transactions Credit Card Transactions
No. of transactions (crore) Value in lakhs crore Volume (billion) Value(trillion)
21-22 8840 3021 1.89 7.3
20-21 5554 3000 1.76 6.3
20-19 4572 2953 2.18 7.31
19-18 3134 2482 1.76 6.03
18-17 2071 1962 1.89 4.59
Source: RBI, NPCI
Interpretation: The table above shows the comparision name a few. AI and machine learning are being used by
between digital transactions and the credit card banks in a variety of contexts. The public is most familiar
transactions for 5year duration. The study clearly shows with chatbots, but artificial intelligence also affects back-
an upward trend in the no. of digital transactions and the office operations, product delivery, risk management,
value of digital transaction has increased every year. marketing, and security. (Truby et al. 2020) New
Whereas the credit card transaction shows an decreasing technologies affect how individuals handle and move money
trend except the year 20-21. The main reason for the and reset customer expectations. A large shift in financial
downfall in the year 2020-21 is due to the pandemic. Soon services from traditional banks to neo-banks is referred to as
after the pandemic, we can observe a rise in the credit a fintech disruption. Retail banking products and services
card transactions again. are directly impacted by a number of developing
technologies in the Fintech sector. (KPMG 2019) Although
VII. EMERGING TECHNOLOGIES IN BANKING it is still in the early stages of implementation, blockchain is
INDUSTRY a new financial services technology trend that is
revolutionising the financial world as we know it. We
(Chonsawat and Sopadang 2020) Emerging choose to concentrate primarily on how blockchain
technology must have the capacity to completely change a technologies impact banking in our study because of this.
particular market or industry, even if it is neither innovative Blockchain definitely has a substantial influence on the
or revolutionary. This type of technology is used in many finance function, and most businesses will progressively
industries, from agriculture to education. (Schulte and Liu incorporate the technology as they anticipate a new
2017) Emerging technologies employed in the banking operating model for finance, according to a report by
sector include blockchain, cryptocurrencies, AI, IoT, cloud KPMG.
computing, virtual/augmented reality, and e-commerce, to
VIII. PROSPECTS AND CHALLENGES OF prudential standards involving reporting and consumer
FINTECH FOR BANKING AND FINANCIAL protection) and comply with regulatory requirements
SYSTEMS with the use of modern, innovative technology. RegTech
provides banks with more efficient solutions to enhance
Efficiency is one of the several fronts on which their compliance and risk management. It may also be a
FinTech companies, who are seen as a genuine threat to the way to manage regulatory environment change and
established banking system, must compete with banks. New reduce the expenses associated with fulfilling the
technologies like "BlockChain" increase effectiveness necessary standards.
(Peters & Panayi, 2016). These advancements are Upliftment in Security and increased compliance of
anticipated to help FinTech businesses more since banks are cloud-based data: Security is included into the
often less inclined to embrace new technology rapidly blockchain for one of the key breakthroughs in FinTech
owing to the regulatory environment and frequently rely on through encryption of the blocks and the connections
decades IT infrastructure. between the blocks. With current technology, it is also
more difficult to attack every node in a blockchain than it
A. Prospects/ Opportunities:
is to attack a central database. FinTech platforms also
Financial Inclusion: People with limited resources now provide a number of ways to safeguard privacy and stop
have easier access to financial services because to digital data leaking.
banking. FinTech platforms are changing to firm and
Cost benefit using blockchain technology: Fintech
executable orders and focusing more on larger-sized
companies provide quicker and more affordable financial
deals. Another aspect of this opportunity is the inclusion
services. In the case of cross-border transfers, fintech
of new asset classes. For instance, many Distributed
businesses can offer speedier banking services at a
Ledger Technologies (DLT) experts point out that one
cheaper cost. Fintech players may speed up transfers and
advantage of DLT is the ability to "tokenize" for
payments and reduce their expenses. Shortening the
securitization assets that are expensive to source,
settlement cycle from three days to two days has been
transact, and deliver, such as commodities, energy
beneficial for some markets, and blockchain
products, works of art, real estate, and private equities,
technologies have the potential to result in almost
making them available for trading and as collateral.
immediate settlement. A distributed ledger using
Positive impacts on financial stability driven on by blockchain technology allows for the real-time,
enhanced competition: The emergence of new chronological, and secure recording and transmission of
competitors for established banks may eventually cause data (Jani & Shah, 2018).
the market for banking services to become more
Big data and fog computing to provide clients with
fragmented and lower the systemic risk posed by
individualised services:
businesses with systemic scale.
The Regulation of Technology (Regtech): Financial
Using big data, banks may divide their clients based on
their income levels, spending habits, and transactional
institutions can achieve regulatory goals (such as
IX. THE FUTURE OF FINTECH AND DIGITAL has become quicker as a result of it, meeting times have
BANKING IN INDIA gone from months to weeks. The latest statistics from the
RBI show that there were 1.06 billion digital transactions in
Sironi (2016) in a book contrasted the futures of 2017, an increase of 6.05 percent.(Ravindra and Tejashwini
traditional banking with those of other Fintech-based 2022) in their study highlighted the role of fintech in digital
businesses. Currently, 87 percent of people still pay in cash banking. The study highlighted that the government and
and 40% of the population lacks access to financial services. regulatory bodies' initiatives, all of which are keen to go
India might so serve as a breeding ground for new financial above and beyond to assist growth in the banking industry,
technologies start-ups in technology. According to also contribute to the Fintech revolution. To advance fintech
predictions, mobile usage will rise from 64% in 2018 to in India, banks and financial institutions must work
70% in 2019, and increased Internet usage will help Fintech successfully with creative businesses.
in India grow.Ahern (2018) in his study examines that
Crowdfunding makes it quick and simple to raise money
from donors all around the world. Finding startup resources
Website:
[39.] https://www.consumersinternational.org/
[40.] https://www.researchdive.com/
[41.] World Economic Forum
[42.] Economics Times
[43.] https://www.businessinsider.in/
[44.] https://www.npci.org.in/