Future of Fintech: India in 2050

by Mihir Mehta

A portmanteau of two words- Finance and technology, Fintech has created a disruption in the financial services industry (banking, investments, payments etc.) by leveraging the latest technological innovations like block chains, artificial intelligence, biometric applications, peer to peer (P2P) lending, robotics etc.

The intensity of its disruption in India and a glimpse of the prosperous future that it holds is evident from a recent report by EY, according to which India is the second largest adopter of Fintech in the world, just next to China!

The age of Fintech Entrepreneurs is here

If Fintech is such a big revolution, why not seize the opportunity? This is exactly what the emerging start-ups of India are doing and consequently, providing efficient and cheaper financial services with Paytm, Mobikwik, Freecharge, Bank Bazaar etc. leading the way and several others following in to test their Fintech ideas. To share some numbers, the first quarter of 2017 saw global investments in Fintech, to the tune of approximately $3 billion which includes a $1.4 billion investment in Indian giant- Paytm! PwC estimates that within the next 3-5 years, the total investment in Fintech would rise to a whopping $150 bn globally. Needless to say, the age of Fintech entrepreneurs is here to stay!

The Future of Fintech in India

As we understood, Fintech has already caused a revolution and Fintech entrepreneurs have begun to disrupt the financial services industry in several forms. Let us now explore the Fintech ecosystem and the sectors in Fintech which will roll the next set of innovations!

• Blockchains- Traditionally, transactions needed a third-party validation to take place. Then came blockchains which did away with third part reconciliation and provided cryptographic security. Bitcoins, which use the blockchain technology, have already become a rage. But blockchains are expected to go way beyond just bitcoins, payment transactions, banking industry and foray into various other sectors like media, telecom, travel and hospitality etc.
• Alternate lending- Traditional banking industry found it unprofitable to lend to small entrepreneurs. Fintech entrepreneurs took advantage of this opportunity by diving into Peer to peer (P2P) based lending and building web platforms to bring together the lenders and borrowers at lower interest rates. This trend is set to continue and other alternate lending avenues like crowd funding are set to emerge further.
• Robo advisory- Earlier intermediaries played an important role between the stock market and the investors. Many times this led to non-traceable and inefficient transactions. Robo advisory will make the stock market easier to access, transparent and traceable and give more value addition to the smarter investors.
• Digital payments- Fintech start-ups have increased the speed and convenience of payments. Mobile wallets have already replaced traditional wallets in a lot of places and will penetrate further with better and faster payment options. And yes, ATMs will become redundant too.
• Insurance sector- Currently, we can find various online market places where consumers can compare their insurance policies and take prudent decisions. Fintech will further bring in technological revolution in the insurance value chain through automation driven by data and thereby not only reduce the cost of operations but increase the length and breadth of products available in the market.

Fintech and the future of Banking in India

Fintech innovations have also expanded the boundaries of banking. The role of banks has increased to more than just a safe deposit for hard cash.

The Banking industry has already turned to blockchains in a big way as the world is changing and redefining the nature of currency. Artificial intelligence based analytics solutions are likely to become the norm along with automated portfolio management solutions and advisory services. Even the back and middle offices of large and boutique Investment banks will see improved efficiency through artificial intelligence and introducing changes in operating models. It is quite possible that business models then change to equity based models from the currently more popular debt based models. In fact, a PwC survey predicts that the Indian banking industry would become the third largest domestic banking sector by 2050.

The looming threat

Despite all the promises that Fintech holds, it faces a big threat in form of cyber-crimes and therefore, security is Fintech’s biggest vulnerability. The impact of cyber-crimes extends to both monetary and reputation loss. Hence, financial institutions and all Fintech start-ups will have to ensure that stringent and efficient security measures are made against any potential security breaches to build and keep the trust of the consumers alive and strong.

Conclusion

The digital revolution is here despite the challenges. The financial services industry must anticipate the changes and make use of their strengths to create new businesses and adapt to the upcoming changes in the coming years.