The fintech industry is an agile and fast moving one that thrives on innovation and disruption.
By Patanjali Somayaji
From previously being mostly a fringe player as part of the financial services industry, 2018 saw fintech taking giant strides towards the centre-stage by leveraging data & AI, social networks, industry collaborations, and open banking to offer a range of innovative products to a population segment that was vastly untapped till now. As per a recent report by NASSCOM, the Indian fintech software market, currently at $1.2bn, is expected to touch $2.4 bn by 2020.
The RBI circular on data localisation, Supreme Court judgement on Aadhaar, NPCI guidelines on e-NACH, followed by liquidity issues in the market have put the brakes on this growth to an extent, as fintech companies rethink their business models and processes. It is good to see there is already a concerted ongoing effort by all players to iron out these issues to ensure it’s a win-win for the industry and consumers in the long run.
Some of the key drivers in 2018 have been:
- Mobile banking, payments, wallets
- Leveraging data
- Embracing blockchain
- Alternate lending mechanisms
Looking to the future of Fintech – What can we expect in 2019?
Regulatory environment
The fintech industry is an agile and fast moving one that thrives on innovation and disruption. Both the RBI and the government have been proactive and shown their willingness to encourage startups in the fintech space with the added objective of financial inclusion – reaching the vast unbanked / underbanked population.
It goes without saying that where there is movement of money, there will be regulation. However, there are no specific regulations for fintech yet, although there is a broad framework of guidelines set out by NPCI, SEBI, AMFI, IRDA, TRAI along with the RBI and the government.
The difference in approach and mindset of each of these entities can sometimes create some uncertainty and ambiguity around rules and regulations – meant largely for the financial industry and their applicability to the fintech sector. With around 1500 fintech companies in India now, greater clarity on regulations or even a specific set of regulations/guidelines for the fintech sector will be a welcome move in 2019.
Open Banking – partnerships and collaborations
For long, banks and banking systems have worked in a closed ecosystem with strict regulations and controls, proprietary frameworks, apps and channels. Sharing of any data with customers or even externally has been marginal to non-existent.
Open Banking has given rise to a new shared environment where banks are proactively collaborating with other third-party players, allowing access via APIs which can be integrated with their systems.
In the present regulatory environment, it also makes sense for fintech companies to partner with an existing bank or financial institution, allowing for seamless integration and quicker delivery of solutions. With banks keen to harness the potential of the data they already have, the past year has seen them actively pursue fintech firms and developers for collaboration, acquisition, or even setting up in-house capabilities.
This is creating more partnerships, revenue sharing models, helping to customise data-based product offerings, and we’re likely to see more of this in 2019 as banks and fintech firms continue to build upon this mutually beneficial relationship.
Artificial Intelligence – curbing the threat of risk, fraud, default
The past 2-3 years have seen the mushrooming of several firms in the fintech space offering a wide range of services from payments and lending to insurance, stocks and mutual fund investing and so on. With the onboarding process being a breeze, several hundred thousand of customers have signed up to avail of those services in a short span of time.
With greater number of customers come greater risks and errors, as well as higher likelihood of willful default and fraud. Artificial Intelligence (AI) is already playing a significant role here by automating a range of repetitive activities done by humans, keeping errors to a minimum. Besides this, investments firms are actively using robo-advisors to help customers manage their finances based on spending and investment patterns.
While use of AI and machine learning algorithms will help to predict chances of default as well as restrict fraud to to an extent, companies will need to keep innovating, tweaking their credit and financial models, building in more robust fraud detection mechanisms, early warning systems and stress-testing those to check for weaknesses. In 2019, we could see an increased adoption of biometrics for authentication – whether via fingerprints, retina scan, facial and voice recognition.
Data Security and User Privacy
Where there is money involved, there will be concerns around security. Banks convey an impression of being safe and secure, and it is understandable that consumers will have misgivings about the fintech apps or services they’re using. While on the one hand, there is a smooth, frictionless onboarding and ease of use, there is also a concern about what data they’ve provided, how safe it is, and how it is being used, stored or shared, besides the obvious threat of security breaches and hacks.
In India, a majority of consumers use such financial apps/wallets largely to manage their spends, make card and bill payments, send and receive money, invest in stocks and mutual funds, or apply for loans. Each of these request access to different credentials and data points and this is where consumers walk a tightrope – provide access in order to receive the best offers, analytics and insights, or provide limited/no access and instead prefer to engage via legacy methods which would take time and cause a degree of inconvenience.
Further, due to partnerships with other fintech firms, banks and other financial institutions, as well as third-party vendors, some level of information sharing will happen. On its part, the RBI has been taking steps to set norms for how and where Personally Identifiable Information (PII) and user data is collected and stored, who it is shared with, and we could see some formal regulation around this in 2019 as banks and fintech players will need to further tighten their security and compliance protocols.
AI, Chatbots and Voice Assistants – delighting the customer
India is a diverse country and what works in Tier-I and even Tier-II cities may not work in a Tier-III city. Each customer is unique, has a different level of understanding, behaviour and usage pattern. Some may not even understand English or Hindi. AI and data will help in fine-tuning the level of customisation, communication and personalisation that each user sees and gets, leading to a unique wholesome experience.
The ease of onboarding as well as equal ease of migration means it becomes imperative to “listen” to customers, work on their feedback, and address their concerns in the given TAT to ensure maximum retention.
Several fintech companies and even banks are actively deploying voice assistants and chatbots to manage customer interactions and resolve queries with minimal human involvement. With the increased usage of smart speakers as well as voice assistants on smartphones, the comfort factor with this form of communication and interaction is already established with consumers and will soon be the preferred choice with phone calls and emails becoming passé.
More than just good UI or UX, it is that “wow” factor in service which will eventually be the differentiator in determining customer loyalty and retention.
The author is Chief Technology Officer, Capital Float
