By Prasad Pathapati, Head of Engineering, mPokket
For decades, India’s unbanked and underbanked cohorts acted as a constant reminder of the gaps in driving inclusive development across the country. Due to the lack of credit history of the unbanked, however, these people were almost completely ignored by legacy lenders.
Fortunately, the advent of fintech firms has wholly transformed the scenario in India’s BFSI
landscape. While traditional bankers needed paper documents to do due diligence on the
creditworthiness of prospective customers, fintech players garner data from multiple sources, which are available via digital means. This includes information on an applicant’s income, spending behavior, current liabilities, needs, and more.
In this way, fintech gains robust insights to reduce lending risks while simultaneously providing highly efficient, personalised services going beyond those offered by traditional lenders. The use of tech tools to automate the lending and payment processes has also enabled better consumer understanding, faster decision-making, more innovative product offerings, and lower pricing.
By operating beyond the constraints of the traditional BFSI segment, fintech has been dramatically augmenting the reach of financial services for the unbanked and underbanked sections. Beneficiaries of this novel approach include people seeking small-ticket loans for personal purposes as well as small entrepreneurs wanting access to microfinance products to improve or scale up operations.
Popular Innovations and Use Cases
During the past few years, some of the fintech innovations and use cases include:
Robotic process automation: RPA or robotic process automation is the use of software to automate routine tasks earlier undertaken manually, including data entry and customer service. RPA has helped in speeding up processes and in reducing overall costs.
Artificial intelligence and machine learning: Both AI and ML have had a major impact on BFSI. Through AI algorithms and ML tools that can analyse massive mounds of data speedily, fintech has improved outcomes in fraud detection, risk management, and allied financial functions.
Blockchain technology: A distributed ledger technology, blockchain allows safe, secure, transparent, trustworthy, and tamper-proof transactions. Considering its greater efficiency and security, blockchain is poised to revolutionise operations in the BFSI industry. Ever since financial services entities began using blockchain, cross-border remittances and money transfers have seen reduced costs per transaction. Blockchain can also ensure smart payments, fraud reduction, trading process automation, secure payment processing, and independent client verification. As per the World Economic Forum, blockchains could store almost 10% of the global GDP by 2025.
Payment innovations: These technologies and offerings include contactless payments, peer-to-peer payments, mobile payments, and BNPL (buy now, pay later) products. In this way, consumers can pay for goods or services via mobile phones or other connected devices, without entering any payment information. In the case of BNPL, customers can pay for purchased goods some weeks or months down the line, as per the terms of the service provider.
Regtech: An important element of fintech, regtech involves the deployment of technology to assist financial institutions in complying with industry regulations and processes. Its main roles cover regulatory reporting, monitoring, and compliance. Regtech also helps companies boost efficiency and curb costs.
Insurtech: This concerns the use of technology tools and innovations designed to discover cost savings and promote greater efficiency in the present insurance industry model. Insurtech uses tools such as IoT, AI and big data analysis to price insurance products more competitively. Furthermore, it helps in more effectively processing claims and contracts, evaluating risks and underwriting policies.
Advantages for Users and Industry Players
Thanks to these innovations and use cases, fintech tools offer many advantages for consumers as well as BFSI players, such as:
Enhanced efficiency: Fintech tools have led to an exponential rise in the speed and efficiency of financial transactions. Consequently, mobile or digital payments can be processed within a fraction of the time required via traditional means such as debit and credit cards.
Greater accessibility: Fintech has helped facilitate faster financial access for all the unbanked and underserved segments across India. For instance, transactions can be undertaken via mobiles even in regions where conventional banking systems may not be available.
Increased security: Recent cyberattacks and data breaches have made security a priority for almost all consumers. Through advanced fintech technology, it is possible to provide added layers of security to prevent online scams, phishing and other forms of cyberattacks.
More innovation: Given its inherent nature, fintech keeps on constantly innovating and evolving. As a result, novel, exciting products and services are unveiled regularly, benefitting both BFSI businesses and consumers. This has led to the emergence of products such as digital wallets, smart contracts and more.
Driven by its multiple advantages, fintech innovations are now revolutionising the way BFSI players serve consumers through instant, safe and secure transactions. Moreover, by penetrating remote regions where physical banking operations are not yet possible, fintech firms are advancing the government’s mission of financial inclusion by serving low-income, unbanked cohorts.
Today, whether it is loans, payment services, or investment instruments, all these and more are available to consumers, pan-India. Simultaneously, India’s BFSI industry is undergoing a revolutionary transformation through the innovative products and services of fintech firms.
