FINTECH: THE NEW ERA OF FINANCIAL SERVICES

FINTECH: THE NEW ERA OF FINANCIAL SERVICES

Author: KAAVEESH RAJA R

3rd Year BA LLB
CHRIST (DEEMED TO BE UNIVERSITY)

ABSTRACT

The world of information technology has made tremendous contributions and brought in a new era in the two decades. The hybrid of the financial services industry and the information technology brought an output known as the “fintech”. This sector has impacted and attracted customers in a very large scale at a short span of time. Even though half of the people in India do not have a bank account, are adapting to this innovation. This paper states about the fintech its benefits and also the emerging trends in this sector. An overview on regulations by other countries is also looked in and how adapting to such changes would benefit India is the authors view. 

Keywords:-Fintech, Innovation, Development, Consumer safety and protection, Regulation

INTRODUCTION

      The financial services industry is developing at a rapid speed and rising as a standout amongst the other sectors. The culmination or a hybrid of the financial services and the technology is known as “Fintech”. This sector has received amplified interest and enthusiasm in the Indian market because of the strategy push looking to move towards the acknowledgment of a “cashless society”. While blockchain innovation and digital currency keep on picking up energy, the Indian market has additionally observed an expansion in instalment organizations transforming into financial administrations substances and entering the riches the executive’s division; and web-based business elements entering the loaning area without anyone else or through joint efforts with banks and non-banking financial institutions.
This sector is extensively attracted because of its significant feature where it has brought businesses to countless technology-based entities or start-ups by effectively disrupting the conventional method. An expansion to innovation and changes in the financial sector the government is putting forth attempts to digitalisation, development and improvement in the fintech industry. It aims to provide services and protect the interests of both the consumers and the business entities. There are various fintech services in the markets such as the blockchain technology, peer to peer lending platforms, smart contracts, mobile applications etc which are currently being used in the markets[1].

Fintech’s are also drawing in premium both from clients of banking administrations and venture reserves, which consider them to be the eventual fate of the budgetary segment. Indeed, even retail gatherings and telecom administrators are searching for approaches to offer money related administrations by means of their current systems. This whirlwind of exercising brings up issues over what sort of payment related scene will rise in the wake of the computerized change.  Money related establishments are looking to expand their insight corresponding to innovative development both through organizations with technology organizations and by putting resources into or getting such organizations. In spite of this, there are wide contrasts in the readiness of market members for these adjustments.

The fintech companies in order to increase their capital gains and also to provide efficient services introduced a new innovative technique known as the KYC techniques it is a method used to verify identity and address of the consumer. The regulators have been compelled to consider how to balance with the customary regulation of money since the evolution of the fintech companies. The need to consumer protection is necessary along with the development and advancement of this technology. RegTech is one of the new innovations to reform the existing regulations and also develops methods such as the “sandbox”.

FINTECH MODELS

      Fintech com
panies are developing fundamentally due to its easy method of operations and speculations has paved way for the creation of more personalised services and solutions. Various business models have been adopting to it because of it advantages in the trading market and also attracted by its high gains in financial services technology. Stripe was the first Fintech launched it developed and processed online payments and helped to accelerate the technology by providing platforms to traders to launch a website and make payments transactions within minutes while, traditional methods required almost a week to complete the transaction. China’s Ali Baba and PayPal are major products of this technology. Ping-An Insurance company of china is now valued at almost USD 19 billion which was launched in 2012 as a peer-to-peer service, Lufax[2]. To analyse the working and economics of Fintech technology the author looks into the other product services which would provide an understanding about the fintech about its efficient services and the scope of adoption by consumers.

PEER-TO-PEER:

 Peer-to-peer loaning is a blend of crowdfunding and commercial market place that utilizes the website to link between investors and potential lenders. On lending websites, the borrowers apply for loans and earn a credit rating on such lending websites. The investors after choosing the borrower based on the information described on the platform decides to support the credit in full or in part. The P2P platform is considered as a moderately less tedious process contrasted with banks and is seen as a practical financing source for individual credits and independent ventures. It allows access to those credits which would not have been accessed through banks. P2P stages are particularly helpful in rustic or rural zones where is it uneconomical for customary banks to fabricate branches when facilities are little[3]. It also saves time and cost as the individuals need not have to travel in order to access credit facilities. P2P stage is nearby raising its innovation even in cell phone applications and its an inexorably available budgetary choice for the customarily unbanked. These platforms carry higher financing costs and rates since the advances are less and lenders have almost no entrance to plan of action to recourse the debt. The risk of discrimination by lenders is less a personal-attributes is almost nil and there is anonymity among the traders.

The platforms are also urged to relieve their hazard by differentiating their portfolio across credits based on certain terms. Micro finance and customer loans are more focused in India. Though these platforms are different from regular banks and financial institutions there are some similarities and this may hamper the framework. Small businesses must be provided opportunity to access loans and to raise capital and also customer protection must be provided for the same. By taking out financial delegates or mediators significant yields for banks and increment by large credits can be well utilised[4]. Platform provides a reverse model in which banks offer and the borrower has opportunity to either acknowledge or dismiss the offer[5]. As the whole process is decentralised the investors, lenders can unbundle any superfluous or undesirable administrations and intermediaries. P2P platforms provide more transparency and solve most of the loan problems being faced by the banks.

However, these platforms perform certain tasks which the banking agents or institutions could not cover and the development in technology has made accessed to personalised customer services and provides solution and access to everyone a part of it.

CROWDFUNDING:

Crowdfunding refers to a process in which companies raise capital from large group of people through online services. One of the primary innovations that fintech is raising is through the platforms of crowdfunding. A fundamental change has been seen in fintech start-ups and also broadened its networking resources. Crowdfunding can be classified under four categories such as equity, peer-to-peer, reward and donation crowdfunding. Enormous change has been seen in crowdfunding companies through fintech and the World Bank has stated that by 2025 the industry could rise up to $96 billion[6]. Fintech companies such as Funders Club helps small investors to purchase from large companies without any basic amount of investment required[7]. Most of the crowdfunding sites are beneficial because of its attributives and distinctive characters which reduce costs and has a goal to improve the market in fund raising along with providing efficient services. Fintech has been used as tool for this purpose and has made a significant way for development of this concept. The traditional outlook where loans to small investors could not be given is quashed out with the help of technologies such as fintech along with the concept of crowdfunding. Fintech though serves mainly as an intermediary it still has the potential to reform the entire financial market system. The fintech companies also have targeted customers and aims to invest and develop such sectors for benefit of the customers also such as the auto loan markets where resources are inefficient and inhabitant for individuals to access it. There has also been significant new changes and adaptations by the regulatory bodies in order to facilitate the adoption of the fintech companies. Fintech companies have also contributed to other models such as the cross-border transactions, virtual currency and is aiming to develop in every sector.
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EMERGING THEMES

    Fintech companies have not only contributed in the financial services market but also has emerged in various other markets such as the agriculture, real estate and health care. These three industries are the oldest and those which are mostly done in traditional ways, but after the innovation of fintech these markets are also looking forward to develop and adapt the technology and utilise it to its maximum in order to make spectacular profit gains. The emerging trends with the impact of fintech has been discussed below.

AGRITECH: 

Agritech is a culmination of the services provided by fintech and the agriculture market. It aims to develop the market with the help of technology and by data generated financial services. Agritech along with its development require high level of regulation and policies in order to encourage investments in this recent development in the field. The hybrid of this technology mainly focuses on themes such as smart farming through sensors, smart irrigation, soil and water labs, and many more aspects related to the field of agriculture. The United States has been a hub for this invention but this shift can be seen in India if there is sufficient funding provided and investment opportunities as India is one of the top countries which has Agriculture as its top occupation in the country with traditional techniques yet which are beneficial to the individuals. There are already various players in the global markets which has been raising its growth gradually such as the ‘Etherisc’ a Germany based fintech for agriculture insurance[8]. Start-ups such as ‘Cropin’, ‘payAgri’, ‘Satsure’, etc are also making its way in the trading markets.

HEALTHTECH:

Healthcare industry is one of the top players in the markets along with agriculture who always aims to provide efficient consumer services. The data related to this sector is largely distributed nevertheless, there are already key players succeeding in this technology such as the ‘Medgenome’, ‘SureClaim’, ‘practo’, etc. The main areas of focus are on increasing the cloud computing of healthcare facilities, patient generated digital data and wearable health systems.
These technological developments are reducing costs and also providing services and digital platforms to maintenance of health records. A bold move by the Indian Government towards this development was the introduction to Ayushman Bharath Healthcare Scheme (2018).

PROPTECH:

Proptech means the use of technology in the development of property or real estate activities. It helps to improve in data collection to make constructions of buildings smart through the uses of the technology. It also aims to reduce the paper work and making transactions simpler and quicker. Investors are attracted to this because of its revenue gains and other developmental reforms. India mostly focuses on the issues such as brokerage and construction technology. The proptech start-ups such as the ‘FLATONS’, ‘Props {AMC}’, have a great potential to develop and rise in this field.

GLOBAL FINTECH REGULATION:

      Regulation of fintech not only protects customers but also fosters growth around the world. Fintech was considered as a hub of the United States, but in recent times it is found that other countries such as China, India are also attracted to this new innovation and there is a tremendous growth in this sector. The author would like to state the global fintech regulation around the world and the necessary adaptations and changes need to be brought under the Indian Fintech regulations.
Since the origin of PayPal an enormous growth has been taken place and the use of this innovation has contributed even to other e-commerce sites such as Amazon and E-bay in the United States. The approach by the USA government is quite unique and this must be followed by the regulators in India[9]. The conservative exemption approach by US is fostering the fintech companies by not restricting them under rigid rules and regulations. In India, the Reserve Bank of India oversees the fintech such as the P2P platforms and a rigid and restricted environment has been growing. Rather than fully revising the RBI approach necessary changes can be made and adoption of the method followed in the United States would reduce the overly burdened environment.

The issues such as data security and cross-border transactions need to be overlooked and the RBI can concentrate on these fields rather than providing a rigid environment in the P2P platforms. An adoption of this method will only provide a detail understanding to the regulators and the customers in the field of fintech.

 The approach by the European Commission is quite different it provides development for the fintech and also has stated to regulate the traditional payment operators along with the regulation of fintech. The sandbox approach has been followed in issues related to security and cross-border transactions.

The United Kingdom aims to create a balanced regulatory environment in order to ensure there is innovation and also growth in the sector along with rules and laws laid being implemented. The FCA encourages innovative firms and also has assisted over more than 100-200 businesses. But the statutory restrictions to be followed is same when compared to other firms and the fintech companies are obligated to follow and sustain this requirement. The sandbox approach encourages the firm by admitting it to the hub and this platform provides support and supervisory action in the beginning years of the innovative fintech companies[10]. The FCA also permits firms to experiment in a virtual environment with the available data along with restrictions laid down it can give ‘no enforcement letters’ to waivers of rules and the regulations. Thus, the UK regulators have provided greater flexibility and a properly tailored sandbox approach has been followed.
CONCLUSION
      The rapid development in the fintech industry demands high level of competition along with regulatory regimes to protect the interests of the consumers. Along with encouraging and promoting the innovation the regulators need to carefully mitigate the risks and provide solutions in order for the efficient services to be provided by the fintech companies. In relation to the aspects of the markets and Regulation in India the RBI needs to reconsider and follow some of the approaches as stated above in the previous section and adopt to such changes. The method by the UK government is favourable not only to the fintech companies abut also to the consumers also. The P2P are still in nascent stage in the Indian markets and the RBI guidelines are quite rigid for the platform to develop. Thus, the Reserve Bank of India needs to reconsider and reform some of the guidelines provided under the regulatory regime of the fintech sector. The modification in the approach would also solve the credit problems faced in the country. 

[1]https://rbidocs.rbi.org.in/rdocs/PublicationReport/pdfs/WGFR68AA1890D7334D8F8F72CC2399A27F4A.PDF(Last accessed 27th February 2020).
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[2] Gunja Kapoor, Saurabh Roy, “Road Ahead for Fintech in India”, Pahle India Foundation, September 2017.

[3] https://www.financialexpress.com/economy/unbanked-population-how-alternative-financial-services-ecosystem-has-become-big-boon-for-india/901477/ (Last accessed 28th February 2020).

[4] Namratha Minupuri, Rushing to Regulate: Rethinking the RBI’s Directives on Peer-to-Peer Regulations in India, 33 Emory International Review. 433 (2019).

[5] https://mybigplunge.com/opinion/what-the-future-holds-for-the-p2p-lending-market-in-india-faircent/ (Last accessed 29th February 2020).

[6] https://www.infodev.org/infodevfiles/wbcrowdfundingreport-v12.pdf https://perma.ccl276T-4SF5 (Last accessed 28th February 2020).

[7] William Magnuson, “Regulating Fintech”, Vanderbilt Law Review, 71, No.4(2018). 

[8] Supra 2.

[9]  https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id= 11137&Mode=0(Last accessed 26th February 2020).

[10] Luke G. Thomas, ‘The case for a Federal Regulatory Sandbox for Fintech Companies’, North Carolina Banking Institute, 22, 257-282, (2018).

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