What is FinTech and Why is it Important?
It wouldn’t be an exaggeration to say Fintech is ubiquitous like the air that sometimes we do not realize its impact on our daily lives.
“What? Fintech is ubiquitous? Oh please! It is just a buzzword that has become popular during the pandemic! Nothing more than a fad.” If this is what you think, it is time to reassess.
Consider this: you wake up in the morning and receive a notification of your salary being credited to your bank account; two hours later, you are at a restaurant, you pull out your phone, scan a QR code, and voila, a payment is made; later, you want to send money to your friend, what do you do? Without flinching, you use internet banking or mobile banking applications to facilitate the transaction; in the evening, you realize you have to pay your credit card bills. What do you do? You open the CRED app on your phone and make the payment in less than 30 seconds flat.
Do these scenarios seem familiar? We use fintech for all things finance these days without realizing its impact on our lives. The term Fintech is a portmanteau referring to financial technology, and today, fintech is used for everything – mobile banking, purchasing insurance, digital payment services, contactless loan applications, digital lending, wealth management, digital stock trading, digital money transfers, crypto exchanges, and so much more. In essence, fintech refers to any algorithm, software, hardware, or technology that augments, streamlines, digitizes or disrupts traditional financial processes and systems.
Before understanding how fintech works, we must understand that fintech is utilized for various applications, most commonly, payments, lending, insurance, and wealth management. Fintech is one of the fastest growing sectors in India, with over 2,000+ startups, many of which are unicorns. Here are the top fintech companies in India.
Table of Contents
- How does fintech work?
- What are the major advantages of fintech?
- What are some of the biggest trends to expect in Fintech?
How does Fintech work?
The main function of fintech is to innovatively provide access to traditional banking systems and processes and, most importantly, make them easy to access.
In some cases, fintech applications have to automate painstaking processes like loan applications or new account openings to be completed in a matter of minutes. For this purpose, fintech apps rely on artificial intelligence combined with big data analysis of massive amounts of consumer data and robotic process automation of data consolidation and verification processes.
Similarly, in some cases, fintech applications leverage roboadvisors or chatbot technology to provide customers with algorithm-informed personalized investment suggestions, ideal stocks to bet on, risks involved with a certain investment, and more.
Arguably, the latest of all technology in the finance sector is blockchain and distributed ledger technology. All of the crypto and the web3 are on blockchain technology. Using the blockchain, you can make bitcoin payments, execute smart contracts (automated contracts that are put into effect when a set of conditions are satisfied), and facilitate transactions on crypto exchanges like WazirX and CoinSwitchKuber.
What are the major advantages of fintech?
- Financial Inclusion – An ever-growing internet usage coupled with widespread technology adoption in India has enabled fintech applications to have a far-reaching presence. The paradigm provides the previously unbanked with new daily opportunities to participate in the financial system, invest, save, and grow their wealth. In a country as diverse as India regarding economic disparities, financial inclusion plays a significant role in a person’s growth.
- Fast – The previous processes and protocols that required ‘half-day permission‘ at the office now need less than 30 minutes. Case in point, it takes less than 1 hour to set up a Demat account with Zerodha to start trading stocks digitally. Because fintech deals with 0s and 1s, it is easy for large processes to be broken down and implemented.
- Easy – Traditional financial processes comprised many forms and protocols; if they did not understand the chronology, they would have a tough time. Thanks to technology, navigating through complicated processes has become simple. Fintech applications take you through a step-by-step process simplifying banking completely. For instance, a company like LendingKart enables MSMEs and small businesses to apply for business loans quickly. Such advancements compel more people to use fintech apps.
- Access – The best part about fintech is that it provides unparalleled access to your money. It lets you make informed decisions by ensuring you have all the information you require regarding your account, investments, loans, pending payments, and more, for you to budget accordingly.
- Automation – More often than not, in the hustle, we tend to forget to make important payments or forget to put aside savings regularly. Fintech helps automate these processes so that we are saved the hassle of performing said tasks monthly while enabling consistency.
- Contact-less – In the aftermath of the pandemic, contact-less experiences are the norm, and fintech provides a contact-less experience for almost all traditional financial processes by using chatbot technology to enable humans to go through the processes without having to interact with another human being.
What are some of the biggest trends to expect in Fintech?
Fintech is ever-evolving and changing; however, emerging technologies and trends that may change the system completely are:
- Open Banking: This is how traditional banks and financial institutions leverage the power of finance and banking APIs and third-party developers to create features and products that augment their fintech effort. Open banking is a silver bullet that will enable any financial organization to have a fintech presence.
- Voice-enabled payments – Voice-enabled payments will leverage voice recognition software on smartphones to allow users to check their balance, transfer money, or complete payments.
- Smart Contracts – As mentioned earlier, Smart Contracts are developed on blockchain and distributed ledger technology to automate the contract’s ratification when certain conditions are met.
Fintech is arguably the fastest-growing technology domain in India and is always seeking highly talented individuals to join the ranks and build cutting-edge products.