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Trending: Call for Papers Volume 3 | Issue 2: International Journal of Advanced Legal Research [ISSN: 2582-7340]

ROLE OF FINTECH: IS IT A THREAT TO PAPER MONEY?

 

WHAT IS FINTECH?

It is a technologically driven innovation that seeks to challenge the normal methods used in carrying out activities in finance and the delivery of financial services. Fintech is alternatively known as ‘financial technology’. Companies, business owners and consumers use it to manage their financial operations, processes, and lives by utilizing specialized software and algorithms that are used on devices such as computers and smartphones[1].

When this term/system emerged, it applied to the technology employed at the back-end systems of well-established financial institutions. Since the internet revolution in the 21st century, it now describes as a broad variety of technological interventions into personal and commercial finance. Thus, there has been a shift to more consumer-oriented services. Notably, certain segments like banking, payment and insurance have been subject to substantial technological amendments.

 

FINTECH LANDSCAPE

The highest number of Fintech start-ups are situated in North America, with Asia coming in at the second place. Fintech innovation revolves around the following core areas:

1.      Blockchain technology.

2.      Cryptocurrency.

3.      Digital cash.

4.      Smart contracts.

5.      Insurance Industry (Insurtech).

6.      Cybersecurity.

7.      Robo-advisors, which helps in automated investment advice.

8.      Open banking.

 

THE EMERGENCE OF FINTECH IN INDIA

Technological innovations in the finance sector had been stagnant until recently. However, fintech platforms like digital transfers, mobile wallets, and insurance technologies have drastically altered financial operations in India. India has the 2nd highest fintech adoption rate[2]. The largest fintech firms work in the payments sector due to which digital payments have spiked.

Also, fintech start-ups in India are working to bridge the gaps in sectors like insurance and wealth management.

 

ROLE OF FINTECH IN ASSET AND WEALTH MANAGEMENT

Many Asset and Wealth Management (AWM) businesses do not consider technological advancements to be a major key player in the long run. According to a report published by PwC[3], only 52% of the CEOs in AWM think that technology and its counterparts will have a strong impact on the industry. At present, only 30% of businesses are engaging in partnerships with fintech.

However, AWM businesses will face a huge blow if they do not adapt to the fintech. Security plays a very big role in winning customers confidence and amongst all the features offered by the fintech, security tops the list[4]. The only way through which traditional firms can succeed in future is through the adoption of fintech. Or else, they may lose some of their clients/business to new entrants in the market.

 

ROLE OF FINTECH IN BANKING SECTOR

Previously, fintech was broadly used forfunctions like managing the bank accounts and customers databases, etc. Today, it is indispensable to customer-facing processes. Every digital transaction such as stock investments, currency exchange, or money transfers is possible through fintech. The growing use of smartphones has made it easier for the customer to interact with banks and their accounts. Thus, giving birth to the use of online payment apps that facilitate online transactions and it made us realize the need for more robust security protocols.

Fintech is disrupting the financial services industry in the following ways[5]:

1.      Chatbots for customer service.

2.      AI & Machine Learning for fraud detection.

3.      Use of biometrics for stronger security.

4.      Blockchain for digital transactions.

5.      Multi-channel banking and obsolescence of bank branches.

 

ROLE OF FINTECH IN FINANCIAL INCLUSION

According to a study supported by JP Morgan[6], Fintech companies have succeeded to serve only 23% of the elite section of the Indian economy. The lower and the middle segment remains a potential market as it comprises of 47% of the population. These companies can cater to a lower segment with an income ranging from $2 to $10 a day and form roughly 600 million people. Of this, a total of 347 million can be successfully tapped.

Various steps can be taken by these companies to facilitate that process:

1.      Awareness ofhealthy digital banking practices.

2.      Enable cashless transactions.

3.      Provide vernacular language support.

4.      Develop strategic partnerships with tech service providers.

 

IS IT A THREAT TO PAPER MONEY?

Since demonetization in 2016, the government’s objective was to reduce cash transactions and to continuously promote online transactions that have boosted the digitisation of financial services. Queueing up at ATMs and making withdrawals is slowly becoming a thing of the past[7]. Cashless transactions are not only the way to go, but it also safe, easy, time-saving, and convenient. Managing personal finances is just a tap away.

Considering the COVID-19 and lockdown situation, dependency on the paper money has started to fade away and people are doing online transactions. If you want to minimize the risk of infection/virus, then in every shape and form whatever can reduce touch would be a step in the right direction.

According to the data from National Payments Corporation of India (NPCI), the amount transacted through UPI[8]was ₹3,29,027.66 crore in September 2020, the highest ever. The volume of transactions was 1497.36 crore, the most since the interface was introduced. IMPS[9]registered its record highest transaction amount of ₹2,48,661.66 crore in July 2020. All this data shows us that Fintech is gradually replacing the paper money and Indian consumers have started shifting to the cashless based economy. Thus, this lessens the importance of paper money and it has started to turn into a threat.

 

CONCLUSION

India is expected to contribute 2.2% of the world’s total digital payment market by 2023 alone[10]. As fintech continues to unsettle the financial sector, it is expected to watch more and more innovation and significant changes in the months to come. But it cannot be denied that much of the growth of the Indian financial sector will be shaped by fintech innovation. But while financial institutions rethink strategies and adapt to more tech-based solutions, they must also plan for the associated risks that come with the same.      

AUTHORED BY: NIKET KHANDELWAL, A STUDENT AT FACULTY OF LAW, DELHI UNIVERSITY

[1] Julia Kagan, Financial Technology – Fintech, Investopedia (Jun. 25, 2019), https://www.investopedia.com/terms/f/fintech.asp.         

[2]SuchetVir Singh, The Emergence of Fintech in India, Carnegie India (Dec. 4, 2019), https://carnegieindia.org/2019/12/04/emergence-of-fintech-in-india-event-7285.

[3]FinTech Trends: Asset and Wealth Management, Finleap, https://www.finleap.com/insights/fintech-asset-and-wealth-management/.

[4]Fintech Trends in Asset Management, MyTechMag (Dec. 24, 2019), https://fintech.mytechmag.com/fintech-trends-in-asset-management-1261.html.

[5] Dennis Gada, Five ways fintech is disrupting the financial services industry, Finextra (Mar. 5, 2018), https://www.finextra.com/blogposting/15105/five-ways-fintech-is-disrupting-the-financial-services-industry.

[6]Fintech’s reach is limited to the rich 23% of Indians, says report, Economic Times (Jul. 16, 2018, 11:03 AM), https://economictimes.indiatimes.com/markets/stocks/news/fintechs-reach-is-limited-to-the-rich-23-of-indians-says-report/articleshow/65004842.cms.

[7]Adhil Shetty, Money ain’t just paper, coins anymore: 5 ways fintech has changed personal finance, Moneycontrol (Oct. 25, 2018, 01:52 PM), https://www.moneycontrol.com/news/business/personal-finance/money-aint-just-paper-coins-anymore-5-ways-fintech-has-changed-personal-finance-3081971.html.

[8]UPI Product Statistics, NPCI, https://www.npci.org.in/product-statistics/upi-product-statistics.

[9]IMPS Volumes, NPCI, https://www.npci.org.in/imps-volumes.

[10] IANS, India to Contribute 2.2% of Global Payment Market by 2023, India.com (Jul. 24, 2020, 08:56 AM), https://www.india.com/technology/india-to-contribute-2-2-of-global-digital-payment-market-by-2023-4092848/.

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