Technology-driven access key to acquiring, providing products and services to customers
The pandemic has accelerated digitalization across the entire financial services value chain. This should lead to new business models to enable new customer acquisition, better customer engagement, deliver new financial products, and add layers of monetization.
India continues to grow and lead the fintech industry globally, with a rapid adoption rate of 87%. Funding for startups operating in this space will remain dynamic.
India is poised to shape the competitive landscape of finance with deeper internet penetration and technological advancement over the next decade.
Make finance and financial products more accessible to potential target groups
India has risen above the wave of digitization thanks to the phenomenal level of access to smartphones by the unbanked and underbanked. Their degree of engagement with the formal financial sector is still low despite the fact that a large proportion of them have a basic bank account. Herein lies further potential for fintechs to make finance more accessible to them compared to traditional banks and financial service providers.
The MSME sector accounts for one-third of India’s GDP and only one-sixth of the estimated 60 million existing MSMEs access credit from formal credit channels, representing a $340 billion credit opportunity alone. . They currently access credit through informal channels and at exorbitant interest rates.
An entire generation of Gen Z who are digital natives clearly prefer to do their banking and investments in financial products through digital means and are looking for frictionless one-click customer journeys. The pandemic has also pushed millennials and millennials to embrace digital banking as a more convenient option and is showing signs of being a long-term trend unlike previous waves of digital adoption by this target group. Having now overcome digital adoption hesitancy, this cohort can be leveraged through digital methods for their investable income in new financial products.
Penetration rates for mutual funds (owned by less than 2% of Indians) and insurance products as well as consumer loans are well below global benchmarks. To seize fintech opportunities, as the original architects of India Stack envisioned, technology-driven access would be key to acquiring and delivering appropriately designed products and services to these customers at a viable cost.
Role of technology in fintech
Traditional banks are increasingly acquiring or partnering with fintech companies to benefit from their agile business models and digital financial platforms backed by advanced digital technologies such as AI/ML/Blockchain/ use of APIs, NLP/data analytics and other trending technologies. McKinsey estimates that artificial intelligence (AI) can generate up to $1 trillion in additional value for the global banking industry each year.
Cloud computing, Internet of Things (IoT), open source, SaaS and serverless, no-code development platforms (NCDP), and hyper automation are a few areas on the technology front that will define the future of fintech.
New competition for traditional BFSI with Big Tech in the fray
Big tech like Apple, Amazon, Facebook and Ali Baba have joined the fray for electronic payments and other financial services through their digital platforms. In addition to proliferating fintech companies, Big Tech is building new financial ecosystems. Traditional BFSI needs to consider this new additional competition to remain competitive, as the new trend involves rapid adaptation and innovative solutions by existing BFSI institutions.
Cybersecurity and consumer protection
People generally trust banks to keep their money safe. With increased digitization, cybercrime has reached record levels since the start of the pandemic. Cybersecurity is a priority for banks to inspire confidence in customers and potential customers. Advanced encryption, secure multiparty computing, zero-knowledge proofs, and other privacy-friendly data analysis tools will open a new frontier in consumer financial protection.
(Shoaib Mohammad is the founder and CEO of LUMIQ. Opinions are personal)
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Posted: Saturday 02 April 2022, 21:21 IST