India is amongst the fastest growing fintech markets in the world and is on the way to becoming a global fintech superpower. Of the 2,100+ fintech existing in India today over 67% have been set up in the last 5 years.
Technology is booming in the fintech sector and 2022 has some exciting innovations in store for us. In this article, we will discuss the emerging technological advances in the fintech industry. But before that, let’s go through a few terms that are the horsemen of the fintech industry: Open Banking, API Banking, Neo Banking and Banking as a Service (BaaS).
API Banking: API or Application Programming Interface enables 3rd party applications to use an interface through which a plethora of tools and services can be accessed. It means that banks can offer 3rd party access through dedicated APIs to their custom services. API is a fast, efficient and secure tool that improves the quality of services by eliminating barriers and increasing transparency.
Open Banking: Open banking enables banks to share customer data with individuals and entities that need such data. However, this is done only after taking the customer’s permission or consent. Viewing an entire banking history can become possible with open banking. This saves a lot of cost and effort.
Neo Banking: Neo banks are purely digital banks and do not have any branches. They have a banking license and operate fully online. This leads to lower operating costs and better interest rates for customers. Some Neo banks are Niyo, Walrus, Jupiter, and so on.
To sum up, API banking enables fintech to build effective solutions, open banking helps in sharing crucial data and Neo banks function online. In India, open banking and Neo banking rely on banking APIs. It is important to note that, as of now, Neo banks are mostly fintech firms that have partnered with existing banks and may not have been directly licensed by the RBI.
Banking as a Service (BaaS): BaaS facilitates fintech companies and 3rd party entities to connect with a bank’s system using APIs. Organizations can then build innovative services as a layer on top of existing banking services. BaaS helps in creating new sources of revenue for businesses. It provides financial transparency and is a key component of open banking.
Some fintech innovations set to improve the customer experience include:
1) Blockchain: According to the Cision PR Newswire report, the size of the blockchain market is set to increase to USD 39.7 billion by the year 2025. Blockchain creates a digital ledger and has an accurate record of all transactions by forming a life cycle of money. It is decentralized and offers huge protection from fraud. There is more accountability and better money management. It opens up avenues of better transparency, security, reduces complexity, reduces costs and eliminates intermediaries. It offers a fully democratised financial landscape for users. Blockchain technology is the way forward for fintech industries.
2) Big Data: Big Data refers to the monumental structured and unstructured data that is used by banks and financial institutions to predict customer behaviour and develop strategies. With Big Data, fintech can provide the customers with a personalized experience and make better judgements by handling big volumes of data. This leads to understanding customers on a one-to-one basis and improves security, betters risk assessments and provides unparalleled customer services.
3) Artificial Intelligence: AI in fintech is used for fraud detection, wealth management, customer support, decision making, and so much more. Making decisions based on data increases efficiency and lowers costs. AI also facilitates automated customer support and saves time and money.
Artificial Intelligence is an important part of fintech as it collects data, analyses information, facilitates decision-making and smooth transactions and creates customer-centric products and services.
4) Regulatory Technology (RegTech): RegTech works closely with Fintech to design solutions that reduce costs and pave the way for easy compliance. Technologies such as Big Data, AI, Cloud Computing, Blockchain support RegTech solutions and simplify processes related to Fintech and regulations. Now enterprises can comply with regulatory requirements effectively through robust solutions provided by RegTech.
5) Biometrics: The most promising industry for the application of biometric technology is fintech. It leads to rapid and reliable identification of clients during financial transactions. Different kinds of biometric technologies used include face recognition, fingerprint recognition, iris recognition, voice recognition, and so on. In the next few years, the market size for biometrics is expected to reach $24.59 billion.
A few other innovations include voice-enabled payments, Robotic Process Automation (RPA), Machine Learning (ML) technologies, and more.
The trends discussed here are the tip of the iceberg. There’s so much more to come. Fintech is capable of extending financial inclusion and can spur exponential growth in an economy like India. As the sector matures, customers will get seamless products and experiences. We are witnessing immense innovation in the financial services industry, which is a win-win for customers and fintech in the long run. The time to bet big on modern-day technologies in fintech is now!
Views expressed in this article are the personal opinion of Satyajit Kanekar, CEO, Mobileware Technologies.