Fintech: Key Components, Possibilities & Challenges

Fintech refers to digital technologies that have the potential to transform the provision of financial services spurring the development of new – or modify existing – business models, applications, processes, and products

Key Components

• Financing: Fin Tech companies are changing the financing or lending process using crowd funding and credit & factoring. People can seek loans through online and get them approved quickly. Firms assess the borrowers’ credit worthiness and automate the underwriting process quickly.
• Payments: Fintech companies allow consumers to send money cost effectively and quickly to each other without relying on banks via alternative payment methods or block chain technology and crypto currency.
• Asset Management : Financial and investment advisory services are being provided to high-net worth individuals as a part of Asset Management via social trading, Robo advice and personal financial management Individuals can directly contact the wealth managers to plan their financial needs and need not seek the help of multiple people or firms.
• Insurance: Insurance market has also been captured by the financial technology companies.. The companies are trying to partner with traditional insurance provides as the insurance market is highly regulated. These Fintech’s are regarded as InsurTech’s.
• Search Engines & Comparison Sites: It comprises of search engines enabling comparison of various financial products and services available from various service providers.
• Technology, IT & Infrastructure: It comprises of Fintech’s which provide necessary technical solutions for different financial services providers.

Possibilities for Fintech in India

As per EY Fintech Adoption Index 2019, the adoption rate with regard to adoption of Fintech services is 87% in India.

Factors that can strengthen Fintech industry are-

• Ease of setting up of an account
• Ability to access to wide variety of products and services
• Effective service quality
• Good online experience and functionality
• Attractive rates and fees
• 24/7 access to services
• Availability of more innovative products when compared to traditional financial institutions

Factors that weaken growth of Fintech industry are:

• Lack of awareness
• Lack of proper knowledge of their usage and functions
• Feel traditional financial services provider as more reliable
• Lack of trust on the financial technologies

Challenges of Fintech in India

The possible roadblocks in the path of Fintech enterprises are -

• Regulatory Barriers: Restrictive regulatory framework acts as a huge barrier for the new entrants and they need to fulfill numerous formalities before the start of its operations itself.
• Unbanked Population: Still a huge Indian population does not have bank accounts which are a must for conducting online transactions.
• Poor Digital Infrastructure: The people who have bank accounts face the issues of poor internet connectivity which takes more processing time to finish the transaction. So people tend to prefer a cash transaction rather than online transaction.
• Low Financial Literacy: Majority of the Indian population still do not have enough financial literacy level.
• Cultural Barriers: It is difficult to change the conservative approach of merchants and users who deal the daily transactions with cash. Majority of the aged people have been doing these transactions in cash from a long time and it’s hard to suddenly change their old habits and introduce them to new avenues.
• Cybercrimes: Increasing cybercrimes and lack of mechanisms to tackle them create apprehension for online transactions among users.
• Lack of Government Support: Fin tech in India is deprived of lack of government support and incentives for protecting their interests.
• Dearth of Adequate Investment: Getting the required seed capital and gaining investors trust is difficult for the Fin tech industry which is affecting its operations and functioning.