How New Technologies Can Boost the Fintech and Payments Ecosystem – Rajsri Rengan

In a world of new age technology, futuristic products and advanced ways of doing things, India’s banking and payments industry has undergone a major transformation in recent times. While traditional banking has been slow to adapt to changing times, FinTech has been at the forefront of change, delivering better, faster and more convenient services to customers.

Emerging technologies have the potential to transform the payments and financial services ecosystem in India. FinTech has emerged as one of the biggest advantages and is using them to provide better services to its customers. The emergence of these technologies has also spurred the growth of the payments ecosystem. Together, these developments have helped transform the payments landscape in the country and are likely to further strengthen the country’s position as a global FinTech hub.

Let’s take a look at how today’s emerging technologies are boosting India’s Fintech and payments ecosystem:

Blockchain

Digital Ledger Technology (DLT), better known as ‘Blockchain’, is like any good old ledger, the only difference being that it is digital, immutable and able to chronologically record all transactions made, in real time. Although still in its infancy, this new age technology has gained significant attention from start-ups, corporates and laymen alike by bringing transparency, efficiency and security to banking transactions. The fact that Blockchain is a decentralized network means that no one in the system has to know or trust anyone, resulting in great fraud protection.

So, what is the method behind the magic?

Blockchain collects the transaction information and stores it in groups known as “blocks”, which are further linked to other blocks, resulting in the formation of chains that are part of an entire timeline that cannot be altered or changed. Peer-to-Peer lending is some of the fastest adopters of blockchain to ensure efficiency and transparency. Security is not the only strong point when it comes to Blockchain; it can also help cut costs by eliminating the need for intermediaries. This new-age technology has opened up opportunities for better security, fraud prevention, easy lending and effective customer KYC within the banking and payments landscape, and close to 56 percent of Indian businesses are moving towards this innovation.

Artificial intelligence and machine learning

In this digital era, technologies like artificial intelligence (AI) and machine learning (ML) have become a household name. It was only a matter of time before AI and ML crept into the banking world. Banks and FinTechs that boast an AI mindset are well on their way to becoming the banks of the future as customer behavior and expectations have changed drastically. Today, customers are looking for offerings such as wealth management, improved customer support, fraud detection, real-time data tracking, reduced costs and AI-driven decision-making. It is not unusual to encounter AI-powered authentication for digital banking, via biometric modalities such as iris, fingerprint, face or voice recognition. In what really looks like the future of banking, software or even robotic processes are replacing manual tasks with much more efficiency, security and accuracy. Credit rating is another important area where AI and ML are creating waves of transformation. Lending is a critical part of a bank’s function, one that is fraught with challenges. These new technologies can help assess creditworthiness and monitor data in a much better way.

Built-in economy

Thanks to this new and emerging technology, non-financial entities can also be integrated into their systems, financial products and services through the use of Application Programming Interface or API. With this feature, users do not need to leave the platform app or website they are currently using to make payments or transactions. Instead, payments and transactions can be made on the same platform. The global embedded finance market is poised to grow by a staggering tenfold to reach USD 230 billion by 2025.

Digital wallets

Digital wallets significantly paved the way for India’s FinTech revolution. Thanks to this new innovation, digital payments could be made in seconds, in a secure way. Usually in the form of an app, these online payment tools really changed the way India made its payments and put us on the fast track to a cashless economy.

Buy now Pay later

FinTech services like Buy Now Pay Later (BNPL) have changed the way India does business. Consumers who previously had reservations with a credit-based payment system now enjoy the offers of this new technology, thanks to the short and interest-free credit period of only 15 to 45 days. In addition to this, BNPL-led platforms usually do not charge any processing fees or annual fees, unlike traditional credit cards. The key cohorts that prefer the use of BNPL are the Gen Z and millennial demographics, and those more familiar with digital payment options. What sets BNPL apart is that, unlike credit cards, people with bad credit history can also access and make use of this offer.

Card tokenization

Reserve Bank of India gave the green signal for tokenization or short on file tokenization, the latest innovation in the world of FinTech. When you make an online purchase, you cannot complete the purchase without entering your PIN or card details. This gives room for fraud in two ways: the details can be recorded during the transaction, or the details can be stored in an insecure manner, thereby giving fraudsters access to the same.

But what if your card was actually “tokenized” instead? This will mean that instead of your actual card details being processed, a separate ‘token’ representing your card details is processed. This prevents your card details from being used in unauthorized transactions and helps keep your card details safe. All of your sensitive card and account details are replaced with non-specific IDs or a unique set of numbers and characters, a move that will increase security throughout the transaction process. Tokens are issued to the user’s device through a secure method known as the token issuance process, making the entire course impossible to hack or reverse.

Portable payment devices

India is taking great strides to become a cashless economy and wearable payment devices are a step in this direction. A major benefit for portable payment devices is that they are nearly ten times faster than traditional payment methods. Payments are made through these devices via a technology known as near field communication (NFC); users do not need a PIN or signature during the process, instead NFC technology links the device to your debit, credit or prepaid cards and activates when the smart device is near the payment terminal. These tap and go devices are a great way to save time and enjoy easy payments, but they are expensive devices that not many people may have access to.

The bottom line

India is now one of the fastest growing FinTech ecosystems in the world and the emergence of these new technologies is playing a major role in positioning India as a global banking and FinTech leader. The monumental shift from a cash-laden to a cashless economy, as well as the use of everything digital, are the main growth drivers responsible for this transformation. Furthermore, government initiatives that push for the transition to a more digital ecosystem are another decisive causal factor. As a geographically large and diverse nation, several parts of the country are still underserved – this is a challenge that the banking sector is constantly struggling with. However, the emergence of these new technologies offers enormous growth potential for India’s banking and payments ecosystem, an ecosystem that will be easily accessible to every corner of the country.