Fintech and the future of money

The gigantic challenges we face today, from Covid-19 to the war in Ukraine, have all reminded us that throughout history and turbulent times, innovation has helped humanity to adapt, sustain and grow.

The technology-led innovation in financial services also known as fintech in one such exemplary case has rapidly accelerated as shutdowns have reinforced its importance in maintaining Business as Usual for financial services while maintaining social distancing.

By offering customer-centric models and integrating new technologies, Fintech is bringing a transformative change to the global financial ecosystems. The main fundamental drivers of this wave of fintech are ubiquitous connectivity via mobile, Internet-connected devices, low computational costs, cheaper storage and the emergence of intelligent algorithms riding on the AI ​​and ML waves.

In India, 21 unicorns are fintechs out of the 102 unicorns. Also on the global front, the Fintech industry is growing by leaps and bounds. Until New Year’s Eve 2020, there were only 56 fintech unicorns globally, but over the past 18 months this has quadrupled to 241 fintech unicorns. All of these unicorns are technology-driven financial service providers that are rapidly outpacing their conventional counterparts such as banks and financial institutions.

The ecosystem created by Fintech Corporations is quite large and consists of a web of products, services and processes interspersed in a complex manner. The sector has already had a clear impact on the way we transact, conduct business and deal with customers and employees, among others. The most significant change that Fintech has brought, however, reflects in our changed perspective on the future of money. Contrary to conventional thinking, we now consider money as a more flexible concept that needs to be mobilized in the right way and direction to realize desired gains. Furthermore, Fintech has made us realize that having access to financial services is a basic right for citizens, and all stakeholders in the ecosystem must strive for financial inclusion of everyone, especially underprivileged and downtrodden people who are at the bottom of society.

What is fueling the Fintech revolution?

Policy support: The encouraging policy framework worldwide is fueling the Fintech revolution. Take for example the constructive support that Indian regulators are giving to the Fintech sector in the country. A number of policy initiatives adopted by the Indian government, such as the Digital India campaign, Jan Dhan Yojana, UPI and Startup Support, have helped a large number of startups make their foray into the Fintech space.

Advances in technology: With Artificial Intelligence (AI), Cloud and Quantum Computing, Blockchain technology and IoT entering the mainstream, Fintech has successfully harnessed the potential of these new age technologies to spread its wings far and wide.

Huge potential ready to be tapped: According to the statistics, about 190 million people in India do not have access to banks and financial services. This huge gap has offered Fintech companies a lucrative opportunity, and by offering services to this large segment of the unbanked population, the sector realizes its true potential while playing a crucial role in ensuring financial inclusion for all.

Consumer behavior: Covid-19 which required closure and social distancing acted as the biggest catalyst in changing consumer behaviour. The markets have witnessed a dramatic shift with customers clamoring for digital services and enhanced modern convenience. Traditional banking systems due to internal governance challenges, political restrictions and several other ecosystem factors could not keep pace with these expectations and paved the way for technology-driven FinTech players to fill the gap quite quickly.

Our relationship with money via Fintechs

Cashless transactions: Fintechs have played an important role in facilitating cashless transactions across consumer and corporate markets. The method is not only more practical and hassle-free, but also equips regulators with an improved ability to keep track of transactions, participants and the economic flags/indicators.

New generation asset classes: Crypto assets, including stablecoins and decentralized finance (DeFi), are an emerging industry and asset class. It provides new opportunities and presents significant challenges. Technology is blurring one of the last functional boundaries, the distinction between an individual and a financial intermediary. Distributed Ledger Technologies (DLT) builds new decentralized financial infrastructures that reduce or remove the role of intermediaries, enable users to interact directly on a peer-to-peer basis and provide open source platforms that anyone can use and build upon, and stimulates innovation by giving rise to new, interoperable financial services and vibrant ecosystems.

Groundbreaking innovations: It is only because of the power of AI in Fintech that Amazon has come up with a unique concept of checkout-free stores. This Amazon project allows users to select their favorite items from brick-and-mortar stores and bill them through their Amazon Pay accounts. These innovative concepts are likely to change the future of POS, consumer purchases and our spending habits.

New payment models: Fintech advancements now make it possible to pay through wearables like smartwatches and bands, and people just love it. Emerging Fintech players are changing the way money is collected, lent or distributed. Furthermore, many Fintech companies are working closely with technology players in their efforts to create an ecosystem that will change the way we relate to money and its allied facets.

The rise of digital currencies: The dramatic rise of digital currencies can be traced to their origins in the Fintech domain. Powered by blockchain technology, digital coins are also likely to shift our perspective towards fiat currencies and conventional investment avenues such as fixed deposits, stock markets and buying gold among others. Digital currencies from fintechs may have to undergo approvals from key regulatory frameworks considering the risks involved. In India, the RBI has chosen to create a separate digital currency for the central bank to prepare a roadmap for a legitimate use framework.

Fintech has been at the forefront of heralding a revolution in the global financial sector. Thanks to new-age capabilities and customer-centric business models, fintech companies are becoming instrumental in taking the customer experience to the next level. This improved comfort and ease of use underpins the growth story of Fintech and is likely to usher in the next wave of innovation for the entire global financial ecosystem.

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