Need of Fintech in India and Initiatives taken by Government so far

 

Need of Fintech

Fintech solves wide range of problems faced by the economy presently and can positively impact the growth of sectors like Banking & Finance, Insurance, Investment & wealth management, Government and public finance, real estate, consultancy etc.

 It can solve wide range of problems which are currently acting as impediments before achieving  operational efficiency, active response management and effective delivery of services. Through innovation in fintech integration, Companies will be able to venture into newer prospects and tap diverse opportunities.

Fintech address a wide range of problems and challenges. Here are some of the key problems that fintech aims to solve:

Access to Financial Services:

Fintech can enable better platformisation of digital financial services in order to reach maximum stakeholders in the wide geography of India. According to the World Bank's Global Findex Report 2021, there are an estimated 190 million adults in India who do not have a bank account. According to the Internet and Mobile Association of India (IAMAI), there were 759 million internet users in India as of December 2022. This shows that Banking and financial sector has tremendous opportunity to avail themselves with the fintech infrastructure to reach potential customers by providing simplified solution.

Cost Reduction:

Fintech can reduce costs associated with financial transactions, currency exchange, remittances, and cross-border payments. Once fintech is implemented with appropriate internal control, very less human intervention is required. It has various advantages like less prone to silly errors, can provide real time insights with the help of AI and Data Analytics, lowers the risk of security breach by liming access, diminishes the need of paperwork, digitizes streamlines and enhances capacity of operation with the help of cloud computing. A study by the Capgemini Research Institute found that companies that have adopted fintech solutions have seen an average increase in efficiency of 12%. The study also found that these companies have seen a reduction in costs of 8%.

Transparency and Accountability:

Fintech often leverages blockchain technology to enhance transparency and accountability in financial transactions. This can reduce fraud, increase trust, and improve the overall integrity of financial systems. Looking at the benefits, The RBI has also set up a working group to study the potential of blockchain technology in the financial sector. The National Payments Corporation of India (NPCI) has announced plans to develop a blockchain-based platform for retail payments. The platform is expected to be launched in 2023 and will be used for a variety of payments, including peer-to-peer payments, merchant payments, and government payments. State Bank of India (SBI) has developed a blockchain-based platform for trade finance. Axis Bank has also developed a blockchain-based platform for supply chain finance.

Payment Solutions:

Fintech has transformed payment systems with digital wallets, mobile payment apps, and contactless payment methods.

 

Lending and Credit Access:

Fintech platforms use alternative data sources and advanced algorithms to assess creditworthiness, making it easier for individuals and small businesses to access loans and credit without relying solely on traditional credit scoring methods.

 

Investment Opportunities:

Fintech platforms provide easier access to investment opportunities, including micro-investing, robo-advisors, and peer-to-peer lending. These solutions can make investing more accessible to a wider range of people.

 

Personal Finance Management:

Fintech tools help individuals manage their finances better through budgeting apps, expense tracking, and financial planning software. These tools empower users to make informed financial decisions.

 

Insurance Innovations:

Fintech has introduced innovative insurance models and improved claims processing through automation, digital documentation, and data analytics. This enhances the overall customer experience and reduces administrative burdens.

 

Regulatory Compliance:

Fintech solutions often incorporate compliance mechanisms to ensure adherence to financial regulations. These tools can assist businesses in meeting regulatory requirements efficiently.

 

Remittances and Cross-Border Payments:

Fintech has simplified cross-border payments and remittances by providing faster, more cost-effective methods for transferring money internationally.

 

Fraud Prevention and Security:

Fintech solutions integrate advanced security measures like biometric authentication, encryption, and real-time fraud detection to protect users' financial information and prevent unauthorized access.

 

Automated Trading and Investment:

Fintech platforms offer automated trading and investment solutions that use algorithms to make investment decisions based on market data, helping individuals and institutions optimize their investment strategies.

 

Small Business Support:

Fintech helps small businesses access funding, manage cash flow, and streamline financial operations through digital invoicing, payment processing, and business management tools.

 

Financial Education:

Some fintech solutions focus on providing financial literacy education and resources to help users make informed financial decisions and improve their overall financial well-being

 Initiatives taken by Indian Government to promote fintech:

Since 2014, Indian government has been proactive in active digitization of the financial sectors to enhance convenience and security to reach maximum users.

It has come up with dynamic technologies like Blockchain, De-Fi, UPI, Integrated platforms, AI ML, IOT, Automation, big date, cloud computing etc. to revolutionize financial transactions.

Let us explore various initiatives in India to promote Fintech in India-

1. Digital Rupee: Central Bank digital currency has been launched in December 1, 2022. Reserve Bank defines CBDC as the legal tender issued by a central bank in a digital form. It is the same as a sovereign currency and is exchangeable one-to-one at par (1:1) with the fiat currency. It ensures flexibility of transaction in order to proceed further towards the cash less economy. It has been initiated as Pilot but still there are challenges like regulatory compliance with KYC norms, acceptability by large number of people both in demand and supply side.

"As on February 28, 2023, the total digital rupee - Retail (e₹-R) and digital rupee - wholesale (e₹-W) in circulation is Rs 4.14 crore and Rs 126.27 crore, respectively," Ms. Sitharaman said in a written reply in the Lok Sabha.

UPI- UPI is one of the biggest innovations in the decade which has boosted the digital economy. It was launched by NPCI in 2016. “It's 9 billion+ transactions in May`23! Make seamless payments from your mobile in real-time with UPI," the NPCI tweeted. A PwC India report has earlier stated that UPI transactions are likely to reach 1 billion per day by 2026-27, accounting for 90 percent of the retail digital payments in the country.

Jan Dhan Yajona- Jan Dhan Yajona is one of the successful initiatives by the government. It promotes opening of bank accounts and the growth is significant. This has promoted various fintech players to innovate their technology to facilitate financial inclusions. Government is interested to enrich the scheme through promotion of Rupay Debit cards. It has also come up with Aadhar enabled Money transfer technology named AEPS.

The total deposit under these accounts stands at Rs. 146230 Crore. Deposits have increased about 6.38 times between August 2015 and August 21. Through this government also wants to link various subsidy schemes like Atal Pension Yajona, Stand Up India Scheme, Sukanya Samriddhi Yojana etc. The main objective of the government’s philosophy to build a integrated ecosystem for public finance.

Blockchain Technology, AI and ML- Government is proactive about building open source blockchain technology to build a secured infrastructure to bring up utilities like virtual vaults, payment ecosystems, peer frameworks for exchange of data.

NITI Aayog is working on various Blockchain use cases. NITI Aayog in collaboration with Gujarat Narmada Valley Fertilizers & Chemicals Limited (GNFC) has developed a Blockchain based system for fertilizer subsidy. State Bank of India (SBI) has associated with commercial banks and financial institutions for Blockchain based application pilot. IDRBT has released a whitepaper describing the roadmap for the adoption of BCT to banking and finance in India via 3 steps: (a) Intrabank: a private Blockchain for the banks internal purpose; (b) Interbank: Implementation of PoCs and testing them; (c) Central bank. (MEITY)

Financial Literacy-

The financial literacy rate of adults in India is 27 per cent, which is lower when compared to countries like the United Kingdom (67 per cent), Singapore (59 per cent), and the US (57 per cent), reveals a global survey by Streak in 2022. Before incorporating fintech, it is important to make people aware about various financial tools and terms in order to make them comfortable in the new virtual economy. Some examples stated below:

Government of India has started a Future Skills Prime program (https://futureskillsprime.in/standalonetechnology/blockchainspecifically) for upskilling and reskilling in the domain of Blockchain to address the need for growing the talent pool in the country through NIELIT and C-DAC. (MEITY). The Financial Literacy Week is an initiative by RBI to promote awareness on key topics every year through a focused campaign. The Financial Education Programme for Adults (FEPA) was launched by the NCFE in the month of September 2019. FEPA is a Financial Literacy Programme designed and implemented to spread financial awareness among the adult population

Innovative system inclusions- Government has fostered multiple system enabler like Centra KYC, E- Nach, Account Aggregator, E UDYAM, open credit enablement networks etc. with the help of encouraging idea driven startups and public private partnerships. There are 3085 fintech startups recognised under DPIIT as on July, 2023. Building up India’s GIFT city is great leap towards rapid tech enabled financial inclusion in India by attracting FDIs and encouraging robust financial infrastructure.