What is ‘Fintech’?

The term Fintech (Financial Technology) refers to software and other modern
technologies used by businesses that provide automated and improved financial services. Fintech has been commonly used in this age and time as financial institutions and tech companies are trying to get a piece of that lucrative pie.

The bulk of Fintech companies directly compete with the brick and mortar banks in most areas of the financial industry to provide a one stop service to customers. This will most often include customised investment, lending, payments services and products of financial services. The idea of 100% digitalisation appeals largely to the millennials. The tech-savvy customers, especially millennials expect money transfer, lending, loan management and investing to be effortless, secure and scalable, ideally without the assistance of a person or the visit of a bank.

Classification of Fintech solutions

There are a range of different types of Fintech solutions: Payment gateways, Mobile payments, Lending solutions, Budgeting applications, Consumer banking, Robo-Advising and Stock trading applications, Insurance, Cryptocurrency, Crowdfunding, Blockchain and many others.

Most prominent Fintech services in India

• Payment Services: Highly competitive and important due to the need for competition in Banking. One of the biggest sub-sectors in Fintech.
• Lending services: Frequently known as peer-to-peer lending (P2P lending or P2B), it functions through a digital platform that matches lenders with potential borrowers, allowing lenders to potentially gain much more attractive returns than a savings account or other investments, and borrowers, lower interest rates than at a traditional financial institution.
• Business Correspondent (BC) service: Acting as an extended arm of traditional Retail/ Commercial banks, the BCs through various financial technologies provide basic banking services in rural areas in India. These include domestic money transfer (DMT), Micro ATM, Aadhar based payment system services.

Challenges & Risks in Fintech

Fintech has helped improve the products and services offered by traditional financial services. But a central issue of the industry is the hidden risk of breach of Cybersecurity and Data Privacy. This includes

• Data breaches
• Malware risk
• Third-party security risk
• Cloud-based security threats
• Digital identity risks
• Phishing

Due to the speed of changes and innovation, new risks are constantly emerging. Cross-border transactions are usually at a fast-transactional speed which is a powerful tool of Fintech but will also require Fintech firms to adapt stronger risk measurements that will match such speed and pace.

The importance of Risk Management must be the initial point for Fintech firms when dealing with risk and compliance matters. With the rise of new Fintech firms, it also means there are new risks and challenges that must be addressed appropriately. Risks may represent themselves in various forms. With the rapid pace of innovation, not only does it pose challenges to the Financial Institution, but also to the regulators. Equally important is building robust data security programs and frameworks for fraud detection which can help identify suspicious activities online