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Fintech - A Complete Guide to why it is the next big thing!
This article is about how Fintech has emerged to be a major contributor to the Finance Industry.
This is a user generated content for MyStory, a YourStory initiative to enable its community to contribute and have their voices heard. The views and writings here reflect that of the author and not of YourStory.
Overview
Fintech or Financial Technology is applying the latest equipment, tools, software and algorithms for the smooth run of the financial operations in the financial industry.
In simpler terms, Fintech is the manner in which technology is used to improve the essential aspects of the financial industry.
Its purpose is, the optimal use of financial products and services. Fintech is used by the business owners, consumers, entrepreneurs and financial institutions.
Examples of Fintech
- Budgeting apps
- Blockchain and Cryptocurrency
- Mobile payments
- Insurance
Fintech in India
The Fintech market in India is going to reach $31 billion in 2020.
Some of the Fintech startups in India are Paytm, PolicyBazaar, PayU, LendingKart.
Fintech has proved to be a transformed the Indian market.
Why Fintech?
The reason behind the massive success of Fintech and the reason why its importance is evident is because of the existence of the limitations in the financial industry. Fintech has made the lending process hassle-free.
Issue- Traditional Lending Approach
Solution- Introduction of Alternative Lending Model
The credit approvals took a lot of time previously but by scrapping off the traditional approach and making a shift to utilising the latest advancements in technology, lending process has become much easier.
Peer-to-Peer lending has made the lending process a lot simpler. Introduced as an alternative lending model, in this process, an individual can earn interest by lending to customers as compared to the traditional approach where, the lenders had to receive deposits from customers to lend loans to other customers.
Issue - Slow credit approvals
Solution - Fast approvals and funding
Loans processing and approval took a lot of time prior to Fintech. But not, loans are processed and approved in less than 24 hours. The banking features have now become user-friendly and easy to use.
Issue- Non-Availability of burrower’s data
Solution- Use of previous data to assess creditworthiness
Before lending loans, the banks need to ensure the burrowers creditworthiness and the risk of lending him a loan. By collecting and analysing his previous data, this can easily be achieved. The availability of and proper usage of the latest softwares has made it all simple.
Other issues faced by the financial institutions are
· Outdated operating system
· Delay in customer grievance redressal
· Limited attention to customer-centric policies
Advancements in Fintech
- E-wallets have become successful as a mode for easy payment.
- Online budgeting
- Financial planning tools
- Online short term loans
- Online short term burrowing
- Online investment advice
- Insurance linked with smart devices
- Hyper-personalisation via big data and AI
- Robotic process automation (RPA)
- Blockchain
- Mobile payment innovations
- Smarter debit card
- Card with zero mark-up fees
- Dynamic currency exchange rate
- Applications with more security features
- Small ticket loans are easier to receive
- Investment applications will be personalised
The finance businesses and the financial institutions need to follow the rules and regulations to be able to enjoy the benefits of Fintech.
The first step is to decide the type of company they want to start and the next step is to register the company.
Some of the major types of financial companies that exist in the market-
- Non-banking Financial Company
- Micro-finance Company
- Core Investment Company
- Full Fledged Money Changers
- Venture Capital Company
- Prepaid instruments business
- Peer to Peer Lending business
- Asset Reconstruction Company
- Nidhi Company
- Housing Finance Company
With the arrival of some of the major banking entities, NBFC’s dominating the financial market, and the huge success of the digital payment methods, Indian financial businesses need to invest in the latest softwares and tools.
The popularity of the NBFC’s have risen in the previous years. NBFC (Non-Banking Financial Company) is engaged in financial activities as defined under the Section 45-IA of the RBI Act 1934.
The NBFC’S have started using the latest software including the Loan Management Software, Bank Statement Analysis.
One of the reasons why the NBFC’s have occupied a major portion of the financial market is its simple registration procedure, in comparison to the previous time-taking procedures.
Documents Required for an NBFC License in India
- Memorandum Of Association (MOA) of the NBFC Company
- Certified Copy of the Registration Certificate
- Latest KYC
- Net worth Certificate
- Clean Banker Report
- Proof of the qualifications
- Credit report of Directors and shareholders
- Experience proof in the Financial sector
- Underwriting model
- Organisation Matrix
- System and IT Policy
Conclusion
The financial sector has experienced a good amount of changes that has led to the accomplishment of business as well as financial goals which is why it is essential to ensure that it is utilised in an appropriate manner.
If the companies continue to adopt the latest technology and apply in their financial operations, it is going to be highly beneficial, for both the business and the industry.