The Financial Technology (FinTech) Conclave of 2019 took place in New Delhi on 25th March, with the Governor of the Reserve Bank of India (RBI) inaugurating the event. The conclave was organised by the NITI Aayog, aiming to foster India’s continuous rise in FinTech, deliberate the future strategy and policy efforts, and discuss the comprehensive inclusion of finances. The RBI has categorised fintech companies as peer-to-peer (P2P) lenders.
Exploring Peer-to-Peer Lending
P2P lending, a significant innovation in finance, provides unsecured personal loans to borrowers vetted by technology, matched with investors seeking higher returns on investments. P2P lending providers started operating in India in early 2014. It wasn’t until September 2017 that the RBI announced these platforms would be registered as non-banking financial companies (NBFCs), subsequently introducing guidelines for P2P lending.
The Current State of FinTech in India
India is one of the fastest-growing global markets for FinTech. Research predicts that by 2029, 60% of retail and SME credit worth USD 1 trillion will be digitally disbursed. The Indian FinTech ecosystem, the third largest worldwide, has garnered nearly USD 6 billion in investments since 2014.
The Indian FinTech industry is continually developing cutting-edge intellectual property assets in risk management and artificial intelligence. These advancements are simultaneously enabling paperless access to finance for every Indian and propelling India forward in the global digital economy.
A Closer Look at the Fintech Sector
The term ‘FinTech’ is used to describe an emerging sector of financial services. Initially, this term represented computer technology for banks or trading firms’ back-office operations, but its scope has since broadened. Now, it includes any technological innovation in the financial sector, from financial literacy and education to retail banking, investment, and even cryptocurrencies like Bitcoin.
Potential Benefits of Fintech
The potential benefits of FinTech include improved efficiency, risk reduction, and greater financial inclusion. Fintech can meet the unmet demand for credit from Indian micro, small and medium enterprises (MSMEs), as well as consumers.
Facts about Fintech in An HTML Table
| Traditional Loan Approval Rates | 25-40% |
|---|---|
| Potential Loan Approval Increase with Fintech | 10-15% |
| Total Investments in Indian Fintech since 2014 | USD 6 billion |
The Challenges Facing Fintech
The challenges of FinTech include the difficulty of regulating evolving technology and monitoring activity outside the regulated sector. For instance, the digital nature of these platforms increases the risk of non-performing assets (NPAs) because there’s no direct customer connection. Some countries have introduced regulatory sandboxes, innovation hubs, incubators, or accelerators to supervise these platforms better.
Understanding Regulatory Sandbox
A regulatory sandbox is a regulated entity that allows temporary, limited-scale testing of a new product grappling with regulatory ambiguity. It permits businesses to test innovative products, services, business models and delivery mechanisms in the real market, with real consumers. In this controlled environment, regulators relax laws or introduce new ones specific to the applications being tested, then observe how the software functions in the new framework.
Looking to the Future
The lending landscape for MSMEs is evolving and is set to be disrupted by digital lenders. Backed by the continuous thrust from the Government of India towards digitisation through demonetisation, the launch of the Unified Payments Interface, and the introduction of GST, it is estimated that by 2023, MSME digital lending has the potential to increase between 10 and 15 fold. This development presents a huge opportunity for both traditional lenders and digital start-ups. Therefore, initiatives like the FinTech conclave are moving in the right direction by aiming to evolve future strategy.