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01. Definition, meaning and concepts of FinTech

02. Essentials of FinTech

03. Paradigm shift from traditional to modern financial technology

04. Changes due to FinTech

05. Advantages, disadvantages, challenges, and solutions.

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 What is Finance
Bus Fare
What is Finance : The study and Pocket Money
discipline of money, currency and
capital assets.
Buying and selling products (or
assets), issuing stocks, initiating loans, Pay School Fees
and maintaining accounts.
In real life, income, savings and
investments, checking accounts, Buy Books Petrol Pump
spending/budgeting, credit and credit
scores, insurance, taxes.
How do you spend you pocket
money???? Buy Food
Borrow money

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 Financial Products
A product that is connected with the way in which you
manage and use your money, such as a bank account, a
credit card, insurance, etc.
A financial product is an instrument in which a person
can either:
 make a financial investment (for example, a share);
 borrow money (for example, credit cards, loans or bonds);
or
 save money (for example, term deposits).
 Financial products are issued by banks, financial
institutions, governments or companies.

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 Financial Services
Financial services are the
economic services provided
by the finance
industry, which
encompasses a broad range
of businesses that manage
money Banking
Insurance

Tax / Audit Consulting Loan Share Trading

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Leasing.
Hire Purchase Finance.
Credit card.
Merchant Banking.
Book Building.
Asset Liability Management.
Housing Finance.
Portfolio Finance.
Underwriting.
Credit Rating.
Mutual Fund.

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 What is Technology
Technology is the product of transferring scientific knowledge to practical use. Different forms of technology
are the result of people trying to find more efficient ways to do things and testing new ideas.
Technology refers to methods, systems, and devices which are the result of scientific knowledge being used
for practical purposes. Technology is changing fast. They should be allowed to wait for cheaper technologies
to be developed.
Communication Technology: TV, Internet, Cell Phones
Electrical Technology: Computers, Circuitry, Artificial intelligence, Software, Audio and visual technology.
Energy: Solar panels, Wind turbines, Batteries
Mechanical: Manufacturing, Heavy engineering
Medical: Diagnostics, Pharmaceutical, Surgical, Monitoring
Transportation: GPS, Flight, Vehicles,

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Digital Transformation – Money Lending

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Digitalization in Making Payment

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Digitalization in Share Marking

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Digitalization in Insurance

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Digitalization in Customer Assistance

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Meaning:

FinTech is combination of two words Finance+ Technology

Definition:

FinTech is any use of technology in financial services to develop or improve products and
services

FinTech is used to describe a variety of innovative business models and emerging technologies
that have the potential to transform financial services industry
Emerging technology:
Blockchain, artificial intelligence, robotics
Business models:
Automation, unbundling

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FinTech refers to the integration of technology into offerings by financial services
companies to improve their use and delivery to consumers.
It primarily works by unbundling offerings by such firms and creating new markets for
them.
Companies in the finance industry that use FinTech have expanded financial inclusion and
use technology to cut down on operational costs.
FinTech funding is on the rise, but regulatory problems exist.

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Market size and growth in India:

 The NASSCOM report estimates that the total FinTech software and
services market in India was around $8 billion in 2016 and has grown
about 1.7 times.

 The report adds that the transaction value for the Indian FinTech
sector was approximately $33 billion in 2016 and has to reached $73
billion in 2020 growing at a five-year compound annual growth rate of
22%’

 FinTech investments in India nearly doubled to $3.7 billion in 2019 from

$1.9 billion the previous year, putting the country as the world’s third
largest FinTech center, behind only the U.S. and U.K.

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FinTech Ecosystem

Big tech
Incumbent
A FinTech ecosystem is a companies
financial
concept to create a suitable active in
institutions
environment for all types of finance space
financial technology
services to synergize. They
are often formed by the
government, financial Companies
services companies, and that provide
startups, where every technological Disruptors
partner assists each other. support
/infrastructure

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 Attributes Description

Demand There should be end-client demands across financial institutions, government, and
consumers.
Consumer demand for financial technology is very high. The pandemic primarily
influences this surge.
Talent An ideal FinTech innovation ecosystem should have financial, technical services, and
entrepreneurial talent.

Capital This entails the availability of resources needed to commence operation without a
hitch. It also covers the resources needed to pursue internal initiatives. Venture Capital
investment in financial technology is currently at an all-time high.

Policy This includes government policy regarding tax, regulation, and growth initiatives for the
financial services industry. There should also be a presence of digital public
infrastructure tailored to aid innovation in the financial services sector.

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 Banking
Banking refers to the system of financial
institutions, such as banks and credit unions,
that provide various financial services to
individuals, businesses, and governments.
Banking services mainly include accepting
deposits, lending money, facilitating
transactions, and offering various financial
products like savings accounts, loans, and
credit cards.
• facilitates the flow of money
• enables economic activities.

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 • Acceptance of deposits from the public
• Provide demand withdrawal facility
Primary Functions of • Lending facility
• Transfer of funds
Banks • Issue of drafts
• Provide customers with locker facilities

• Agency Functions of Bank

• Banks are the agents for their customers, hence it has to perform various agency
functions
Secondary Functions • Transfer of Funds
of Banks • Collection of Cheques
• Portfolio Management
• Other Agency Functions

• Issuing letters of credit, traveler’s cheques, etc.

• Undertaking safe custody of valuables, important documents, providing safe deposit vaults
or lockers.
Utility Functions of • Underwriting of shares and debentures
Bank • Dealing in foreign exchanges
• Standing guarantee on behalf of its customers, etc.

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Paradigm shift - Traditional Banking VS Modern
Banking

 Innovation: New Products and Functions

Financial and technology are the two words that make up the term FinTech. And this is exactly what the
start-ups in the FinTech industry combine to create something new: Innovative products in the financial
sector that are linked to further technological developments. Products that solve an existing problem,
offer customers real added value and provide them with a positive experience at the same time. Instant
payment, mobile banking apps or digital business accounts are the results that are created in a short
time by the special way start-ups work, revolutionizing banking and attacking the business models of
traditional banks.

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 Customer Focus

FinTechs focus on transparency in their product development and give their customers insight into their product
roadmap. They are open to suggestions and feedback, which are included in the further development process. The
result is tailor-made and easy-to-use banking products for smartphone and tablet, which meet the needs and
requirements of customers for modern and flexible banking.
As against the traditional banking where customer has to visit the banker in person and yet not get solutions to
their queries or work resolved for days .

• Flexibility: Fast Opening, Lean Processes and Great Usability

This flexibility begins with the opening of an account. While the online process usually takes just a few clicks and
the account is available quickly after the identity check, opening an account in a bank branch often takes several
days or weeks and requires a lot of documents. You can do your banking online – on your PC in the office or on the
road on your smartphone or tablet. You can even apply for a loan online without long waiting times, the money
you need to invest in your business is available within a very short time and increases your financial flexibility.

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• Pricing: Cost-effective Alternative
The previous business models of traditional banks usually no longer pay off. Outdated structures, bank
branches and a large number of staff result in a large amount of administrative work and high costs.
The number of employees in FinTechs is usually manageable, so the costs are lower. Furthermore, the
digitalized products and solutions are well scalable and can be used in large quantities. The start-ups
pass this price advantage on to their customers.

• Service: Good Support Right from the Start

Customers expect their financial services provider to provide support that is available to them
regardless of bank opening hours. It is true that customer advisors are not available 24/7 by phone or
e-mail. But the FinTechs usually offer extensive help pages. In addition, customers often find the
solution to their problem in the chat. But good service does not only refer to questions and help. Good
service starts with the opening of an account, simple authentication, user-friendly applications that
offer customers real added value and maximum flexibility in carrying out their banking transactions.

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• Communication: Online vs. Offline

Banking is not much different from other areas of life: Some things are easier to clarify personally. But
whether this actually requires a visit to the bank branch and a discussion with your personal bank advisor
is probably a question of personal preference. Direct banks and FinTechs prove that customers can be
served ideally even without a branch network.

To Conclude it is believed that in the future FinTech will replace traditional banks as customers are more
satisfied by the online facilities. Being able to access a plethora of information using a pocket-sized device
and a handful of applications has truly changed the perspectives and habits of the customers. Financial
technology is offering an assortment of invaluable tools that are helping businesses save time, money, and
effort. It is analyzed that, the traditional banks will continue to acquire smaller FinTech companies to
accelerate their digital transformation and strength technical capabilities.

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 Application of FinTech

• Mobile Banking & Neo Banks

Mobile banking is one of the most popular applications of FinTech. More and more people are doing
their banking online or via mobile apps.

One example is Paytm a mobile payment service that allows you to send money to your friends
immediately via their app.

Another application of FinTech is NeoBanks. NeoBanks are small banks that have no brick-and-
mortar locations—they only operate online. They typically offer better interest rates on savings
accounts than traditional banks do.
Example is Fi Money, a neobank

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• Investment & Saving
FinTech has caused an explosion in the number of investing and savings apps. These apps make it easier for
millennial to invest by allowing small, regular contributions from checking accounts or debit cards and
managing investments for them using sophisticated algorithms. In some cases, they can even round up
purchases to the nearest dollar and contribute the difference to a savings account.
While FinTech has been around since the early 2000s, the growth of consumer-oriented FinTech businesses
has been exponential in recent years. Many people are giving up on traditional banking because of its high
fees, long wait times, and lack of personalization. Millennial especially are looking for easy ways to do their
banking—including managing their investments—from their phones, which is something that traditional
banks have struggled with.
And we’re just getting started—FinTech is growing at nearly three times the rate of other financial services
sectors!

Upstox provides financial services such as investments in stocks, mutual funds, derivatives, commodities,
ETFs, and digital gold

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• AI Machine Learning & Trading
Machine learning has had a huge impact on finance over the last decade. With machine learning,
computers can analyze millions of data points from many different sources, and use them to build
predictive models that reveal trends in financial markets.
These models can be used for all kinds of investment strategies, from swing trading to long-term value
investing. The ability to process so much data so quickly is an incredible advantage for traders, who can now
look at trends across many different time frames in order to make more effective trades.
The example we’ll use here is algorithmic trading: a strategy where a computer program makes decisions
about when to buy and sell financial assets based on the patterns it discovers in historical data. Algorithmic
trading uses machine learning techniques like logistic regression or support vector machines to estimate
when stocks will go up or down in value, as well as how much they’ll change by

Zerodha Trading Platform brings Algo Trading with the name Streak

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• Insurance
One of the most exciting benefits of the FinTech revolution is how it has affected the insurance industry.
Insurance companies can now use technology to better understand the risk of their policies, cut down on
fraud, and provide more customer-centric services.
For example, instead of solely relying on an annual checkup to assess a person’s health, life insurance
companies are now beginning to use wearable devices for constant monitoring and proactive care.
Progressive Auto Insurance also offers its customers a device that tracks how many miles they drive and then
gives them a discount based on their actual usage. They’ve even started offering discounts to people who
bundle home and auto insurance policies!

CoverFox is one of the leading insurance startups of India. It provides a simple, fast, and secure platform for
customers to buy and renew insurance policies

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 Cryptocurrency & Blockchain
Cryptocurrency and blockchain are different things, but they’re also very much inextricably linked in the FinTech
sector.
Cryptocurrency is a digital currency that has no physical form and exists only in digital. Blockchain is an electronic
ledger that allows users to record each transaction made through cryptocurrency.
Because there’s no physical version of the money and transactions happen digitally (i.e., there’s no exchange of
paper money or coins), it’s easy to see why the cryptocurrency is so appealing to users. However, the absence of
physical money also opens up opportunities for fraudulent activity, which is where blockchain comes in.
Blockchain allows users to keep track of every single transaction made with cryptocurrency. It works like a Google
Docs spreadsheet, where only people who have been granted access can make changes to what’s written on the
document. In this case, the “document” is a public ledger of all transactions made with the currency.
Each new transaction is recorded as a new line on the spreadsheet—so if you’ve ever been on a group project
where you all worked on an online spreadsheet together, you can get how this works!

PocketBits is the most innovative Cryptocurrency Exchange in India

CoinDCX is one of the best and most successful blockchain startups in India

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 Advantages of FinTech

• It Generates Wealth
his is perhaps the most obvious one, but FinTech has the potential of generating massive amounts of wealth. By
making the cost of working with money less or by enabling entire new markets and classes of product. FinTech is
helping so-called "unbanked" people join the formal economy, it's giving access to credit and making sure fair
contract terms are enforced.

• FinTech promotes transparency

The world of finance is, to put it mildly, filled with a lot of questionable activities. Sometimes we have leaks, such
as the infamous Panama Papers, which show us what really happens out of sight. Still, the world financial stage is
so deep and complex that there are plenty of places to hide your unethical conduct and there simply aren't
enough people to connect all the dots. This is why we are now using intelligent machines to discover patterns of
abuse or suspicious activities at a scale that's literally impossible for humans to achieve. Not only does this mean
that bad actors in the financial system are brought to book. It means that losses of public funds and resources
that could have gone to economic developments. FinTech is making it harder to make money go where it
shouldn't.

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 Easier payments

Customers make contactless payments by waving their cellphones, cards, key fobs, or other RFID or NFC-enabled
devices over a point-of-sale scanner and making their [Link] must, however, be in close proximity to
a sales station in order to pay contactless. Your bank account, which is directly linked to your phone number, can
also be used for this. FinTech’s incredible features are the only way to achieve this.

 Greater accessibility
This also translates into an increase in the banked population since anyone with internet access can open an
account and apply for a loan without any problem.
On average, FinTech have response times for applicants that range from 10 minutes to 48 hours.

 Time optimization
Thanks to the fact that all processes are carried out through the Internet, it is not necessary, in most cases, to go
to a physical branch. Opening account to getting a loan sanctioned can be done with few clicks , hassle free and
quickly

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 Variety of services
FinTech have managed to segment services, so that a whole range of services is offered, according to the
needs of both financial services users and providers.
On the users’ side, financial services range from opening a savings account, applying for a credit card, various
types of insurance, to investing in a company requesting funds to expand, as well as in international financial
markets. On the part of financial service providers, FinTech offer solutions ranging from analyzing the profiles
of credit applicants, storing data in the cloud, streamlining payment methods, among many others.

 Cost reduction
Another of the great differentiators of FinTech, with which most of them intend to compete against
traditional financial companies, is that the vast majority of FinTech offer lower commissions than banks. Also
due to lean organizational structure , no physical branches, and the digitalised products and solutions
provided are well scalable which helps FinTech companies to pass this price advantage to their customers.

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 Disadvantages of FinTech

 It Can Contribute to Global Inequality

FinTech goes hand in hand with developments in digital technologies. Broadband internet, data centers,
smartphones, mobile wireless access, and other advanced modern infrastructure are needed to make it all
work.
The problem is that a significant proportion of the world's population doesn't have broadband access. Some
nations are so poor that the idea of owning a smartphone or paying for internet access is ludicrous. This means
that any of the economically beneficial aspects of FinTech will be lost on people who live in these places.
The flip side of this issue is the continued drop in the costs of these technologies. These days you can buy a
smartphone for thirty bucks that can do all the same fundamental things as a high-end handset. Albeit more
slowly and not as pleasant to use. In markets such as India, we've seen technological "leapfrogging" where new
technologies are installed without first going through older technologies. For example, installing mobile
broadband infrastructure, leapfrogging copper and fiber broadband. This may lead to certain under-developed
nations getting on an even footing with more established states quickly. In fact, without the baggage of
transitioning, they can embrace new tech more quickly and to a greater extent!

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 Invading Privacy
Modern FinTech often only works because it digitizes our behavior on a deep level. When you use an app
like Uber or book an Airbnb, you are generating a mass go information. Banks are starting to use
behavioral analysis to optimize things like credit scores or interest rates. By looking at your spending
patterns. On an even more basic level, those who have access to your financial information can also build a
picture of your movements. Who your friends are and what sorts of causes you [Link] the prospect
of cash going the way of the Dodo, there may be a chilling effect on the things that people do. But would
prefer to remain private. From buying adult entertainment to donating money to certain causes, there is a
long list of legal and legitimate things one would nonetheless prefer no record of.

 Data security
Whether it’s mobile banking, payment apps, or FinTech in comprehensive terms, data security has become
a key worry in the Internet world. Conventional banking operations believe in security guards, CCTV
cameras, vaults, and enormous bulletproof doors to keep their data prudent and secure.
Yet, when it reaches virtual security, aspects are not as modest as they appear. Vulnerabilities are more
subtle and have the capability to have considerable consequences on users.

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 Lack of regulation
It is a reality that it is such a notorious phenomenon that authorities around the world continue, in many cases,
to study and legislate this phenomenon. So, the regulations around FinTech in the world are not perfect, and
there is the possibility that some of these may be some potential fraud in the absence of regulation.
Governments and regulatory bodies across the world are in process of framing the right guidelines in order to
safeguard the customers interest as well as lay down framework enabling FinTech companies to function
smoothly.

 Lack of physical branches

This can be a disadvantage when there is a problem in the provision of the service, since everything must be
dealt via email or social networks.
Although for many it is as easy as using their smartphones, the truth is that this condition immediately
excludes a very large part of the population that does not have access to the Internet, and therefore, will have
difficulties to become banked, even with the existence of FinTech.

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 Challenges of FinTech

• Cybersecurity risks

Cybersecurity risks such as data breaches or malware attacks can result in severe consequences. Names
and credit card numbers can be sold on the dark web for the purposes of identity theft or fraud.
Important information will be gone and there’s nothing they can do about it.
The alarming issue of security breaches and their risks have been brought up since the dawn of FinTech,
and remains the top one in FinTech challenges. The threats of cybersecurity put both customers and
financial institutions at stake as personal information and other private matters are exposed and
exploited for the profit of hackers and fraudsters.
The concerns for data security and cybersecurity exacerbate as FinTech app users demand better
integration between their applications. Better integration means more third-party services and cross-
border data exchanges, which in turn has a higher risk of becoming entry vectors for hackers.

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 Lack of human touch
Many FinTech apps now lack the “human touch”, and this can lead to customer loss. For senior
users, technology may not be their advantage, but they are a very potential customer segment
for financial services.
In human-to-human interaction, trust and relationships are built. For important transactions
and decisions, people always value the information that comes from actual humans rather than
some random machine. Without a human side to FinTech, consumers are less equipped to
make informed decisions about their money or data, or feel empowered and confident in
adopting new technologies.
For businesses, direct interaction with the customers can provide them with valuable
experience. Through talking and making eye contact, the customers will have a good impression
on the brand and the technology.
Current FinTech applications still lack the human touch and could cause some discomfort for
users.

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 Lack of technological capabilities
The current trends of the FinTech market, including Cryptocurrency, Blockchain, IoT, cloud computing, have
been on the market for a long time, but they still have many for us to discover. Not many can call themselves
the experts of these trends.
More importantly, AI and ML are being used in many banking services and data analysis activities, but they
are just some scratches on the surface .Hence, we need to learn more about AI and ML to fully captivate their
potentials.
The market is becoming more demanding with tech workers. Ask any recruiter you know, and they would all
tell you that they are looking for senior developers or senior testers. Especially for the FinTech industry, they
also need someone that can understand both the technologies and the finance sector.

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  Regulatory issues
There are many risks related to finances for this
reason it is one of the most regulated sectors of
all. The government will always intervene in the
decisions related to the financial sector. The
FinTech industry has to follow the rules,
regulations, and policies created by the
government to secure the well-being of the
people.
When creating new software, FinTech firms have
to work according to the regulation of the
government. If the government does not find
their work within compliance with the rules they
can take strict action against that firm. A firm can
also consult a legal department to understand
these regulations.

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 Key FinTech trends

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58 PROF. BANDITA S NIKAM
FinTechs have been the poster child of digital growth
story, with their growth propelled by a surplus of
capital, maturing infrastructure and favorable
underlying customer demographics. The good news for
FinTechs is that digital infrastructure is only expected
to further mature and the underlying demand growth
is expected to stay strong. However the FinTechs will
also have to operate in an environment with
regulator(s) that are increasingly nationalistic, pro-
consumer, and vigilant; licensed incumbents who are
strengthening their digital capabilities; increasingly
affluent and digitally-savvy customers who are hungry
for their financial needs to be met digitally; and most
importantly, a large base of mass customers waiting to
be digitally educated and serviced. Achieving
sustainable and profitable growth in this environment
will be test of which FinTechs can grapple and balance
these multiple stakeholders and place their customer
at the centre of it all. Ultimately, customer is king.

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 Prof. Bandita S Nikam

8884994600

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