Mr Vikram Pandya, Director – Fintech, SP Jain School of Global Management
We all have been using Financial Technology or FinTech products long before it became a buzzword. Financial Innovation is much wider term which encompasses over all innovation in Finance like new financial products or new way of doing transaction through ATM or PoS machines.
FinTech on the other had focuses more on the disruption in design and delivery of financial products and services using emerging technologies to find right product-market fit, decide pricing, enhance customer experience, reduce cost, improve efficiencies and further cross-sell/upsell the product or services.
In last few years we have seen exponential growth in this sector. Given the pervasive nature of Finance and Technology, this should not come as a surprise.
It is more intriguing to observe how emerging technologies like API, AI/ML, Blockchain, Big Data, IoT, and AR/VR have changed the way customers consume the product and how various new business models are evolving because of the FinTech revolution. In this article we are going to explore few of these emerging use-cases in FinTech arena.
Whom to sell – when to sell – where to sell:
Using power of Application Programming Interface (APIs), AI/ML and Big Data, Banks & Fintech companies are able to segment their target customers with much better accuracy and relevance. Use of APIs allow them to offer products directly where their customers are and when they are most likely to consume.
For instance, when you go to book flight tickets on any portal, they also display hotels and other events happening at your destination city. Insurance companies offer travel/luggage insurance while you are checking out and at the end you can also choose from various financing options from different Banks/Fintech while making the payment.
Persona – Pricing mapping:
Application of Big Data and use of ML models allow for much accurate picture of customer’s persona. Unlike traditional models where only demographic factors were considered, Fintech use both demographic and psychographic parameters to identify the persona. This coupled with analytics allow businesses to design and price their product with much better result.
How to Pay:
Gone are the old days when Cash and Bank Cheques were main mode of payment. Today we omnichannel payment modes in various form and factor to increase security and convenience.
We have seen various government initiatives like UPI, Bharat Bill Payment System (BBPS), Aadhaar enabled Payment System (AePS), BharatQR, Instant Money Transfer (IMT), National Unified USSD Platform (NUUP – *99# which can work even on feature phones without internet) and e-NACH.
The National Payments Corporation of India (NPCI) launched a block chain based payment system ‘Vajra Platform’ which is designed for automating payment clearing and settlement processes of NPCI products such as unified payments interface (UPI) and Rupay card.
Even private players offer multiple solutions like Wallet, pre-paid cards, Virtual Cards, Sound based payment, and SIM overlay based payment solutions and pay later options.
How to Lend – Whom to Lend – How much to Lend:
Finance is bloodline of any business. For any business, working capital management, trade finance, term loan and project finance play very critical role for survival and growth. Emerging Technologies like AI/ML, Big Data and IoT is not only allowing these Banks and FinTechs to serve new to credit (NTC) customers but also allow them to manage risk in much better way.
Various alternative credit scoring models are successful in providing framework to cater to these new to bank (NTB) and new to credit (NTC) customers. Explainable AI/ML models are helping in credit decisioning which is more transparent and unbiased.
Use of Blockchain in trade finance has given promising results and many consortiums led projects are operating in this space. Use of IoT & Blockchain in trade finance, provides more trust and transparency.
In BFSI, the block chain based solutions are used for Trade Finance, Invoice discounting / Supply chain finance / factoring, Auction/reverse auction, Charge Registry, Contract lifecycle management, Shared KYC and due-diligence, Cross-border remittance, Data marketplaces, Electronic signatures, virtual cards, Employee or vendor background verification & onboarding, Encrypted communications and distributed data storage, Loan origination & lifecycle management, Loan Syndication, Loyalty program management, Password-less authentication, Peer-to-peer lending & Crowd funding, Repository of AML, Cross Border Wire Transfer & Suspicious Transaction Reporting, Smart asset lifecycle management and Stressed assets (NPA) marketplace. Event Decentralized Finance (DeFi) is picking up pace and many mainstream players are attracted to it.
How to Protect/Insure – How to Price:
InsureTech is one of the subdomains in FinTech which is rapidly growing. Using IoT, some of the insurance companies are able to provide more finetuned and customized premium options. Use of technologies in insurance allow for better risk identification, risk pooling and risk mitigation strategies.
For instance, if driver is driving his car for carefully then using Telematics IoT sensors the same can be proven and driver’s premium can be reduced. Use of blockchain based smart contracts allow for claimless settlement.
For instance, flight delay insurance can automatically settle when flight is delayed and confirmed by ATC or Baggage insurance claim is settled immediately when Airport authorities confirm the lost baggage.
Use of Robotic Process Automation (RPA) has reduced the cost and time of claim processing and settlement.
Blockchain based data sharing for health insurance saves customer from trouble of resubmitting documents or redoing the tests while switching the policy. Insurance in a bot offering from players like Riskcovry is changing the way the insurance partnership and distribution was done.
How to save and invest:
WealthTech is another emerging sector in FinTech which has undergone transformation. Robo-advisors are able to provide personalized recommendations at fraction of cost. Platforms like Artha Yantra focus on financial wellbeing and ways to improve the same.
Goal based investing and Micro saving platforms have seen good traction in recent past. High Frequency Algo trading strategies are also benefitting from AI/ML models. Theme based investment buckets like SmallCase.com or on the fly analyst recommendation subscription platform like Pickright are changing the way people invest.
FinTech revolution is real and it is here to stay. As a student or working professional, it is imperative to understand these opportunities and stay updated to make most out of it.
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