Markets remain abuzz with fintech applications that have the power to reengineer the financial services world and, significantly, even alter the financial inclusion landscape. Over the recent years, there have been several global adoptions of innovative technologies to fashion new business models and offerings. These have been evidenced in payment services, mobile-based lending and money transfers, and are now fast spanning across other areas such as insurance, investments, wealth and asset management.
Most conventional banks have adopted digital technologies to operate and deliver better services as new digital-only entities have emerged as challengers. Fintech players in the industry are collaborating and competing with core banks while, in addition, P2P (peer-to-peer) applications emerging in the credit and funding space.
Fintech: Embracing the Digital Age in the Time of Social Distancing
The fintech revolution is mostly driven by technological developments that allow the deployment of application programming interfaces that help disparate and unconnected systems to talk seamlessly to each other. Overarching technological innovations such as interoperability, digital currencies, blockchain and artificial intelligence (AI) have driven breakthrough customer services and offerings.
AI and machine learning are enabling newer models of understanding and assessing customer and product data, thereby nurturing disruption in the products and services mix. Digital currencies open up avenues for otherwise difficult trade and make it easier for money transfers to happen, be it from governments to citizens or for economic exchanges anywhere in the world.
What has emerged is a rapidly morphing milieu where core banks, insurance and lending firms are being supported, complemented and even challenged by newer entities that either align and work as add-ons or independently offer alternate services. As any free marketeer would agree, all this is healthy innovation and creative destruction in full force. So why should anyone be concerned?
The truth is that the finance industry, and the very provision of financial services, sits at the heart of the searing problem of inequity and behooves to be regulated to prevent a plethora of financial crimes. The fast-developing fintech marketplace rests on underlying security and fraud protection systems that need to continuously evolve and strengthen. It is, therefore, paramount for this sector to be at the top of the agenda for both regulators and governments.
Central banks and regulators worldwide are racing to stay abreast with the latest innovations and market offerings to provide the underlying regulatory wiring for it all to work smoothly and sans fraud. It’s a tall order. There isn’t a single technology or application or system of monitoring that could fulfill this charter. Regulators would need to provide at the foundation an architecture that both supports and protects companies and customers. Systemic risks would have to be pre-detected and mitigated. Market dislocations spotted and dealt with.
Ultimately, fintech must improve the efficiency of financial services and further inclusion. Industry evolution ought to aid the lower-income segment, the under-banked as well as micro, small and medium enterprises while ensuring that preexisting risks of financial exclusion are not exacerbated. Reg-tech components, if deployed by financial entities in the form of point solutions, can remain isolated silos without an impact on a larger scale. What is required is a cohesive framework that mirrors the omnipresence of fintech developments.
Countries around the world, including India, are sponsoring initiatives like innovation hubs to stay on top of and engender tech-driven progress on desirable lines. That should ultimately lead to enriching financial lives across the world and perhaps even open the gates for poverty reduction strategies that were hitherto not imaginable. Such is the promise of the financial revolution that lies ahead if the regulatory waters are navigated well.
The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy.