How Fintech Innovations and Services are transforming the BFSI segment

By Prasad Pathapati, Head of Engineering, mPokket

For decades, India’s unbanked and underbanked cohorts served as a constant reminder of the gaps in driving inclusive development across the country. However, due to the lack of credit history of the unbanked, these people were almost completely ignored by older lenders.

Fortunately, the emergence of fintech firms has completely transformed the scenario in India’s BFSI
landscape. While traditional bankers needed paper documents to do due diligence on
creditworthiness of potential customers, fintech players obtain data from several sources, which are accessible via digital means. This includes information about an applicant’s income, spending behavior, short-term debt, needs and more.

In this way, fintechs gain robust insights to reduce lending risk while offering highly efficient, personalized services that go beyond those offered by traditional lenders. The use of technological tools to automate the lending and payment processes has also enabled better consumer understanding, faster decision-making, more innovative product offerings and lower prices.

By operating beyond the limitations of the traditional BFSI segment, fintech has dramatically increased the reach of financial services for the unbanked and underbanked sections. Beneficiaries of this new approach include people seeking small-ticket loans for personal purposes, as well as small entrepreneurs who want access to microfinance products to improve or scale up their operations.

Popular innovations and use cases
Over the past few years, some of the fintech innovations and use cases include:
Robotic Process Automation: RPA or robotic process automation is the use of software to automate routine tasks that were previously performed manually, including data entry and customer service. RPA has helped speed up processes and reduce overall costs.

Artificial intelligence and machine learning: Both AI and ML have had a major impact on BFSI. Through AI algorithms and ML tools that can analyze massive amounts of data quickly, fintech has improved performance in fraud detection, risk management and allied financial functions.

Blockchain Technology: A distributed ledger technology, blockchain, allows safe, secure, transparent, reliable and tamper-proof transactions. Considering its greater efficiency and security, blockchain is poised to revolutionize operations in the BFSI industry. Ever since financial services started using blockchain, cross-border transfers and remittances have had reduced costs per transaction. Blockchain can also ensure smart payments, fraud reduction, automation of trade processes, secure payment processing and independent client verification. According to the World Economic Forum, blockchains could store nearly 10% of global GDP by 2025.

Payment innovations: These technologies and offerings include contactless payments, peer-to-peer payments, mobile payments and BNPL (Buy Now, Pay Later) products. In this way, consumers can pay for goods or services via mobile phones or other connected devices, without entering payment information. In the case of BNPL, customers can pay for purchased goods a few weeks or months later, according to the terms of the service provider.

Regtech: An important element of fintech, regtech involves the deployment of technology to help financial institutions comply with industry regulations and processes. Its main roles cover regulatory reporting, monitoring and compliance. Regtech also helps businesses increase efficiency and reduce costs.

Insurtech: This applies to the use of technological tools and innovations designed to discover cost savings and promote greater efficiency in today’s insurance industry model. Insurtech uses tools such as IoT, AI and big data analytics to price insurance products more competitively. Furthermore, it helps to process claims and contracts more efficiently, evaluate risks and insurance policies.

Benefits for users and industry players
Thanks to these innovations and use cases, fintech tools offer many benefits to consumers as well as BFSI players, such as:
Improved efficiency: Fintech tools have led to an exponential increase in the speed and efficiency of financial transactions. Consequently, mobile or digital payments can be processed in a fraction of the time required via traditional means such as debit and credit cards.

Greater availability: Fintech has helped facilitate faster financial access for all the unbanked and underserved segments across India. For example, transactions can be carried out via mobiles even in regions where conventional banking systems may not be available.

Increased security: Recent cyber attacks and data breaches have made security a priority for almost all consumers. Through advanced fintech technology, it is possible to provide extra layers of security to prevent online fraud, phishing and other forms of online attacks.
More innovation: Given its inherent nature, fintech continues to continuously innovate and evolve. As a result, new, exciting products and services are regularly unveiled, benefiting BFSI businesses and consumers alike. This has led to the emergence of products such as digital wallets, smart contracts and more.

Driven by its many advantages, fintech innovations are now revolutionizing the way BFSI players serve consumers through instant, safe and secure transactions. Moreover, by penetrating remote regions where brick-and-mortar banking operations are not yet possible, fintech firms advance the government’s mission of financial inclusion by serving low-income, unbanked cohorts.

Today, be it loans, payment services or investment instruments, all these and more are available to consumers, pan-India. At the same time, India’s BFSI industry is undergoing a revolutionary transformation through the innovative products and services of fintech firms.