The role of technology in reshaping the FinTech industry

The role of technology in reshaping the FinTech industry
The role of technology in reshaping the FinTech industry

Puneet Pratap Singh, Partner in Charge, Heidrick & Struggles India talks about how technology has played an important role in transforming the FinTech industry. The growing adoption of technology in India is largely determined by the high pace of innovation, increased alliances between banking institutions and fintech companies, and a robust talent pool.

Q: How big is the FinTech ecosystem in India? Do you think the Digital India initiative is helping the sector grow?

The fintech ecosystem in India has seen exponential growth in critical services and vital technology segments. India had a total of 21 Fintech unicorns out of the global 187 Fintech unicorns as of June 2022 and with the highest adoption rate worldwide, the Fintech ecosystem is poised to grow much further.

Several enabling factors have propagated the Fintech ecosystem, such as the Digital India Initiative, an extensive talent pool and a favorable policy environment. The Digital India initiative, aided by Aadhar, has been an excellent supply-side opportunity and an important strategic tool for financial and social inclusion. It has also been important to increase user-friendliness and promote problem-free, human-oriented management. In addition, the initiative is an important delivery reform in the public sector and has encouraged transparency and good governance in managing financial budgets.

Q: How is technology reshaping the Fintech sector in India?

Driven by new and cutting-edge technologies such as cloud infrastructure, machine learning and artificial intelligence, India’s fintech sector is undergoing a significant transition. These technologies have served as the backbone of fintech advancements in India, where organizations have been able to increase efficiency in digital signatures, account aggregation infrastructure, claims processing, payments and savings marketplaces via e-KYC, IoT, AI and video KYC. Biometric identity verification models such as facial recognition, iris scanning and voice recognition have also given users a greater sense of security, which has been beneficial to the fintech sector as a whole.

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The growing adoption of technology in India is largely determined by the high pace of innovation, increased alliances between banking institutions and fintech companies, and a robust talent pool. We are definitely seeing the effects of such changes spill over into universities, where 32% of Indian graduates embrace science, technology, engineering and mathematics (STEM).

Q: What about blockchain? How important is this technology to transform financial services in India?

Blockchain technology has generated significant interest in the financial industry in India. The rise of the blockchain has encouraged the fintech industry to shift towards app-based operations, primarily due to the skyrocketing adoption and growth of the industry during the pandemic. Most users want secure transactions, security against fraudulent activities and transparency, all of which blockchain technologies can handle. Built as a distributed ledger and designed to be resistant to hacking through advanced cryptography, blockchain has the ability to revolutionize the financial ecosystem and transform typical financial activities, ensuring that processes are more transparent and less prone to fraud. Payments and money transfers made on blockchain are faster and focus on reducing risk for financial services and institutions by providing secure, encrypted data that is safe and remains unchanged.

Q: What are the challenges facing the FinTech industry in the new normal (post-COVID) and how can organizations address them?

While the pandemic has accelerated the growth of the fintech sector in India, it has also created many challenges. These include increased risk of data security and privacy breaches, platform downtime and unprecedented usage rates among micro, small and medium enterprises (MSMEs). The rapid growth of technologies has opened opportunities for organizations to digitize, but difficulties in acquiring and retaining talent have prevented businesses from reaching their full potential. The new normal has shown how hybrid working models, cultural adaptation and agile decision-making are important factors in attracting young talent today.

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Lack of financial literacy has also been a long-standing challenge for India’s fintech industry. Only 47% of the population has access to the internet, and many remain unbanked. Fintech companies can see this as both a challenge and an opportunity. Governments can set up new schemes and guidelines through learning institutions and community forums that create better awareness among the Indian population. Development of policy regulations, which include investment exit, infrastructure security, cryptocurrency, payment regulations and consumer protection, are all aspects that also affect fintech companies. Cutting back on regulatory measures can help address these challenges as they are likely to limit the industry’s growth. Blockchain technologies can help improve the fintech sector by increasing the security and transparency of banking processes.

Q: Do you think the uptick in start-up activity is forcing multinationals and established financial services organizations to rethink their strategies?

In recent years, we have seen a tremendous growth in the number of fintech startups across India. Initiatives advocating a cashless economy, digitization, progressive regulatory policies, increasing smartphone penetration, increased consumer readiness and government encouragement are all driving factors behind startup activity. Young startups also operate with more flexibility than many larger players are capable of.

As the growth of fintech startups creates fragmentation in the Indian financial market, multinationals are forced to rethink their strategies and operations. Global investors are actively involved in competition in the market, putting greater pressure on established financial organisations.

There is a lot of room for MNC to improve. Taking inspiration from startups, established organizations should focus on rethinking their strategies and corporate culture to offer a more modern and flexible working model that meets the needs of the current financial industry, as well as the younger talent pool.

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Q: What about labor? Is the sector facing a skills gap due to the rapid changes in technology and business strategies?

India is home to one of the largest populations in the world and among the most important talent pools. While finance has evolved rapidly alongside advances in technology and business strategy, there is a growing gap between academia and the real-world skills required in the sector. Indian finance needs more people with digital skills who can sustain the sector’s momentum.

Research has shown that only 2.5% of engineers in India have AI skills, while 5.5% are proficient in basic programming skills, with 63% of Indian companies reporting a shortage of IT and engineering experts. The supply of digital talent cannot keep pace with the exponential growth of the financial sector. It is crucial for the fintech industry to find long-term solutions such as upskilling and reskilling beyond basic coding.

Question: What role can management play in navigating their organizations in these dynamic times?

With disruptions like the pandemic and inflation fueled by the Russian-Ukrainian war, businesses everywhere are experiencing unpredictability, disorientation and loss of control. It is up to leaders to restore stability to their organizations by maintaining a strong sense of purpose based on core values. They must also be unusually nimble and adaptable and able to take the long view of risk. Equally important is the ability to build teams that are collaborative, calm, optimistic and compassionate. These qualities are essential for building resilience in the midst of great uncertainty.

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