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Challenges Ahead For The Fintech Industry

Prabhu Ram, Group CEO & Managing Director, Payswiff

A Serial Entrepreneur, Evangelist and a Mentor to Start-ups, Prabhu has over 15 years of experience in the E-Commerce and Payments industries. At Payswiff, he oversees strategy, investments, and international expansion. Under his guidance, Payswiff has become one of the fastest growing companies in the Payments space.

The Fin-tech Industry is charting a new course every day, boldly going where no traditional finance company has gone before. The industry does a lot of business innovations – backed by technology. Sometimes these innovations disrupt existing industry structures and completely blur how financial products and services are created and delivered, easing access to financial services, providing new ways for entrepreneurship, but in the process creating significant regulatory and privacy challenges.

Fin-tech innovations that dominate the scene today and are expected to do so in the near future are cryptocurrencies, blockchain, artificial intelligence, machine learning, P2P lending, crowd funding and mobile payment systems. Given this scenario, the challenges that the Fin-tech industry would face in the coming days will be a mix of technology and business problems.

1. Lack of Proper Regulatory Frameworks –
Authorities sometimes are unaware of what is happening in the industry and in some cases take increasing interests at new fin-tech companies. Sometimes the guidelines and regulations are open to interpretations, and these policies have a significant impact on how new Fin-tech start-ups fare. Recent technologies like crypto currency are new to regulators and they are still devising ways to catch-up, but the advantages are substantial for them to over-look.

2. Digital Transformation Challenges –
If we take a survey, we will find that every bank is engaged in digital transformation. But for most traditional banks, digital innovations are started to counter a scenario, rather than preparing in advance. The new Fin-tech companies has to come in, collaborate with traditional banks to fill the chasm of consumers looking for everyday banking needs and consumers looking for a bespoke experience.

3. Technology Disruptions –
Acknowledged as one of the most disruptive technologies to be discovered that might change

how the internet operates is blockchain. The financial industry has also started looking to leverage it to store and transfer its value to other financial instruments. Blockchain technology can turn the traditional model on its head by providing machine-to-machine ledger algorithms, and thus eliminating the need of a central regulatory authority. Fin-tech companies must be open about disruptions like these, but at the same time cautious as to how the scenario pans out.

4.Alternative Lending –
Alternative lending uses technological innovations to simplify consumer access to capital, and presents a very potential threat to traditional financial institutions. This caters to a segment that is majorly underserved and new Fin-tech companies are coming in to fill this gap. The new companies are fast and agile, and the consumers love the speed with which the entire process is executed. The 2016 RBI guideline regarding P2P loans in India helped structure the segment but the challenge is to provide a secure platform to the lenders and a transparent mechanism for all the players.

Alternative lending uses technological innovations to simplify consumer access to capital, and presents a very potential threat to traditional financial institutions

5. Balancing the Rapid Pace of Innovation and Scale –
According to a report by a top technology consulting firm, many new Fin-tech firms are becoming bespoke in a quest to differentiate themselves from the others. So they are taking an already innovative product and trying to make it unique for one customer or use, or trying to create something so innovative that neither the customer nor the industry is ready for it. This creates a problem of scale and innovation, sometimes using up disproportionate company resources with minimal results.

6. Payment Model Disruption –
Consumers are unwilling to wait to get their payments cleared by the old batch oriented way of settlements. New technological innovations are implementing 24/7 instant payments. The business of payments and the way we conduct them will change.

7. Compliance Issues with Current System –
The traditional model has a compliance system in place that is trusted and tested which does not fit Fin-tech companies with their innovations and disruptions. Now digital accounts and mobile wallets are being opened with ID card and phone numbers negating the need of traditional channels and making them obsolete. Also due to the unique business models and state level licensing and regulators, a vast number of regulatory authorities have jurisdiction over them. So, devising unambiguous guidelines are important to take care of both the consumers and the companies.

8. Security and Privacy–
As we hurtle towards a digital world, and all our data becomes digitised, it becomes imperative that we have a sure fire way of protecting ourselves. The industry handles sensitive information about individuals and enterprises. So starting right from the coding practises being used, we must have a robust and agile system in place to counter all the threats. The system which adopts the latest security protocols and a thorough check of the conventional security architecture is necessary to protect all the stakeholders.

Fin-tech industry will be the catalyst to the establishment of a digital finance sector. FIIs, Vcs are pouring capital in the market and the Indian government is open to all positive innovations. Also, customers are creating demand; be it the SMEs who were not eligible for loans and tech-savvy consumers keen to access financial services at their chosen time and pace. The road might be bumpy, but the ride will be exiting. So buckle-up.

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