FINTECH

Descriptive Answer Writing

Practice Questions
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Q.1) India’s FinTech Sector has rapidly grown and has a better future ahead. Throw some light on
the Indian Fintech sector. [15]

Ans.
FinTech is technologically enabled financial innovation that could result in new business models,
applications, processes, or products with an associated material effect on financial markets and
institutions. FinTech denotes technological innovation having a bearing on financial services.

India’s FinTech sector is growing rapidly, fuelled by a large market base, an innovation-driven startup
landscape and friendly government policies and regulations. Several startups have populated this
emerging and dynamic sector, while both traditional banking institutions and non-banking financial
companies (NBFCs) are catching up.

India’s FinTech Sector:

• In India, FinTech has the potential to provide workable solutions to the problems faced by
the traditional financial institutions such as low penetration, scarce credit history and cash
driven transaction economy.
• FinTech service firms are currently redefining the way companies and consumers conduct
transactions on a daily basis.
• The Indian Fintech industry has grown over the years. The broad FinTech products/ services
offered in Indian financial markets includes Peer-to-Peer (P2P) Lending Services, e-wallets,
payment gateways, ATMs, Personal Finance or Retail Investment Services, crowdfunding
platforms, developments in Block chain Technology and much more. All these have made the
payment and settlement more resilient and easily accessible for masses.
• India also saw various developments in the payments landscape. The modes of payments in
India have overtaken from cash to alternate modes of payments registering phenomenal
growth including the Immediate Payment System (IMPS), Unified Payments Interface (UPI),
Aadhar Enabled Payment System (AEPS) [safe and convenient channel enabling
micropayments with every transaction validated by biometric authentication], etc. The
emergence of bank (State Bank Buddy, Citi MasterPass, ICICI Pockets) and non-bank
(PayTM, Mobikwik, etc.) payment wallets in India has changed the landscape of payments.
• There have been innovations in digital banking and investment services in India as well. The
innovations are in the areas of retail financial services, Mobile Banking Services, rendering
basic Financial Services though Digital Banking etc.
• Customers are taken into a new world of multi-channel banking, where they can access
services from home, at the office, or on-the-go through Mobile Banking, SMS Banking, Phone
Banking, ATMs and Net Banking.
• The RBI as regulator and supervisor of payment systems has been playing the role of a
catalyst / facilitator for innovations in payment systems. RBI has taken various initiatives in
the technology-enabled banking space as listed below:
o Issued in-principle approvals for Payments Banks
o Allowed entry of non-banks in the payments space both as payment system
operators and technology service providers
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o Introduced Bharat Bill Payments System (BBPS)

o Issued Directions on Account Aggregators
o Authorised payment solutions provided like IMPS, Unified Payment Interface (UPI),
etc.
• RBI has also been constructing a composite Digital Payments Index (DPI) to capture the
extent of digitisation of payments across the country. Apart from that, RBI has also created
a Payments Infrastructure Development Fund (PIDF) to encourage acquirers to deploy
Points of Sale (PoS) infrastructure — both physical and digital modes — in tier-1 to tier-6
centres and north eastern states.
• The Government of India and RBI has also been actively promoting financial inclusion with
schemes like Jan Dhan Yojana, Aadhaar enrolment and licensing of Payment Banks /Small
Finance Banks etc.
• SEBI on its part has also made its best efforts to evolve with the changing technological
landscape. Screen Based Trading, nationwide trading systems and dematerialisation of
shares are amongst the biggest gifts of the technology revolution which has brought
significant reforms in the Indian capital market.

There is still a lot of scope for growth of FinTech and digital banking in India. India has a large untapped
market for financial service technology startups as a large percent of the population is still not
efficiently connected to banks and uses cash modes for payments. Moreover, a major portion of small
businesses are still not linked to formal financial institutions. These gaps in access to institutions and
services offer important scope to develop FinTech solutions and expand the market base in our
country.

Q.2) Explain the benefits and threats emanating from financial technology firms (10)

Ans.
FinTech is a term used to describe financial technology firms. There are companies that provide
financial services through software or other technology mediums and includes anything from
mobile payment apps to cryptocurrency. Broadly, fintech describes any company using the internet,
mobile devices, software technology to perform or connect with financial services. Prominent
Indian examples of Fintechs include: BharatPe, Paytm, [Link], Razorpay etc.

FinTech offers various advantages but raise multiple threats for the financial system:

Benefits:

• Fintech has the potential to transform the financial landscape where consumers will be
able to choose from broader set of alternatives at competitive prices, and financial
institutions could improve efficiency through lower costs.

• Financial inclusion- Financial technology firms enable various companies and individuals to
raise cheaper finance from the formal lending system.
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• Efficiency - FinTech firms, due to Internet based systems, enable speedy and efficient rule
out and monitoring of various services.

• Personalized services - Fintech firms and instruments have enabled customize services to
its customers. Services like mobile banking, PPIs, Internet banking, ATMs, debit and credit
cards, easy EMI, are now available to every individual on his mobile phone due to
emergence of highly efficient fintech services.

Despite all these benefits FinTech services and companies are not devoid of threats. Following are
some of the major threats faced by FinTech:

• Cyber Frauds- In a not so financially literate country like India, rapid innovation and usage of
FinTech products have led to a widespread cyber fraud. People sometimes lose all their
savings due to insecure financial technology services.

• Parallel crypto currency - Fintech has resulted in the emergence of an unregulated, parallel
currency called as crypto currency, which is also used for various illegal services like terrorist
financing, money laundering, etc. It is a threat to the stability of the entire financial and
economic system of the country.

• Exploitation of customers - Emergence of peer-to-peer lending platforms has resulted in

various cases of gross exploitation of customers and charging of high interest rates for
lending. With the emergence of such exploitative platforms, we are not going forward in the
direction of financial inclusion but going backward in the direction of an exploitative money
lending system.

Even with all these threats, financial technology remains the sole force to make financial inclusion
a reality in the near future. With the right usage, regulation and monitoring of financial technology
services, the country can attain financial inclusion in a very short span of time.
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