The fintech business has grown significantly in recent years, revolutionizing traditional banking and finance. However, as fintech firms continue to disrupt the market, they face an important challenge: regulatory compliance. To meet this challenge, a new industry has formed called Regtech. Regtech, or regulatory technology, is a term that refers to the use of new technologies to expedite and automate compliance processes, allowing fintech companies to effectively navigate complicated regulatory landscapes. Fintech companies operate in a highly regulated environment, subject to different laws and regulations set by governmental entities such as financial authorities and regulatory agencies. These policies are intended to safeguard customers, prevent financial crimes, preserve data privacy, and promote market stability. Compliance with these standards is not only required but also vital in establishing trust and confidence with consumers and investors. Traditional compliance approaches can be time-consuming, resource-intensive, and error-prone. With their agile and technology-driven approach, fintech start-ups recognized the need for more efficient and automated compliance solutions. They realized that traditional approaches could not handle the massive amounts of data generated in the digital age. The Emergence of Regtech Regtech emerged as a solution to these traditional compliance approaches, employing emerging technologies such as artificial intelligence (AI), machine learning (ML), natural language processing (NLP), and big data analytics. Regtech solutions provide fintech organizations with tools and platforms to automate compliance processes, improve risk management, and ensure compliance with regulatory standards. Benefits of Regtech for Fintech Companies Efficiency and Automation: Regtech solutions automate labour-intensive compliance procedures, minimizing human errors and enhancing operational efficiency. This automation enables businesses to devote resources to more strategic operations. Real-time Monitoring and Reporting: Regtech platforms provide real-time monitoring and reporting of compliance activities, facilitating proactive detection and resolution of compliance concerns. This assists fintech organizations in staying on top of their regulatory duties and demonstrating their commitment to compliance. Improved Risk Management: Regtech solutions use advanced analytics to spot possible hazards and irregularities in data, transactions, and customer behaviour. Fintech organizations can improve their fraud detection and prevention capabilities by integrating risk management tools. Cost Reduction: Traditional compliance procedures can be costly, particularly for small and medium-sized fintech organizations. Regtech solutions offer cost-effective alternatives by eliminating the need for manual operations and lowering regulatory penalties associated with noncompliance. Regulatory Collaboration and Standardization: Regtech benefits both fintech start-ups and regulatory agencies. It enables authorities to more efficiently and effectively monitor compliance, resulting in a more transparent and stable financial ecosystem. Furthermore, the industrywide use of standardized regtech solutions promotes consistency and streamlines compliance requirements for financial start-ups. As fintech continues to disrupt the financial industry, compliance with regulatory standards remains a vital aspect of success. Regtech has emerged as a critical enabler, allowing fintech companies to manage the complicated regulatory landscape swiftly and effectively. Regtech solutions expedite compliance processes, improve risk management, and save costs by integrating cutting-edge technology. As the fintech industry evolves, the collaboration between Regtech and regulators will be critical to maintaining trust, integrity, and innovation in the financial ecosystem.
Month: June 2023
Financial Inclusion; the need and future
Financial inclusion refers to the process of ensuring access to affordable financial services, such as banking, insurance and credit, to all sections of society, particularly the underprivileged and low-income groups. Data Points to understand Financial Inclusion The need for Financial Inclusion Addressing poverty – Financial inclusion can help to alleviate poverty by providing access to formal financial services and promoting savings and investment habits among low-income households. Currently, India faces poverty in 75% of rural and 50% of urban households, totaling an official poverty percentage of 62.5%. Addressing the basic financial needs of the said population is the need of the hour to ensure we boost financial inclusion. Promoting economic growth – Financial inclusion can contribute to economic growth by enabling the flow of credit to small and medium-sized businesses, which are often the backbone of the Indian economy. With MSMEs contributing over 30% of the GDP, it is a pressing priority to assist them financially. Reducing income inequality – Financial inclusion can reduce income inequality by providing financial services to underserved sections of society, including rural areas and women. As per data, the pandemic has led to a further contraction of income and wealth in the bottom 50% of India. The top 30% own 90% of India’s wealth and interestingly, the top 10% own over 72% of India’s total wealth and the top 5% of the population owns nearly 62% of the wealth. Understanding the statistics makes us realize the staggering disparity in income. As per the Reserve Bank of India, only 27% of Indian adults are financially literate. This makes it easier for intermediaries and informal financial systems to defraud the illiterates. However, with educational programs, this issue can be addressed and eliminated. Promoting financial stability – Financial inclusion can help to promote financial stability by reducing the reliance on informal and unregulated financial systems that are often associated with fraud and other illegal activities. Empowering individuals – Financial inclusion can empower individuals by enabling them to make informed financial decisions, access credit, and invest in their future. The future of Financial Inclusion The future of financial inclusion in India looks promising, with significant progress made in recent years. Putting digital transformation at the forefront by the government and financial institutions has accelerated and is further expected to accelerate inclusivity in the coming years. With MSMEs and underserved individuals steadily adopting internet banking, mobile banking, etc., a digital shift can be expected. With Fintechs and NBFCs joining strengths, the collaboration has been beneficial for the financial domain. Better innovation with robust financial products and services that cater to the specific needs of the underserved has been introduced and executed in the market. This customization and personalization only seem to get better with time and adaption. However, it is important to note that financial literacy plays a very critical role in everything we have spoken of thus far. Without basic awareness and literacy to make informed decisions, every other initiative may prove futile. The government, along with several initiatives, has joined forces with financial institutions to convey awareness and literacy to the last mile. In conclusion, the future of financial inclusion in India looks promising, with the potential to improve the lives of 900 million people by providing access to formal financial services, promoting savings and investment, and reducing poverty and inequality.
Are MSMEs receptive to digitalization?
Digitalization has technically taken every domain by storm however, the area of interest for us is the MSME (micro, small, and medium enterprises) market. MSMEs have varied levels of receptivity to digitalization, but there has been a growing trend toward digital adoption in recent years. Many MSMEs have recognized the benefits of digitalization, such as increased efficiency, improved productivity, cost savings and expanded market reach. The level of receptivity to digitalization can depend on factors such as the size of the business, industry and location. Smaller MSMEs may have limited resources to invest in digital technologies or may lack the necessary skills and knowledge to implement them effectively. In addition, some traditional businesses may be resistant to change or may not see the value in adopting new technologies. Nevertheless, there has been a significant increase in digitalization among MSMEs due to the COVID-19 pandemic, which has accelerated the adoption of digital technologies as a means to stay afloat and remain competitive. Governments and industry bodies have also been actively promoting digitalization through various initiatives and incentives, further encouraging MSMEs to embrace digital technologies. Government initiatives Digital MSME Scheme – The government launched the Digital MSME Scheme in 2018 to encourage the adoption of digital technologies among MSMEs. Under this scheme, MSMEs can get access to cloud computing, e-commerce and other digital tools at a subsidized rate. For instance, small businesses under the digital scheme get financial assistance ranging between 15 Lakhs to 1 Crore. Udyog Aadhaar Memorandum (UAM) – The UAM is a one-page registration form that MSMEs can use to register online. This has made it easier for MSMEs to get registered and take advantage of various government schemes and incentives. As of January 17, 2022, 66,34,006 enterprises are registered on the Udyam portal out of which 62,79,858 are Micro (94.6%), 3,19,793 are small and 34,355 are medium enterprises. Technology and Quality Upgradation Support – The government provides financial assistance to MSMEs to upgrade their technology and improve the quality of their products. This support covers areas such as product design, testing and certification. For instance, financial support is given to MSMEs who fall under ZED Certification Scheme (supporting the ‘Make in India’ initiative). Under this scheme, the Government provides upto 80% subsidy to MSMEs. Digital India Program – The Digital India Program is an initiative launched by the government to transform India into a digitally empowered society and knowledge economy. The program has several components that specifically target MSMEs, such as the Common Service Centres (CSCs) that provide digital services to citizens, including MSMEs. Startup India – The Startup India program aims to promote entrepreneurship and innovation in India. The program provides various incentives and support to startups, including MSMEs, to help them grow and scale their businesses using digital technologies. Under this scheme, eligible startups can be exempted from paying income tax for 3 consecutive financial years out of their first 10 years since incorporation. With several schemes, initiatives and incentives put in place, it is safe to say that the MSMEs have been reciprocating well to be brought under the ‘digitized’ realm. With each step taken by the government, financial institutions and businesses, the vision of making India digital-first seem achievable. For businesses, it is about leveraging the schemes and initiatives to remain competitive in the market however, the intention is also serving them with growth through technology!
Indian banks migrating to digital channels; more on the evolution
The evolution of Indian banks migrating to digital channels can be traced back to the early 2000s when the Reserve Bank of India (RBI) started promoting the use of electronic payment systems. The introduction of the National Electronic Fund Transfer (NEFT) in 2005 and the Immediate Payment Service (IMPS) in 2010 were significant steps toward the digitization of payments. However, the real push towards digital banking in India came with the demonetization drive in November 2016. The sudden withdrawal of high-value currency notes led to a surge in digital payments, forcing banks to ramp up their digital infrastructure and services. Since then, there has been a significant increase in the adoption of digital channels by Indian banks. Today, most banks in India offer a range of digital services, including mobile banking, internet banking and digital wallets. Customers can access their accounts, transfer funds, pay bills and even apply for loans online or through mobile apps. Banks also invest heavily in artificial intelligence, chatbots and other digital technologies to enhance customer experience and streamline operations. The COVID-19 pandemic further accelerated the adoption of digital banking in India as customers increasingly relied on online channels to conduct their banking transactions. Banks responded by launching new digital products and services, such as video KYC (Know Your Customer) and virtual credit cards. Examples of Banks that have revamped their offerings approach Indian banks are increasingly adopting digital channels to provide a more convenient and efficient banking experience to their customers. Whether it was Internet banking to reduce touchpoints or mobile banking to bring services to your fingertips, the transformation has been massive. Building on the evolution, Indian banks also proactively introduced altering service designs and encouraged the use of contactless payments through technologies like the NFC, QR codes, mobile wallets, etc. Today, urban India experiences the provision to make payments to street vendors too through digital methods. It is a vision to convert India into a digital-first country from a cash-heavy economy and joining force with the banks to achieve the said vision is Fintechs. Collaborating with Fintechs has accelerated the entire process whether in terms of internal operations of the bank or external aspects. The evolution of Indian banks migrating to digital channels has been rapid and transformative and the trend is expected to continue as more customers shift towards digital banking.
The Significance of Regional Rural Banks in India
The Regional Rural Banks (RRBs) were established in India in 1975 with the objective of developing its rural economy through inclusive banking services. RRBs are jointly owned by the Government of India (GoI), the respective state government and a sponsor bank with the intention to elevate and empower the population under their governance. When the foundation of RRBs was laid by the Narsimham committee, 5 RRBs were set up with a total authorized capital of Rs 1 crore which was later increased to Rs 5 crore. The 5 commercial banks picked to sponsor RRBs were Punjab National Bank, State Bank of India, Syndicate Bank, United Bank of India and United Commercial Bank. The equities of rural banks were divided in a proportion of 50:35:15 among the Central Government, the Sponsor Bank and the concerned State Government, respectively. With a clear intention to upraise rural areas, RRBs were put in place to ensure the following responsibilities were undertaken and achieved – Taking the banking services to the doorstep of rural masses, particularly in unbanked and underserved rural areas. Identify the financial need, especially in rural areas. Making available institutional credit to the weaker section of society who had by far little or no access to cheaper loans and had been depending on informal credit sources. To enhance banking and financing facilities in backward, unbanked or underserved areas. Mobilize rural savings and channel them for supporting productive activities in rural areas. To provide finance to the weaker sections of society like small farmers, rural artisans, small producers, rural labourers, etc. To create a supplementary channel for the flow of the central money market to the rural areas through refinances. To provide finance to co-operative societies, Primary Credit societies and Agricultural marketing societies. Generating employment opportunities in rural areas and bringing down the cost of providing credit to rural areas. Enhance and improve banking facilities in semi-urban, rural and other untapped markets. If driven correctly, the elevation will also result in attaining financial inclusion since it has the capability to tap the rural population till the last mile. Apart from this, it ensures a financial safety net for the customers willing to avail of services from RRBs while increasing the supply of money and mobilizing savings in the rural market. The safety net encourages public confidence in the financial system and thus helps to increase its network so as to reach every segment and level of society. Understanding the significance of RRBs RRBs have played a pivotal role in driving financial inclusion in rural areas where the population was largely underserved. Bringing banking services to their doorstep was indeed a revolutionary step that set the rails for other financial institutions to join forces. This has further also led to the creation of employment opportunities in rural areas. With more financial service providers tapping the said market, rural individuals are able to launch and grow small-scale businesses that are leading to employment opportunities at large. Furthermore, it is a known fact that infrastructure is a challenge in rural areas and hence, many financial institutions, banks, NBFCs, etc. refrain from catering to rural needs. The acquisition cost coupled with the infrastructure cost and slow growth has forever been a hindrance. However, RRBs are bridging the gap by simply existing in rural areas and giving other banks and NBFCs a push in terms of infrastructural assistance. This has further helped in the development of industries, agriculture, small-scale businesses, etc. The entire existence of RRBs has helped in bringing financial stability to rural areas by channelizing their savings into productive investments and by also providing credit facilities to small-scale entrepreneurs. In spite of all the pros we’ve understood until now, RRBs have their own set of challenges, here’s what – Over the years, the GoI has played a significant role in involving other institutions and individuals to build on this goal. Whether it was establishing NABARD to support sustainable growth or currently formulating a roadmap to introduce 22 more RRBs, the GoI is working tirelessly to uplift the segment in conjunction with RRBs. As per data, the government has contributed Rs 4,084 crores towards RRB recapitalization in 2021-22, of which Rs 3,197 crores has been released to 21 lenders with a focus on financial inclusion by leveraging technology. Collaborating with technology has been a ‘super move’ that will take the growth trajectory at twice the speed. However, for now, RRBs have been instrumental in bringing banking services to rural areas, promoting agricultural development, creating employment opportunities, developing rural infrastructure, and providing financial stability to the rural financial system. They continue to play a significant role in the development of the rural economy in India.
Hyperautomation through AI and ML
Hyperautomation in the financial domain refers to the integration of artificial intelligence (AI), machine learning (ML) and robotic process automation (RPA) to automate complex business processes, reduce manual interventions and improve operational efficiency. It has become critical to everyday operational activities. AI and ML are critical components of hyperautomation because they enable automation tools to learn from data and improve over time. With AI and ML, hyperautomation can process large volumes of data, identify patterns, and make predictions based on that data. This allows organizations to automate a wide range of tasks and processes, including decision-making, data analysis, and customer service. One of the key benefits of hyperautomation is that it can help organizations improve their efficiency and reduce costs. By automating repetitive and time-consuming tasks, hyperautomation frees up employees to focus on more strategic work. Additionally, hyperautomation can help organizations make better decisions by providing real-time data and insights. Components of Hyperautomation Let’s have a look at some of the altering hyperautomation processes that the financial domain has adopted – Account Opening and KYC (Know Your Customer) Hyperautomation has automated the entire account opening process including identity verification, credit checks, document processing, etc. The cherry on the cake is its ability to identify fraudulent applications and reduce the risk of financial crime. Hyperautomation has furthered this progress and today we also experience the ease of e-KYC where the entire journey along with the facial verification takes place online. Loan Processing The lending process was always considered a cumbersome process regardless of the amount of money one wanted to borrow. However, with hyperautomation, the process has not only become simpler but the disbursals have become quicker too. The redesigning of the loan processing cycle, loan application verification, eligibility checks, credit scoring, documentation, etc. has allowed banks and NBFCs to reduce their disbursal duration drastically since it eliminated several manual processes. This has additionally helped financial institutions better customer experience too. Risk Management Lenders have always been in the high-risk zone inspite of designing risk-averse strategies for themselves. With the introduction of hyperautomation, the scenario has changed for lenders. Artificial Intelligence (AI) and Machine Learning (ML) now analyze vast amounts of data to identify potential risks and provide insights to decision-makers. Moreover, it has also enabled real-time monitoring of risks allowing businesses to quickly respond to threats, fraudulent activities, changing market conditions and regulatory requirements. Customer Service Customer Experience (CX) has become an integral part of customer service. Experience is directly proportional to retaining a customer. With chatbots and voice assistants handling customer queries and grievances 24×7, services have become more personalized inspite of the reduction of personal touch. The Gen-Z prefers customization and personalization over personal touch and therefore, hyperautomation has been on the boom. To form an opinion, hyperautomation in the financial domain has the potential to transform the industry by reducing operational costs, improving accuracy, and enhancing customer experiences. It can also enable financial institutions to stay competitive by adopting the latest technologies and staying ahead of regulatory changes.
Multiexperience in Digital Transformation
Multiexperience is the practice of creating digital experiences across multiple touchpoints, such as mobile devices, wearables, smart speakers and other connected devices whereas digital transformation is the process of using digital technologies to fundamentally change the way businesses operate and deliver value to their customers. In the context of digital transformation, multiexperience plays a crucial role in enabling organizations to provide seamless, intuitive, and engaging digital experiences to their customers across different channels and devices. By leveraging a multiexperience approach, businesses can create a consistent user experience across various touchpoints, which can lead to increased engagement, customer satisfaction, and loyalty. Customers today are attracted to any service that gives them a sense of seamlessness and enhanced experience. Multiexperience platforms ensure customers are provided with what they need and get used to such services for the future. Its enhanced workflows and ability to mitigate repetitive tasks allow internal operational smoothness that also reflects on the front end for the customers to enjoy. Furthermore, multiexperience also means new technologies and approaches are tested for better CX. For instance, experimenting with AI, AR/VR and voice interfaces to create engaging and personalized digital experiences. This gives businesses a competitive edge over others as embracing digital transformation is the need of the hour. It will surely help businesses stay ahead of the curve in terms of customer expectations and market trends. Another very interesting aspect of multiexperience is the amount of data it is capable of collecting. This characteristic gives great insight into customer behaviour, preference, need and trend, enabling businesses to make data-driven decisions. In the long run, this gives businesses a complete understanding of what a customer needs and wants. For a better understanding, let’s peep into how the finance industry leverages multiexperience modes. Alongside physical stores, banks invest heavily in web portals and mobile applications. The user is offered multiple methods to handle their account and from any location. Financial institutions also indulge in digital marketing activities on these platforms to give users insights or inform them of new services, products and features. Given that multiexperience can help businesses improve development by 10 times, it has become more of a strategy to build a business nowadays and any business that does not conform to this change, lags in its growth. Multiexperience Summary In conclusion, multiexperience is a critical component of digital transformation, enabling businesses to provide more engaging and personalized digital experiences across multiple touchpoints and devices, while improving operational efficiency and fostering innovation.
AI Trends that will Revamp the Fintech Arena
The financial industry has transformed noticeably over the years. It revamped its traditional methods of service to be more customer-centric in its approach. To a large extent, Artificial Intelligence (AI) has been a critical enabler in this transformation. Today, the financial industry is majorly based on building itself as a customer-centric domain and providing never-like-before customer experiences. For instance, Chatbots and virtual assistants have not only made services available 24×7 but have also improved customer service and satisfaction drastically, all while reducing costs for financial institutions. AI also has the reliable ability to analyze customer data that enables it to create personalized financial plans along with recommendations of customized products and services that are fast, accurate, efficient and secure. Interestingly, AI still has areas to be explored and is capable of much more than it is currently offering in the financial domain. AI brings in an amalgamation of better experience, lower costs and better growth. Revolutionizing AI trends There are several AI trends that have the potential to revolutionize the Fintech industry. Some of the most significant ones include – Personalized banking experiences: With AI, fintech companies can use customer data to create personalized experiences for users. This can include personalized product recommendations, customized investment portfolios, and tailored financial advice. For example, investment companies understand customer’s income and expenditure behaviour along with the duration of peak to low expense span. Based on this analysis along with others like your investment preference, type and need, they create an entire portfolio for you to benefit from. Fraud detection: AI-powered fraud detection systems can analyze customer behaviour and transactions in real-time to detect any suspicious activity. This can help prevent fraudulent activities such as identity theft, money laundering, and credit card fraud. Due to the potential AI holds in the field of fraud detection, Banks worldwide are expected to spend an additional $31 billion on artificial intelligence (AI) embedded in existing systems by 2025 to reduce fraud. Risk management: AI can help fintech companies analyze large amounts of data to identify potential risks and opportunities. This can help them make more informed decisions and manage risks more effectively. As a lender, financial institutions face huge risks in ascertaining their borrowers. AI reduces this risk significantly by creating a financial personality of the borrower by collating and analyzing various data points. Blockchain technology: AI can be used to enhance the security and efficiency of blockchain-based transactions. This can help fintech companies offer more secure and transparent financial services. Blockchain plays a very critical role in taking financial services to the last mile. It enables the integration of various points to build a secure and reliable marketplace for individuals far and new to the financial domain. AI holds great potential and it is with time we shall witness the transformation it is yet to bring!