A new era of financial inclusion has begun with the FinTech ecosystem getting considerably ingrained in the financial services. The overall objective of FinTech is to serve the financial demands of those segments of the population which were so far marginalised from the core priority segments of traditional financial services. In this way, FinTech contributes to the furtherance of financial inclusion.
The next generation FinTech startups are introducing innovative solutions powered by affordably costing technology, leading to strategic partnerships forming between traditional banks and FinTech players. With this, we are also witnessing new digital products or exclusively digital banks. The necessary efforts needed from the Government were in the form of intervention are: i. via development and operationalisation of FinTech policies. ii. launch of smart cities, portals for instant approval of loans for small and medium scale enterprises (SMEs), etc.
The FinTech wave 2.0 wave is spread in two phases: i. 2014-2018. ii. 2018-2020. The first phase (2014-2018) was meant to develop alternative, disruptive, technologically powered business models across multiple segments (having financially underserved as its target segment). The second phase (2018-2020) has as its focus the creation of a cost-efficient and sustainable FinTech ecosystem. The target objective of the second phase is reducing cost of access to financial services for the next 500 million.
The target segments of FinTech 2.0 for the urban regions are: migrants, domestic servants, micro-establishments, and small entrepreneurs; the target segments of FinTech 2.0 for the rural regions are: agricultural labourers, women, MSMEs, and small entrepreneurs. In terms of the formal credit system, the SME credit supply still stands at INR 17.9 trillion (as reported by Economic Times). While the industry stakeholders are initiating serious efforts to promote digital payments, not even 2% merchants have point of sale (PoS) based cashless payments infrastructure enabled in their system (as reported by Economic Times). Furthermore, in the context of India, there are 2 aspects that require a due consideration: (i) enhancing the accessibility of financial platforms using FinTech; (ii) examine probable risks that could be posed by FinTech implementation.
Research indicates that firms have largely channelled their efforts towards specific customer transactions (e.g., digital payments, loans subscription, insurance products, mutual funds investing, etc. The mere transactional form of approach needs to elevate to a more promising relationship mode. This is to say that FinTech 2.0 needs to consider strengthening the financial health of the entire spectrum of the service recipients; beyond just specific transactions. A key metrics in this case can be the ratio of customer lifetime value (LTV) to customer acquisition cost (CAC). Digital finance is rightly poised to result in elevated financial inclusion, growth of financial services to non-financial sectors, and in facilitating the reach of basic services to individuals—given that close to 50% of people in the developing world now own a mobile phone (World Bank, 2014). With FinTech 2.0 on anvil, we can expect a “seamless specialisation” across core elements of the value chain wherein different providers collaborate to deliver cheaper and simplified propositions to their customers.