Indian banking has often been considered a benign entity. It has resisted changes and disruptions for the most part of its existence. However, in the last two decades or so, it has managed to induce some changes which have improved the banking experience for its customers. These changes were not forced, neither were they emanated from stiff competition, for banks in India have historically remained unchallenged. This is what makes the current period extremely interesting. The rise of the potent fin-tech industry and the introduction of Unified Payments Interface (UPI) based applications have disrupted the Indian financial landscape. It marks an important epoch in the history of Indian banking and finance as the fin-tech industry is bringing about positive changes to the market. Some of the recent developments in the market have given an intriguing twist.

WhatsApp’s Entry into the Market

The last twelve to eighteen months have witnessed some of the most prominent enterprises in the country throwing their hats into the fin-tech ring. Cross-platform messaging and Voice over IP (VoIP) giant, WhatsApp, is the latest one to jump the bandwagon. The integration of UPI on WhatsApp has the potential to create havoc in the Indian banking, finance, and fin-tech industry. WhatsApp already has over 200 million users in India, which makes their entry significant. With such a strong user base it will aim to drive massive volumes on peer-to-peer payments, while simultaneously increasing its popularity among the merchant payers. Its sheer volume of users coupled with the easy usability of UPI and the lack of innovative services in the banking sector, hands WhatsApp a massive advantage at the very starting point.

Other Players in the Market

The presence of other big and experienced players in the Indian fin-tech sector will ensure that WhatsApp will not find it easy to disrupt this highly competitive market. Google Tez has already created a place for itself in India and will look to increase its user base with its latest features. Samsung Pay is another company which has the potential to grab the market by leveraging its strong presence in the mobile phone segment. It is also expected that the global giant, Apple, will also soon make an entry. In addition to these, there are also some Indian digital payment firms who are continually growing and attracting funds from big enterprises. Firms like PayTM, PhonePe, FreeCharge, and MobiKwik are consistently investing heavily in scaling up their technological platforms, expanding their merchant network and, in the process are increasing their client base.

Additional Features and Possible Entry to Banking

The consensus is that digital payment is just an entry point for many top companies to become a part of the existing fin-tech revolution in India. It is a major pathway to other services like wealth management, lending, insurance, and banking. It also has the scope to make a difference in the share market. The traditional model of banking which is still largely being employed by banks could play it into the hands of such players. There is a need for radical changes to be made. This would not be easy for many of the banks as they are still grappling to cope with financial issues like NPAs. Digital payments can give most Indians a credit history that they lack which could be then leveraged by these companies. Moreover, Behavioural risk management and out of the box data-driven models can help overcome issues related to credit scores of the general people. In addition to these, many of the established companies can also grow by tying up with e-commerce enterprises. The scope for growth is massive, hence traditional banks need to up the ante if they intend to fight off the challengers.

Factors in Favour

There are many reasons why some of the biggest companies in the world are aiming to enter this market. The potential in this sector is massive, and at the same time, there are also many factors which are stacked in favor of fin-tech companies. A huge underserved and unbanked population, high-level of smartphone penetration, an age-old banking system, increasing access to internet all over the country, a flourishing e-commerce market and most importantly a large pool of technologically and financially educated talent, all make for a favorable fin-tech environment. Some of the governmental initiatives like Demonetization of high currency notes, Jan Dhan Yojana and the inception and execution of UIDAI can also encourage the companies in this sector.

Challenges for Fin-tech

The biggest obstacle for the fin-tech industry is the absence of any bona fide regulation. The Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI), are yet to introduce an exclusive and comprehensive guideline specific to the industry. The fin-tech sector is still regulated and controlled under the Banking Regulations Act. This has become a major hurdle in the development of many of the innovative fin-tech players. There is a scenario where both banks and fin-tech companies can sustain if they partner with each other. However, many believe that under such circumstances the complications could become insurmountable.

If proper regulations are laid out which are fin-tech specific, then India has the potential to be a global hub for fin-tech innovation. India is still at a nascent stage in this sector, but with proper infrastructure and a favorable ecosystem it could bring about a big change in the financial system.