Source: This post on the Challenges in front of a FinTech Revolution in India has been created based on the article “Stocktaking on the fintech revolution” published in “Business Standard” on 19th February 2024.
UPSC Syllabus Topic: GS Paper 3 Indian Economy – Issues relating to mobilization of resources.
News: The article discusses the meaning and advantages of a fintech revolution in India. It also highlights the challenges in front of it. On The Challenges in Front of a FinTech Revolution in India
What is meant by “the fintech revolution”?
The fintech revolution refers to the idea that things that were done in banks can now be done by new kinds of technology-driven firms.
For example, mobile companies and technology giants like Google can do payments, a business that was once done just by the banking sector.
It involves innovation, risk-taking, and experimenting with new business models and process designs that can better serve the people.
What is the importance of a fintech revolution?
(a) Shrinking of the Banking Sector: Fintech sector will lead to a shrinking of banking. Since banking is a source of systemic risk in India, a smaller banking system will improve stability.
(b) Issues with Banking Sector: Banks are weak on innovating and serving users. They are unable to engage in innovation and discovery, due to their bureaucratic character and state control of products and processes in banking.
(c) Handle the Diverse Needs of India: Fintech can take risks and innovate on products and processes to fit the lives of the people across the geographical and class diversity in India.
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What are the challenges in front of a fintech revolution in India?
1) Centrally Planned Financial System: Financial economic policy in India is organised as a central planning system. Products, processes, and government-controlled monopolies are imposed from the top.
Policymakers want “fintech companies” to be service providers to banks, but they want the main business and profit to be with banks.
2) Arbitrary Powers of Regulators: Given the present working of regulators, a firm can be harmed when individuals inside government agencies decide to do so. Persons inside these agencies have arbitrary power.
3) Rise of NBFCs: Indian non-banking financial companies (NBFCs) have better emerged into solving problems of time and risk that are faced by households and firms. New fintech players couldn’t emerge due to various constraints.
4) Other Regulations: The firms are further hampered by KYC and the Prevention of Money Laundering Act regulations.
According to the author, finance is the most important of all industries. A fintech revolution in India will require changing the present arrangement of financial economic policy.
Question for practice:
What is meant by “the fintech revolution”? Why is it required in the Indian context? Why hasn’t it reached its full potential?
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