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Startups Combat Fintech Challenges: Here's How Fintech business model is facilitating a unique and seamless compliance management system that allows the business owners to go through the massive data and make better decisions in their business process

By Kapil Rana

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Fintech companies have a broad landscape of business in India, especially around financial products and services. It goes without saying that the countries' vast population, increasing number of Internet users, and the government's efforts to make the country faceless, paperless and cashless are bringing many new opportunities for fintech and startups. Financial institutions, startups, venture capitalists, and regulators are embracing fintech and leveraging those opportunities to evolve and grow. For the past couple of years, India has witnessed the emergence of numerous fintech startups, incubators and investments from public and private investors that have consequently made the Indian fintech market the fastest-growing market in the world as stated by US Republican Senator Steve Daines.

In spite of two waves of the COVID-19 pandemic that wreaked havoc across most sectors, India has an 87 per cent fintech adoption rate that is much more compared with the global average rate of 64 per cent. India has seen $2.7 billion of fintech investment last year that is the second-highest next to $3.5 billion in 2019 as confirmed by professional service firm KPMG. Also, the report of Florida-headquartered ACI Worldwide revealed that 25.5 billion real-time transactions were made in India in 2020 that is the highest in the world.

There is no surprise that the increased rate adoption of fintech powered by artificial intelligence (AI), machine learning (ML), data analytics, process automation, and blockchain has revolutionized the financial world. These technologies enable fintech to run enormous amounts of data through algorithms designed to detect trends and risks, fraudulent activities, analyze data, and take or recommend smart actions.

Fintech companies using these technologies help businesses manage and control actions like accepting and controlling payments, paying bills and using other financial services as per needs. They also enable consumers, companies, and business owners to have a better understanding of investments and purchasing risks before they process. To this day, a large number of startups and established financial institutions are embracing fintech to improve their financial operations and reduce the operational cost involved. However, there are many challenges and bottlenecks in the adoption of financial technology, which are making it difficult for businesses to leverage its benefits.

Fintech startups challenges in the current business landscape

Cybersecurity is a major concern for the fintech industry. The risk of data breaches, malware, third-party security breach, cloud-based security threats, phishing and even digital identity threat is making the fintech industry vulnerable at one point or another. Such threats are entirely unwarranted by customers, therefore fintech organizations need to fortify their technologies, educate consumers and make robust policies to eliminate such risks.

Fintech companies work in collaboration with traditional financial institutions in various ways such as partnership, incubation and acquisition, etc. This collaboration poses many hurdles as both parties have their own set of rules pertaining to size, efficiency, and acceptance. Also, fintech companies are primarily designed to operate with a sophisticated working model. For this reason, it is difficult for them to maintain a smooth relationship with traditional banks and other financial institutions. At the same time, banks also fear working with fintech as they risk losing their trustworthiness.

Further, banking and other financial institutions are heavily regulated in terms of high operational and transactional costs, and constant business models. In the same way, fintech companies in India need to be heavily regulated with policies that will help them mitigate the potential risks of cybersecurity.

However, many existing financial laws and government policies are not fully favorable to fintech startups in the Indian financial markets.

The majority of Indian customers are still using physical cash instead of tech-driven alternatives such as UPI transfer. Fintech is trying to build a cashless economy and this will be a major obstacle for them to tackle, especially to push traditional Indian consumers to adopt digital payments. Reliance on physical cash, cybercrime and poor Internet services are the few hurdles among others that are making it difficult for fintech companies to do business in India.

Summing Up

Post demonetization, the number of fintech startups in India has been significantly increased. These startups are vigorously working on various sub-sectors such as mobile POS (point of sale), smart online banking solutions through neo banking, managing compliance-related issues on a single platform, loan management, etc. Thanks to the innovative fintech business model that is bringing creative innovations in the fields of finances and technology to benefit businesses and consumers from all around.

Fintech business model is facilitating a unique and seamless compliance management system that allows the business owners to go through the massive data and make better decisions in their business process. There is no doubt in saying that fintech is shaping the future of next-generation financial services, and despite the fact that there are several hurdles that fintech start-ups are facing in the current business landscape, the fintech industry has definitely a prospering future in India.

Kapil Rana

Chairman and Founder, HostBooks

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