Fintech, a combination of the words “financial” and “technology,” is a relatively new term that applies to any emerging technology that helps consumers or financial institutions deliver financial services in newer, faster ways than was traditionally available.
Everything from a consumer’s ability to go online and see their financial transactions to apps that allow you to pay friends to tools that allow financial institutions to make quick lending decisions are all part of the evolution of financial services. The ability for investors to do their own research, choose stocks and see their portfolio performance in real time is also an example of fintech in action.
A decade ago RBI introduced NEFT and RTGS, followed by NPCI introducing IMPS, and this was a start of digital or online banking and a paradigm shift in the way services were offered to the end consumer. The next stage of evolution was from an internet banking to API-led Banking.
The underlying need to move to API-led Banking is to improve customer experience and improve liquidity decision making of the customer. API banking holds out the promise to foster innovation and lower costs in a way it is more economical to serve the undeserved and unbanked and offer products and services better suited to their needs.
Today, banks are convinced that in order to grow and extend the banking solutions beyond their own banking channels and technology and in order to achieve true financial inclusion they need strong partnership with fintech’s thru APIs.
Today, fintech’s are using API to retrieve account balances in real time, processing transactions at high speed round the clock, provide enhanced information for reconciliation in real time, process vendor and dealer finance transactions real time thereby facilitating faster churn in the ecosystem.
Understanding API banking
API (Application Programming Interface) traditionally pertains to the tech interface between software programs. This interfacing ability facilitates a third-party application / fintech’s like PaySprint, to synchronise and connect to a bank’s tools and services.
API banking refers to a set of protocols that makes a bank’s services available to other third-party companies / Fintech’s via APIs. This helps both banks and Fintech’s to augment their complementary specialties and offerings more than they can provide to their customers by themselves.
Over the last few years, APIs have become particularly significant to banks and fintech companies. APIs provide better means to share data, integrate with systems, and personalise services, making financial services quick and efficient.
The same applies to banking. Banks grant secured access to their financial services to fintech platforms, helping companies build products around banking services. Essentially, the core of the banking operation remains the same, but the experience is heightened.
Benefits of API banking
· With API banking, fintech innovators have more flexibility to provide the best features and services to streamline financial services, thereby creating a surge of competition and innovate fintech’s products, where the core product and service belongs to bank.
· With real-time banking capabilities getting enhanced by Fintech’s, it has led to higher visibility of cash flow making banking services more effective.
· Fintech’s have reduced many administrative hurdles with regard to managing customers own finances like applying for a business loan, checking your creditworthiness, and many more, this making banking more accessible.
· Fintech’s having created a single view of the customers all finances while being able to control, track, and analyse all financial movements, all in one place have made banking more easy.
· Fintech’s have used API banking to lead innovation & thereby lowering the costs in a way that it is now more economical to serve the undeserved and unbanked and offer products and services better suited to their needs, thereby making banking services more economical & better reach.
· Today fintech’s are using API Banking to retrieve account balances in real time, processing transactions at high speed round the clock making banking accessible 24*7.
· Fintech’s are using API Banking to provide enhanced information for reconciliation in real time, process vendor and dealer finance transactions real time thereby facilitating banks to have faster churn in the ecosystem.
Most important fallout of API Banking is the data analytics which lies at the heart of the Banking – Fintech API revolution. Banks can now collect substantial quantities of data relating to customer behaviour, which should, in turn, enable them to create more tailored product & services and also specific marketing initiatives. For instance, banks can gain a more realistic picture of customers’ financial situations, which in turn can help Fintech’s to create and offer the right lending product. Similarly could be payments, collections, ecommerce, gaming and many more use cases
So thereby, API Banking is truly creating a strong Relation between Banks and Fintech’s and we can say that this is setting a stage for the Next Big Revolution in Banking and truly drive India to a $10 trillion economy .
Fintech impact on rural economy
With 60 percent of Indians still in rural India, it has a significant impact on the economic progress of the country, and with the emerging changes of ICT penetration, and the impact of demonetisation and COVID, alongside the digital initiatives carried out for rural segments, the need for improving the trends of digital payments model in rural India is very important. Considering the benefits like transparency in transactions, scope for curtailing parallel economy and improving the ease of business, it is very essential that the transformation towards digital payments, even in the rural economy is empowered. Some of the revolutionary developments in the recent past like launch of many digital wallets like – Paytm, etc. UPI (united payment interface) apps like Google Pay, Phone Pay, and AePS, M-POS, Micro ATM, Aadhar Pay have led to smooth transition of digital payments.
1. Though the government of India has been focusing on the digital transactions initiatives since last few years, the actual impact of digital payments has taken place in India in significant manner post-COVID period.
2. Post-COVID UPI transactions has grown to 3500 million transactions per month from 1300 million transactions pre Covid.
3. Post-COVID AePS transactions has grown to 400 million transactions per month from 200 million transactions pre Covid
4. In both, the above growth drivers in digital transaction has been from rural India.
5. For successful implementation of digital transactions and digital banking system, certain key processes that are very essential are internet / smart phones /mobile banking, more of ecommerce presence in rural segments, digital transaction solutions like the PoS solutions , Biometric Solutions, usage in merchandise, usage of plastic currency etc.
The growth of fintech is due in large part to the opportunity it affords small players to compete on the same field as traditional banks and financial institutions. Thanks to fintech, it’s no longer about who is biggest, but who is fastest and most responsive at effectively addressing the ever-changing consumer demands. Additionally, the solutions offered by fintech companies are no longer “one size fits all.” Instead, they offer targeted – often niche – services that fill the gap of a particular financial need, sometimes at much lower costs than those offered by traditional financial providers.
As consumers become even savvier and more connected, the fintech companies that succeed will be the ones that continue to successfully innovate in bringing new solutions to old problems.
(S Anand, CEO, and Co-Founder of PaySprint, a fintech venture)