This article has been written by Kumar Shubham, from the National Law University, Odisha.

Introduction

“There are two big opportunities in the future financial industry. One is online banking, where all the financial institutions go online; the other is internet finance, which is purely led by outsiders”

– Jack Ma

Over the past few years, the financial economy worldwide has been facing an influx of major changes. The paradigm shifts from traditional banking to digital systems, and then from fiat currency to digital currency have been some of the most impactful changes in the financial economy around the globe. Many established financial institutions have been collaborating with non-traditional Fintech firms to provide better digital services to its consumers. Recently, a new trend ‘Techfin’ has entered this domain and is often referred to as the future of banking and financial ecosystem. The word Techfin was first coined by Jack Ma. The entry of Techfin into the banking domain has sparked many debates on the future of banking and finance between Fintech and Techfin. 

Difference between Fintech and Techfin 

The primary difference between Fintech and Techfin is based on the source of fundamental organizations. Fintech basically refers to an organization, the primary objective of which is to provide a better customer experience in financial services, by using digital technologies which eliminate friction, lessen costs and upsurge revenue. Modern-day Fintech came into existence roughly ten years ago during the global financial crisis and provided a great deal of room for innovators to build their business. Mobile banking services such as PayPal, Qudian, etc. which are offered by traditional banks are typical examples of a Fintech offering. 

On the other side, Techfin refers to a technology firm that aims to offer financial solutions through existing tech solutions. Unlike Fintech, these firms don’t exclusively deal in rendering financial solutions, as it’s only a part of their broad-ranging rendering of services. Technology firms like Google, Facebook, Amazon, Apple (GAFA) from the United States and Baidu, Alibaba and Tencent (BAT) from China are some examples of Techfin firms.  

Fintech operates with a mission of optimizing the use of new technology to challenge current ‘old world’ models of financial services. Blockchain is a clear example of that. Techfin operates with a mission to enhance current financial services industry experiences or capabilities. Compared to Fintech, Techfin is not that disruptive but more gradual in nature.

Evolution of finance and technology 

Earlier when there wasn’t any technology available and the financial customers needed to wait in long queues in the banks, to get their banking related works done. Eventually, mobile banking services were introduced and a small fragment of banking users started using this service. Now, instead of standing in long queues, users were paying bills, electricity and water through mobile apps, which were major of non-banking origin.

Taking the digital developments in finance and customers’ interest in the same into consideration, the banking firms decided to come up with their own financial mobile apps for their huge customer base. The non-banking techno firms also upgraded their service offerings and came up with services like credit facility, lending, etc. This was the phase when the Finance industry and the Technology industry first entered into the competition. 

The Techfin ecosystem 

The Techfin ecosystem is based on four pillars of Customer base, strong technical infra, data management mechanisms and similar regulation sets. 

One of the biggest boosts for Techfin is its ability to attract a wide range of customers through its technology firms. This number is far more than what the financial firms manage to acquire. One of the reasons is that the technology firms have the better technical infrastructure and are able to protect and regulate the flow of millions of users in real-time. They are already armoured to do so as compared to the Fintech firms. Even the financial firms take help from the tech firms to develop their technical infrastructure. This always gives Techfin an upper hand over Fintech in the banking domain. 

Techfin companies also have better data flow management mechanisms than any Fintech companies. Consumers feel a lot more comfortable and at ease to share data on Tech firms, than on any Finance firms. While banks struggle to acquire quality data from the consumers, technological firms only need to send a form to do so and their consumers fill it with full faith. The tech firms already possess better systems and algorithms to manage such data than the financial agencies. 

Regulatory challenges faced by financial technology firms in India  

Data protection is one of the major concerns of any government in today’s digitally developing world. The Financial technology firms not only store a user’s commercial data but also his day-to-day social data. In most cases, customers are usually not aware of the storage of such in-depth data, and they also have no knowledge of their personal data being shared with any third party, by their service providers. Hence, the need for regulatory laws to keep a check on the flow of data in Fintech firms become more necessary, so as to facilitate a user’s consent-based data access. 

Data being the new oil, financial banking is one of the highest regulated areas in any country. Every Fintech start-up has to undergo a big list of formalities before they can initiate their services, and often act as barriers for these new entrants. One of the major regulatory challenges faced by the fintech companies came after Justice (Retd.) K. Puttaswamy & Ors. v. Union of India, also known as the “Aadhar judgment”. Earlier, the Fintech firms were using the Aadhar for e-KYC (Know Your Customer) authentication process, in order to authenticate and verify their consumers. It was mandatory for the customer to share his unique aadhar number with the private Fintech firm, in order to continue using services of the same. 

Through the Aadhar Judgment, the Supreme Court prohibited these private firms from using Aadhar for e-KYC purposes. The Reserve Bank of India is the apex regulator of Financial Technology firms in the country. It has mandated these firms to establish an ombudsman scheme for digital transactions, to address consumer’s grievances with respect to the products offered by the firm. 

Most banking regulations were framed with respect to the traditional banking system. Financial technology being a new emerging trend is not very much regulated. In this regard, the Steering committee in its report has suggested the formation of a regulatory authority dedicated to supporting hybrid and innovative business models i.e. fintech and techfin. In recent developments on bringing new regulatory reforms, a PIL has been filed in the Hon’ble Delhi High Court, seeking to develop a regulatory framework, in order to regulate the operations of Techfin platforms. The Court is awaiting responses from various stakeholders in this issue, i.e. the RBI, SEBI, The Ministry of Law, Ministry of Finance and NPCI. 

Is Techfin the future of banking? 

Developed on digital platforms, these giant Technological agencies are much more efficient and have already found new ways to reduce transaction costs and monetize their business models. It is known that many of the big tech giants possess digital expertise, a large consumer base and enough versatility to expand the corporate brands into banking. Also, some of these companies are spawning a degree of confidence that was formerly earmarked for conventional banks and credit unions.

A constantly growing percentage of customers are all set to take advantage of the financial products provided by non-traditional companies, especially when they are provided superior user experience compared to the same rendered by the legacy companies. For the younger generation clients, who have grown up with digital devices, this is particularly true. 

It is anticipated that more and more consumers will be frustrated when they will be forced by the traditional bank policies to use non–digital for day to the day banking business, and hence they may resort to using non–banking financial apps. The success pace of growth and approach to Techfin may naturally be slower but more significant, as consumers mostly crave for better and reliable user experience and design when it comes to their products and services. 

Conclusion 

Conclusively, it can be said that for both FinTech and TechFin, the coming years have enormous potential to revolutionize the Financial Service ecosystem and bolster India’s economy by boosting consumption. The key to where the financial future is headed lies with the financial economy itself. The banking industry’s future will mostly rely on its competence to harness the power to deliver services that help today’s tech-savvy consumers handle their finances and effectively manage their daily lives through consumer insight, advanced analytics and digital technology.

The next stage where the financial sector is heading to is one where there is just a lot of cut-throat rivalry in the banking domain. The time to move from FinTech to TechFin is expected to come. The technology-based businesses that have joined the banking services will work to improve and enhance their presence while the financial institutions will try to include technology more and more in their processes so as to woo the new generation consumers. The fact is, a time will surely come when both TechFin and FinTech firms will merge with each other and will provide similar offerings.

In the end, the winner would be the customer, regardless of which-ever provider they choose, as both finance and tech companies adopt a wider view of banking, providing both bankings as well as non-banking services.

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