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The Financial Bulletin Money Matters Club IBS, Hyderabad Est..—2005
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Dear Readers, It gives us immense pleasure to come up with the October 2020 issue of The Financial Bulletin successfully. In this issue, we aim to give you a brief description about emerging FinTech and its future prospects. We hope to deliver useful insights to the readers. May this issue be fruitful to each and everyone. Happy reading!
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Kritika Gupta Jagriti Gupta Juhi Parasrampuria Saisadwik Chodavarapu Newsletter Coordinators
MENTOR SPEAKS Fintech refers to innovative financial services or products delivered via technology. Catalini, Hala¬burda, King, and Vergne (2017) put forward a high-level definition of fintech as “a movement toward the digitization, decentralization, and disintermediation of economic transactions, powered by information technologies such as peer-to-peer networking, big data analytics, machine learning, blockchain technology, and open APIs.” Systematic academic research on the topic of fin¬tech is still in its infancy, typically focuses on one issue and lacks a robust theoretical and empirical base; most research so far has been done by consultants and banks. Several theoretically grounded papers are related to crowd funding as an important source of financial capital for nascent entrepreneurs. FinTech ecosystems are critical to nurturing the kind of technological innovation necessary to make financial markets and systems more efficient and improve the overall customer experience. Moreover, given the scope of financial technology, a vibrant FinTech ecosystem can stimulate the broader local economy by attracting talented, ambitious people and becoming a locus of creative thinking and business activity. FinTech ecosystems enable growth opportunities for many sectors, including software, data analytics, payments, platforms (e.g., peer-topeer lending and trading), mobile banking, and algorithmic asset management systems. FinTech services can influence financial institutions, regulators, customers, and retailers in a wide range of industries. New trends and needs related to the financial services delivery have been driving the development of an entirely new ecosystem, affecting both FinTechs and non-financial firms. This ecosystem is of paramount importance to ensure that technological innovation is created to make financial services more efficient and to improve customer experience. According to Lee and Shin (2018), the ecosystem of a FinTech comprises five elements: FinTech start-ups; government; traditional financial institutions; financial customers; and, technology developers. A well-developed ecosystem can stimulate the local economy and generate opportunities for growth. FinTech start-ups are new technology-based companies that offer innovative solutions in the financial industry. The entrepreneurs contribute innovative and often disruptive
technology solutions to the FinTech ecosystem. In return, entrepreneurs benefit from greater access to financing and market expertise, as well as a receptive market for their innovations. The global financial sector has experienced significant changes in regulations due to digital technologies and their disruptive effect. After the global economic crisis of 2008, governments and regulatory agencies further developed regulations, prioritizing transparency in an attempt to reduce fraudulent behaviour and protect consumers. At the same time, some countries started initiatives that promote the emergence of FinTechs. However, Governments must implement and enforce policies and a regulatory environment that will ease the development of the FinTech ecosystem. Doing so encourages entrepreneurial activity and hiring by financial services and technology firms. It also improves the country’s overall competitiveness. Financial institutions, including global and local banks, private equity shops, and venture capital funds could contribute deep content and market expertise to the ecosystem. Also, many of these financial institutions can stimulate their own innovation by establishing partnerships with FinTech start-ups. These partnerships can strengthen the competitive position of financial institutions, for example, by shortening the time it takes for new products and services to reach the market. Payments are the biggest segment in which the fintech is taking over. Fintech-driven financial services are filling a gap left by traditional financial institutions. Across different regions in the world, fintech companies are making their presence felt local. Some companies, including in Silicon Valley, the United Kingdom, and China, are also expanding into emerging markets, such as India, Kenya, Mexico, Nigeria, and Tanzania. Traditional financial institutions typically provide services through brick-and-mortar establishments and rely on legacy technology that is costly to operate, and even more costly to upgrade and adapt to fast-changing technology. With the advent of information technology, technology developers deliver digital technologies, such as big data, cloud computing, social media, and artificial intelligence (AI). The internet of things (IoT) and social computing, among other technologies, enable start-up companies to automatize their business processes and offer unparalleled services and products within the financial sector. It is seen in the recent past that fintech has shown its presence in the payments mechanism, peer-to-peer (P2P) lending, and crowd funding. It is ev-
ident through blockchain technologies and financial inclusion in emerging markets. However, the fintech companies that target the underprivileged and unserved populations have had a limited ‘disruptive impact’ on traditional bank operations so far. They are actually collaborating with banks and creating a variety of business models. There are four critical design elements that support the development of a FinTech ecosystem: Business environment/access to markets, Government/ regulatory support, Access to capital, and financial expertise. Having a proper ecosystem in place, the fintech companies have to focus on identifying the prospective customers, their needs and requirements, gaps in existing service (s), and putting effective digital infrastructure in place. Moreover, investors are considered as key for the creation or growth of the start-ups. The relationship between investors and start-ups can begin during the development of the business, through venture capital or business angel capital, or in a more mature phase of the start-up, through other sources of funding, such as investment funds, private equity, debt financing, IPO or acquisitions. Data privacy is a bigger challenge when we use technology for financial transactions. This is the area that is of major concern to the public and governments. For example, the Indian government did not legalize trading in crypto currencies. A final thought for policymakers is whether fintech requires additional consideration from a political economy perspective. They might look at a trade-off between the Fintech’s contribution to GDP and whether it is serving a large segment of the lower-income society or not. However, the common interest of the public at large in relation to their data/money in terms of privacy and security shall be at center stage. By – Dr. M V Narasimha Chary (Assistant Professor, Department of Finance- IBS Hyderabad)
Introduction to FinTech
Financial technology, also known as Fintech, is a technical tool to guide financial offerings. It is used to describe new technology and innovation that seeks to improve and automate financial services. Some of the technologies used in the financial industry include artificial intelligence, big data, robotics process automation, and block chain. Fintech is just too wide an area with extended records. Technology has continually performed an important role in the monetary region. Fintech companies involve both startups and well established financial firms that are trying to replace or enhance the usage of financial services with technology. These 5 decades of development have created a financial technology infrastructure that most people never imagined but used nearly every day. It is likewise essential to notice that, throughout 50 years span, fintech progress was creating more sophisticated risk management, alternate processing, treasury management, and fact evaluation tools on the institutional degree for banks and monetary services firms. Fintech Services Today In the early part of the 21st century, retail financial offerings were digitized via mobile wallets, payment apps, robo-advisors for wealth and retirement making plans, equity crowdsourcing systems for access to private and alternative investment opportunities, and online money lending platforms. There has been a shift inside the marketplace to greater patron-oriented offerings, so the greater clientorientated definition is taken into consideration. Fintech, now, also consists of industries consisting of schooling, retail banking, fundraising and non-earnings,
and funding management.
Impact of worldwide Investors On The Indian Fintech Ecosystem Fintech in India got its first big boost in November 2016. The transition from the old notes to new currency after the demonetization centres that led to the in-
creasing difficulties in cash transactions saw an immediate rise in digital payments and a corresponding interest in financial technology firms. National Association of Software and Service Companies (NASSCOM) made a report on Indian startups which identified the fintech space together which is of the highest potential sectors within the ecosystem. The market report indicates that future investments will likely focus on specific areas such as insurance tech, payment gateways, Artificial Intelligence (AI) and Machine Learning (ML), peerto-peer lending, payment banks, block chain, Robo-advisory, and security. The Government Support The push to a digital economy has seen the increase of fintech start-ups also because of the entry of worldwide fintech firms into India. The Finance Minister announced that the government would release an app-based invoice financing
loan platform for MSMEs. When the government is working on fintech, it’s a promising sign and one of the reasons for global fintech players entering India. It seems that investors go for well-established start-ups over early-stage investments. There are still tons of investors excited during this space, aside from investments by the likes of Visa and international banks in their domestic fintech arms. Top global investors in Indian fintech comprise SoftBank’s Vision Fund, Temasek, Tiger Global, Tencent, Sequoia Capital, Blume Ventures, and Nexus Partners. With global fintech competition making their presence felt in India, domestic companies are going to be forced to innovate and offer investors better products and thus better returns.
By- Riya Gupta and Mahesh Sohanda
By Karan Jalan
India’s Account Aggregation Framework
India decided a different way to deal with open banking. It flipped the equation by implicitly launching open banking with payments first which is known as UPI. The nation is presently on the edge of going live with the Account Aggregation framework, which will be its first foray into consent-based financial data sharing.
Account Aggregators are trusted intermediaries that are empowered to broker consumer’s financial data between data providers and data users. They currently fall under the ambit of one of the four Indian financial service regulators- RBI, SEBI, PFRDA, and IRDA. Data exchange is based on consumer consent.
Account Aggregation is a new kind of digital data model wherein account aggregators (regulated by the special NBFC-AA license) will act as data access trustees between user/entities (primary data owners), and banks, FI’s, an NBFC that maintain and manage it. For this circumstance, users/entities will be classified as financial data owners, and banks, MFCs, insurance service providers, tax /GST platforms will be financial information providers (FIPs).
Normalized API specifications are made available by ReBIT to make AA a
very interoperable and technology Agnostic framework. Specifications are purpose-built for and made accessible to aggregators, information providers, and information users. 
As of June 2020, three operating and four in-principle NBFC– AA licenses have been issued by the RBI. The application of Account Aggregation spans a broad set of use cases, such as personal finance, wealthy advisory, credit decisioning, access to credit, and access to insurance.
By- Sachin Gupta
INSURANCE SECTOR
In India, the emerging InsurTech landscape has a current insurance penetration of 2.76% in life insurance and 0.93% in non-life insurance is quite low as compared to the global average of 6.5%. ‘Lack of trust’ is the key challenge. In India, the current InsurTech segment is influenced by few new-age insurers like Toffee, Digit, and Acko with their ability to attract millennials. Scope of Technology used Preventive Insurance Models - Using technologies like AI/ML, predictive analytics, and data captured by IoT-driven connected devices, InsurTech players are exploring ways to make the most out of deep data insights. Further, it drives the transition from a reactive approach to proactive prevention. E.g., Kruzr, Niramai, Carnot Technologies.
Underwriting & Risk Management - Using advanced technologies like Big Data and AI, insurance companies can power a data-driven, risk-scoring model. This helps them to make better risk coverage decisions across all lines of businesses such as life & health, retirement planning, commercial, and investment. E.g., i3 Systems, Health Vector. Conversational UI - Chatbots help in functions like general customer service questions, personalized product recommendation, general questions from agents/brokers, direct-to-consumer (D2C) sales, claims, and more. E.g., Ask Arvi Insurance Infrastructure APIs - Ingenious and fast-growing infrastructure APIs solution providers are poised to create a space of ‘insurance as a service’ companies in India. It will support product innovation and distribution via digital channels for insurance companies and platform economy players. E.g., Riskcovry Insurance Aggregator The word aggregator means an organization that collects information from other businesses and then places it on one website. This may be used by many industries as an effective way of increasing leads and referrals which makes the task of finding insurance quotes a lot simpler for the consumer. Digital Insurance Advisors Aggregator platforms enable customers to compare and buy insurance products of both new-age online insurers and traditional insurance companies.
By- Vanshika Saraff
PAYMENTS AND REMITTANCES Remittance is derived from the word “to remit” or “send back” which means to transfer money to another party. Payment is the transfer of money, goods, or services in exchange for a service or product.
Technologies involved in Payments and Remittances are Artificial Intelligence (AI) and Machine Learning (ML): AI refers to the simulation of human intelligence in machines that are programmed to think like humans and mimic their actions. ML is an area of AI with a concept that a computer program can learn and adapt to new data without human intervention. In detecting frauds, ML systems work as follows: As the input data generates, it extracts features like identity, orders, payment locations, and networks of the customer, and with the help of algorithms, it predicts frauds. Finally, the model-specific to the business detects frauds in milliseconds. For example, PayPal is a platform for personal and business transactions, transfers, payments, and credit services. Currently, PayPal is valid in more than 200 markets around the world. PayPal leverages ML in fraud detection by acquiring the fraud-detection start-up “Simility” in 2018 which follows a new approach to build fraud detection models: 1. Using unsupervised models to find clusters and identify anomalies. 2. Manually reviewing and labeling them.
3. Training a supervised model using the labels.
Simility's use of structured and unstructured data to reduce fraud Future of AI and ML in payments and remittances
Instant early warnings by detecting adverse frauds-With the combination of both supervised learning algorithms trained on previous data and unsupervised learning, understanding of customers’ behaviour has become easy thus making it a better option for the effective detection of new and emerging fraud.
Enabling biometrics consisting of facial, voice, or Iris recognition-Paves way in identity verification procedures and mitigating security risks.
Automating quality control with computer vision powered retail and payment transactions.
Building and communicating solid statistical models of epidemiology, financial markets, and so on.
Tracing incomes and receiving aids
Tracing real estate to implement new housing policies.
By- Pooja Prabhudevarmath
NEO BANKING
To provide a seamless banking experience for patrons many banks have rationalized their branches and partnered with new-age Neo Banks. As digital achieves a new high, the thought of banking without banks and banks without branches is gaining customers. The rapid growth of neobanks in India suggests that netizens within the country are embracing the wave of the latest normal created by the Covid19. Bringing the unbanked to the mainstream, neobanks have changed the age of physical banking and is certain to grow both in terms of usage and recognition. They possess digital operating business models, a mobile-app based utility, and provide similar services as that of traditional banks. Blockchain Technology Blockchain could also be an idea that mixes several computer technologies, including distributed data storage, point-to-point transmission, consensus mechanisms, and encryption algorithms. it's identified as a disruptive innovation of the online era. However, as block chain could also be a breakthrough in data storage and knowledge transmission, it'll fundamentally transform the prevailing operating models of finance and economy, which may cause a replacement round of technological innovations and industrial transformation within the FinTech industry.
Uses of Blockchain Technology in the Banking Sector KYC Validation: Banks are using this technology for KYC validation purposes for corporate customers. The sharing of confidential KYC data is permitted by the customer’s consent. Operation Purposes: It keeps a record of all the transactions using block chain distributed ledgers which is unalterable. Tracing diversion of loan funds: The banking space is facing issues within the recovery of loans granted by the banks. Generating the blocks of each transaction will help the banks in tracing the diversion of loan funds and tracking of transactions is made easy. Facilitates payment system: It helps banks to reduce the intermediaries within the payment processing system which lowers the prices to process payments between banks and clients. Benefits of implementing block chain
Transition from Private to Public: Finance organizations prefer private blockchains to retain sensitive data, but can update to permissioned blockchains for industry partners and customers.
Higher availability of Capital: The block chain technology will reduce capital consumption thanks to a quicker settlement of trades, freed-up capital flows, and straight-through processing.
Reduced loss and fraud: Immutable records are visible to all or any participants as it improves data accuracy and security.
Reduced Costs: Banks have recently learned that block chain can help them to reduce infrastructure costs,cost of maintaining and executing contracts and transaction costs between banks by $20 billion by 2022.Implementation of smart contacts within a platform helps them to reduce the interactions with counterparties and intermediaries. currency as standard currency in the future.
Digital Currencies: Banks are now able to accept digital currency to complete a variety of transactions due to block chain technology. With cryptocurrency, banks will be able to more easily clear and settle financial trades faster and more securely. Banks will also look to make digital currency as standard currency in the future.
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Compliance: Blockchain allows better compliance as it allows auditors and government officials access to the blockchain.Financial institutions are now able to provide digital information that is easy to find and save time with the auditing process.
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Faster transaction processing: It offers faster banking transactions. As any transaction can be done within a matter of seconds it helps bank to complete and process more transactions. It helps the bank to avoid middlemen.
By- Rashmi Kumari
WEALTH MANAGEMENT Wealth management is a form of investment management and financial planning which involves consultations with affluent clients, discussion on their financial needs and goals. Advisors help in planning and managing the wealth of the client as per their needs and handling client’s sensitive information. It is the responsibility of investment advisors to maintain the confidentiality of information obtained during financial planning and advisory services Major technologies used in wealth management are Big Data and Video Conferencing. Big Data is a collection of data that is huge in volume and grows exponentially with time. It uses tools such as data mining, data storage, data analysis, data sharing, and data visualization. Today, big data has become a capital for the wealth management firm, helping investors accordingly. Video conferencing allows users in different locations to hold face-to-face meetings with no requirement to move to a single location together. It increases convenient interaction between users. Cred is a growing platform which is using these technologies and artificial intelligence as well. It has changed the approach of how financial institutions acquire and engage clients, delivering highly personalized investment portfolios. Other fintech companies are Sarwa, Handcheque, AdviceRobo, Bambu, etc. Benefits and Future Prospects Nowadays investors are preferring to do business with investment firms that use online collaboration and digital tools. Wealth management firms that can embrace the new fintech technologies and helping investors navigate an increasingly complex financial landscape are growing at a faster rate. Technologies like Big Data, Artificial Intelligence, Robo advisors, and video conferencing are providing an edge to this sector making it an area of investment. The future of the financial advisory profession is much more bullish. Asset and wealth managers are of the view that the impact of FinTech is huge for adapting the change of customer needs. They think that new entrants can
enhance interactions and help in building trusted relationships with clients. The forthcoming and quick rise of innovative services, products, and business models should not be ignored. Fintechs and traditional firms must work together as asset and wealth managers to deliver technology which matches the speed of the market.
By- Isha Agarwal
FINTECH IN BANKING INDUSTRY The banking industry is currently going through one of the biggest transformations in financial history. Importantly those who work in the financial services industry are going to be more significantly impacted by the fintech revolution. Things like Robo advisors, use of artificial intelligence, Robotic Process Automation (RPA), Peer- to- Peer lending, Big Data, Blockchain, digital payments are transforming the banking industry to create a revolution. The biggest worry for the banks is the emergence of thousands of new and dynamic Fintech startups who offer products, which were earlier offered by traditional banks. They now offer consumers an alternative to loans that used to be previously available mainly by banks. Fintech revolutions are bringing positive developments, one of the most important ones is financial inclusion which is there are wide opportunities available to access the financial services provided by the fintech firms and banks. Robotic Process Automation (RPA) The banking industry has been revolutionized by RPA by enabling banks to complete time-consuming tasks efficiently and accurately. RPA in banking is used for automatic report generation, customer on boarding, know your customer (KYC) and anti-money laundering, account opening, mortgage lending, and loan processing. Every year, HDFC Bank processes around 4.5 million loan applications in around 45 minutes as everything is being done manually. Loan processing in all locations is now shown in a centralized server where real-time loan processing status would be visible to all credit administrators. RPA has a plethora of different applications in the Banking , Financial Services and Insurance (BFSI) segment : 
Customer Service: RPA can automate multiple queries every day ranging from account information to application status to balance information and respond to queries in real time and reduce turnaround time to seconds. With the help of artificial intelligence like NLP and Chat box, RPA can also resolve queries which need decision-making.
Compliance: RPA increases productivity with 24/7 availability and highest accuracy improving the quality of compliance process.
Credit Card Processing: Unlike traditional credit card application processes with the help of RPA banks now can process the application within hours.
Fraud Detection: RPA helps to track transactions and identifies possible fraud transaction patterns in real-time thereby reducing the delay in response. RPA also helps to prevent fraud by blocking accounts and stopping transactions.
Report Automation: RPA systems provide data in multiple formats, it can create reports by auto-filling the available report format to create reports without errors and minimum time.
Robo Advisors A Robo-advisor is a digital financial advisor driven by AI and automation. It provides a customer with a better investment experience and recommends a customized investment portfolio containing shares, bonds, and other asset types. A typical Robo-advisor collects data from clients about their future goals and financial situation through a web survey then uses the data to advise center investments. A most effective Robo-advisor offers robust goal planning, easy account setup, portfolio management, account services security measures, and attentive customer service. ICICI Bank has an algorithm-led investment Robo-advisory platform called ‘Money Coach’ to facilitate an online or paperless KYC and mutual fund online registration process. This is based on an investment advisory platform and automated personal finance, which can help the customers to plan and smoothly manage their future investments. Other than analysing a customer’s financial transactions it provides a financial health report, monitoring income and expenses, evaluation of customer’s ability to repay the loan and keeping an eye on the customer’s credit card usage.
By- Arsad Navas R
EMERGING THEMES Regulatory Technology (RegTech)
RegTech is the management of regulatory processes through technology within the financial industry. RegTech functions include regulatory monitoring, reporting, and compliance. It comprises a group of companies that use Cloud Computing technology. A RegTech firm helps the banks to separate and organize, cluttered and intertwined datasets that are complex, expensive, time-consuming data and predict potential risk areas that the bank should focus on. RegTech tools monitor online transactions on a real-time basis to identify any irregularities or issues in digital payments. Commonly used technologies in RegTech are: 
Software-as-a-Service (Saas) - This technology helps companies to comply with regulations efficiently and less expensively.
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Big data and machine learning technology - This helps in solving problems like data breaching, money laundering, and other fraudulent activities arising from a technology-driven economy through automation. RegTech has become one of the active sectors with overall funding of USD 10.4 Billion in more than 700 companies. Active investors in this sector are Plug and Play
tech center, FinTech Innovation Lab, TechStars, Tech Nation, and LHoFT. Some remarkable RegTech companies include Identity Mind Global, Trunomi, SilverFinch, passport, Fund Recs. Agricultural Tecnology (AgriTech) Agritech is the use of technology in agriculture, horticulture, and aquaculture which aims at improving yield, efficiency, and profitability. India has seen rapid growth with more than 450+ startups in AgriTech. Major startups operating in this space are Ninjacart, Agrostar, Stellops, Cropin, and Jumbotail. The major source of funds to these startups are Omnivore, Accel, and Ankur Capital with almost summed up to the US $ 248 mn. according to June 2019. The key areas for AgriTech startups are to improve the supply chain to benefit farmers for better price mechanisms. Technologies used in AgriTech:
Internet of Things (IoT): Sensor technologies and monitoring solutions integrate into the existing farming process (mechanization) to generate precision data for daily decision making.
Big Data & AI: This helps to automate suggestions and recommendations to improve efficiency and business operations. It stores information, controls, observes, and tracks livestock and crops.
Robotics and Automation: Advance robotics, automated machinery, and drones are crucial for increasing the efficiency of agricultural production soon.
Smart Farming: Software solutions, optimization devices, and process automation tools help to reduce cost. Cloud-based software solutions integrate with wireless sensors and IoT to increase yield.
Cognitive Computing Cognitive Computing is a product from the area of Artificial Intelligence. It enabled companies to perform tasks that humans were capable of doing so. Organizations need to precisely evaluate the impact of these technologies on their business. The three main applications of Artificial Intelligence and Cognitive Technologies are Product (Enhance products or services), Process (Automate internal processes), and Insights (Discover pattern or make predictions). The most important technologies and methodologies of Cognitive technologies are Machine learning, natural language processing, speech recognition, computer vision.
By- Muskan Mittal
By— Heerak Agrawal
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