Published on 03-Sept-2019 – FinTech
FinTech ReportApprox Read Time: 5 minutes
- The Steering Committee on FinTech related issues constituted by the Ministry of Finance, Department of Economic Affairs, on 2nd September, submitted its Final Report to Union Finance & Corporate Affairs Minister Smt. Nirmala Sitharaman in her office in New Delhi.
- The Committee was constituted in pursuance to the announcement made by the Union Minister of Finance and Corporate Affairs, Shri Arun Jaitley in his Budget Speech 2018-19 (Para 75).
- The Committee report also identifies application areas and use cases in Governance and financial services and suggests regulatory upgrades enabling fintech innovations.
- The report outlines the current landscape of the Fintech space globally and in India, studies the various issues relating to its development.
What is FinTech?
- Financial Technology (FinTech) is used to describe new tech that seeks to improve and automate the delivery and use of financial services to consumers.
- Fintech is utilized to help companies, business owners and consumers better manage their financial operations, processes, and lives by utilizing specialized software and algorithms that are used on computers and, increasingly, smartphones.
- Fintech now describes a variety of financial activities, such as money transfers, depositing a check with your smartphone, bypassing a bank branch to apply for credit, raising money for a business startup, or managing your investments, generally without the assistance of a person.
- The term was initially applied to the technology employed at the back-end systems of established financial institutions but due to a shift to more consumer-oriented services, Fintech now includes different sectors and industries such as education, retail banking, fundraising and non-profit, and investment management.
- Fintech also includes the development and use of cryptocurrencies such as bitcoin.
- Most active areas of fintech innovation includes,
- Cryptocurrency and digital cash.
- Blockchain technology, a Distributed Ledger Technology (DLT) that maintain records on a network of computers, but has no central ledger.
- Smart contracts, (often utilizing the blockchain) to automatically execute contracts between buyers and sellers.
- Open banking, to build applications that create a connected network of financial institutions and third-party providers. An example is the all-in-one money management tool Mint.
- Insurtech– to use technology to simplify and streamline the insurance industry.
- Regtech– to help financial service firms meet industry compliance rules, especially those covering AML/KYC (Anti-Money Laundering and Know Your Customer) protocols which fights fraud.
- Robo-advisors -utilize algorithms to automate investment advice to lower its cost and increase accessibility.
- Unbanked/underbanked services to serve disadvantaged or low-income individuals who are ignored or underserved by traditional banks or mainstream financial services companies.
- Cybersecurity and fintech are intertwined.
- The Report makes recommendations focusing on how fintech can be leveraged to enhance financial inclusion of MSMEs with a view to making fintech related regulations more flexible and generate enhanced entrepreneurship.
- An Inter-Ministerial Steering Committee will be set up on fintech Applications in Department of Economic Affairs (DEA), Ministry of Finance, to continue to carry on the tasks of implementing this report, including exploring and suggesting the potential applications in:
- Accounting and asset management.
- Welfare services.
- Government financial processes.
- Handling citizen grievances.
- The Inter-Regulatory Technical Group (IRTG) set up under the FSDC will be the forum of inter-regulatory coordination on Fintech.
- The RBI may consider the development of a cash-flow based financing for MSMEs.
- Development of an open-API MSME stack based on TReDS data validated by GSTN.
- A standardized and trusted e-invoice infrastructure designed around TREDS-GSTN integration.
- Insurance companies and lending agencies to be encouraged to use drone and remote sensing technology for crop area, damage and location assessments to support risk reduction in insurance/lending business.
- Department of Financial Services (DFS) to work with PSU banks to bring in more efficiency to their work and reduce fraud and security risks.
- NABARD to take immediate steps to create a credit registry for farmers with special thrust for use of fintech along with core banking solutions (CBS) by agri-financial institutions, included Cooperative societies.
- A special drive for modernization and standardization of land records by setting up a dedicated National Digital Land Records Mission, with a view to making available land ownership data on an online basis to Financial Institutions.
- Adoption of Regulation technology (or RegTech) by all financial sector regulators to develop standards and facilitate adoption by financial sector service providers to adopt use-cases making compliance with regulations easier, quicker and effective.
- Financial sector regulators develop an institutional framework for specific use-cases of Supervisory technology (or SupTech), testing, deployment, monitoring, and evaluation.
- A comprehensive legal framework for consumer protection to be put in place early keeping in mind the rise of fintech and digital services.
- Significant opportunities can be explored to increase the levels of automation using Artificial Intelligence (AI), cognitive analytics & machine learning in their back-end processes.
- The positive impact of Fintech innovations on the sectors such as Agriculture and MSMEs, in the near future.
- To have a nodal agency to coordinate developments across Ministries and Regulators in the area of Fintech.
- A dedicated team on Digital Economy & Fintech is being set up in the Investment Division, Department of Economic Affairs, Ministry of Finance for coordination on FinTech with relevant Ministries.