As the financial sector met new-age technology and ‘Fintech’ was born, both businesses and the public embraced the revolution as the convenience, inclusivity and affordability it offered surpassed the offerings made by traditional financial players.
The role fintechs play in the growth of MSMEs and other financially underserved segments of the economy cannot be ignored. Compared to traditional players, fintechs are more liberal in their screening process of customer-base, as well as more flexible in the products/services they offer, making it possible to serve wider segments at where they are rather than where they need to be to get financially included.
The Reserve Bank of India (RBI) has time and again demonstrated its intention to promote innovations in the financial sector. As noted by RBI Deputy Governor T Rabi Sankar, in a keynote address at an event on July 11, the RBI has taken steps to
foster innovation for the past few years with a slew of measures; these include the guidelines for account aggregators in 2016, peer-to-peer lending in 2017, the regulatory sandbox framework in 2019, the establishment of an innovation hub in Bengaluru in 2021, and currently with the Central Bank Digital Currency (CBDC) pilot.
The risks a fintech company face are inherent to their very business model, meaning the advantages that they offer could have negative outcomes if not addressed adequately in time. For instance, fintechs beat competition by reducing the processing time for loans and other services, but a total dependency on artificial intelligence (AI) and machine learning (ML) to ensure KYC and other documentation could be highly risky on account of the increased possibility of identity threats and document
hreats and document forgery powered by AI tools. Similarly, its sole dependence on digital technology makes it more vulnerable to cyber security threats and data theft, which would result in significant financial and personal risks for its customers.
