Cybersecurity : Risks in Fintech landscape

Cybersecurity : Risks in Fintech landscape

Financial technology (FinTech) is disrupting the financing industry. Global FinTech market is expected to be $309.98 billion by 2022. FinTech provides easy access to consumers but it lacks the regulatory framework. Financial as well as non-financial institutions have understood the need to collaborate and to become FinTech friendly. This need to collaborate is basically due to change in the demands of the consumer. FinTech industry is going through two major changes. First is the speed of change driven by the technology. These technologies are artificial intelligence, big data analytics and machine learning. Second is the increase in activities related to data security. In September 2017, Equifax a consumer credit reporting agency announced a data breach. This data breach exposed the information of 147 million people. In 2005, Mastercard international reported that a potential fraud due to security breach occurred at a third-party processor of payment processing company. This breach resulted in exposing information of over 40 million card accounts. The FinTech industry is at crossroads with data security laws.

Mr Jack Ma said “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.” Increasing number of new entrants with pre-existing customer base from their primary business. These companies leverage the data already available through their primary business in growing in financial service sector. This shift from FinTech to TechFin is crucial as it increases the competition. Mr Mukesh Ambani said “In this new world, data is the new oil. And data is the new wealth.” Regulatory framework is crucial to balance the both organisation which are financial intermediary and the ones which are data intermediary but are entering financial sector.

Global FinTech market is expected to row at 24.8% by 2022. In 2018, it was valued at $127.66 billion. India’s adoption to Fintech products is at 52%. It is the second highest in the world. In India, FinTech market is segmented as 34% in payment processing, 32% in banking and 12% in trading. Top FinTech companies across the world are Ant Financial a China based company whose value was estimated to be $75 billion in 2016 is now valued at $150 billion, Stripe is a California, U.S.A. based company with a valuation of $35 billion. Popular Indian Fintech companies are Paytm which is valued at $10 billion, PhonePe is valued at $7 billion, etc. According to Accenture, investors invested more than $53 billion in 2019.

Innovation plays a major role in Fintech sector as it is all about the ease of the customer. Fintech companies are piggybacking various traditional banks. Companies are offering services like Credit Rating- This concept is new in India and not much in use, but in other countries, it is crucial. Various companies have devised a new way of credit scoring. One of the company engaged in this is Nova Credit. Many Fintech companies have alternative scoring for insurance as according to the companies lifestyle of a person is also an integral determining factor for calculating the premium. This approach is used by Carpe Data. Peer-to-Peer lending is a new approach in the lending sector. It is practised by Funding Circle. In this organisation can borrow money from individual through the portal. Payment gateway are also quite popular in Fintech sector. They help consumers to pay their bills. These gateway are PayPal, PayU, CCAvenue, etc. Digital Wallets like Paytm, MobiKwik, GooglePay, etc. In digital wallet user can add certain amount in the wallet and use that amount for payment. Asset management companies like Robinhood help consumers invest in stocks and options through Robinhood Financial and crypto trading. Digital banking is digitalisation of all the banking activities that were previously available at brick and mortar bank. HDFC, Yes Bank, etc. are providing the digital banking in India. Digital insurance is another emerging Fintech sector’s service. It is also known as InsurTech. Few of the leading companies providing digital insurance are PolicyBazaar, Manta Labs, etc.

Regulations in Fintech sector are still emerging. Digital wallet services were dominated by non-banking companies. Banks were quick to sense the potential of the digital space and entered the space by their own or in collaboration with other organisation. New regulations like KYC and other customer rules hampered the growth of various organisations as it increased cost. In 2018, Reserve Bank of India released guidelines regarding operations of Digital wallet. There is no firm regulations regarding crypto currency neither it is legally prohibited. In 2018, RBI issued notification prohibiting any bank or institution registered with RBI to deal in crypto currency. Insurance Regulatory and Development Authority of India has issued guidelines in relation to the insurance repositories and electronic issuance of insurance policies. Various regulatory bodies like RBI, SEBI, IRDAI, Ministry of Electronic and Information technology, Ministry of Corporate Affairs, etc. have laid down various guidelines in relation to Fintech companies and their operation. Although there is no regulatory body which is directly overseeing the operations of Fintech companies.

Opinion

Fintech is still in developing stage particularly in India. This sector has huge potential. Most of the top Fintech companies are located in China. India is world’s second largest English speaking country. India has the advantage of providing the services to other countries also due to availability of large English speaking workforce. Banks need to modify their business strategies, innovate services to tailor customer needs and improve efficiency so that they can deliver customer-centric services. This will also help bank in strengthening their role as principal financial intermediary. Major technical issues regarding FinTech companies are data privacy, cyber security, data breach, etc. Issues which FinTech companies face are new regulations, compliance of the new regulations increase the cost. Moreover there is uncertainty regarding the future of the FinTech sector as there is no regulatory framework for FinTech firms currently. Capital raising is one of the issues faced by FinTech firms. Issues relating to marketing and operation are huge marketing cost in initial stage, proof of concept, etc. Technology positioning, innovation, competition, customer satisfaction and confidence are some issues concerning Fintech.