27 DEC,2020 | MEDC
Covid has brought about huge changes in how the financial sector operates. Public sector banks are facing increasing competition from their nimbler private sector counterparts. Social media and other digital platforms are foraying into the traditional banking space. The increase in demand for digital services triggered by Covid is fuelling this transformation. The lockdown may be phased out, but we are going to see some permanent changes in how the financial services industry operates in future. For example, new tools to analyse data on customers’ spending habits are gaining ground. There is huge scope for analytical expansion in this sector. The most transformative innovation is the increase in the strategic use of new types of data coming from the digital footprint of customers’ fundamental online activities ... whether it is transportation, housing, recreation, healthcare facilities, ortheir educational choices. Fintech is increasingly tapping into various kinds of nonfinancial data … the type of hardware and software used to access the internet, the history of online searches and consumption patterns. Recent research reveals that, when powered by artificial intelligence and machine learning, these alternative data sources are often superior to traditional credit assessment methods. They can help advance financial inclusion and socioeconomic development by, for example, enabling more credit to workers in the informal sector, and households and firms in rural areas. That will go a long way in contributing to nation-building activities. Technology is essentially an enabler. The shift from in-person bank branch visits to remote online communication often improves consumer convenience and experience. This tends to make financial intermediation more cost-effective. It also boosts competition amongst banks, which can now serve a wider cross-section of consumers, and in a more personalized manner. This goes a long way in expanding choices for the general public and leads to a win-win situation for both banks and customers. Of all sectors of economic activity, it is finance and banking which relies the most heavily on computers. The effects of a digital transformation on this sector can be truly insightful. The growth potential of Fintech ensures that digital innovation in information and communication services will deepen even further and give rise to new priorities in several diverse policy areas. This will assist employment generation, and will also enhance our long-term economic competitiveness. If India is to break out of the Covid-induced downturn, a sustained thrust on the development of new Fintech models is imperative. Simultaneously, policymakers need to address the operational risks of new lending technologies and business models facing their first real-life stress test in the pandemic induced downturn. Where there is risk, there is reward … and this is a calculated risk worth taking.
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