Introduction
Today FinTech is one of the most widely used word in the industry. I always thought that we are using this FInTech word very casually at times. So this is an effort to understand the FinTech in details.
FinTech A Decomposed View
Finance
Let us start with the first half of the word “Fin” – In many languages Fin means – End. But in this context Fin has a cyclic, perpetual meaning. It is a short for Finance. Now what is Finance – Everyone knows meaning of Finance.- we have so many Financial institution around us. Daily we encounter instances where we interact with these financial institutions. Essentially Finance means money in motion, exchange of money i.e. exchange of worldly goods and services aginst valuable currency.
We come across following major financial entities around us
1. Bank – Pivotal point of all the finances where one has financial accounts to organize money is a regulated manner
2. Insurances – This has become an integral part of everyones life in recent years – From Life insurance, Vehicle insurance to Insurance of valuable goods like phone is very prevalent. he essence of insurance is of any untimely event you are covered. This comes at a cost which is paid in full at the start of the tenure or paid periodically.
3. Lending i.e. loans – This is one of the largest financial interaction in todays day and age. everyone once in a while wants to buy big ticket items be it a house or a card or even a fancy phone. The obvious option to finance these is loan from an financial institution (Bank or NBFC) . Now this predominantly include – Home and car loans, Credit Cards, Short Term Loans, Buy Now Pay Later loans. One of the factor governing and driving this is the mechanism of regular re-payments, interest on the loan amount and the tenure of the loan. So we see around us zero percent EMI to high risk high interest loans for buying car. Interestingly “Today Car Loan can be availed at a lower interest rates than an Education Loan”.
4. Wealth – Like we mentioned earlier Banks are used for organizing money using different instruments like – Bank Deposits which give higher interest on our money and help to grow our money. Now because of the the market situation the rate of growth of this deposit money can barely beat the inflation. Other instruments evolved to beat inflation and provide a substantial returns on your money – this include but not limited to – Stocks, Mutual Funds, FMPs, Bonds etc.. Essentially person has multiple avenues to invest money so that it can grow with “Power of Compounding”
5. Payments – Today we use various different mechanisms for paying for the goods and services. This predominately include – QR Code Payments (BHIM, UPI), Credit and Debit Card, Net Banking, Wallet Payments etc… This mechanisms are used in Offline -Brick and Mortar shop as well as Online portals of online shopping. This has eased the way of paying for goods and services i.e. it is helping to bring the producer and consumer closer than ever before Fintech – A WorldView 3
6. Tax – One of the fundamental part of every economy is tax. The taxes include – Income Tax, Road Tax, Property Tax, GST, VAT, Toll Tax and so on and so forth. This is the amount defined by government institutions to serve the community at large. To provide the facilities and infrastructure for the society Please refer to the following picture to get a summary of what we discussed about “Fin”ance
Technology
Let us quickly look at the second part of FinTech – the “Tech”. As we hear this is the age of technology and information. Technology in simple words is the tools and technics to ease human life. In shot we can consider the invention of “Wheel” is the genesis of the technology. Over hundreds of years this technology evolved with the advent of Farming revolution, Industrial Revolution across the world. One of the biggest drive to develop technology is the Weapons race which culminated into two world wars in last 120 years. Because of the Weapons race humanity has developed multiple tools which culminated into new age technology. One of the major evolution is communication – from the morse code to telephone communication.
In last 50 years there is “Silicon Revolution” in which we have built electronic components. This electronic components enabled us to build calculators, computers and in recent times mobile phones. With the advent of Computers, Mobiles and Communication – humanity took the next step into the age of “Internet” where all these electronic devices could be connected across large distances and communicate on demand. Forty years ago a computer programmer was considered at par with a brain surgeon. During recent times a due to the drastic evolution in the software and hardware the programming has become a regular average job. Everyone is having latest computer and mobile at their disposal. For our limited discussions we will focus on three predominant aspects of software technologies here.
Fintech – A WorldView 4
1. API : Application Programming Interface : This enables two mobiles / computer systems to talk to each other in common language and exchange valuable information
2. Data Store : This is the repository of all the information exchanged as well as the information of the parties between whom the exchange took place
3. Application : This is a predefined program which manipulates and transforms the data into meaningful information that can be digested by the user