Introducing Fintech

The Future of Finance

21 min readSep 28, 2024

In today’s rapidly evolving digital landscape, Fintech is not just a buzzword, it’s a revolution that is reshaping how we interact with money, investments and financial institutions. From mobile banking to cryptocurrency, the intersection of finance and technology is creating new opportunities for businesses and consumers alike. This article dives deep into the world of Fintech, unraveling key definitions, cutting-edge technologies and the ways they are driving innovation in the financial industry. Whether you are curious about blockchain, AI-driven financial services, or the future of payments, this section will explore how Fintech is transforming traditional banking and opening the doors to a new era of financial inclusion. Prepare to learn how these advancements are solving real-world problems, enhancing customer experiences and fundamentally altering the landscape of finance.

Table of Content

Introduction to fintech
Definitions related to fintech
Technologies in fintech

Introduction To Fintech

This section includes a description of the term Fintech. We have

tried explaining Fintech and various terms and processes related to it. We have also added and described the core technical terminology
related to the fintech industry. The term Fintech, the short form of the phrase Financial Technology denotes the industry that comprises companies that

use technology for the efficient delivery of financial services. It is

an emerging service in the 21st century and has gained momentum in the last 7-10 years. It also shows huge potential for the next 2-3
decades. The new start-up companies, Fintech’s are trying to replace
the traditional transaction system with new and effective methods by
applying technology in financial sectors for banking, mobile
payments or payment gateways system, credit cards and all kinds of loans, money transfers, insurance, wealth management and also for
asset management. Each of these activities are very exhaustive and

detailed.

Fintech can be defined in several ways. The Bali FinTech Agenda, FSB and others broadly define fintech as advances in technology that have the potential to transform the provision of financial services, spurring the

development of new business models, applications, processes and products. Some more examples of technology applied to financial transactions
are peer-to-peer lending, peer-to-peer payment technology, digital

wallets, Blockchain, mobile banking, cryptocurrency and so on.

Digital Wallets, Blockchain, and cryptocurrency

These aim to bring further benefits and achieve high efficiency for

financial transactions. Generally, the objective of Fintech is to improve
efficiency in processes for better customer experience and customer service without compromising on regulatory compliance. Another aim of fintech is to reduce costs incurred for all activities and pass on the cost benefit to the customers.

Before we go deeper into other sections and understand how to

build a strong, viable, feasible and profitable fintech, it is important

to understand the technical aspects of the fintech industry.

Processes, functions and technology are used to fill the current academic literature gap regarding financial technology

Fintech companies.
To provide a conceptual overview of the Fintech’s and adoption of Fintech among digitally active consumers by the start-ups. Digitally active consumers are the people who have access to the internet and use various platforms, websites and mobile applications for doing multiple transactions. This will also help financial services professionals who are unaware of the terms being used in building technology platforms.
To identify professionals who motivate and support the

adoption of financial technologies and find barriers and challenges for adopting financial technologies in various fields.

These are some of the common terms used and are not exhaustive or complete. Further, the meanings mentioned here are not legal terms. They are discussed here for general understanding, which will be helpful when you enter into an agreement with the vendors and service providers or hear from various people related to the industry. Fintech is an ever evolving sector. New terms are being discovered on a regular basis, hence you need to keep yourself updated.

Definitions Related To Fintech

These are specific definitions related to Fintech that you need to keep in mind.

Application — Application means a software that receives,

uses, displays and manages customer data, the information supplied via the API Service or otherwise. The Application

may be a web application, a mobile application or both.

The application may be built or developed in-house or
externally through service provider vendors. The application is also called an Enterprise version which resides on the local system of the company.
SaaS — Software as a Service companies that provide a ready-to-use Application known as Software as a Service. In such cases, the Application is not owned by the company and it only has the right to use the software developed by a

third party.
API — Application Programming Interface is a kind of bridge that enables two different software applications to
communicate with each other easily. In other words, it can be said that APIs are a set of protocols that allows the creation of multiple applications that access information, data and features of additional applications or systems in a limited way.

This happens to the extent it is permitted in a secure manner,

keeping the security of the other software applications. It is used to fetch data or information from one application to another. The APIs can be used by way of pulling the data or pushing the data. The most commonly used word is also calling the APIs.

This is How APIs look:

POST/restApi/login — API to login.
GET/restApi/forgotPassword — Call it when the user

forgets their password.
GET/api/guest/restPublic/checkUniqueEmail —

API to check username’s uniqueness.
POST/api/v1/verify/sendOtp — API to send OTP.
POST/api/v1/verify/phone — API to verify number via OTP.
POST/borrower/borrowerDetail — Get borrower details.
POST/loanApplication/details — API to get loan details.
POST/accept termsAndConditions — API to accept terms and condition.
POST/admin/showHolidays — API to get all holidays.
POST/admin/borrowerList — API to fetch borrower list.
POST/admin/transactions — API to fetch transactions

of a user.

Perhaps more than 100 APIs are being created in each Application to
make it convenient to connect and communicate with various other applications.

KYC — KYC is an acronym for know your client or customer.

It is the proof required for identifying and verifying the

clients. Generally, KYC includes Proof of Identity and Proof

of address through legally acceptable documents. In India, the commonly accepted documents are PAN issued by the
Income tax department, Aadhar issued by UIDAI, driving license, Voter ID card and so on. The KYC is required to check persons physical availability and for Anti-Money

Laundering purposes. All the regulators insist on proper KYC for all kinds of financial transactions. Various

vendors tech entities offer online verification of KYC

documents.

Algorithms — Algorithms are a combination of multiple

instructions for solving a problem, setting up a rule, arriving at a complex calculation or accomplishing a task in a particular manner. All computerized devices use various kinds of algorithms to perform their functions. Algorithms are created to set various rules and calculations in pre-defined formula. The purpose of preparing and having Algorithms is to reduce the time a particular task takes to do it manually compared to doing it on computers.

In lending, a few examples are setting up rules for approval of loans based on pre-set criteria such as:

minimum credit bureau score.
minimum and maximum age limit of the borrower.
Loan amounts are based on transactions in the bank

statement and so on, it could also be a combination.

Artificial intelligence — A most commonly used term in the Fintech world, AI generally refers to the stimulation of

human knowledge, experience and intelligence in computer

software systems which includes objectives such as learning, remembering from past experience, logical reasoning and user perception. It is similar to remembering certain things from the past and using them in the future by a rule.
Angel Investor — Generally a private investor, who can be

an individual, a group of people, an entity created by like-minded people or a small size fund that wants to provide

financial support to small start-ups or entrepreneurs in

exchange for ownership in the form of equity holding in

the company. Some Angel Investment platforms also offer investing services.
InsureTech — Inspired by the term fintech which covers

all the financial services, the insurance sector start-ups or

companies using extensive technology to modernize and

improve the insurance business has started using this term.

Similarly, other companies use the word tech succeeding to

their respective sector to reflect the use of technology in their

business.
ICO — Initial Coin Offering or a token sale. It is the process

or events in which funds are raised for a new crypto currency venture and contributors receive tokens in return.
Bank account statement — It refers to the original document

issued by the applicant’s bank. Generally, the statement downloaded from the bank’s website in PDF format is

preferred. The statement is sought for a specific period

showing all the debit and credit entries.

Big data — As the name suggests, it means a very large quantum of data that organizations deal with on a daily basis. These data may be related to customers, their financial or non-financial behavior and so on. While there is no specification given to the quantum of data, the format of data or the quality of data, it can be analyzed to help businesses with insights

about their business in a structured manner by organizing the data which allows the organizations in the decision-making process related to planning and strategy. The data may often come from multiple sources, different formats and mostly in raw format or unstructured manner. Big data can be structured easily when it is in numeric format. It is quantifiable in a style that can be easily formatted and stored

by changing it from an unstructured to a structured format.
Machine Learning — ML is very similar to an area of

Artificial Intelligence with a philosophy and concept

that a computer software program can learn, accept and

adapt to new information and data and analyze it very fast

without any intervention from a human. Machine Learning

can be adopted and applied in various areas like travel
services, insurance, lending, e-commerce, investing, fraud

detection, advertising, medical services and many more products. Companies use various tools of ML to improve the customer experience and business efficiency.
Biometrics — It is a method of using digital security systems

that works on biological or physiological attributes like thumb impression, facial recognition, eye retina, body gestures, voice pattern and so on, that are physically unique to an individual. Biometrics can prove their identity to prevent

data breaches such as hacking of credit and debit cards or

unauthorized log-ins to any system, unauthorized entry in

buildings, attendance marking, and so on. This also reduces

dependence on traditional methods like passwords or PIN

codes that are more prone to hacking or may be stolen.
Cyber security — One of the most common and important terms
used by all Fintech players, regulators and users. It refers
to the protection or safety of internet-connected systems,
including software, hardware, sensitive information and data from hacking and cyber-attacks. Some key measures to keep systems secured are password protection, disk encryption, two-factor authentication and so on. There are various tools used by Fintech companies to ensure cyber security.
Delivery date — This means the date on which the Application

or the API Service is enabled by the vendor or service provider in accordance with published specifications in its stage environment. It is important to have not only the delivery date in the agreement but also the penalty clauses in the case of delay in the delivery date.
Electronic signature — An e-sign or digital signature system is used to execute or sign documents or agreements. It saves time to physically sign the documents, especially when multiple parties are required to sign. Various agencies offer

e-sign facility either by OTP one-time password on mobile

or email or both, e-sign capturing pictures, location through access or UIDAI Aadhar linked mobile phone and so on.

Digital Signature - Process and functioning

Encryption — A method that secures information or data

using a complex algorithm, password or a token or key. It

translates data or information using an algorithm that turns

plain text unreadable. When authorized users need to read

the data, they may decrypt it using a binary key. Encryption

is useful for individuals and companies to protect sensitive

information from hacking. For example, websites that transmit credit card and bank account numbers should always encrypt this information to prevent the hacking of private information. There are terms like 64-bit, 128-

bit, and 256-bit encryption, which refer to concealing plain

text data using an AES key length of 64 or 128, or 256 bits.

128-bit AES encryption uses 10 transformation rounds to convert plain text into cipher text. The higher the bits, the

more complicated and safer it is. AES 256 encryption is the strongest and most robust encryption standard that is

commercially available today. While we can confidently say

that AES 256-bit encryption is harder to crack than AES 128-

bit encryption, it is believed that AES 128-bit encryption has never been reported to be broken till now. So as a practice, most Fintech companies use 128-bit encryption, while small

start-ups even use 64-bit encryption.
AES — The Advanced Encryption Standard was initially known as Rijndael. Worldwide it is one of the most secure and popular encryption algorithms available. The symmetric-key block algorithm is the Fintech industry standard to encrypt and decrypt important, sensitive or classified information and data.
Feedback data — means the data relating to the performance of Fintech’s customers assessed using services.

User ID, loan amount, tenure, decision application approved/rejected and date of the decision.
Default eligible flag, default flag.
Types of default, DPD on each of 1st to the last payment.
Anonymized credit bureau scrub of the customer.

Integrated service — This means the service provided through

the integration of the API service and the application pursuant to the production schedule.
Integrated service pages — This means all pages on which the

Integrated Service is displayed or made available for use by

customers.
Mobile wallet — This virtual wallet stores the payment card

information on a mobile device. It is an easy and convenient

method for the user to make in-store payments. The wallet

can also be used by merchants listed with the mobile wallet

service provider for convenience. Some of the Mobile Wallet examples are Paytm, GPay, Amazon Pay, BharatPe, RuPay, PhonePe and so on. Many companies have their in-built mobile wallets, like OLA Money.
P2P Lending — Peer to Peer lending mechanism is a process that helps individuals obtain loans or financial assistance directly from other individuals who want to invest money in lending without the need for a financial institution like Bank or NBFC. It is also known as crowd-lending. In India, P2P lending companies are called ‘NBFC - P2P’. They are regulated by the Reserve Bank of India and are subjected to certain regulations in terms of loan ticket size, loan tenure, maximum lending limit, maximum borrowing limit and so on.

Robo advice — Financial advice given through the use of

computer algorithms. Robo-advisors, also known as online investment managers, typically invest. Wealth management firms use this technology, experience and analysis to develop forecasting tools. It helps in creating algorithms for auto investment rules based on investor clients risk profiles.
Venture capital — It is the Financial support or investment that investors provide to start-up companies and small firms that have moved past the stage of angel investment and

are thought to be in a development phase with promising prospects for the foreseeable future. It generally comes from family offices, Senior level CXOs, High Net worth Investors, investment banks and other financial institutions or companies that find synergy with their business. Generally, the venture capital investment comes after the Angel investment round when the company would have started operations.
3D secure — 3D secure is a process with three domain structures connecting the merchant page with the issuer and the acquirer. The purpose of a 3D secure network is to prevent fraudulent or fake transactions, mainly on e-commerce websites. 3D is a security system created for payments to be done by the customers where they enter the OTP received through the merchant in a secure page to validate their identity and complete the transaction.
Account Information Service Provider — A popular

term in Fintech and Open Banking industry AISP means providing customer account information and data, with

the customer’s consent, to a third-party software system.

AISPs help customers reduce manual work by pre-filling

information for easy and faster access to their financial data

and information for speedy approval of loans and other

credit facilities offered by financial institutions.
Acquiring bank/Acquirer — Acquiring bank is a financial

institution that acts as a linkage between the merchants

and issuing banks. The acquiring bank’s infrastructure and finances can be used by merchants to process card transactions quickly.
API Banking — The latest in Fintech is API banking which

follows a set of regulated protocols, tools or routines. These provide access to banking services by a financial or third-

party institution via APIs. These banks offer secured and

restricted access to their central bank system to third-party

systems to carry out functions. This allows banks to acquire

customers and provide services to a more extensive network

otherwise not connected with the Bank.
Bank Identification Number — Most cards, whether

debit, credit or prepaid, are generally of 12 or 16 digits. BIN is
the first 6, 8 or 12 numbers present on these cards providing basic issuer details. This is used to identify the details of the card issuer and help merchants validate transactions using these prepaid/debit/ credit cards.
PPI Card — In India, RBI has permitted certain institutions

to issue Pre Paid Instruments, say cards to avail various

credit services offered by banks, NBFCs and other financial institutions. RBI provides separate licenses for the issuance of PPI cards.
E-wallet — The term is used for a system or electronic device

which securely stores various data and information of the

users, like payment information and passwords for making

various payment methods. These e-wallets have a specific

software-based secured system that enables users to purchase

from e-commerce websites or easily perform other financial

services-related transactions like investment, borrowing

and so on. For example, M2P’s forex cards can hold up to 24

currencies, allowing customers to make payments easily.
Embedded credit — Embedded credit or Embedded Finance

involves using a familiar interface or a customer facing non-financial platform that allows the customer to apply, acquire, approve, disburse and make payments of loans or line of credit products within the platform without using a third-

party site providing credit or payment services. Customers

can access and use the credit facility within the mobile app

offered by the service provider or the platform.
Embedded lending — Embedded lending is similar to embedded credit as it integrates Lending-as-a-Feature in digital platforms like e-commerce websites, payment applications like Paytm, Amazon Pay, BharatPe and so on, B2B platforms or any other platforms providing financial services including investing and wealth management Like CRED and so on. These Companies work closely with Fintech companies to offer credit as an in-app experience to increase the Life Time Value of customers and enhance the order value. Embedded Lending or embedded financing feature allows companies to integrate their systems in the back end while improving the customer experience and customer service.
EMV chip — This new feature is introduced by Europay,

MasterCard and Visa; hence the short form is called EMV.

EMV is a tiny computer chip wherein the customer needs to

dip the credit or debit card inside the machine instead of the old swipe card machine. The EMV chip is considered more secure as a unique transaction code is generated for every dip made in the card. This helps in reducing or preventing fraudulent transactions.
FinTech Sandbox — This is another most used feature while creating any Fintech platform. FinTech or API sandbox is a

regulated environment for innovators to test their products in real time. Sandbox helps reduce systemic risks before

entering the market and facilitates Fintechs to create better services and products. The Sandbox is also known as a testing server. It can be of two types one provided by government agencies for the entire ecosystem to test and work on it like GST Sandbox offered by the Government of India and two, provided by the software development companies to its users to test the systems before implementation.
Payment gateway — A payment gateway is similar to the “3D

Secure” software system which acts as an interface between

the merchants’ website and the acquirer to validate and

accept debit, credit card, digital wallet or internet banking

transactions that a customer makes for purchase on the

website. The payment gateway technology validates the

card details provided by ensuring sufficient funds are in the card. The getaway also enables merchants to get paid for the purchase.

Payment Switch — In the transaction process there are multiple entities involved. Payment Switch is an independent tool that

communicates with these entities in the transaction process. The payment switch facilitates the processing of real-time payments without any hassles smoothly by connecting the merchant’s gateway with a suitable processor.
PCI DSS — PCI DSS stands for Payment Card Industry Data

Security Standard that protects sensitive information and

data of the consumers on various websites and applications, mainly as a part of Fintech. PCI DSS is applicable in storing, processing and transmitting the cardholder data for organizations, whether transparent or encrypted.
Block Chain — The world’s leading software platform that first emerged as the system underpinning bitcoin. Blockchain is also known as distributed ledger technology. Instead of a central authority, blockchains hold the shared record of information by maintaining and updating it through a network of computers. It is protected and secured by advanced cryptography.
Tokenization — Tokenization is a process that replaces

cardholder information and data with a random string of

characters called Tokens. The purpose of tokenization is

to help the merchants on the internet and networks move

sensitive data and information of the customers without the

hovering threat of payments fraud or identity theft of the

customer using the card.

Technologies In Fintech Setup

Technology can lower operational costs too. It could be in customer

acquisition or customer servicing. It also increases the speed of

execution regarding decision making transparency in terms and conditions of the company’s products and services. It also impacts the security of systems for the company and personal information of the customers. It is effective in the availability of more tailored and customized financial services. Here, financial services can be banking, insurance, investment management or other related services. The steps along the financial service lifecycle include account opening, customer due diligence, KYC document and bank statement verification, authenticating transactions in bank statements. It may also include transactions with other service providers like electricity, telephone, mobile, gas connection and so on, which can be simplified by digitizing documents, data and processes. This includes automating other product-specific processes like determining creditworthiness.

Fintech provides a low marginal cost per account or per transaction rate. High scale efficiencies can also be considered in Fintech

operations. Fintech enhance transparency in the offerings made to the customers and reduces information asymmetries since digital processes generate a data trail, which can help understand customer expectations, improve products and services, manage and mitigate risks and promote regulatory compliance.

The use of technology in finance has a long history as banks have

adopted it, private financing organizations like NBFCs and so

on. Since finance involves high-value activities, using the latest technologies, whether the finest scales to weigh gold pieces or the fastest communication methods of the day, has been preferred from Rothschild’s carrier pigeons to Reuter’s telegraph. Digital technology made its way into finance as the second major application of electronic

computers after the military worldwide. During the 1950s to 1970s, the first wave of financial technology saw mainframe computer systems become a part of the back office in large banks and then gradually the middle and front offices of most prominent financial institutions globally. The late 1960s through the 1980s saw the emergence of digital

technology companies dedicated to serving financial institutions,

including core banking system providers like FIS and Fiserv in

international markets and then companies like Infosys, Wipro and TCs in India and payments networks like Mastercard and SWIFT. The adoption of computer systems in banking got a lot of limelight during the Y2K problem.

For those who are new to the term Y2K, to explain this in simple

words, computers were using date format as DDMMYY only the

last two digits of the year were used, like 82 for the year 1982, 94 for the year 1994 and so on without realizing that what shall be done

when the year will be 2000 we shall need to use YY as 00. Upon

releasing this, the entire financial services players rushed to change

their systems to change the year format from YY to YYYY to avoid

any issues later. The years 2000 to 2003 witnessed a huge growth in

internet services though later it also got called the dot com bubble as the technology companies got beaten up in the stock market and

crashed in valuation. However, it paved the way for the use of the

internet and technology in financial services in a big way.

The current wave of fintech innovation is marked by the technology
companies increasingly interacting directly with customers and becoming financial services providers, moving from B2B services

to B2C services. This wave works by breaking services and offering

new product combinations straight to individuals and business users by utilizing the more sophisticated technology in the hands of increasingly smart customers and changes in business models. Extensive use of APIs, Artificial Intelligence, Machine Learning, Distributed Ledgers and blockchain has changed the way financial services are offered to customers.

Using these cutting-edge technology tools has resulted in disruptive changes to the financial market in terms of the pace of technological advances, who is providing financial services, and how consumers use those services and interact with providers. The customer experience is a deciding factor in using financial services, primarily driven by previously mentioned technical tools.

Digital transformation means reshaping the market outcomes of the financial services industry. Fintech supports the economy’s growth by strengthening economic development, inclusion, and efficiency by providing the financial services required for the digital economy to flourish. The Indian government has taken a huge step by introducing various instruments for the financial inclusion of the poor in banking services. The authorities will need to shape regulatory and supervisory approaches to harness these opportunities while

ensuring that core policy objectives, such as stability, integrity, consumer protection, and competition, continue to be met as the digital transformation of the financial sector continues.

Digital finance has enabled providers to leapfrog legacy channels and products, particularly in Emerging Markets and Developing Economies, especially in South East Asian countries, including India. Financial markets have seen the entry of standalone consumer fintech firms, new B2B services, B2C services, D2C services

and big tech firms offering diversified products and services.

Incumbents have also embraced technology as a strategic priority

to improve their products, lower costs, and compete. COVID-19

increased digitization across many sectors, including finance as

businesses and individuals adapted to social distancing and hygiene

protocols and sought efficient and effective ways to connect remotely to government and business service providers. Thus, the pandemic reinforced what was already a clear trend of rapid technological advances by reshaping the economic and financial landscape globally.

The digital payment services offered by ‘WhatsApp’ is the latest

innovation that has changed the entire payment system similarly,

Amazon’s payment services have made the customer experience

very different and easy.

This section seeks a lot of support and views from policymakers

about the outlook on new financial services instruments like Crypto

Currencies however, it also responds to increasing demand from policymakers for guidance regarding their actions on economic sector transformation. It explores how fintech is reshaping the structure of

financial services, the implications of fintech in key product areas and for different customer segments and potential regulatory responses.

Fintech firms can impact financial inclusion in the country, especially in underdeveloped or developing economies.
Types of financial services providers.

Types of business models, products and services.
Market structure.
Infrastructures in the financial sector in Emerging Markets and Developing Economies over

the next five to ten years?

What policy responses might shape or change these outcomes in support of policy objectives and priorities, given the sub standard infrastructure conditions and other constraints related to literacy and so on?
Regulations of new financial instruments like Crypto

Currencies and crypto exchanges.

A detailed discussion of the preceding points shall help grow the Fintech industry in India and worldwide.

Conclusion

In this section, specific technologies are addressed

wherever relevant. The overall focus, however, is on the evolution of the Fintech industry, market trends and how to build a robust Fintech, especially in the lending space. The digital transformation of finance in this fast-changing world will be touched upon with a focus on the challenges and opportunities in the Fintech

segment. The regulatory implications will be discussed in the context of rapidly digitizing economies rather than on specific technologies that may have currency today but can get superseded tomorrow. For

that reason, this section starts its analysis with the basics of Fintech, key terms used and key drivers of change on the technology side.

We have linked these to the underlying economics of financial intermediation, the economic frictions, financing in various segments that gave rise to intermediaries and the economic forces that shaped their scope and scale.