Abstract
This study examines the impact of fintech on India's financial landscape from 2021 to 2021. Using advanced regression techniques and accounting for various factors, the authors find a positive link between fintech and financial development, including improved access to loans and increased savings. They also highlight the potential of regtech in enhancing financial development. The findings stress the importance of balanced regulatory frameworks to foster fintech growth while managing risks. Additionally, they show how policy measures like interest rate liberalization can positively influence financial development. In conclusion, they propose a comprehensive policy framework to promote equitable fintech growth in developing nations.
TopIntroduction
Fintech, a portmanteau of 'financial' and 'technology,' embodies the utilization of novel technologies and inventive business approaches to deliver financial services, as defined by Nicoletti (2017). India stands prominently within Asia as a burgeoning epicenter for fintech innovation, boasting a plethora of pioneering fintech enterprises. The intersection of fintech and financial development remains a burgeoning field of inquiry, hindered thus far by data constraints. Financial development encompasses a spectrum of dimensions, including accessibility, depth, efficiency in service provision, and stability, as delineated by Sahay et al. (2015), Sun and Muganyi (2019), and Sun et al. (2020a, b). This study addresses three dimensions of financial development through proxy variables. While the intuitive expectation is for fintech expansion to bolster financial development by enhancing inclusivity and accessibility, as noted by Leong et al. (2017), Jagtiani and Lemieux (2018), and Cole et al. (2019), it's imperative to acknowledge that fintech adoption introduces a new facet of risk into financial markets.
2021 saw India shine brightly on the global stage, showcasing its remarkable strides in the FinTech realm, aligning with the burgeoning momentum of this industry worldwide. India proudly holds its position as the third largest FinTech market globally, trailing only behind the US and the UK. The landscape is adorned with a constellation of FinTech unicorns, burgeoning startups, and a vibrant funding ecosystem, underscoring India's undeniable presence and influence in the global FinTech arena (EY, 2022).
Key Terms in this Chapter
Financial Openness: Financial openness refers to the degree of integration and liberalization of a country's financial system with the global economy. It encompasses policies and measures that facilitate cross-border capital flows, foreign investment, trade in financial services, and participation in international financial markets. Greater financial openness can promote economic growth, efficiency, and risk-sharing but may also increase vulnerability to external shocks and contagion.
Financial Depth: Financial depth refers to the level of financial intermediation and the size of financial markets relative to the overall economy. It measures the breadth and depth of financial services available, including banking services, capital markets, insurance, and other financial instruments. Greater financial depth indicates a more developed financial system capable of mobilizing savings, allocating capital efficiently, and facilitating economic growth.
Financial Stability: Financial stability refers to the condition in which the financial system functions smoothly and can absorb shocks without disruption to its core functions. It encompasses the resilience of financial institutions, markets, and infrastructures to withstand external stresses, such as economic downturns, market volatility, credit crises, and systemic risks. Maintaining financial stability is a key objective of financial regulation and supervision.
RegTech (Regulatory Technology): RegTech refers to the use of technology to facilitate regulatory compliance, monitoring, and reporting for financial institutions. It encompasses solutions such as automated compliance checks, regulatory reporting tools, risk management systems, and anti-money laundering (AML) software. RegTech helps financial institutions navigate complex regulatory requirements efficiently, reducing compliance costs and risks associated with non-compliance.
Industry 4.0: Industry 4.0, also known as the Fourth Industrial Revolution, refers to the integration of digital technologies into industrial processes to create “smart factories” and interconnected systems. It encompasses the use of advanced technologies such as the Internet of Things (IoT), artificial intelligence (AI), robotics, big data analytics, and cloud computing to optimize manufacturing and production processes, improve efficiency, and enable new business models.
Financial Development: Financial development refers to the process of improving the efficiency, depth, accessibility, and stability of financial systems within an economy. It encompasses the development of financial institutions, markets, infrastructure, regulations, and services to support economic growth, investment, savings, and risk management.
NeoBanks: Neobanks, also known as digital banks or challenger banks, are financial institutions that operate exclusively online or through mobile applications, without traditional physical branches. They leverage digital technologies and innovative business models to offer a range of banking services, such as savings accounts, payments, loans, and financial management tools, often targeting tech-savvy and digitally native consumers. Neobanks typically provide streamlined, user-friendly experiences and may specialize in niche markets or innovative products.
Financial Access: Financial access, also known as financial inclusion, refers to the ability of individuals and businesses to access and use financial services effectively. It encompasses access to banking services, savings accounts, credit, insurance, payment systems, and other financial products and services. Improving financial access is essential for promoting economic participation, reducing poverty, and fostering inclusive growth.
FinTech (Financial Technology): FinTech refers to the innovative use of technology to deliver financial services and products. It encompasses a wide range of applications, including digital banking, mobile payments, peer-to-peer lending, robo-advisors, blockchain, and cryptocurrencies. FinTech aims to enhance efficiency, accessibility, and affordability in financial services, often disrupting traditional banking and finance sectors.