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Almost 2,500 years ago, the Greek philosopher Heraclitus expounded, “The only thing constant is change.”

This famous adage, particularly relevant in the ever-evolving world of finance and technology, exposes a pressing challenge in the Indian banking sector: a tendency towards technological stagnation.

The recent RBI directive for a leading private bank’s limitations due to outdated technology exposes a crucial truth: in today’s digital age, a one-time investment in tech simply isn’t enough. Much like any other sector, perhaps even more so, the fintech sector requires a steadfast commitment to continuous innovation.

This article delves into the technological advancements driving the modernisation of the fintech sector—cloud computing, big data analytics, and artificial intelligence (AI)—and emphasises the critical need for ongoing tech investments to overcome technological inertia and secure a prosperous and resilient future for the finance industry.

Cloud Computing: the backbone of modern fintech

Cloud computing is revolutionising the banking industry, offering far more than just streamlined credit card issuance. It empowers complete industry transformation. By enabling scalable and instantaneous data processing, cloud technology enhances operational efficiency and flexibility across the sector.

It facilitates real-time decision-making, allowing banks to offer personalised services and improve customer satisfaction. For instance, cloud computing can support advanced fraud detection systems and enable seamless integration with fintech innovations, thereby creating a more robust fintech ecosystem.

Big Data: redefining customer understanding

This expanded access fosters financial inclusion and empowers a broader customer base. Big data analytics are a treasure trove for understanding customer behaviour and credit worthiness. This technology enables banks to improve underwriting processes and expand access to credit. By analysing vast datasets, banks can move beyond traditional metrics to offer financial access to previously underserved segments.

Take homemakers, for example, who are currently active on social media channels like Instagram and YouTube and are swiftly becoming part of the formal financial system through user-friendly mobile payment solutions. The same can be true for delivery personnel across the country. Fintech can bypass traditional limitations and bring them into the formal financial system, allowing them to manage earnings digitally and access financial products they might not have been able to before.

Artificial Intelligence: opening endless possibilities

AI is set to revolutionise banking in ways that we cannot even begin to imagine, yet its capabilities are often underestimated and underutilised. Despite the advanced technology at our disposal, we frequently limit its application to basic tasks, missing out on its transformative potential.

Envision a fully automated bank branch, entirely controlled by AI, where personalised financial advice is offered to each customer and every aspect of operations is optimised. AI has the potential to predict financial trends, offer proactive investment strategies, and streamline loan approvals to minutes.

Think about AI creating immersive, interactive customer experiences through virtual reality (VR) and augmented reality (AR), allowing users to visualise their fintech future or explore investment opportunities in a dynamic, engaging way. This blue-sky vision of AI in banking promises a future of innovation, convenience, and exceptional service, reshaping the fintech landscape in extraordinary ways.

The continuous journey of tech investment

Investing in technology shouldn’t be seen as a one-time solution; it is an ongoing journey.

As the fintech landscape evolves, banks and fintechs must continually upgrade their tech infrastructure to stay competitive and meet customer expectations. The underutilisation of technology is a common pitfall.

To avoid this, fintech institutions must fully harness the capabilities of advanced technologies to drive innovation and efficiency.

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The role of fintech in reaching new frontiers

Leveraging the benefits of evolving technology, fintech companies are playing a pivotal role in transforming the traditional banking and finance landscape by reaching customer segments previously difficult to access. Unlike traditional banks’ one-size-fits-all approach, fintechs offer customised solutions that cater to specific needs, thus enhancing the overall fintech experience.

For instance, consider freelancers, who often face challenges with irregular income streams. With fintech solutions, they can access tools for managing their finances effectively. Similarly, small business owners can benefit from fintech products designed for efficient cash flow management and streamlined payment processing. Students can use fintech apps to manage loans, savings, and investments, enhancing their fintech literacy and independence. Additionally, rural populations who traditionally lack access to banking services can now perform transactions, save, and invest through mobile banking solutions.

Elevating the fintech experience

Furthermore, the formal banking system, while comprehensive, often falls short in providing an elevated, personalised experience. Fintechs, on the other hand, excel in customising products to meet specific needs. While a single fintech may not address all issues, a diverse ecosystem of fintechs can collectively solve many financial challenges, offering innovative, inclusive, and tailored services that traditional banks struggle to provide. This holistic approach not only expands access but also enhances the quality of financial services for all customers.

The Indian finance sector stands at a crossroads. Embracing a modern tech stack and fostering a culture of continuous innovation are no longer a matter of choice, but essential steps to navigate the future. Along with continual investment in infrastructure, it is equally key to ensure talent development.

As the fintech landscape evolves, banks and fintechs must continually upgrade their tech infrastructure and talent pool to stay competitive and meet customer expectations. To avoid falling prey to the pitfalls of underutilisation of technology, fintech institutions must fully harness the capabilities of advanced technologies to unlock a future of inclusivity, personalisation, and unparalleled customer service.

(RV Ramanathan is the CEO and Co-Founder of Hyperface, a fintech firm.)