Rewriting the traditional narrative of banking and finance in India, FinTech is using smart technology to make things like paying, saving, and managing finances way easier. It is now being stated that the FinTech sector can potentially emerge as a substitute for traditional banking in the near future.
“The rapid uptake of UPI shows how digitalization can complement traditional banking. The strong relationship between UPI and FinTech lending, especially during COVID-19 is testimony to the potential of digitalization. The FinTech sector can potentially emerge as a substitute for traditional banking in the near future,” a report titled India Finance Report 2023 by the Centre for Advanced Financial Research and Learning (CAFRAL) stated.
Notably, CAFRAL is an independent body set up by the Reserve Bank of India (RBI) which seeks to develop into a global institution for research and learning in banking and finance.
Highlighting that India is undergoing rapid digitalisation, the report stressed on the need for a “quick and nimble” regulation to ensure growth of digitalisation and financial stability.
“The emergence of the digital era, however, also brings with it new challenges. Digitalisation also allows borrowers to conduct transactions rapidly in real time, potentially allowing for both quick expansion and rapid withdrawal of deposits, increasing volatility in the banking system and amplifying systemic risk. Hence, the expansion of digitalization needs to be accompanied by quick and nimble regulation that promotes access and growth while ensuring financial stability,” it said.
Giving details on UPI and rapid expansion of FinTech in India, it further stated that a central factor determining the pickup in FinTech lending in the country has been the introduction of UPI, which has enabled an almost-universal system of digital payments and eased many logistical and geographical barriers to credit flow.