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5 ways fintechs can rise above in times of crisis

Apr 24 - 2020

Fintechs in India and around the world are bringing in a glimpse of hope in the otherwise COVID-hit pessimistic economy. According to data collated from start-up research and intelligence platform Tracxn and IBS Intelligence, “Funding into the Indian Fintech start-ups has increased by 40% at $807 million for the first three months of 2020 as compared to $570 million for the same period last year. However, the number of rounds has decreased.”

In the current times when businesses are looking at online prospects to stay afloat, opportunities for fintechs are certainly on the rise. But, with this the industry has its own lessons to learn. For instance, the Yes Bank crisis in March 2020, where the Reserve Bank of India (RBI) imposed a moratorium suspending bank's services, presented a wake-up call for its fintech partners. The good news is the bank’s fintech partners managed to circumvent the situation quickly, and got back to business in no time.

With that said, the fintech industry is facilitating a melting pot of new trends and measures to safeguard businesses in wake of a crisis and be better prepared for any adversity.

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Indian fintech start-up funding has increased by 40% at $807 million for the first three months of 2020 as compared to $570 million for the same period last year

The threat and opportunities: Fintechs in the era of new normal

The fintech industry continues to be relevant by helping people cope with the effects of the pandemic through digital-only interactions, for money transfers, payments or any financial transaction.

However, for fintechs to stay at the top it’s important that they are agile, flexible and faster in responding to uncertainties. Here are top five of the most prominent trends to help fintech businesses circumvent or walk-through a crisis with minimum damage:

1. Risk diversification

Multiple banking collaborations can help fintechs diversify risks and reduce the fragility of singular partnerships. For example, before the moratorium, one of the impacted partners of Yes Bank crisis managed to reduce losses by moving 70% of its merchants and user base to another leading bank in the country. Having a fall back option can help mitigate the operational risks to a great extent. On the other hand, for banks this is an added possibility of new monetisation opportunities by offering backup services for a standard fee.

2. Strong business continuity plans

If planned in a streamlined structure, fintechs can provide opportunities for level playing, while building on their technological capabilities. With the right services partners, fintechs can also build on their  growth and customer experience -- a win-win for both. Further, in the light of recent events, strategic partnerships based on infrastructural capabilities, compliance with RBI regulations and information security will help fintechs stay relevant and continue to grow.

3. Machine-learning advancements

Fintechs are already reaping the benefits of machine learning in their businesses, but they could also use it to safeguard themselves. An advanced machine-learning solution can help follow compliance and have their required checks in place. These solutions can also locate missing links (if any) or detect patterns to prevent any kind of a fall out.

4. Keeping with the age of APIs

API-based platforms give fintechs the flexibility to create and enhance their products and services to match market demand, while also taking care of compliance and data security. The modularity of such platforms facilitates seamless transition to different systems when needed, without critical services getting impacted.

5. Testing under RBI sandbox

The RBI regulatory sandbox with API stack of major financial institutions in a proxy ecosystem gives fintech companies an opportunity to test their services on a live audience and rectify several operational hurdles before commercially rolling out the services.

The good news is RBI is clued in to help fintechs businesses. For instance, fintech solutions incorporated into formal government schemes are proving to be a more viable option for some companies during a crisis.

Next, with high-street banks reducing the number of their branches, customers will increasingly have to rely on digital solutions. Flipping the coin, this also means that despite the economic hardship expected to follow the COVID-19 crisis, investors will look to support fintechs whose services can offer unmatched digital experience to the customer. The growing demand for convenience has already proven that digital financial services will be the future. The government should, therefore, look at easing regulations and introducing pro-fintech policies to enable a digitally inclusive economy.

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