Fintech

50 Popular Fintech Terms You Must Know

Central Bank Digital Currency (CBDC) 101- A Primer

50 Fintech Buzzwords Explained

<img src="https://m2p-website-file.s3.ap-south-1.amazonaws.com/m2p-website-file/marketing-cms/m2p-blog/2022/06/Artboard-1-copy-8-6.webp" alt="M2P Fintech" title="" id="9lksxlzsk" width="100%" height="528">It’s been 3000 years. Not a single day passes without the usage of money.Be it physical or digital, the movement of money signifies value and hope to the millions involved. Money transfer operators, banks, and <a class="link" href="https://m2pfintech.com/blog/fintech-101-discover-the-3ws-of-fintech/">fintechs</a> have played a remarkable role in enabling seamless money transfer in a quick, secure, and convenient manner.<h2 class="heading-node" id="19yqmhede" style="text-align: justify">Shift from Cash to <a class="link" href="https://m2pfintech.com/blog/ready-to-sneak-peek-into-global-cashless-societies/">Cashless</a></h2>Money was not always fancy as crisp notes and lightweight coins three thousand years ago. It had a humble beginning taking the form of cowrie shells, rail stones, farm produce, and livestock to be used as exchange. Slowly precious metals like gold, silver, and copper were used in trade. Then cash in the form of metal coins and currency notes came into prevalence.<img src="https://m2p-website-file.s3.ap-south-1.amazonaws.com/m2p-website-file/marketing-cms/m2p-blog/2022/06/Infographic-1.webp" alt="M2P Fintech" title="" id="zrmpc1bbw" width="100%" height="1321">Today, the world has transitioned from cash to a <a class="link" href="https://m2pfintech.com/blog/ready-to-sneak-peek-into-global-cashless-societies/">cashless economy</a>. <a class="link" href="https://m2pfintech.com/blog/payment-cards-design-made-simple-heres-what-you-need-to-know/">Payment cards</a>, QR codes, contactless modes, cryptocurrencies, and <a class="link" href="https://m2pfintech.com/blog/central-bank-digital-currency-cbdc-101-a-primer/">digital currencies</a> are hogging the limelight as they are super convenient, simple, and secure ways of moving money and making payments.<h2 class="heading-node" id="2421" style="text-align: justify">Evolution of Money Transfer</h2>Changes in customer expectations, the need for enhanced experiences, and the growing cyber security issues demanded an evolution in money transfer. Payment apps, digital wallets, wearables, and real-time payment platforms are doing their best in fulfilling this quest by enabling quick, simple, and secure Peer to Peer (P2P) and Peer to Merchant (P2M) transfers and payments.Curious to know when and how money transfer began?Here you go.<h3 class="heading-node" id="d1f6" style="text-align: justify">Hawala</h3>The hawala system is the oldest form of money transfer that dates back to the 8th century. Known as the “money transfer without money movement,” it was actively used in India, the Middle East, and South Asia.Heavily based on trust between hawala agents, the transfer is usually done without any promissory notes. The hawala agents could be friends, family, or trusted acquaintances who settle debts between parties with cash, property, or services.Here’s how hawala works.The sender gets in contact with a hawala dealer A to transfer money to another country. As soon as the money, commission, and beneficiary details are shared, the sender receives a unique secretive code. Then the hawala dealer A contacts dealer B from the recipient country. Dealer B then delivers the amount to the designated receiver after revealing the secretive code. The unique code will reconfirm if the receiver is the right individual or not.The hawala system is still in use as an alternative to the remittance channels and traditional banking systems.<h3 class="heading-node" id="cfd9" style="text-align: justify">Wire Transfer</h3>Next in line was wire transfer, the electronic mode to transfer money through a global network. It was known for its fast, irreversible, foreign, or domestic electronic money transfers. In the 19th century, Western Union was the first money transfer operator to introduce wire transfers.<img src="https://m2p-website-file.s3.ap-south-1.amazonaws.com/m2p-website-file/marketing-cms/m2p-blog/2022/06/Infographic-2-V2.webp" alt="M2P Fintech" title="" id="8tw76fb9s" width="100%" height="661">Here the sender had to reach out to the office with the money, and the operator would send a message and ‘wire’ those funds to the destined location. Codes and passwords were used between the parties involved to ensure security. Soon wire transfer became an integral part of moving or exchanging money internationally, and it still is.<h3 class="heading-node" id="750d" style="text-align: justify"><a class="link" href="https://m2pfintech.com/blog/payment-cards-design-made-simple-heres-what-you-need-to-know/">Payment Cards</a></h3>Metal money was the first precursor to the present-day cards. It was issued by Western Union in 1914. A few years later, in 1928, the Charga-plate was introduced in the US, which was offered by merchants to their regular customers. They became popular among the department stores, as they could issue cards on their own. These were the first transactional cards in history.Later in the year 1946, John C. Biggins of Flatbush National Bank of Brooklyn introduced the “Charg-It” card, which allowed people in a two-square-block radius to charge purchases to the bank. Charg-It was an easy way for consumers to use the card at multiple businesses. Merchant however had to leave sales slips with the bank.Then came the Diners’ Club card in 1950, which was the first real <a class="link" href="https://m2pfintech.com/blog/credit-card-processing-a-definitive-guide/">credit card</a>. Called a Charge Card, its cardboard form gained massive popularity and acceptance among users. It charged merchants a 7% fee on every transaction and delivered one monthly bill on dining expenses to the cardholders.A decade later, the turning point in card transactions happened. Banks introduced ATM machines. After this move, cards were used at ATMs to withdraw cash and make deposits.In the early 90s, credit card adoption in India was slow. People who travelled to foreign countries were the only ones to use the Diners cards in India in the 1960s. It nearly took 15 years for the Diners card to reach 8,000 registered users in India.In 1980, the Central bank of India brought in credit cards in association with Visa and Master Card. As a result, debit and credit cards became the dominant source for non-cash payments, which retailers and consumers readily accepted.<h3 class="heading-node" id="4276" style="text-align: justify">SWIFT Transfer</h3>In 1973, SWIFT transfers came into existence. They were typically wire transfers but done via the Society for Worldwide Interbank Financial Telecommunications (SWIFT) network. This global messaging network helped improve the speed, transparency, and consistency of payments. It changed the perception of how the credit system worked and became a globally recognized provider of secure financial messaging.<h3 class="heading-node" id="f5e7" style="text-align: justify">Growth of Online and Mobile Money Transfers</h3>In the late 90s and early 2000s, electronic deposits, <a class="link" href="https://m2pfintech.com/blog/cross-border-payments-a-swift-money-flow-across-borders/">digital remittances</a>, and mobile money transfers became prominent. The following payment systems facilitated money transfers from anywhere, anytime, without any hassles.<img src="https://m2p-website-file.s3.ap-south-1.amazonaws.com/m2p-website-file/marketing-cms/m2p-blog/2022/06/Illustration-NEFT-V2.webp" alt="M2P Fintech" title="" id="llvfslid3" width="100%" height="661"><ul class="list-node" id="4rj8aja12"><li><a class="link" href="https://m2pfintech.com/blog/upi-the-driver-of-economic-growth-and-inclusion/">UPI</a></li></ul>Introduced by the National Payments Corporation of India (NPCI) and the RBI in 2015, <a class="link" href="https://m2pfintech.com/blog/upi-the-driver-of-economic-growth-and-inclusion/">the Unified Payment Interface (UPI)</a> is an easy way to transfer money in real-time from one bank to another. Here, the UPI ID acts as the virtual payment address, and UPI PIN is the security password to authenticate the transaction. These are only two things required to transfer money. UPI eliminates the need to enter complex bank account details to initiate a money transfer.<ul class="list-node" id="u29byozm5"><li>IMPS</li></ul>Immediate Payment Service is an instant fund transfer service and can be simply defined as NEFT+RTGS. It ensures real-time interbank funds transfer in the Indian banking system provided by banks. The cap on transaction limit is set very low to avoid fraudulent complaints. In order to make an IMPS transfer, you just need to know the destination account holder’s IMPS id (MMID) and their mobile number.<ul class="list-node" id="nix10ovkr"><li>RTGS</li></ul>The ‘Systemically Important Payment System,’ Real Time Gross Settlement (RTGS) System was introduced in 2004. It is a secure electronic fund transfer system that provides real-time online settlements for bank transactions across the country.<ul class="list-node" id="h04bgsk39"><li>NEFT</li></ul>National Electronic Fund Transfer (NEFT) was introduced in 2005 and soon became one of India’s prominent electronic fund transfer systems. It is the most secure way of transferring funds from one bank account to another. Here, the funds are transferred using the Reserve Bank of India’s NEFT infrastructure, which is a nationwide payment system facilitating safe and secure transactions all over the country.Now, this is not all. There are several other money transfer modes that involve virtual and cryptocurrencies. We’ll cover them in subsequent articles.Feel we’ve missed out on something. Let us know in the comments below.<h2 class="heading-node" id="2754" style="text-align: justify">The road ahead</h2>Newer technologies and <a class="link" href="https://m2pfintech.com/blog/api-the-power-that-drives-new-age-banking-ecosystems/">API-based</a> tech stacks are paving the way for quicker, robust, hassle-free money transfer processes. Banks and money transfer operators leverage fintech partnerships to enable great remittance experience, cut costs, and manage backend integrations and tech infrastructure. Robust security verifications and <a class="link" href="https://m2pfintech.com/blog/why-is-risk-based-authentication-rba-critical-for-banks/">risk management systems</a> promise a secure, real-time flow of money across borders.Want to know more about digital money transfers? Write to us at&nbsp;<a class="link au md" href="mailto:business@m2pfintech.com" target="_blank" rel="noopener ugc nofollow">business@m2pfintech.com</a><a class="link" href="https://m2pfintech.com/newsletter/">Subscribe</a>&nbsp;to our newsletter and get the latest fintech news, views, and insights, directly to your inbox. Follow us on&nbsp;<a class="link" href="https://www.linkedin.com/company/m2pfintech/mycompany/">LinkedIn</a>&nbsp;and&nbsp;<a class="link" href="https://twitter.com/m2pfintech">Twitter</a>&nbsp;for insightful fintech tales curated for curious minds like you.

Tale of Money Transfers: From Hawala to One-click Remittances

<img src="https://m2p-website-file.s3.ap-south-1.amazonaws.com/m2p-website-file/marketing-cms/m2p-blog/2022/04/banner1251-2.webp" alt="M2P Fintech" title="" width="100%" height="447">Blockchain is crossing its chasm and it might be stumbling its way towards knocking on the doors of many other industries. Still, the scope of its application and ideas challenges the present technologies in the field. This technology, still young and fresh, continually offers its beneficiaries data transparency, security, and quicker transactions.Awaiting to join hands with fintech <a class="link" href="https://m2pfintech.com/blog/the-world-of-apis-how-they-power-fintech/">APIs</a> blockchain promises, to accelerate numerous applications to the front row. Unfortunately, the innovators and investors are not on the same page yet on bringing the dreams of <a class="link" href="https://m2pfintech.com/blog/fintech-a-catalyst-for-financial-inclusion/">fintech</a> operations into practice.Still, one cannot overlook the potential of blockchain technology because bitcoin efficacy is proved through the decentralized protocol algorithm of Blockchain.The use cases of Blockchain in Fintech are discussed below along with the deterrents of the operational practices too.<h2 class="heading-node" id="ea1b" style="text-align: justify">What is Blockchain?</h2>Blockchain is a database: digital, decentralized database. A series of blocks containing transaction data, a hash identity, and node details are connected to form a chain. They are linked to their previous block with immutable characteristics. It also facilitates the process of recording, managing, and tracking assets. Assets can be tangible and intangible, and virtually anything of value can be traded on a blockchain network. It reduces risk and costs for all the parties involved.The reason why Blockchain is now on an accelerated trend is that it is fast. As a business runs on information, the quicker it is received. The more accurate the information is, the faster the business reaps results. The security aspect of Blockchain is well coveted as it can be accessed by individuals who have the key. It offers a single view where even a single modification will be known to all the members.<h2 class="heading-node" id="3ca3" style="text-align: justify">How does Blockchain work?</h2>Blockchain records validate and store the data in its database. So, it has the privilege to validate a transaction. However, it does not simply hold the data but also every nuance that happened in the transaction.<ol class="list-node" id="khl9t5q91"><li>User requests for a transaction of any type involved with or without contracts, cryptocurrency, information, or any other records.</li><li>Now the requested information is sent to various nodes of the P2P network (the people involved in the transaction) for validation.</li><li>The validation of the nodes and the user status is recorded and updated by the algorithms.</li><li>Once the transaction is complete, a new block is added with the recorded data to the previous block .</li></ol>Each block contains the following information<ul class="list-node" id="30nibfo2u"><li>A Hash pointer (link to the previous block)</li><li>A timestamp</li><li>Transaction data</li></ul><img src="https://miro.medium.com/max/1400/1*ymase2KIJyghd5SKYaPm2Q.png" alt="M2P Fintech" title="" width="100%" height="358"><h2 class="heading-node" id="a369" style="text-align: justify">What gives Blockchain its power?</h2>Blockchain destroys cybercrime attacks with its decentralized ledger. The conventional centralized ledger in <a class="link" href="https://m2pfintech.com/blog/fintech-a-catalyst-for-financial-inclusion/">Fintech</a> opens pathways to fraudulent activities despite its easy access — vulnerable to&nbsp;cybercrimes. In the case of the Blockchain, the distributed P2P network allows more than one node (device) to validate, authenticate and approve transactions.Moreover, the nodes cannot alter any transaction data without their peer nodes.A decentralized ledger is the core concept of Blockchain technology that makes it completely superior. This operational protocol helps holds numerous features such as embezzlement in check.Blockchain characteristics are flexible enough to bend at few places and remain immutable at other occurrences. Moreover, it comes with complete security compliance, avoids fraud, and is scalable with any form of transaction.Reliability: It removes the double records because it certifies and identifies the transaction of each party.Unchangeable transactions: You cannot edit or remove the transactions but only add. The chronological ordering stores each block with a timestamp.Reduces Frauds: The P2P network validates the transaction request and reduces the chance of embezzlement.Collaboration: Removes the third party from the transaction. The dream of digital banks, neo banks complying with all the strict regulations is possible with blockchain technology.Transparency: Transaction details are public to everyone, including changes (parties involved in the transaction). It solves the credibility and trust challenges of Fintech.<h2 class="heading-node" id="5838" style="text-align: justify">How Blockchain is transforming Fintech?</h2>Blockchain is silently proving its invincibility in the fintech industry. However, underpinning Blockchain is to the transformative growth of Fintech; it is abstained by a large crowd due to operational reality.Ripple connect and Ethereum has found their ways into early adopters door but could not cross the chasm cycle yet. Effectively, the technology contributes to reliable finance systems through robust algorithms: distributed technology in record keeping and transactions with the decentralized protocol eliminating thousands of paperwork.The infant technology is fruitful for Fintech, especially in shaping retail banking services.<ol class="list-node" id="hehe9ly9f"><li>RTP solutions: Sending money will only take a matter of minutes. Implementing RTP has been risky with the traditional banking process, but Blockchain accelerates the implementation process. As a result, irrespective of any app used for money transfer, transactions will happen securely.</li><li><a class="link" href="https://m2pfintech.com/blog/cross-border-payments-a-swift-money-flow-across-borders/">Cross-border Payments:</a>&nbsp;While setting up to collect or fund transfer across other countries, the limitations make the process slow, tiresome and challenging. With Blockchain, the restrictions can be melted. In addition, it is an entirely internet-based operation which removes the need for an additional setup cost.</li><li>Smart Contracts &amp; Recurring Payments:&nbsp;For SaaS &amp; B2B industries, smart contracts will help secure credible transactions that can be released based on a completed action, event, or conditions. It is useful when the goods are delivered, and the funds are released in the logistics.</li></ol><h2 class="heading-node" id="3afc" style="text-align: justify">Blockchain use case scenario in RTP solutions &amp; cross-border payments</h2>From 2017, there are speculations of the use of Blockchain in the fintech field, as of now, no direct confirmation apart from Ripple and Ethereum using their Blockchain in real-time settlements and <a class="link" href="https://m2pfintech.com/blog/cross-border-payments-a-swift-money-flow-across-borders/">cross-border payments</a> — a real challenge in retail banking.RTP &amp; <a class="link" href="https://m2pfintech.com/blog/forex-cards-international-travel-made-effortless/">international payment</a> processing solutions are slow because of the conjecture of the third parties in stock markets, healthcare, and cryptocurrency. However, blockchain usage can lift the barrier in a few cases if the compliance has been favorable. Thus, it may not remove the third party entirely but speed up the process.In cross-border and RTP solutions, the payment systems still need a third party till the regulations are changed. But with cryptocurrency, the need for the traditional infrastructure banking setup can be overridden. First, the currency of the payer can be converted to bitcoin or any other fiat currencies. Then the payment can be approved by the distributed electronic ledger protocol.Then the receiver will get the settlement in the original currency. It involves an additional step of converting the currency to crypto and then back to the original format. Of course, it increases a few complications. Still, given the present tech innovations in the market, this is an easy pie.A group of consortium banks in Japan is currently running on this tech innovation method to collect international and RTP domestic payments.<h2 class="heading-node" id="0b95" style="text-align: justify">Fintech Blockchain Use cases</h2><h3 class="heading-node" id="c07b" style="text-align: justify">Smart contracts</h3>An exciting branch of Blockchain is the smart contract. The capability of smart contracts is transformative enough to disrupt the automation process in the future. Adding a bit of AI or edge intelligence, smart contracts will be more intelligent: they can trigger AI decisions.In 2016, financial consortium R3 and its member banks completed trade finance prototypes that used smart contracts to process factoring transactions and letters of credit. Smart contracts have high leverage on places where escrow is high. When a synchronized chain of actions happens upon if/ else statements drawn by both parties, it is a win-win situation.<h3 class="heading-node" id="6c71" style="text-align: justify">KYC</h3><a class="link" href="https://m2pfintech.com/blog/know-your-customer-kyc-the-need-for-authentication/">Know Your Customer</a> (KYC) is a regulation now, and it is mandatory for consumers to enjoy frictionless payment advancements. But <a class="link" href="https://m2pfintech.com/blog/crack-the-kyc-jigsaw-ease-onboarding-compliance/">overcoming KYC challenges</a>, and establishing the identity of the customer without barging into their privacy is complex. The transparency of Blockchain enables identity verification without disclosing the true identity. It sounds like beating around the bush, but the protocol allows to establish, verify and transact based on digital identities of all the counterfeits.<h3 class="heading-node" id="d839" style="text-align: justify">Escrow — freelance</h3>Freelance opportunities are booming everywhere, thanks to COVID; however, the escrow is high. For a platform like Upwork, satisfying both sides is a requirement without any compromise. The best way to solve these problems is through smart contracts. Transferring the deliverables based on effective agreed rules from both parties can enable a seamless functioning of the whole platform.<h3 class="heading-node" id="d2b7" style="text-align: justify">Recurring Payments</h3>In B2B, the payments usually take 3–4 days to complete, which is quite annoying nowadays. The middlemen in the process are co-dependent with the paperwork, which delays the sales cycle even further. Intelligent contracts can plunge in with the idea of its transparent agreement terms, making recurring payments every month or year easy. The contract triggers the next step of the action only if both the parties are convinced, so it gives complete control to the buyer and the sellerBlockchain is waiting for its massive scaling, and 2021 is the year for its spark plug. The industry is quite busy solving its problems with operational constraints. Yet, we have pretty a trend waiting to breach in soon, at least into the payment ecosystems under the fintech radar.To know more about blockchain, write to us at business@m2pfintech.com.<a class="link" href="https://m2pfintech.com/newsletter/">Subscribe</a>&nbsp;to our newsletter and get the latest fintech news, views, and insights, directly to your inbox. Follow us on&nbsp;<a class="link" href="https://www.linkedin.com/company/m2pfintech/mycompany/">LinkedIn</a>&nbsp;and&nbsp;<a class="link" href="https://twitter.com/m2pfintech">Twitter</a>&nbsp;for insightful fintech tales curated for curious minds like you.

Blockchain and Fintech-Use cases and Applications

<img src="https://m2p-website-file.s3.ap-south-1.amazonaws.com/m2p-website-file/marketing-cms/m2p-blog/2022/06/Artboard-1-copy-8-3.webp" alt="M2P Fintech" title="" width="100%" height="358">As technological advancements promote growth in our country, lack of financial literacy still prevails. In a recent incident, a farmer has reportedly lost his savings worth two lakhs to rats. He stored his money as cash in his house. The farmer wouldn’t have lost his savings if he was aware of a financial institution. The eradication of financial illiteracy and improving maximum financial inclusion help us overcome such situations.<h2 class="heading-node" id="45b6" style="text-align: justify">What is Financial Inclusion?</h2>Financial inclusion aims to offer primary financial products and services to all individuals and businesses and makes these services more accessible and affordable.Financial institutions aim to offer basic services that include payments, transactions, savings, credit, and insurance sustainably to drive more financial inclusion. New technological innovations in fintech have caused organizations to offer cost-effective services to their customers.<h2 class="heading-node" id="fb52" style="text-align: justify">Measures to improve Financial Inclusion</h2>The Reserve Bank of India started taking measures in 2005 to improve financial inclusion in our country. The government initiated the National Mission for Financial Inclusion (NMFI), including Pradhan Mantri Jan Dhan Yojana (PMJDY), which provides services to unserved areas.Furthermore, the “Digital India” initiative, which provides accessible digital banking services with simplified formal verifications using unique identification (Aadhaar), is also a bold move towards improving financial inclusion in the country.<h2 class="heading-node" id="6804" style="text-align: justify">Fintechs boosting Financial Inclusion</h2>Indian fintechs are the biggest drivers of achieving financial inclusion, with an adoption rate of over 87%. In the recent decade, fintechs have widened operations to provide personalized services without opting for the traditional route. Also, the rise of the popularity of smartphones around the globe led to the establishment of new financial services. “As of February 2021, there is a record of 2.3 billion digital payment transactions made worth over 4 trillion rupees.” From Demonetization in India to the Covid-19 outbreak, people are now more interested in using financial services such as digital payments, lending solutions, etc. Digital financial services help many small and medium-income businesses to offer cashless payments option to their customers.<blockquote class="block-node" id="wp01kwej7">According to an annual report for FY 2020–2021 by RBI, the volume of digital payments is at 453 crores in India.</blockquote>With increasing ideas and innovations, fintechs ensure more inclusion. With the growth in the industry, a wide range of products and services are set to enter the market to offer customized services. Products such as<a class="link" href="https://m2pfintech.com/blog/the-rise-of-digital-payments/"> digital payments</a>, digital credit, <a class="link" href="https://m2pfintech.com/blog/neo-banking-101-all-you-need-to-know/">neo banking</a>, <a class="link" href="https://m2pfintech.com/blog/api-the-power-that-drives-new-age-banking-ecosystems/">API banking</a>, <a class="link" href="https://m2pfintech.com/blog/prepaid-cards-101-a-definitive-guide-for-growth-and-profitability/">prepaid cards,</a> etc., have established effective financial inclusion.<h2 class="heading-node" id="acff" style="text-align: justify">What challenges do we face?</h2><ul class="list-node" id="30k5oemaa"><li>The excluded sections, such as rural, poor areas, often don’t have access to a financial institution and often approach moneylenders.</li><li>A constant need to improve financial literacy as many rural people have less or no awareness of financial institutions.</li><li>Lack of formal identification documents is also a significant challenge when people reach out to a financial service. Poor sections lack access to financial services, as they lack various documents such as proof of identification, birth certificate, etc.,</li><li>Even though people&nbsp;have a financial account, most users still prefer cash. Lack of trust and reliability prevents a customer from accessing the available financial services.</li><li>Gender inequality to access financial services as women pay higher interest rates than men.</li><li>Low-income levels indulge in a myth that financial institutions only offer services to high and middle-income groups.</li><li>Some people are uncomfortable due to language barriers, formal documents, and the formalities that we go through before a financial transaction occurs.</li></ul><h2 class="heading-node" id="e955" style="text-align: justify">Overcoming the Challenges</h2>To alleviate the challenges faced by consumers, there arose a need to innovate new and simplified products. New technologies, fintech innovations, and the digital finance revolution have now become the constant drivers of financial inclusion. There is a constant growth in the sections of digital finance over traditional finance methods.<blockquote class="block-node" id="zr04eywdz">Digital Financial Inclusion ensures that the excluded and unserved population has digital access to financial services.</blockquote>Digital services focus on affordability, customer satisfaction, and sustainability. New digital platforms run by the institutions now accommodate small levels of cash flow. These services allow the low sections to make transactions, thus preventing the use of informal services. Understanding the potential and risks such as operational risks, financial crime risks, etc., while improving digital services can contribute to the growth of digital financial inclusion. Similarly, technological innovations have increased financial inclusion. These innovations aim to regain customers’ trust, rectify geographic and accessibility issues to bring in new consumers. Information technology, smartphone-enabled services have reduced the need for physical banks. With technological development, we can develop a rural information infrastructure that provides financial services to the underserved. Fintechs have also played a significant developmental role in achieving greater financial inclusion. Fintechs acts as a catalyst for financial inclusion as it creates more opportunities for the unbanked population. The shift of digital transactions from traditional transactions has improved self-employment, rural entrepreneurs, small borrowers, mediums, and enterprises. Lack of financial awareness, high cost of traditional services, and other policy gaps were significant challenges while achieving financial inclusion. Fintech startups play a critical role in overcoming these challenges in the economic landscape. The tremendous growth in fintech has shown a positive shift as a report shows that 99.5% of consumers are now aware that they can transfer money and make payments with fintech platforms.<h2 class="heading-node" id="b97f" style="text-align: justify">Fintech products driving inclusion</h2> New fintech products have helped consistently in driving the financial inclusion of the country. As discussed earlier, these products allow the work of financial services and offer a streamlined process. These fintech products applied to reality are the main drivers of financial inclusion.<h3 class="heading-node" id="e38e" style="text-align: justify">Embedded Credit</h3><a class="link" href="https://m2pfintech.com/blog/beginners-guide-to-embedded-lending/">Embedded credit</a> focuses upon integrating ‘lending as a feature’ in digital platforms. Customers receive their credit with the involvement of a familiar interface and eradicate the need for a third-party site. Micro, small and medium enterprises (MSMEs) face difficulty offering small credits, increasing demand here. The B2B e-commerce marketplaces provide the ultimate <a class="link" href="https://m2pfintech.com/blog/factors-and-psychology-behind-the-great-bnpl-allure/">BNPL (Buy Now, Pay Later)</a> option for the retailers while they checkout. BNPL offers these MSMEs to purchase on credit and pay later. BNPL is one of the fast-growing payment options which also helps MSMEs to expand their business. The BNPL would account for 3% of the global e-commerce spend by 2023. Thus, this system provides a convenient platform for consumers to experience new market products.<h3 class="heading-node" id="f250" style="text-align: justify">Digital Payments</h3><a class="link" href="https://m2pfintech.com/blog/the-rise-of-digital-payments/">Digital payments</a> (also called electronic payments) are the method we transfer one point value from one account to another using a digital device. Digital payments are end-to-end digital transactions, and also, they don’t require the usage of physical cards, thus reducing costs.For example, the latest introduction of <a class="link" href="https://m2pfintech.com/blog/e-rupi-indias-digital-upgrade-for-the-underbanked/">e-RUPI</a> which is a digital payment solution created by the Government of India to allow cashless payments. e-RUPI is powered by the National Payments Corporation of India (NPCI), and the one-time payment mechanism is easy, highly secure, and entirely confidential. The distributions are also made easy, safe, and contactless.<h3 class="heading-node" id="7d7d" style="text-align: justify">Neobanking</h3>Neobanking is an innovative method of approach in which financial institutions offer services without physical presence. <a class="link" href="https://m2pfintech.com/blog/top-14-neo-banks-that-reinvent-banking-experience-in-india/">Neo banks in India</a> operate on a low-cost model with minimal to zero monthly fees on deposits and withdrawals, and rock-bottom balance requirements. These drivers bring consumers and businesses across income levels into the fintech fold, fostering financial inclusion. Neo banking is highly famous among the millennials and Gen Z as they no longer use outdated processes. Neo banks use Artificial intelligence and machine learning to create a customer-centric Banking experience, with the aim to reduce human dependence.&nbsp;Neo banks provide millennials and Gen Z their own customized product set, making the process fuss-free. Millennials and Gen Z prefer simplified and easy- manageable finances, thus proving neo banks are a blessing in disguise.<a class="link" href="https://m2pfintech.com/blog/7-steps-to-start-a-neo-bank-from-scratch/"> Curious to know how you can start a neo bank? Check out these 7 steps.&nbsp;</a><h3 class="heading-node" id="3aa0" style="text-align: justify">API Banking</h3><a class="link" href="https://m2pfintech.com/blog/api-the-power-that-drives-new-age-banking-ecosystems/">API Banking</a> provides better means to share data, helps in integrating systems, and makes services more personalized. In API banking, tailor-made products improve the overall customer experience.With the help of API banking, new fintech innovated products offer features and services aligned to provide flexible services. Innovations in API banking have reduced costs and now made it economical for the unbanked and underserved as they can now experience better products and services.<h3 class="heading-node" id="921d" style="text-align: justify">Open Banking</h3>To offer better services, open banking offers third-party financial service providers access to financial data with the help of APIs. <a class="link" href="https://m2pfintech.com/blog/open-banking-a-primer-2/">Open banking</a> is highly prevalent in Europe. Open banks help achieve more financial inclusion as it allows small, medium businesses access particular tools and services that target the needs of their consumers. Innovations in open banking and the experimentation of products can foster higher financial inclusion in the long run.<h3 class="heading-node" id="9d8d" style="text-align: justify">Prepaid Cards</h3><a class="link" href="https://m2pfintech.com/blog/prepaid-cards-101-a-definitive-guide-for-growth-and-profitability/">Prepaid cards</a> help us process payments quickly as we have better cash flow management, easy reimbursements, and more security than cash or cheques. They are a super alternative to carrying cash around. They are available as gift cards, meal cards, and also as travel cards. Prepaid cards are a great way to control business expenses, improve efficiencies and generate revenue streams.&nbsp; However, the time, cost and effort involved in card issuance in-house are huge.The best way to manage card issuance is by <a class="link" href="https://m2pfintech.com/blog/why-should-apis-be-your-holy-grail-for-prepaid-card-issuance/">deploying the right APIs.</a><h3 class="heading-node" id="ee0a" style="text-align: justify">Mobile Wallets</h3><a class="link" href="https://m2pfintech.com/blog/how-to-implement-the-best-prepaid-payment-instrument-ppi-for-your-business/">Mobile wallets</a> are famous and convenient due to their accessibility. Transactions are made easy as we can send, receive and store money easily with the help of our smartphones. In reality, right from a vegetable vendor to corporate and digital firms, every one of us can easily transact if we have a mobile wallet.Mobile wallets ensure that every person can participate in a financial transaction with its cashless and contactless technologies. The whole process boosts the economy while achieving more financial inclusion.The future ideas of the fintech industry will result in product innovations while improving existing ones, thereby offering more affordable and accessible services to both the unbanked and underbanked. Furthermore, the coupling of fintech and financial institutions will help eradicate financial illiteracy and promote financial inclusion. With the acceleration of fintech and its budding ideas, the future of financial inclusion is bright and holds many opportunities that come with new beginnings.Need more info on how fintech can help you? Write to us at <a class="link au mg" href="mailto:business@m2pfintech.com" target="_blank" rel="noopener ugc nofollow">business@m2pfintech.com</a>.<a class="link" href="https://m2pfintech.com/newsletter/">Subscribe</a>&nbsp;to our newsletter and get the latest fintech news, views, and insights, directly to your inbox. Follow us on&nbsp;<a class="link" href="https://www.linkedin.com/company/m2pfintech/mycompany/">LinkedIn</a>&nbsp;and&nbsp;<a class="link" href="https://twitter.com/m2pfintech">Twitter</a>&nbsp;for insightful fintech tales curated for curious minds like you.

Fintech- A Catalyst for Financial Inclusion

Embedded Finance 101: The bridge connecting tech and financial services

<img src="https://m2p-website-file.s3.ap-south-1.amazonaws.com/m2p-website-file/marketing-cms/m2p-blog/2022/04/banner-1251-1.webp" alt="Account Aggregator" title="" id="9hxp4jacw" width="100%" height="479">Data is a gold mine that drives insights and efficiencies across industries. Gartner predicts that by 2023, companies that actively leverage shared data will outperform their peers in crucial metrics. With 180+ zettabytes of data estimated to be created by 2025, businesses across industries need to devise strategies to gain access to relevant consumer information. Such access will drive insight-driven decisions to boost revenue, <a class="link" href="https://m2pfintech.com/blog/why-is-risk-based-authentication-rba-critical-for-banks/">mitigate risks</a>, and reduce costs.<h2 class="heading-node" id="134f" style="text-align: justify">Consent-based digital access to data</h2>Account aggregators or financial data aggregators play a significant role in enabling data access to financial institutions, businesses, and individuals. Prioritizing fiduciary consumer relationships, account aggregators share digitally signed and encrypted data upon explicit consumer consent.<h2 class="heading-node" id="160d" style="text-align: justify">Financial data aggregation in India</h2>India launched its Account Aggregator (AA) network in September 2021, as the first step towards open banking. Built on the Data Empowerment and Protection Architecture (DEPA), the account aggregator framework is the world’s leading consensual data-sharing infrastructure.This digital data access structure serves as a substantial digital enablement initiative after the launch of public infrastructure for digital identification (Aadhaar) and <a class="link" href="https://m2pfintech.com/blog/the-rise-of-digital-payments/" target="">digital payments</a> (UPI). Millions of customers can now digitally access and share their financial data in a compliant manner.<h2 class="heading-node" id="019c" style="text-align: justify">Potential to transform efficiencies</h2>The AA framework holds the potential to transform the efficiencies and profitability of financial institutions and businesses in India. Banks, fintechs, and NBFCs can use consumer data to widen target-base, personalize services, lower risks, enhance customer experience, and future-proof their product portfolio. Collecting, cleansing, and synthesizing pertinent data helps enhance insight-driven decisions and executions.Democratization of data access via account aggregator networks has brought in a win-win scenario for businesses, consumers, and <a class="link" href="https://m2pfintech.com/blog/digital-lending-open-credit-enablement-network/">new-age digital lenders</a> with advanced underwriting algorithms and a larger risk appetite. They have broken the data monopoly of digital and financial services firms by transferring data sharing power to individuals.<h2 class="heading-node" id="a06c" style="text-align: justify">So, who are account aggregators in India?</h2>Account aggregators are NBFC-AA licensed entities that are regulated by the RBI. Contrary to the name, they cannot ‘aggregate’ data. They only enable consensual data sharing and access between consumers and financial institutions in the network. Account aggregators cannot read or resell data. They can carry data from one financial institution to another based on individual consent and direction. Consumers also have the choice to revoke data already shared.<h2 class="heading-node" id="b934" style="text-align: justify">How account aggregation happens?</h2>Data gathering, collation, and dissemination are enabled through open <a class="link" href="https://m2pfintech.com/blog/api-the-power-that-drives-new-age-banking-ecosystems/">Application Programming Interface (API</a>) connections.<h2 class="heading-node" id="e756" style="text-align: justify">Do account aggregators benefit individuals?</h2>The answer is yes.Account aggregators help consumers get rid of laborious paperwork, effort, and security issues involved in notarizing, stamping, signing and scanning physical copies of bank statements. Users need not have to expose themselves to vulnerabilities of sharing login credentials and financial history to a third party.With mobile-based digital data access and sharing process, account aggregators eliminate the conventional hassles of data access and sharing. People across demographics will get access to experiential, preference-based financial services and products. While the affluent will experience value through customized investment and insurance options, the popular masses will enjoy greater inclusiveness through friction-free access to formal credit.<h2 class="heading-node" id="0dd3" style="text-align: justify">Participants in the AA network</h2>While individuals and small businesses form the epicentre, the AA network comprises the three participants listed below.1. Financial Information Providers (FIP)&nbsp;— Data sources like banks, tax platforms &amp; insurance providers.2. Financial Information Users (FIU)&nbsp;— Data recipients such as banks, NBFCs, and <a class="link" href="https://m2pfintech.com/blog/fintech-a-catalyst-for-financial-inclusion/">fintech</a> firms.3. Account Aggregators (AA)&nbsp;— RBI-regulated entities that facilitate real-time data sharing.<img src="https://miro.medium.com/max/1400/1*UnkSCGfGWZf-YpOqny9J7w.jpeg" alt="M2P Fintech" title="" width="100%" height="384">Source: PIB Delhi<h2 class="heading-node" id="72d9" style="text-align: justify">Banks in the AA network</h2>The top eight banks (listed below) that cater to over 300 million consumers have joined the AA network.1. Axis Bank2. ICICI Bank3. IndusInd Bank4. HDFC Bank5. Kotak Mahindra Bank6. IDFC First Bank7. Federal Bank8. State Bank of India<h2 class="heading-node" id="d405" style="text-align: justify">What kind of data does AAs share? How are they different from Aadhar eKYC, credit bureau, and CKYC?</h2>Central Know Your Customer (<a class="link" href="https://m2pfintech.com/blog/know-your-customer-kyc-the-need-for-authentication/">CKYC</a>) registry and paperless Aadhar Electronic Know Your Customer (<a class="link" href="https://m2pfintech.com/blog/know-your-customer-kyc-the-need-for-authentication/">EKYC</a>) capture identity verification and only shares data such as name, address, and gender. And credit bureaus reveal only the credit score, loan, and repayment history of consumers.On the other hand, account aggregators facilitate transaction data sharing from savings, <a class="link" href="https://m2pfintech.com/blog/how-can-banks-and-nbfcs-leverage-the-potential-of-digital-fds/">deposits</a>, or current accounts. They share data pertaining to consumer bank transactions, tax, pension, securities, insurance, and much more.<h2 class="heading-node" id="5e7e" style="text-align: justify">Is data sharing via AA network secure?</h2>Data shared on the account aggregator network is completely secure. It is encrypted by the sender and can be decrypted only by the intended recipient. End-to-end encryptions and digital signatures remove vulnerabilities and secure the process.<h2 class="heading-node" id="42b2" style="text-align: justify">What if consumers choose not to share data?</h2>By all means, a consumer can choose not to share any data. Joining the AA network or registering for data sharing is completely voluntary. They can link the account of their choice, enable or revoke data access at any point in time.<h2 class="heading-node" id="b9c4" style="text-align: justify">Use cases for account aggregator network</h2>Here are use cases in which account aggregators can drive efficiencies and add value to consumers and financial institutions.Personal finance management&nbsp;— Consumers can analyze personal spends across accounts, which will help generate recommendations to streamline expenditure. This process will enable better personal finance goals and budgetary adherence for consumers.Cashflow-based lending&nbsp;— Consuming data from FIPs, FIUs can get better visibility into the cash flow of applicants. Cashflow-based lending will accelerate mainstream lending, especially in SME and MSME credit space.Alternate data for credit assessment&nbsp;— Evaluating a consumer’s creditworthiness is a true challenge if there is inadequate data on his income or payment history. If credit applicants who do not have formal credit access could share their telecom bill payment to the lender, this will generate an alternate data set to assess creditworthiness.Loan monitoring for predictive default analysis&nbsp;— Every lender will want visibility into the borrower’s financial behavior to ensure discipline in repayments. The income and outflow from a person’s bank account could reveal his financial behavior. And this could help lenders predict default patterns.Selling customized financial products&nbsp;— Accessing data concerning consumer behavior with financial products will help financial institutions involved in wealth management and insurance customize their products.Wealth management&nbsp;— Imagine a customer has invested in insurance from A, mutual fund from B, Gold deposits from C, and savings account from D. An account aggregator can unify all this data and help wealth managers handle customers' portfolios more efficiently.Accounts reconciliation for small businesses&nbsp;— With account aggregators, SMEs and MSMEs would not require to manually feed in Tally/ QuickBooks for their daily invoices. They can simply consent to platforms to consume data from FIPs and derisk manual errors.Unified nomination register&nbsp;— Nominations in financial products today are decentralized, hence have to be managed individually. A joint collaboration between the account aggregator and the unified nomination register can solve this.Now, these are not all. We have just scratched the surface of the use cases that account aggregators could have. When more pipelines get enabled on AA network, the use cases will grow exponentially. Then they will have to address concerns surrounding platform stability, data privacy, and grievance redressal mechanisms.M2P believes in democratizing credit by empowering lenders with alternate data/ surrogate channels. Should you be looking for a partner who could help you look beyond conventional credit applicants' data, write to us at&nbsp;<a class="link" href="mailto:business@m2pfintech.com">business@m2pfintech.com</a><a class="link" href="https://m2pfintech.com/newsletter/">Subscribe</a>&nbsp;to our newsletter and get the latest fintech news, views, and insights, directly to your inbox.Follow us on&nbsp;<a class="link" href="https://www.linkedin.com/company/m2pfintech/mycompany/">LinkedIn</a>&nbsp;and&nbsp;<a class="link" href="https://twitter.com/m2pfintech">Twitter</a>&nbsp;for insightful fintech tales curated for curious minds like you.

Account Aggregator 101- Democratizing data access and sharing

<img src="https://m2p-website-file.s3.ap-south-1.amazonaws.com/m2p-website-file/marketing-cms/m2p-blog/2022/07/July-Blog-Banner-V3_1_Main-Banner.webp" alt="M2P Fintech" title="" width="100%" height="253">Artificial Intelligence (AI) has transformed the physics of financial services. It has altered centers of gravity, isolated vulnerable bonds, and changed traits that are imperative to building a successful business. The ability to leverage data to drive process and talent optimization, product performance, and personalized interactions is now considered critical to driving value and efficiency.By combining technology and robust data, AI delivers insight-driven decisions to resolve challenges. Financial services companies are becoming future-ready by harnessing the power of AI and Machine Learning (ML) to enhance operational efficiency, mitigate risk exposure, and customize product development, distribution, and customer experience.<blockquote class="block-node" id="ll5niu0xi">According to PWC reports, AI will boost global GDP up to $15.7 trillion by 2030 and 45% of total economic gains will arise from AI-driven product enhancements that stimulate consumer demand.</blockquote><h2 class="heading-node" id="fec6" style="text-align: justify">Growth Potential of AI in Finance</h2>Artificial Intelligence in the global financial technology market is expected to grow at <a class="link" href="https://www.prnewswire.com/news-releases/ai-in-fintech-global-market-to-reach-24-17-billion-by-2026--301615420.html">27.6% CAGR and reach $24.17 billion in 2026</a>. The growth projection is attributed to its ability to increase security and efficiency, personalize customer experience, automate services, and unlock several other growth opportunities.91% of financial services companies reported driving critical business outcomes by leveraging AI investments (Source: <a class="link" href="https://www.nvidia.com/content/dam/en-zz/Solutions/industries/finance/ai-financial-services-report-2022/fsi-survey-report-2022-web-1.pdf">Nvidia Report</a>). Here are the benefits they realized.<img src="https://m2p-website-file.s3.ap-south-1.amazonaws.com/m2p-website-file/marketing-cms/m2p-blog/2022/07/July-Blog-Banner-V3_1_Benefits-of-AI-Chart.webp" alt="M2P Fintech" title="" width="100%" height="253">AI-led data analysis and reporting surpass human intelligence to cut costs, accelerate revenue, and optimize service quality and product efficiency. It creates operational efficiency, predicts customer preference, detects fraud, and plans market expansions. Although some industry voices expect AI to replace 9% of all jobs by 2030, fintech companies are optimistic that AI will expand their workforce by 19%.<h2 class="heading-node" id="21fd" style="text-align: justify">How AI Transforms Banking &amp; Fintech</h2>Millennial and Gen Z customers prefer newer and faster technology over traditional systems. AI-based products and services enable FIs to meet the demands of today’s digital-age customers. It helps them enhance user experience through customized products and services.Listed below are sample AI-enabled services that global banks use to enhance customer experience.· Smile-to-pay facial scanning to initiate transaction· Micro-expression analysis with virtual loan officers· Conversational bots for basic servicing requests· Humanoid robots in branches to serve customers· <a class="link" href="https://m2pfintech.com/blog/5-reasons-why-banks-need-behavioral-biometrics/">Biometrics </a>to authenticate and authorize· Machine vision and natural language processing to scan and process documents· Machine learning to identify risk patterns and cybersecurity incidents· Real-time transaction analysis for risk monitoringAI technologies augment the overall customer experience by offering personalized recommendations, insights, and suggestions. In short, AI powers banks, insurers, asset managers, and fintechs to outperform peers, boost customer lifetime value, and increase market share.<h2 class="heading-node" id="fb07" style="text-align: justify">Top 6 Use Cases of AI in Fintech and Banking</h2>Over 75% of businesses use high-performance computing (HPC), machine learning, and deep learning for AI applications. While retail banking and capital markets benefit from deep learning, fintech firms rely on machine learning for the use cases below.<ol class="list-node" id="mglp0g4e6"><li>Transaction Fraud Detection</li><li>Conversational Chatbots</li><li>Robo-Advisors — Portfolio Optimization</li><li>Regulatory Intelligence</li><li>Credit Decisioning</li><li>Algorithmic Trading</li></ol>Transaction fraud detectionFinancial firms leverage AI and ML to identify, investigate, and mitigate transaction fraud, <a class="link" href="https://m2pfintech.com/blog/how-to-combat-money-laundering-2/">money laundering</a>, and <a class="link" href="https://m2pfintech.com/blog/crack-the-kyc-jigsaw-ease-onboarding-compliance/">KYC</a> discrepancies efficiently. Analyzing large datasets and user behavior, AI can decode risk factors and help reduce chargebacks, fake accounts, spam, account takeovers, and any other <a class="link" href="https://m2pfintech.com/blog/prevent-cnp-frauds-with-pci-3ds/">CNP</a> frauds in real-time. The fraud detection use case is critical in banking, card transactions, insurance, and lending platforms, to name a few.Conversational chatbotsChatbots and virtual agents fall under the conversational AI use case. They are quite different from conventional chatbots. By leveraging Natural Language Processing (NLP) and Machine Learning (ML) processes, they can understand customer intent, troubleshoot issues, and make small talk based on context. In financial companies, they can be used to collect customer information, deliver support, resolve queries, and redirect escalations to customer service representatives. These chatbots can be used across multiple channels and can deliver support via audio, video, and text.Robo-advisors — portfolio optimizationBuilding a strong financial portfolio is critical to maximizing returns on investments. Optimizing the portfolio helps balance the risk-to-reward ratio. AI-enabled Robo-advisors use predictive analysis to foresee future returns by analyzing the trends in the financial market. Investment companies can use this feature to make data-driven decisions that increase sales, optimize resource utilization, and improve operational capabilities. Robo-advisors are less priced options than conventional financial advisors. Even novices can drive value from investments with the help of Robo-advisors.Regulatory intelligenceThe banking and fintech sector must constantly update operations to stay compliant with governments and regulators. Using AI-led automation, compliance obligations are simplified, streamlined, and automated. The personalized, role-based dashboards provide regulatory intelligence for data-driven decisions at a lesser cost and time. Finance companies can stay up to date on compliance status and keep abreast with the latest regulations.Credit decisioning engineAI-based credit scoring can help expedite the assessment of creditworthiness and lending decisions. AI-led credit scoring models analyze real-time indicators such as current income, employment opportunities, and potential ability to earn, in addition to credit history, transaction patterns, work experience, and online behavior. This enables a sensitized and customized credit score assessment and inclusive lending decisions.Algorithmic tradingTrading is all about making profitable transaction decisions. AI-driven algorithmic trading uses pre-trade analytics and trading strategies to make lucrative transactions and groom efficient traders. Assimilating its own data using machine learning methods, AI-based algorithmic trading delivers real-time forecasts based on the analysis of price change patterns, currency values, global indices, raw materials, and other macro/micro indicators. It is super accurate in detecting market anomalies and helps reduce operational and trading risks.Now, these are not all. Apart from the use cases discussed above, AI can also help automate and expedite <a class="link" href="https://m2pfintech.com/blog/steps-in-credit-underwriting-why-using-an-alternative-source-of-data-and-behavior-metrics-will-be-of-help/">underwriting</a>, customer acquisition, and marketing optimization.To know more about the use of AI in banking and fintech, write to us at&nbsp;<a class="link au nr" href="mailto:business@m2pfintech.com" target="_blank" rel="noopener ugc nofollow">business@m2pfintech.com</a><a class="link" href="https://m2pfintech.com/newsletter/">Subscribe</a>&nbsp;to our newsletter and get the latest fintech news, views, and insights, directly to your inbox.Follow us on&nbsp;<a class="link" href="https://www.linkedin.com/company/m2pfintech/mycompany/">LinkedIn</a>&nbsp;and&nbsp;<a class="link" href="https://twitter.com/m2pfintech">Twitter</a>&nbsp;for insightful fintech tales curated for curious minds like you.

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