Question

Recent years have seen increased competition in many areas of finance. For example, commercial banks now face a number of other entities fighting for consumer deposits. Identify a financial services firm that has recently(past few years)entered a new market (it can be either a start-up company or an established firm moving into a new area). What market are they entering, and how are they trying to establish themselves or distinguish their offering from the competition? How have the other companies in the space responded? How do you think this will play out over time?

Answer 1

Recent years have witnessed increasing competition in many areas of finance.

As per many a economists, increasing competition in the area of finance would lead to lower cost of finance and will improve efficiencies and would lead growth in the economy.

Before advancing in the subject matter, we need to have a look on functions of financial area, particularly commercial banks.

Functions of Financial Services

1. Payments
2. Leding and Borrowing
3. Capital Rasing
4. Investment
5. Insurance
6. Etc.
   

Growing competition in the area of finance increased digital and technological revolution.

e.g. Mobile Payments, Integrated Billing, Crypto Currency, P2P Transfer, Mobile Money, ot any other type of digital payments.

Commercial banking sector is facing challenges to make customer services available on exiting payment systems which can result in customer behavior changes.

Let’s take an example of startups of Fintech Companies in the area of finance which is available on digital platform.

Key service offerings to emerge on digital platforms include:

Peer-to-Peer (P2P) Lending Services: P2P is a credit model and data sources to provide consumers and business faster and easier access to capital allowing online services. It matches lenders with borrowers who are ready to enter the contract of lending and borrowing. It may be individual or business. Examples are Lendbox,MarketFinance,GayanDhan etc.

Payment Services. Companies allow both business and individuals to accepts payment digitally on mobile application without any need of bank account. transfer may be made directly to mobile or bank account using upi, paytm, Mobiwik, paypal etc.

Remittance Services: Few startups are trying to fill the gap of international money exchange as the current process is expensive and combursome. This service is trying to disrupt the monopoly of those companies who are in the area of international foreign currency exchange e.g. MoneyGram, Western Union.

Retial Investment Services /Personal Finance: Fintech companies are also growing in the area of customized financial information and requirements for individuals on the basis of specific needs. Examples are Fundsindia.com, PolicyBazar, Scrpbox etc.

Miscelleneous services: Fintech companies are providing various other services where buyer and suppliers are connecting. Miscellaneous services includes online mobile recharge, cable recharge, shopping, Profit book (online accounting softwared for non accounting background) or various other services etc.

Scope of growth of Fintech Companies:

Fintech companies are currently understanding the way of consumers and companies daily transactions behavior.

This is why global investment is increasing very fast in Fintech companies

Fintech companies are breaking formal finance sector with their innovative and dynamic use of technologies in the financing process.

Example, where a commercial bank takes 15 to 30 days to process a loan, there a Fintech company process loan in an average time of 1-10 minutes only

Challenges before Fintech companies:

Fintech companies has to instill greater confidence in conservative consunmers.

Existing commercial banks can leverage their existing customers by adopting fintech process that will grow in strong customer relationship

Security and fraud challenges is more in fintech softwares

Observation:

Grwoing competition in the area of finance increased digital and technological revolution. Gwowing competition is losing brand loyalty and making customer to swap to other financial institution for better services.