FINTECH | The Fine Print – Telegraph India

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Fintech, the indivisible atom in the digital space, is raging in the entire banking and financial services sector – loans, investments, insurance and, above all, payments.

In the course of the increasing digitization of finance, the emergence of intelligent technologies such as artificial intelligence has accelerated complex processes and brought newer services closer to customers. In fact, these have spawned a whole generation of instant products: the three-minute loan or the zero-load mutual fund, or their equivalents in other areas, have democratized financial services.

This has also resulted in what strikes me as certain false beliefs and imprecise ideas; The market has increasingly subscribed to the theory that fintech providers are “Too Connected To Failâ€, which is perhaps a derivative of the somewhat outdated notion that pervades the BFSI sector – “Too Big To Failâ€.

The fact that digital applications are bringing topics such as cybersecurity to the fore is not the subject of our discussion today. I can only point out that much research has been conducted on this front and consumers are becoming increasingly aware of phenomena such as spamming and phishing. Criminal intent is a hot button causing debates everywhere, especially in emerging markets like India, where victims of cybercrime are often too vulnerable.

Cost factor

I want to change the course of our narrative today by pointing out other aspects of fintech that need to be brought to users’ attention – cost, for example. Fintech, which we will surely appreciate, reduces the distances and lowers the costs considerably, as the problem of the physical setup and the multi-layer switching is tackled efficiently. However, I will make you aware of the costs associated with technology-enabled services such as payments and credit. This is usually borne by the customer.

Let’s consider a situation where a fintech loan (yes, the three-minute kind I alluded to earlier) is easier to get hold of than one offered by a traditional bank. No paperwork, no processing fee, and so on – let’s assume this makes the deal a few basis points cheaper in comparison. For the customer concerned, the facility makes sense if the interest to be paid is permanently lower (i.e. during the term of the loan until repayment).

Rollover effect

The matter can end there and leaves no room for further discussion, especially if the loan is a one-off event. In real life, fintech companies also deal with small-ticket exposures. One loan can lead to another, and roll-over can be quite common.

In the past there have been many cases where some of the regular customers have gone overboard. In a situation where access to services remains relatively easy, excessive borrowing (and spending, if you allow) is also quite common. One loan at a time can help keep costs down.

You will agree that such a phenomenon can be more common with loans and is relatively rare in areas such as securities brokerage or investment advice, where fintech also has positive applications. Loans can indeed tell quite a story, as it actually did in India a few months ago, which led to government censorship. I’m referring, of course, to the many credit apps that people (mostly the young and the reckless) downloaded in the wake of Covid-19.

Payday loan

The infamous “payday loans” are a case in point elsewhere in the world. Technically speaking, these are small loans (often at high interest rates) that are supposed to be repaid when the borrowers receive their next payments (read: salaries). They appear much like cash advances for very short periods of time, usually based on income levels.

An occasional search of the World Wide Web will take you to a whirlwind of information and various companies that provide such short term facilities. For example, off the coast of India is a company called CashUSA that clearly has a network of lenders offering interest rates between 5.99 percent and 35.99 percent for repayment terms of 90 days to 72 months. I will admit, however, that this is not a local player and the name is just given here as an example.

The disputed point, however, is that such a company can get a loan out quite quickly. And on the due date, it can “simply electronically withdraw funds from the same account they originally deposited your funds into”. Period.

Here is a list for fintech users

  • It is important to understand that not all types of fintech players are right for you. Just jumping on the bandwagon, ruthlessly signing up for loans and other services takes more than courage – sometimes it also means a lack of discretion.
  • Examine the cost carefully, especially if credit is your primary goal. What is the interest rate? What penalties can be imposed in the event of a failure or even an early exit? Are there any service fees for rollover? These are critical questions waiting to be answered.
  • Using fintech applications to invest in new generation assets like cryptocurrencies needs to be done after all compliance issues have been addressed. A clear understanding of the risks is more than necessary.
  • The same logic applies to buying and selling traditional assets like stocks. If you use the services of a fintech player who offers securities brokerage services, please ensure that they meet all the conditions set by the market regulator.
  • Strictly follow all security protocols; The idea is to protect yourself from online fraud. Of course, the use of secured networks and personal devices is recommended. “A victim of his own impetus†is a fitting description – even in the digital world the head wearing such a crown is restless!

The author is the director of Wishlist Capital Advisors

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