FinTech vs TechFin – Understanding the Difference in India

As modern finance continues to be influenced by advancements in technology, two terms have emerged to delineate the evolving intersection of technology and financial services: “FinTech” and “TechFin”. While these terms may sound similar, they represent distinct paradigms that are reshaping the way financial services are delivered and consumed, particularly in markets like India: “FinTech”, characterized by innovative startups leveraging technology to disrupt traditional financial services, has gained momentum as a driver of financial inclusion and efficiency. On the other hand, “TechFin” refers to established technology companies integrating financial services into their existing platforms, leveraging vast user bases and data analytics to offer a wide array of financial products. 

This article delves into the nuances of FinTech and TechFin, exploring their origins, key players, and implications for the Indian financial ecosystem. By understanding the difference between these two approaches, stakeholders can better navigate the evolving landscape of digital finance and harness its transformative potential for the benefit of India’s diverse population.

What is FinTech?

Fintech, short for financial technology, refers to the convergence of finance and technology, revolutionizing traditional financial services through innovative, technology driven solutions. Fintech thrives at the intersection of two broad domains: finance (including sectors such as banking, payments, non-banking financial companies, security broking, wealth management, insurance, digital lending and regulatory technology) and technology (including providers in sectors such as hardware, software, cloud, platform, blockchain, Artificial Intelligence and Machine Learning, cybersecurity, and data analytics and big data) – 

• On the finance side, Fintech transforms sectors like banking, payments, digital lending, insurance and wealth management, enhancing efficiency, accessibility and user experience.
• On the technology side, advancements like cloud services, blockchain, AI/ML and data analytics power financial innovations, creating smarter, faster and more secure financial services. 

By integrating finance and technology, Fintech is revolutionizing how financial services are delivered, making them more efficient, secure and accessible. 

Segments of Fintech

Fintechs generally operate in the following sectors: (i) Accounting & Finance; (ii) Business Lending & Finance; (iii) Asset Management; (iv) Core Banking & Infrastructure; (v) Capital Markets; (vi) Financial Services & Automation; (vii) Mobile Wallets & Remittances; (viii) Credit Score & Analytics; (ix) Payments Processing & Networks; (x) General Lending & Marketplaces; (xi) Real Estate & Mortgage; (xii) Payroll & Benefits; (xiii) Personal Finance; (xiv) Retail Investing & Secondary Markets; and (xv) Regulatory & Compliance.

India boasts participants in following segments of Fintech: 

1. BankingTech – aids unbanked/underbanked services that aim to help underprivileged or low-income people who are neglected or underserved by conventional banks or financial services firms (eg: Jupiter Money, RazorpayX, Fi Money);

2. PayTech – suite of financial technologies that enable seamless, secure and real-time payment solutions (eg: PhonePe, Paytm, Razorpay, BharatPe);

3. LendingTech – technology-driven platforms and solutions that streamline and enhance the process of borrowing and lending money. Enables faster loan approvals, broader financial access and data-driven risk assessment that provides an efficient alternative to traditional lending methods (eg: Slice, ZestMoney, KredX);

4. InsureTech – innovative technology to enhance and streamline traditional insurance industry by way of digital platforms for policy comparison, purchase, claims processing, microinsurance and AI-driven risk assessments. Aims to increase accessibility, affordability and efficiency of insurance by leveraging data analytics, AI and digital platforms (eg: Acko, PolicyBazaar, Coverfox, Turtlemint);

5. WealthTech – technology is used to deliver investment management, financial planning and wealth advisory services. Democratizes access to sophisticated financial products and services, enabling wealth and investment management and future planning for users (eg: Zerodha, Groww, Scripbox, AngelOne);

6. RegTech – shorthand for regulatory technology, providing a set of tools to help businesses manage regulatory compliance and risk management (eg: Digio, IDfy, HyperVerge, Electronic Payments and Services).

7. Crypto & Blockchain –  digital tokens (such as non-fungible tokens, or NFTs), digital cash, and cryptocurrency (such as Bitcoin, Ethereum, etc.) frequently make use of distributed ledger technology (DLT) called blockchain, which keeps records on a network of computers without the need for a central ledger. Smart contracts, which use code to automatically carry out agreements between parties like buyers and sellers, are another feature of blockchain technology.

Importance of Fintech

Fintech plays a pivotal role in shaping the modern financial landscape, with its significance stemming from several key factors:

• Financial Inclusion: FinTech has democratized access to financial services, breaking down traditional barriers and reaching underserved populations. By leveraging innovative technologies like mobile banking and digital wallets, FinTech has made financial services more accessible to people around the world, empowering them with greater control over their finances.

• Efficiency and Cost Savings: FinTech solutions streamline processes, automate tasks, and reduce overhead costs for financial institutions. Whether it’s through algorithmic trading, robo-advisors, or blockchain technology, FinTech enhances operational efficiency, driving down costs and improving the bottom line.

• Enhanced Customer Experience: FinTech companies prioritize user experience, offering intuitive interfaces, personalized recommendations, and real-time access to financial information. By leveraging data analytics and artificial intelligence, FinTech enhances customer engagement, satisfaction, and loyalty, fostering long-term relationships in an increasingly competitive market.

• Innovation and Disruption: FinTech thrives on innovation, constantly pushing the boundaries of traditional finance and challenging incumbents to adapt. From peer-to-peer lending and crowdfunding to cryptocurrencies and decentralized finance (DeFi), FinTech disrupts entrenched industries, catalyzing innovation and fostering a culture of experimentation.

• Financial Literacy and Education: FinTech platforms provide educational resources, tools, and insights to help individuals make informed financial decisions. By offering financial literacy courses, budgeting apps, and investment tutorials, FinTech promotes financial literacy and empowers consumers to take control of their financial futures.

• Financial Freedom: Peer-to-peer lending platforms connect borrowers with lenders directly, potentially offering lower interest rates and more accessible loans.

• Investing Made Easy: Robo-advisors, powered by technology, can create personalized investment plans based on your risk tolerance, making investing more approachable.

• Democratization of Finance: Fintech tools and services are often cheaper and easier to use than traditional options, allowing more people to participate in financial activities.

What is TechFin?

The term “Techfin” refers to technology companies operating in the financial sector to provide advanced or innovative technological solutions primarily designed to support the financial industry with cutting-edge offerings that, of course, meet the demands of the business. This explains how it relates to banking and financial commitments. To put it briefly, Techfin describes businesses that introduce financial solutions that are incorporated into internal management systems, utilizing financial resources and offering a consolidated view of data through a single interface. 

Alibaba’s (dubbed the “Amazon of China”) founder, Jack Ma, is credited with coining the phrase. Financial goods were integrated into well-known apps by the investor and entrepreneur, who also included the BATs (Baidu, Alibaba, Tencent) to build the first techfin model and enhance activities related to financial products, services, and institutions. These are typically Business 2 Business (B2B) in nature, where they have tech products which can be used by financial institutions for their operations. Some examples of these in India include – Finacle (by Infosys), Mambu, BrokerEdge, InsureCRM and ODIN.

While FinTech firms start with finance and use technology to improve upon these services, TechFin companies start with technology and venture into the financial sector leveraging their tech strengths. One of the main issues that techfins resolves is the process of integrating and updating financial information, which is a major barrier to effective customer service for banks and cooperatives. Tech platforms are said to be able to cut the amount of time that specialists need to spend integrating a file in half with the innovative solutions offered by techfin companies. While initially focused on the distribution side of the financial services industry, techfin is content for banks to manage regulatory compliance obligations. 

A sizable contribution of Techfin companies lies in data analytics. Banks, for example, are interested in acquiring access to clients’ financial transaction data, which diversifies their existing customer data and provides a true financial portrait of their customers. Similarly, each technology company has unique consumer information. Social media firms collect information on the social interests and activities of their users, whereas e-commerce companies collect information on client demand, transactions, and payment history. Google has data on nearly every area of customer life, whereas Apple and other telecommunications firms have data on user behavior, location, and activities. TechFin firms are interested in augmenting existing client data with transactional information in order to enhance their main product and provide supplementary financial services.

TechFin’s platform-centric, data-driven business models are independent of the financial services margin. Therefore, banks and financial services firms face bigger obstacles than Fintech. TechFin companies in India include technology giants like Google, Amazon, and Facebook, which have integrated financial services such as digital payments, lending, and insurance into their platforms.

Importance of TechFin

• Expanded Access to Financial Services: TechFin platforms leverage their large user bases and advanced technology infrastructure to extend financial services to a wider audience. By integrating financial products seamlessly into their existing platforms, they can reach previously underserved populations, promoting financial inclusion and empowering individuals with access to banking, payments, and investment services.

• Seamless Integration: Tech companies you already use, like social media or e-commerce platforms, can offer financial services like payments or budgeting tools within their existing apps.

• Enhanced Security: Techfin companies often have robust security measures in place, potentially offering a safe and familiar environment for financial transactions.

• Faster Adoption: By leveraging existing user bases of tech giants, techfin can accelerate the adoption of new financial services.

• Focus on User Experience: Techfin companies prioritize user-friendly interfaces and intuitive designs, making financial tools more accessible and engaging.

How do FinTech and TechFin contribute to financial inclusion in India?

FinTech companies in India have played a significant role in expanding access to financial services, particularly among underserved populations, by offering digital banking, mobile payments, and micro-lending solutions. Similarly, TechFin companies have leveraged their vast user bases and technology infrastructure to extend financial services to a wider audience, promoting financial inclusion in the country.

How will Fintech and TechFin impact the future of the financial and economy?

All financial products and asset classes, whether utilized by retail clients, small and medium-sized companies (SMEs), or large institutions, will be digitized. The original wave of digitization included traditional products and services, including equities and government bonds, as well as consumer banking products like payments, loans, brokerage services, and vehicle insurance.

The second phase of digitizing consumer banking, SME and commercial banking, financial services, capital market, mortgage market, and fund management will be led by fintech. Mobile applications will facilitate the implementation of digitization projects across all corporate sectors. The future of finance and the economy is likely to be heavily influenced by the continued development and integration of Fintech and TechFin. Here’s a glimpse into some potential impacts:

• Increased Financial Inclusion: Fintech and TechFin tools can reach a wider audience compared to traditional financial institutions. Mobile banking apps and peer-to-peer lending platforms can bring financial services to underserved communities, boosting financial inclusion and participation in the economy.

• Democratization of Finance: With user-friendly interfaces and potentially lower fees, Fintech and TechFin can empower individuals to take more control of their finances. Robo-advisors can make investing more accessible, while mobile budgeting tools can promote better financial literacy.

• Rise of the Cashless Society: As digital payment solutions become more convenient and secure, cash usage may decline. This could lead to a faster and more efficient flow of money within the economy.

• Evolving Financial Products and Services: Innovation in Fintech and TechFin will likely lead to the creation of new financial products and services tailored to specific needs. This could include personalized insurance plans, AI-powered financial planning tools, and alternative investment options.

• Enhanced Security and Fraud Prevention:  TechFin companies often prioritize robust security measures, potentially leading to a decline in financial fraud. Additionally, advancements in data analytics can help identify and prevent suspicious activity.

Conclusion

In a nutshell:

• Fintech disrupts with new ideas, while TechFin leverages existing tech for financial services.
• Fintech may be smaller but innovative, while TechFin has a wider reach but integrates finance into existing services.
• Both Fintech and TechFin are transforming the financial landscape, making it more convenient, accessible, and potentially more secure.

Fintech and TechFin are both disruptive forces within the financial services business. If traditional institutions wish to survive the digital revolution, they must immediately digitize their corporate structures. Fintech tackles a particular financial service issue for clients by providing an innovative financial solution or process based on technological capabilities in the form of a new product or service. TechFins integrates different existing financial and technological solutions into its business model.

The increased value of data makes it attractive for large tech companies to profit from their collected data, and it has been easy for them to be successful with the implementation of their products thus far due to their large customer base and the advantage they have with customers granting permission to use their data by agreeing to their terms and conditions (which are periodically updated in the benefit of the company). Moreover, when they become TechFins, they often experience no early fundraising concerns. Initial funding is typically difficult to get for fintech businesses, which rely heavily on angel investors and banking institutions. Crowdfunding has proved advantageous for FinTech funding, although it still faces challenges and is not yet internationally accessible. The incorporation, regulation and governance of fintech and techfin solutions (including for funding) remains an evolving challenge for authorities. 

Frequently Asked Questions on Fintech vs Techfin

1. What is the main difference between FinTech and TechFin?

FinTech refers to companies that originate in finance and leverage technology to disrupt and improve financial services. In contrast, TechFin describes tech-first companies that integrate financial services into their existing platforms, often using their large user bases and data capabilities to deliver financial solutions.

2. How do FinTech and TechFin contribute to financial inclusion in India? 

FinTech companies have expanded access to financial services for underserved populations by providing mobile banking, digital wallets, and lending platforms. Similarly, TechFin companies leverage their vast user networks to integrate financial services, extending access to a broader audience and fostering financial inclusion.

3. What types of financial services do FinTech and TechFin companies offer in India?

FinTech companies like PhonePe and KredX focus on sectors like digital payments, lending, insurance, wealth management, and regulatory compliance. TechFin firms, such as Google and Amazon, incorporate financial services like digital payments, lending, and insurance into their existing platforms, offering a more integrated user experience.

4. What role does data play in the operation of TechFin companies?

TechFin companies rely heavily on data analytics to offer personalized financial solutions. By using customer data from their tech platforms, TechFin firms can create a financial portrait of users, improving service personalization and security while gaining insights into user financial behavior.

5. How do FinTech and TechFin impact the future of finance and the economy in India?

FinTech and TechFin are expected to enhance financial inclusion, promote a cashless society, democratize finance, and lead to the development of secure and innovative financial products. Their continued growth could reshape economic participation and the delivery of financial services in India.