FinTech and TechFin – Bridging the Gap between Data-Driven Finance

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The commodification of technology is a driving force behind the financial technology (‘FinTech’) space in our data-driven environment. Nonetheless, the maxim “follow the money” has been the conventional brick-and-mortar upon which financial institutions have stood for almost 40 years. With companies like Uber, Amazon, Samsung, and Ant Financial revolutionizing the financial services industry, banks must become more data-driven or risk being left behind.

The rate at which Big Data, analytics, machine learning, and artificial intelligence are gaining traction is astonishing. The current FinTech period stands out due to the increasing number and variety of new entrants into the financial sector. These newcomers, which are often non-financial service enterprises with customer bases based on financial legislation and regulation, have raised the bar for data-driven financial businesses.

Established tech organizations entering the realm of finance, colloquially known as TechFins, are frequently defined by their ability to exploit data. They’re bridging the gap between massive volumes of data formerly collected solely for marketing purposes and a more customer-centric experience within their primary company and into financial services.

Defining FinTech

Companies that produce technological solutions in the financial sector are known as fintech. Although online banking, which integrates traditional banking with the internet, was one of the first examples of fintech, solutions and innovations have become more complicated in recent years, allowing for practical expansions. Our capacity to pay online, as well as bitcoin, falls under the fintech umbrella. As a result, it’s pointless to draw a hard line between fintech businesses and the fintech ecosystem.

Fintech, however, goes where current technology takes money, no matter where you start. These advancements are having an impact on everything from personal banking to high-level business applications. Investment banking, for example, has a tight association with fintech. Fintech will be able to provide investment advice in the near future, thanks to technology that can analyze data exceptionally quickly and handle data that cannot be processed by a human.

Defining TechFin

The term “TechFin” refers to the attack of corporations who specialize in technology rather than finance. Whether you are the CEO of a small fintech startup or the president of a large bank, investing in technology is one of the most important things you can do. Bankers are good at operating businesses and making money. Technology businesses, on the other hand, have recently been successful.

Amazon, Alibaba, Apple, Facebook, Google, Baidu, and Tencent are some of the most well-known companies in the world. All of these businesses are now classified as TechFins. Although TechFins will not be a bank’s replacement, they will play a more serious and meaningful role in clients’ money relationships.

Financial Laws and Regulatory Changes

Although FinTech platforms hold the mantle of financial inclusion, the lack of a specialized regulatory framework also limits their true growth potential. So, let’s take a closer look at the problems, restrictions, and potential remedies in this context.

Regulatory challenges faced by financial technology firms

The data of people is at the center of this novel technique. It comprises not only financial or commercial information but also social information about people’s interactions and activities. As data becomes the new money, businesses and financial institutions are ready to forego transaction fees in exchange for access to rich digital data about their clients.

The gathering of such detailed, individually identifiable data raises legal concerns about whether customers are aware that their data is being taken. There are also legal problems about data ownership and whether or not such data can be shared with third parties. As a result, regulatory rules to regulate the flow of data in Fintech organizations are becoming more important to promote consent-based data access for users.

When it comes to getting Indian customers’ data, a few foreign companies have discovered a grey area. For this reason, they just purchase a share in Indian companies. TransUnion’s purchase of a 92 percent share in CIBIL (Credit Information Bureau India Limited) and Facebook’s recent investment in Reliance Jio are two examples. This method essentially avoids the necessary compliance procedures for getting the Data Principal’s explicit approval.

Financial banking is one of the most heavily regulated businesses in any country, with data being the new oil. Before launching their services, every Fintech start-up must complete a long set of requirements, which often function as roadblocks for these new entrants. After Justice (Retd.) K. Puttaswamy & Ors. v. Union of India, often known as the “Aadhar judgment,” one of the primary regulatory problems encountered by fintech companies arose. Fintech companies previously used Aadhar for the e-KYC (Know Your Customer) authentication procedure to authenticate and validate their customers. To continue using the private Fintech firm’s services, the user had to provide his unique Aadhar number with them.

The Supreme Court forbade these commercial companies from using Aadhar for e-KYC purposes in the Aadhar Judgment. The Reserve Bank of India is the country’s top regulator of financial technology enterprises. It has required these companies to set up an ombudsman scheme for digital transactions to handle consumer complaints about the items they offer.

As a result, all FinTech organizations must streamline consent-based data access. To comply with rules while keeping their clients informed, fintech firms must have comprehensive and acceptable privacy terms. Simultaneously, progressive policies must be designed with a comprehensive perspective of economic stability, citizens, and FinTech platforms and their innovations in mind.

The majority of banking regulations were written with the old banking system in mind. Because financial technology is such a young and rising industry, it is mostly unregulated. In this regard, the Steering Committee urged in its report that a regulatory entity committed to supporting hybrid and innovative business models, such as fintech and TechFin, be established. A PIL has been filed before the Hon’ble Delhi High Court, seeking to build a regulatory framework to control the operations of Techfin platforms, as part of recent moves on bringing new regulatory reforms. The Court is awaiting comments from the RBI, SEBI, the Ministry of Law, and the Ministry of Finance on this matter.

Regulatory Solutions to FinTech


An Inter-Regulatory Technical Group to support hybrid financial institutions should be established, according to the 2019 Steering Committee report on FinTech problems. It advises that for better credit rating and credit accessibility, data from unusual sources be collected. Other suggestions include Open Database regulation to boost competition and the development of a data pool for companies that offer similar services. We must recognize that financing is a one-of-a-kind sales transaction, possibly the only one in which potential customers are turned down. Lenders have the right to access their clients’ data and use it to learn more about them. It’s because they’ll be exposed to transactional risk for a long time.

FinTech companies must incorporate security standards and cross-platform harmonization into the early stages of technology development to address this complicated problem (Privacy by Design). Embedding such safeguards reduces the risk of future vulnerabilities, such as cross-platform contamination. For multi-platform compatibility, start-ups must expand their procedural testing and auditing processes. Conducting comprehensive testing, greater data integration, and clearly, delineating areas of responsibility between all stakeholders are the best ways to overcome integration challenges. This will also help to reduce the risks of cybersecurity and compatibility difficulties associated with multiplatform interfaces.

Customers’ data is protected by firms using methods like cryptograms, which follow data to guarantee it comes from the client. However, this is only a rudimentary check. Any flaw in the platform’s programming can be taken advantage of. FinTech firms are increasingly using a technique known as “AI fuzzing” to uncover software flaws such as unsafe APIs. Simply said, this approach employs machine learning to detect potential security flaws in an app’s coding before they are discovered by hackers.

In terms of innovation, the UK was the first to implement the regulatory sandbox idea in 2015, which aimed to foster FinTech innovation while also easing regulatory burdens and maintaining proper client safety. Certain regulatory standards are temporarily relaxed under the sandbox approach. It permits early-stage companies to test their products for a limited time before obtaining a full license and regulatory approvals. This method significantly lowers the entry-level barriers and costs for companies while also allowing them to innovate. In India, authorities such as the RBI, SEBI, and IRDA have launched their regulatory sandboxes, which are a version of this technique.

Blockchain should be another topic of interest for authorities. When compared to the traditional front, middle, and back-office functions in financial institutions, it is faster, more transparent, and efficient. India is doing well on this front by building India Chain, which has the potential to become the heart of our country’s government. Regulators must work together with NITI Aayog and the Government of India to build a strong system that is more efficient.


Finally, as several parties work to regulate the FinTech sector, we are in for some exciting times. We’ll see an increase in middleware solution vendors with specific use cases spanning from cybersecurity to legal compliance. Such approaches, backed by a robust regulatory framework, will shorten FinTech firms’ and products’ time to market while also making the process more cost-effective.


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