Indian Banking System To Drive Economic Growth On The Strength Of Fintech

If Alvin Toffler were alive today and had occasion to do another re-write of his best seller “The Third Wave”, FinTech would have found a place of prominence when he would talk about the information age. There would be no better proof of his prophecy that internet would impact everything on this planet than FinTech in everyday life.

As with many things digital, India is ahead of many other countries as far as FinTech is concerned. As per estimates, India is number Two in the world in the adoption of FinTech services. The Government of India’s Digital India initiative has spurred the rollout of FinTech.

From computerization, in the latter part of the last century to ATM and online banking, Indian banks have been quick to adopt to technology to increase efficiencies and consumer experience. One such recent adoption is The Trade Receivables electronic Discount System (TReDS) a platform that is an interface between banks and Companies. Set up by the Reserve Bank of India under the Payment and Settlement Systems Act 2007, TReDS aims at regulating trade receivables between MSMEs and their clients.

TReDS creates a marketplace of Banks which companies or MSMEs can use for bill discounting in a competitive environment thereby giving them opportunity to optimize the economics of their working capital. And with MSME sector contributing nearly 40% of Indian GDP TReDS gives a huge opportunity to both the banking and MSME sectors.

Government of India is seriously focusing on making this platform a success. On November 2, 2018, in a far reaching initiative, the government announced a series of steps to improve credit access for MSMEs. One such measure was making it mandatory for companies with a turnover of more than Rs 500 crores to register and use TReDS.

FinTech is clearly a catalyst for economic growth and platforms like TReDS play an important role in ensuring transparency in providing working capital to MSMEs in a quick turnaround time. Both these factors ensure that MSMEs do not miss out on business opportunities because of lack of liquidity. At the same time, TReDS ensures a safety net for banks in as far as the authenticity of bills is concerned. In short TReDS provides a win-win situation for all participating entities.