The Evolution of Fintech and Traditional Banking in India: A Contingent Conceptual Framework

Abstract

The interaction between Traditional Banking & Financial Technology (FinTech) has been an evolving and transformational process in India. In this paper, we have reviewed the current literature on the Indian FinTech market as well as its overall impact on the traditional banking sector. The development of FinTech in India can be differentiated from the FinTech developments seen in Developed Markets due to a number of factors including the role of the government in building out Digital Public Infrastructure. Using Disruptive Innovation Theory, Intermediary Theory of Financial Institutions and Technology Diffusion Theory we have created a Conceptual Framework based on our findings related to how FinTech interacts with the traditional banking system in Emerging Markets. Three possible Interaction Modes have been identified in this study; Competition, Collaboration and Capture. Similar to other Global Markets where Banks have maintained significant levels of Power and Influence over customers and their accounts, the authors believe that India is moving towards a model where FinTech companies will continue to maintain control over the relationship they establish with their customers and where Banks will function solely as Regulated Balance Sheet Utilities. Six Testable Propositions have been proposed in order to provide evidence supporting our research. Additionally, the authors identify areas of Research Gaps related to Digital Financial Inclusion, Regulatory Effectiveness and Systemic Stability. The purpose of this paper is to add value to Literature by showing that many Western-Origins Theories significantly Underestimate the Transformative Potential of FinTech within Developing Countries supported by Government Built-Out Digital Public Infrastructure.