FinTech and Innovation

Written by Erina Jain

Table of Contents

Introduction

Fintech is changing how money moves, how credit is given, and how people think about finance itself. When we talk about fintech, we’re really talking about innovation: technology entering one of the most traditional, regulated, and slow-moving sectors in existence. From mobile banking to peer-to-peer lending to cryptocurrencies, these tools are reshaping consumer behavior and revolutionizing how economists understand financial markets.

What makes fintech interesting from an economic perspective is that it directly interacts with classic concepts like transaction costs, information asymmetry, competition, and efficiency. Every app that simplifies a payment or matches a lender to a borrower is, in theory, doing what markets aim to do: allocate resources more efficiently, fill the gap of scarcity. But innovation rarely arrives without friction. While fintech poses a lot of exciting opportunities and benefits, it also risks creating new monopolies, data dependencies, and regulatory grey zones.

In this article, we’ll explore three key core areas on fintech- cryptocurrencies, digital payments, and crowdfunding. We’ll also explore the broader economic impact as well as what experts have to say about the topic, FinTech, the Next-Gen bridge of finance.

Mobile Banking and Digital Payments

Mobile banking is the most widespread and visible form of fintech. From online money transfer apps like PayPal to contactless cards, digital, they allow users to transfer, save, and manage money without visiting a traditional bank branch.

How does it work?

AI and machine learning algorithms allow companies to monitor transactions, prevent fraudulent activities and enhance user experience by analysing spending behaviours. NFC facilitate contactless transactions between devices in close proximity, allowing consumer to pay effortlessly by tapping their device against the vendor’s point-of-sale terminal without the need for any physical credit cards or cash. MST is a digital payment technology that emits a magnetic signal to make mobile wallet communicate with traditional card readers. This technology allows digital wallets to be used with both traditional magnetic stripe and modern chip-based card readers, enhancing compatibility, and offering users the flexibility to make secure transactions at both traditional and chip-based card terminals.

Economically, this is a direct reduction in transaction costs which are the time, effort, and fees involved in moving money, and an increase in market efficiency, since financial flows can happen faster and with less friction.  However, integrating new digital payment technologies with existing financial systems can pose challenges, particularly in ensuring compatibility and navigating complex transaction processes.

One of the clearest benefits is financial inclusion, especially in developing economies. Many people previously excluded from formal banking systems can now store and/or send money, or pay bills via a smartphone. This has knock-on effects for consumption, investment, and small-business productivity. Faster transactions also mean money circulates more quickly in the economy, supporting the overall economic activity.

Case Study:

In November 2016, the RBI’s withdrawal of ₹500 and ₹1,000 notes caused a nationwide cash shortage, leading to a 400–1,000 percent surge in digital payments. That same year, the NPCI launched the Unified Payments Interface (UPI), that enabled instant, countless bank transfers via various mobile apps, and still does! Supported by Aadhaar, UPI grew to handle over 1 billion monthly transactions by 2019, with Google Pay, PhonePe, and Paytm dominating India’s fintech world.

While RBI’s withdrawal of specific banknotes wasn’t directly linked with the increase in cashless payments, the scheme certainly played a key role in bringing forward mobile banking and digital payments to consumers and sellers in India. UPI has contributed significantly to the growth of India's digital economy, which is predicted to become an even larger portion of the nation's GDP in the coming years. It increased financial inclusion, and also fostered innovation in the fintech industry in India. Another key benefit this brought to India was that it reduced corruption significantly, as it reduced the role of cash and increased transparency.

Cryptocurrencies

Cryptocurrencies are one of the most radical inventions in the history of fintech. They’re dencentralized, digital, currency secured by cryptography, which makes them nearly impossible to counterfeit or double-spend. Cryptocurrencies use a decentralized system where transactions are publicly recorded on a secure, shared digital ledger, called a blockchain, copied across thousands of computers worldwide in a peer-to-peer network, rather than being controlled by one bank or authority, for example- the government (but they do set laws for brokerages to follow).

How does it work?

Cryptocurrency mining: This refers to creating most of these digital currencies. Mining these currencies validate them and also creates new cryptocurrency through the use of specialized hardware and software that adds new transactions to the blockchain. Not all cryptocurrency comes from mining. For example, crypto that you can’t spend isn't mined. Instead, developers create new currencies by creating a new blockchain path while the original continues, calling it a hard fork and crypto assets that cannot be mined are generally used for investment rather than everyday purchases.

Cryptocurrencies like Bitcoin and Ethereum are changing the way we handle money today, even from an economic perspective. For (1.7 billion) people who don’t have much access to banks, the inclusivity of cryptocurrencies offers these people a chance to participate in financial activities that could boost the GDP of emerging economies. But, since governments and central banks cannot control transactions, there is concern for financial stability. Any abrupt decrease in value might result in a loss of investor confidence and have broad market effects.

Another key advantage of crypto is that large amounts of it can easily be moved across borders, unlike cash. However, if these transactions follow the Anti-Money Laundering rules, then they can easily be traced. CipherTrace analysts have found that even though less than 1 percent of transactions are illegal, 98 percent of ransomware uses crypto, and investigation is limited in regions with unregulated crypto.

One of the favorabilities of cryptocurrencies is that anyone can mine them with a computer and an Internet connection. However, the mining of popular cryptos requires a large amount of energy. Mining a single Bitcoin requires a whopping 1450 kWh of electricity, which is roughly the amount of energy an average American household uses in about 50 days. The high energy costs and the unpredictability of mining have reduced mining among large firms seeking to profit from the activity.

Case Study

The financial independence of using cryptocurrencies, obviously comes with some trade-offs, the key one being hacking. On February 21, 2025, a group of hackers from North Korea pulled off the largest cryptocurrency heist in history after stealing $1.5 billion in Ethereum tokens from the Dubai-based cryptocurrency exchange ByBit. The theft has been attributed to Lazarus Group, an infamous North Korean criminal hacking group that was also responsible for the 2014 attack on Sony Pictures that released emails and personal employee information and destroyed 70 percent of Sony’s laptops and computers.

Emerging Voices and Trends

In recent years, fintechs have become essential in today's financial system and today, this industry is transforming into a phase of sustainable growth, new data shows. Year-on-year, MSMEs saw increased offerings from fintech, with an increase of 10% between 2022 to 2023. Emerging markets and developing economies (EMDEs) have a particular focus on MSMEs, with 70% of fintechs having offerings for this group. Globally, fintechs are increasing their digital focus as they expand their customer bases. The rise of open banking, open finance and digital public infrastructure, meanwhile, has been a “significant milestone” for the fintech sector, a report from the World Economic Forum says. By allowing people to securely share their data with trusted third parties to access services that help them better manage their finances, these advances are creating new opportunities for innovation, market expansion and competition. In total, 80% of the firms surveyed say they are implementing the technology everywhere, and it’s paying off, firms report, improving customer experience, reducing costs and boosting profitability.

Conclusion

In conclusion, fintech is more than a technological advancement, it is an economic one. Mobile banking, peer-to-peer lending, and cryptocurrencies are steadily tranforming how we perform transaction costs, information flows, and market dynamics. From an economic perspective, the exciting promise of fintech lies in its ability to make financial systems more inclusive, efficient, and competitive, but only if risks are managed thoughtfully. To reap the benefit of fintech, policymakers, investors, and we as a society in general, must understand these dynamics.

References