Age of fintechs: These financial intermediaries make life easier but there're caveats too

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Managing money has become a breeze these days, thanks to your smartphone. There’s an app for everything that you wish to do. Well, almost.

Want to invest in a basket of mutual funds? Download that investment app. Need to borrow money? There are scores of loan apps out there to lend you money.

Whether you want to send cash to someone or use a mobile wallet to shop, there’s a fintech app for everything. You can even set a budget limit and track your monthly spending using fintech apps. “The growth of fintech applications in various segments is possible because the regulations are far more enabling,” says Neelabh Sanyal, co-founder and chief operating officer, Kuvera.in, an online investment and financial planning platform.

Fintech companies have disrupted the traditional methods of managing finances and spending and are here to stay. You may not use all of them, but it’s good to know in which aspects of your financial life will benefit from these apps. And the pitfalls of misusing them.

Smart ways to budget and spend

Budgeting and spending apps are very useful. Some of the more popular ones are Walnut, Moneyfy, and Money View, among a host of others. Some of these work across devices and spending data gets synced for all family members. Uttung Malkan, country manager of TIFIN India, an AI-driven investment platform, uses one such app to keep a track of his family’s monthly spends. “After we’ve fed the app our monthly spends, we get our monthly spending pattern. That alerts us to if we’ve overspent in any particular month,” he says.

Some of the apps that track your spending patterns are enabled to read your mobile data and messages if you have allowed it to.

Parijat Garg, a digital lending consultant, has a checklist before you choose the one you’d like to download and use. “Look at how many people have installed it, read customer reviews, check its ratings. Also, is the data encrypted? Else, there is a risk of personal data getting stolen by reading your messages and mobile data,” says Garg.

Save now, buy later

There are fintech startups such as Multipl, Hubble and Tortoise that allow you to save now for a particular goal or purchase. There are merchants partnered with these fintech firms, and you can tag your investments to purchase that product after building the corpus. The merchants also offer discounts on these platforms.

Then, there are fintech firms that enable your investment plan. Many of these also offer direct plans, the low-cost plans that do not carry distributor costs. Some of the popular investment apps are Groww, Kuvera, Paytm Money, Smallcase, TIFIN and Zerodha. These are useful for DIY or do-it-yourself investors managing their own portfolios.

Apps like Winvesta and Vested allow you to buy international stocks. Malkan suggests that investors must spend some time in ascertaining the choice of instruments that investment apps offer “in order to get a consolidated view across assets and mutual funds”.

Neobanks an alternative to traditional banks

The staid image of a bank has undergone a metamorphosis thanks in part to neobanks. A neobank is a digital bank that offers banking services through online platforms.

For instance, neobanks offer teens their own contactless prepaid cards that work somewhat like credit cards. These cards could come with spending limits for select categories. “It’s an innovative way of teaching financial independence and encouraging millennials to save money through predefined savings goals effectively and smartly,” says Mukund Rao, co-founder, muvin, an online payment app for teenagers and parents.

Opening an account is easy. Many charge low fees as these banks do not incur heavy costs unlike traditional banks that have to bear overheads such as maintaining physical branches.

But there’s a flip side to neobanks. These fintech firms do not have a banking licence. They provide services via licensed partner banks. They can be seen as a layer over traditional banks although with limited offerings. A neobank doesn’t offer loans, unlike traditional banks.

Wide acceptance of digital payments method

Gone are the days when you and your local grocer had to scramble for change. You no longer need to break your Rs 500 note to buy a Rs 10 item. Just whip out your mobile phone, flash your camera in front of the QR code at the shop and make your payment.

The government’s push to digital transactions and the spread of the internet into the hinterland has led to more people transferring money using their mobile phones. Shopkeepers don’t mind either. Digital payments apps such as Paytm, Google Pay, Amazon Pay, PhonePe, Bharat Interface for Money (BHIM), etc., while already wildly popular, are gaining traction every day. As per Reserve Bank of India (RBI) monthly data, Unified Payments Interface (UPI) transaction increased from Rs 9.83 lakh crore in April this year to Rs 10.73 lakh crore in August.

Anand Kumar Bajaj, founder, managing director and chief executive officer, PayNearby, a digital payments platform, says that the Indian consumer is letting go of her inhibitions and becoming more open to adopting digital payments. “Consumers and merchants have experienced the ease and security of digital payments. It has brought a behavioural shift in them,” says Bajaj.

Watch out for unscrupulous elements, though. There have been many cases where fraudsters take advantage of the ‘request money’ option on UPI apps to make payments to themselves. You need to be alert and attentive while using UPI apps.

Digital lenders for instant loans

There are fintech apps such as CASHe, CRED, MoneyTap and NAVI that offer instant personal loans. Payday loans apps are also popular among millennials but be aware that these are ultra-short-term, unsecured and high-interest personal loans of small ticket sizes that fill the temporary gap in cash flows. The loan amount ranges between Rs 500 and a few lakhs, and typically, the interest rate is usurious. The interest rate on a standard payday loan apps is 1 percent per day, which translates to 365 percent annually. Unfortunately, many millennials are using them for regular purchases and discretionary spends.

Dev Ashish, founder of StableInvestor.com, an online financial planning service provider, says, “If millennial borrowers aren’t careful, this line of high-cost credit can easily push them into a debt trap. They should avoid such loans for discretionary spends.”

One of the hottest fintech areas of the past few years is buy now, pay later (BNPL). Consumers, especially millennials and Gen Z, are increasingly looking for simplified micro-credit solutions to manage their recurring and occasional purchases, which led to a massive rise in the popularity of BNPL schemes in India. Firms offering BNPL schemes include Amazon Pay Later, Flipkart Pay Later, and the like. This is not limited to shopping apps, now fintech firms have extended it to travel schemes for tourists to enjoy holidays first and pay later in easy equated monthly instalments (EMIs). Fintech firms such as OneCard, ZestMoney and others have partnered with leading travel websites for this purpose.

Aparna Ramachandra, founder-director of rectifycredit.com, which advises clients on improving their credit scores, cautions, “Consumers must know before borrowing that all these fintech lenders are providing personal loans by packaging them in different ways which are expensive and unsecured.”