“Fintech” has been a buzzword for a long time and still is. With growing technology, India has seen vast growth in the fintech space, making everyone’s life easier. For people using this immense technology, transferring money has become very easy because this doesn’t have any restrictions like distance and availability of the person. From buying vegetables to purchasing gold, everything can be done through this technology. It has no barriers. Because of this immense technology, carrying cash and making payments via physical cash has become rare. Most of the people don’t carry physical cash anymore, as everyone has become accustomed to making payments via these fintech applications. “So, why are we talking about this now?“The reason we are discussing this is that the easy availability of money at our fingertips has caused us to forget the concept of saving, and on the other hand, our spending limits are rising day by day. Yes, we are at an all-time low in savings. Household savings hit a record low at 5.2% of the gross national disposable income (GNDI) in FY22-23, while debt rose to an all-time high at 5.7%. Gross financial savings have also revolved around 10-11% over the past decade, except for the pandemic year, i.e., FY20-21, where they peaked at 15.6%. People are trapped in the vicious cycle of debt because of these fintech schemes, which are BNPL, 0% EMI, and cashback offers on cards.“Not all the blame lies with these fintech companies, but banks, NBFCs, and retailer credit players also play a role in this vicious game with their Buy Now Pay Later (BNPL) schemes. These two banks and fintech players compete fiercely to draw you into their traps.“Let us understand this with a situation.“Whenever we select a product and go for payment, we are often presented with the BNPL option from our bank. Let’s assume we choose that option for whatever reason. Now, we may have the option to clear the bill in, let’s say, 45 days. If we fail to pay the bill, we will be charged a high interest rate of around 28%.“Here is where fintech players come into the picture. They will pay that bill for you, offering a lower interest rate, say 14%-16%. However, they also give you a shorter repayment period, say 30 days. You can see the competition between banks and fintech players for your attention.“By escaping the trap of banks, you may end up in the trap of fintech companies.“One might say, “I’m a salaried employee. I pay bills on time and have no issues using the services provided by banks or fintech companies.” The people with consistent cash flows are using this as an arbitrage opportunity. “But the primary target customers for these companies are Gen-Z who have a bank account. If you have a bank account and you are Gen-Z, then you are their target customer.“Before highlighting the negatives, some positives are being catered to the Gen-Z from the fintech platforms; these fintech platforms have made upskilling easy by providing flexible options in buying the courses. These courses are of high cost, sometimes starting from 20 thousand to 1 lakh, varying from course to course. The Ed-tech platforms that provide courses to these Gen-Z are tying up with these FinTech players, which provides the flexibility of EMI, card payment offers, etc. Some of the Gen-Z are using this and upskilling themselves by using leverage provided by these fintech platforms.“Not only do these companies offer money to people who are in debt or salaried employees, but some players also offer money to Gen-Z who need money in small amounts. By small amounts, we mean between 5000 and 10000, which is the monthly pocket money for Gen-Z. Not everyone gets pocket money these days, but it has become a necessity for an average Gen-Z who has expenses of around 5,000-10,000 per month.“That’s when these fintech players come into the picture. These players are funded by our neighboring countries and offer money in small portions, and the interest rates for these amounts are the same as those charged by other fintech companies. There is a high chance that Gen-Z kids can easily fall into this trap. The spending rate of individuals has peaked with the easy availability of almost everything at their fingertips.“In an image-driven society like today, the younger generation is willing to go into debt to maintain their high-status image on social media. But if we look at the actual reality, they are just financially broken. If you ever think no one cares about you, remember that banks and fintech players always care about getting you into their trap.“”One of the greatest disservices you can do to a man is to lend him money that he can’t pay back.” – Jesse H. Jones“Observing this, the RBI implemented strict regulations against fintech apps in June 2024. Under these regulations, these fintech platforms can no longer easily challenge credit cards as they once did. In response, these platforms are introducing new schemes to lure customers. However, the RBI is closely monitoring its actions and enforcing rules and regulations accordingly. Brijesh Arpally, Student at Institute of Public Enterprise, PGDM (Banking and Finance).
