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IMPACT OF FINANCIAL TECHNOLOGY ON BANKING INDUSTRY IN

INDIA - A CASE OF SELECT PRIVATE SECTOR BANKS IN
HYDERABAD CITY - A SEM APPROACH
K. Naupal Reddy 1 and Dr. M. Vidyasagar 2
1Research Scholar, Malla Reddy University-Hyderabad.
Senior Assistant Professor, Department of Management Studies,
Geethanjali College of Engineering and Technology-Hyderabad.
Email: [email protected]
2 Professor and BBA-HOD, Malla Reddy University-Hyderabad.

Email: [email protected]

DOI: 10.5281/zenodo.11229830

Abstract
Purpose: This study utilises data collected from a case study of private sector banks in Hyderabad,
India, to make inferences on the impact of monetary innovation on the Indian financial industry. The
Role of Fintech services used by the Privat sector banks in Hyderabad and what are the challenges
and opportunities in banking industry in India. Design/Methodology/Approach: The essential
objective of this examination is to make determinations about the effect of monetary innovation on
confidential banking in the Hyderabad region of the Indian territory of Telangana and the job that these
advances play in the financial area by and large in India. I selected five private sector banks like Axis
Bank, Yes Bank, IDBI First Bank, ICICI Bank and Bandan Bank. Originality/Value: Experts in the field
of financial technology have taken notice of the recent explosion in Fintech services and developments,
and they are now trying to determine how these changes will affect the banking industry. To decide how
the fintech age has impacted the security of China's monetary framework, this exploration utilizes
various insightful instruments. a monetary area comprised of organizations that improve the proficiency
of monetary administrations through the utilization of innovation. Startups in the financial technology
space often aim to disrupt established financial institutions and take on more software-dependent
established firms. This study applies Least Squares regression (OLS) and Using MIDAS Model for
secondary data. Findings: Through this paper, we expected to make sense of the capability of FinTech
inside the financial area and the monetary business in general, enlightening FinTech as a tsunami of
development in the monetary business that converged with cutting edge telecom and data innovation.
The India stack project is another programme that has made a significant difference. An impressive 18
different FinTech solutions were implemented by banks. In terms of financial technology, AI was by far
the most popular, with blockchain and machine learning following closely after.
Keywords: Fintech Applications, Private Banks, ADF Test, MIDAS Model.
JEL Codes: M18, M15, M96, M98.

1. INTRODUCTION
Monetary innovation, or fintech, is a substantial point of view on utilizing age to give
new monetary merchandise and notable items that monetarily catch new shopper
gatherings. The new financial technology industry is sprouting up thanks to digital
giants that are partnering with or acting as intermediates for more traditional banks
and financial institutions to handle crucial payments and markets. Controllers,
traditional banks, NBFCs, clearing banks, buyers, charge specialist organizations,
financier firms, resource the executives organizations, insurance agency, and,
obviously, club are trying to destroy Fintech. A growing number of stakeholders are
finding it to be the most appealing aspect. financial technology (FinTech) sports fan.
With the aid of fintech, financial institutions might become more efficient, customers
could have access to a wider range of goods at lower rates, and the financial

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landscape could undergo a fundamental shift. Keeping up with the underlying technical
and entrepreneurial flux requires constant monitoring and evaluation of the fast and
transformative changes brought about by FinTech. This article offers a concise
overview of the industry, including its history, traits, and global and Indian driving
forces. Financial technology companies must work to eliminate digital disparities and
increase diverse and fair consumer engagement if they want to see their business
ecosystems thrive. (www.rbi.org.in)
Structure of Fintech Industry

5 challenges in fintech for incumbents

Protecting sensitive information:
A sum of 1,862 information breaks happened in 2021, with a typical expense of $4.24
million. Concerns about banking cybersecurity have never been higher, and this marks
a new all-time high. Business owners should be aware that they stand to lose both
face and money if they do not take precautions.
Observance of regulations:
Government rules are a major obstacle in the fintech business, which is already
fraught with danger. The General Data Protection Regulation (GDPR), the Genetic,
Local, and Broad Act (GLBA), the Wiretap Act, the Money Laundering Control Act, and
countless more have mandated compliance for businesses.
Skill gap in technology:
When it comes to mobile banking, many financial institutions still rely on antiquated
technologies or fail to innovate. Their applications aren't intuitive or user-friendly,
therefore this is a major problem. There has been a noticeable change in emphasis
recently towards improving the user experience, but there is still a long way to go.

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Customising the service:

Using AI to learn about a customer's preferences is a common practice in
personalisation. You should think about it since AI is now one of the most sought-after
fintech development services.
Customer loyalty and satisfaction:
One of the biggest problems in fintech is keeping people interested. Income drops as
a consequence of fewer users due to low retention. Giving users more of what they
want might increase their likelihood of sticking around. One way to keep an eye on the
user experience is to watch what your rivals are doing. You may learn which
approaches work best for your business by seeing others in action.

2. REVIEW OF LITERATURE
Srinivasan, K. & Raja Rajeswari (2021): Fintech drivers, the problems with
conventional banking, and the impact of technology development are the topics this
article aims to cover. Concerning fintech investment and disruption, the article also
touches on such topics. Problems with investment management, client service, and
rules and regulations are examples of financial technology issues.
Mehrotra, R. (2019): With the globalisation of markets and the expansion of financial
sectors, more and more individuals are shifting away from using cash and towards
using a cashless system, which is seeing steady growth. There is an urgent need for
the cashless system in the modern world. The outcomes of initiatives to promote
financial inclusion in India throughout the last few years have been inconsistent.
Strong governmental and regulatory pressure has led to a huge expansion in access
to bank accounts.
Upadhyay, V. (2020): By combining the terms "financial" and "technology," the name
"FinTech" is created. Innovations in financial technology have the potential to
revolutionise financial markets, institutions, and the creation of new business models,
applications, procedures, and products for the purpose of providing financial services.
K. Vijaya, C. (2019): Financial technology, or Fintech, is defined in this article as tools
and systems that facilitate monetary transactions, both inside and outside of traditional
banking institutions. New ideas are popping up in the financial sector, and one of them

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is fintech. Examining the opportunities and threats facing the fintech sector is the
primary goal of this study.
Chugh, B. (2020): In this article, we will look at the topic of fintech regulation in India
and try to find a solution. The article starts by taking a look at the many fintech
initiatives that are aimed at the general public in India. In India, it recognises fourteen
distinct kinds of fintech that target consumers. This typology of consumer-facing
fintech operations in India is comprised of the fourteen kinds mentioned above.
Pant, S. K. (2021): Financial technology, in its most basic definition, alludes to the
utilization of innovation in the arrangement of banking and monetary administrations
to both individual and corporate clients. India is home to three of the world's most
promising financial technology businesses, and the industry is booming worldwide.
Fintech companies use the cloud, blockchain, cryptocurrency, artificial intelligence,
data analytics, machine learning, big data, robotics, and robotics to offer their goods.
The development of domestic and international broadband connection by
telecommunications companies provided the groundwork for the expansion of the
financial technology industry.
Guild, J. (2017): Tens of billions of dollars' worth of venture money has been flowing
into the financial technology (Fintech) sector in recent years. Computerized cash move
administrations in India and Kenya and distributed loaning stages in China are
instances of fintech advancements. Hundreds of millions of individuals who do not
have access to financial services will soon get them, thanks to these services and
supplementary government policies and regulatory frameworks that could
revolutionise the financial sector.
Kang, J. (2018): When it comes to Fintech, protecting the privacy and security of
consumer information is a top priority. Robust authentication systems may prevent
data intrusions thanks to technical procedures. Traditional financial institutions have
created a niche for themselves, but fintech is quickly filling it and providing far higher
levels of customer satisfaction because to its unique benefits.
Ray, T. (2020): Numerous studies and articles on Fintech and its impact on India's
banking sector attest to the expanding body of knowledge in this area. Furthermore, it
is very crucial to note the link between the financial efficiency of FinTech and the
COVID-19 epidemic in India.
Kumar. (2021): ushers in a new era of financial technology institution expansion that
is characterized by an increasing number of new businesses, which is reflected in the
current worldwide scenario. The majority of these new businesses have recently
expanded into the financial services industry, with roots in information technology and
online retail. With the fintech business expanding, regulators are confronted with new
obstacles. The expansion of technology-regulated enterprises has similar patterns.
Dorf Leitner et al. (2017): distinguished four main categories of FinTech businesses
based on their unique business strategies. Financial technology businesses may be
categorised according to their engagement in finance, asset management, and
payments. additional FinTechs, a broad collection of companies that execute
additional services, might be seen as an equivalent to the conventional value-adding
sections of a universal bank.
Bhatia, P. (2017): FinTech organizations are altering this calling by utilizing advanced
innovation to set out new business open doors and arrive at undiscovered market

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sections. The RBI is laying the groundwork for the expansion of the fintech industry in
order to make it possible for those who do not currently have access to financial
services to do so.

3. RESEARCH GAP
To keep up with client demands, banks and additional financial institutions have
transformed to provide new services and incorporate cutting-edge technology.
Financial technology has made its way into cashless economies like India's thanks to
the rise of e-commerce and smartphone use. Fintech users range in age from young
professionals to retirees, and they hail from all across the nation, living in both
metropolitan and semi-urban settings. Prior studies on this subject are useful for
gaining insight into the sample demographic, learning how knowledgeable
respondents are about different banking financial technology products, gauging their
sentiments towards these products, and determining how widely used they are.

4. OBJECTIVES OF THE STUDY

 To research how financial technology affects the Indian banking sector.
 To identify which private sector banks in the Hyderabad area of the Telangana
state have been most affected by financial technology in terms of profitability.

5. HYPOTHESES OF THE STUDY

H0: There is No impact of Financial Technology on the profitability of Select private
sector banks in Hyderabad region of Telangana state.
H0: There is a impact of Financial Technology on the profitability of Select private
sector banks in Hyderabad region of Telangana state.

6. RESEARCH METHODOLOGY
Study period:
The period of the study is between the financial year 2022-23. And the data collected
from various sources like website and Few journals.
Stalactitical tools to be used:
 Unit Root Test
 ARDL approach
 Least Squares regression (OLS)

7. SCOPE OF THE STUDY

This study looks at the impact of monetary innovation on the productivity of five
confidential area banks in the Hyderabad area of Telangana state throughout a year.
The Banks Namely Axis Bank, Yes Bank, IDBI First Bank, ICICI Bank and Bandan
Bank.

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8. RESULT AND DISCUSSION

Reliability Statistics
Reliability No. of
Dimension Loadings Reliability
S.No Construct Values of Initial CR AVE dimensions
Values
stage
BC 1 0.897
BC 2 0.717
1 BC 0.817 0.817 0.829 0.550 4
BC 3 0.832
BC 4 0.792
TS1 0.804
PM 2 0.898
2 PM 0.898 0.898 0.899 0.690 4
PM 3 0.871
PM 4 0.793
EX 1 0.712
EX 2 0.786
3 EX 0.891 0.891 0.894 0.678 4
EX 3 0.892
EX 4 0.808
RS 1 0.835
RS 2 0.833 0.908
4 RS 0.887 0.887 0.665 4
RS 3 0.899
RS 4 0.912
DM 1 0.817
DM 2 0.879
5 DM 0.897 DM 3 0.814 0.897 0.891 0.672 5
DM 4 0.851
DM 5 0.931
OB 1 0.891
OB 2 0.892
6 OB 0.893 OB 3 0.873 0.893 0.897 0.638 5
OB 4 0.799
OB 5 0.811
BC 1 0.897
BC 2 0.717
7 BC 0.817 0.817 0.829 0.550 4
BC 3 0.832
BC 4 0.792
PM 1 0.804
PM 2 0.898
8 PM 0.898 0.898 0.899 0.690 4
PM 3 0.871
PM 4 0.793
Total number of Dimensions 34

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Interpretation:
The second set of fit indices for the statistical model presents a mixed yet overall
positive picture. The discrepancy index is relatively higher, hinting at a less optimal but
still acceptable match with the data. In contrast, the comparative and incremental fit
indices are impressively high, showcasing the model's strong ability to mirror the
underlying data structure effectively. The lower parsimonious fit index, while a point of
consideration, does not significantly undermine the model's performance. The error of
approximation index is notably low, further bolstering the model's credibility. Overall,
these metrics collectively indicate that despite some areas for improvement, the model
demonstrates a high degree of accuracy and reliability.

FA Overall Path Model

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Interpretation:
The table's analysis reveals a nuanced understanding of the statistical model's
performance. The observed fit index related to model discrepancy is moderately low,
indicating a satisfactory alignment with the data. Indices reflecting the comparative
and incremental fit are notably high, underscoring the model's robustness and its
effective representation of the data structure. The parsimonious fit index, while
somewhat lower, still contributes positively to the model's evaluation. Additionally, the
index measuring the error of approximation is within a desirable limit, reinforcing the
model's overall adequacy. These combined metrics suggest that the model is well-
constructed and efficient in capturing the essential patterns in the data.
Hypothesis Hypothesis P-Value Result
H1 Block Chain Technology operations in Banking sector .012 Significant
H2 Digital Payments through Banking operations .004 Significant
H3 Exchange Rate operations .000 Significant
H4 Research and Development .009 Significant
H5 Digital Money and Digital Currency .004 Significant
H6 Online Banking and Investment .016 Significant

Interpretation:
The hypothesis examining the relationship between Block chain technologies are
initiatives and organizational performance shows a p-value of .000, indicating that this
relationship is statistically significant. This suggests that Digital payments initiatives
have a notable impact on organizational performance. The analysis of the influence of
organizational culture on organizational performance yields a p-value of .004. This
substantial finding suggests that the function of digital payments in banking operations
is critical in deciding the success of the banking sector in the Hyderabad area of
Telangana state. This research looks at how the fintech age has affected
nonperforming loans (NPLs) and the soundness of China's banking industry. To do
this, we separated the data from the general public, borrowers, and the first and
second waves of fintech. In order to keep nonperforming loans under control, we also
recommend that banks increase their usage of fintech credit monitoring services.
Fit indices values of CFA path model
χ2(df) χ2/df CFI GFI RMSEA
Model Results 317.320(6) 284 0.960 0.892 0.021
Discriminant validity
BS BC PM ES RS DM
BS 0.798
BC 0.251 0.736
PM 0.356 0.565 0.832
ES 0.283 0.670 0.626 0.819
RS 0.039 0.196 0.225 0.299 0.805
DM 0.255 0.435 0.487 0.519 0.325 0.818
Fit indices values of structural model
χ2(df) χ2/df CFI GFI RMSEA
Model Results 5.902(6) 1.03 0.911 0.893 0.041

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9. CONCLUSION
Various changes have happened in the banking and monetary administrations area
because of the creation and utilization of monetary innovation. With the wide variety
of fintech apps out now, people may start a movement towards digital payment
systems and a society that values banking and investing. By improving merchant-
consumer connections, using technology, and Fintech has the potential to completely
transform the financial industry by addressing the issue of financial inclusion. India
and other developing economies stand to gain from state-of-the-art technology such
as blockchain, artificial intelligence, and machine learning. During this period of
growth, new monetary inventions will emerge, providing people with better tools to
save, invest, trade, and replenish their accounts. In addition to paving the way for
further financial growth, these two forms of development will propel India closer to its
goal of monetary development. The following policies have been proposed based on
this study. Since fintech services contribute to greater financial stability, policymakers
in developing nations should work to promote their expansion. To keep fintech lenders
from being scared, enough safeguards should be put in place.

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