Why has fintech become so efficient? 

Why has fintech become so efficient? 

One usually points to artificial intelligence, blockchain, or cloud computing, which, although are unquestionably revolutionary, only provide a partial picture. Hence, they are supported by human capital and organisational structure to create a balance between the two resources, such that a relationship can be derived that provides the level of productivity a Fintech firm can achieve.

In this article, one would be able to comprehend this relationship by understanding the essence behind the success of fintech, a nuanced economic principle, the Principle of Coordination(used here as an applied economics concept rather than a formal textbook term), which, explains the fundamental relationship between factors that help in achieving maximum efficiency.

The Principle of Coordination
(Derived from the Law of Variable Proportions)

The classical Law of Variable Proportions states that ‘as we increase the quantity of only one input while keeping other inputs fixed, the total product increases initially at an increasing rate, then at a decreasing rate, and finally at a negative rate.’
For instance, imagine cooking Maggi with one stove and a pan that are fixed factors. The process speeds up when only one person cooks, but it speeds up by a diminishing rate when there are two people. When there are five people, it overcrowds the kitchen, slowing the process. 

The concept of the ‘Principle of Coordination’, as explained by Invensis Learning in 2023, emphasises the need to balance fixed and variable resources effectively to achieve maximum efficiency.

In fintech, fixed resources include capital, systems, and other assets. Variable resources are the engineers, data scientists, etc.

The law plays out in three stages:

1. 1. Increasing Returns to Coordination – When fixed resources aren’t used efficiently, adding variable resources can increase productivity. For instance, a Fintech startup might have strong cloud servers but not enough developers, and hiring more developers maximises productivity.

1. 1. Diminishing Returns to Coordination – When fixed resources are used up, adding more people increases the output at a diminishing rate. For example, after employing extra analysts, the reporting speed only improves slightly.

1. 1. Negative Returns to Coordination –When fixed resources are not used and many people are employed, efficiency is reduced as tasks overlap, work is overloaded, and the costs of coordination are higher than the benefits.

The lesson being, fintech’s efficiency is not about having the most resources but about having a balance of them.

The Efficiency Paradox

Consequently, the law of coordination also facilitates the understanding of the efficiency Paradox, also known as Jevons’ paradox. At first, it sounds counterintuitive, and one may even think that being more efficient would, in turn, reduce effort or costs. But in truth, efficiency increases usage instead of diminishing it.

For instance, Online grocery delivery apps. When an app makes ordering groceries faster and easier, people don’t shop less; instead, they often shop more frequently. This results in the app having more delivery staff and better inventory systems to keep up with demand. This even applies to fintech, as better efficiency facilitates using the services more often by balanced coordination to handle growth.

This is where the Principle of Coordination becomes imperative. As usage grows, fintech companies cannot just rely on their old infrastructure, and hence, fixed resources must scale in sync with variable resources. Otherwise, efficiency gains can quickly turn into bottlenecks, system crashes, or overwhelmed employees.

Hence, efficiency in the fintech sector is not just about doing less with less, but it actually revolves around gaining more through the appropriate balance. Grasping this paradox uncovers a concealed economic principle that fuels innovation, growth, and some of the disorder we observe in today’s digital finance landscape.

Fintech in Action

1. 1. Indian example: Paytm’s Coordinated Efficiency
      The Times of India highlighted that Paytm, one of India’s largest fintech companies, in the initial period of FY26 was able to implement financial recovery by strategic cost and savings enhancements as its first-ever consolidated net profit of Rs 122.5 crore was proven to be a significant improvement from the loss of Rs 840 in the prior year. Hence, Artificial Intelligence played a vital role in contributing to the net profit by improving the operations as the company implied this with the balancing of fixed resources, which included capital and payment infrastructure, and variable resources, such as staffing. Therefore, this indicates that profitability is an outcome of the balance between technology and human resources.

1. 1. Global Example: Stripe’s Scalable Infrastructure
      Similarly, Stripe, a global online payment platform, is growing without overloading operational systems by the balanced coordination between the fixed factors, for instance, cloud infrastructure, etc., that are exquisitely efficient and variable factors, including engineers and the customer service team. As the stripe expanded its infrastructure, it subsequently increased its staff as well to ensure optimum operations, in turn indicating the imperative principle of coordination to enhance productivity and profitability.

Limitations of Coordination

Nevertheless, a paradox of progress is revealed by The Principle of Coordination as it explains fintech efficiency, but it isn’t absolute and has its limitations. Modern technologies like AI automation and blockchain upgrades like Ethereum’s Danksharding can serve more customers, without subsequently increasing staff. Hence, contradicts the principle as it produces accelerated rather than gradual gains.

Subsequently, External factors such as regulations and cyber risks can also disrupt coordinated systems. For instance, Times Now India reported that the Reserve Bank of India revised the Know Your Customer(KYC) and data localization rules. Similarly, cybersecurity breaches force companies to divert resources from productivity to protection, implying that internal coordination alone cannot always facilitate efficiency and hence acts as a limitation. 

Furthermore, The Principle assumes diminishing returns when one input rises while others remain fixed, but when we talk about humans, they polish their skills to enhance efficiency. Therefore, human adaptability also acts as a limitation. 

In a nutshell, while the Principle of Coordination is recognised as one of the most reliable frameworks for understanding efficiency in fintech, it must be viewed as a guiding principle, not a rigid theory.

Conclusion 

In a nutshell, one can now infer that fintech’s efficiency isn’t just about AI, blockchain, or technology; it’s about balance. A balance between fixed resources (capital, servers) and variable resources (analysts, employees) that guides the sector’s productivity.

This principle, drawn from the classical Law of Variable Proportions and Returns to Scale, explains how efficiency is actually attained when fixed resources and variable resources work in a balanced manner and what could be the downfalls in case of an imbalance.

For Fintech, maintaining this coordination is the key to globalizing and preventing inefficiencies in making practical decisions about management, cloud infrastructure, and strategies.

“The highest and best form of efficiency is the spontaneous cooperation of a free people”– Woodrow Wilson

-By Purva Jain

References

GeeksforGeeks. (2025, July 23). Law of Variable Proportion: Meaning, Assumptions, Phases, and Reasons for Variable Proportions. GeeksforGeeks.
Law of Variable Proportion: Meaning, Assumptions, Phases, and Reasons for Variable Proportions – GeeksforGeeks

Invensis Learning. (2023). Resource allocation in project management: Steps & case studies. Retrieved October 7, 2025, from
Effective Resource Allocation in Project Management Explained

Jevons, W. S. (1865). The coal question: An inquiry concerning the progress of the nation, and the probable exhaustion of our coal-mines. Macmillan.

Hajjar, G. (2025, July 28). Online grocery booms 28% YoY, headwinds hamper total takeover. The Food Institute.
Online Grocery Booms 28% YoY, Headwinds Hamper Total Takeover – The Food Institute

The Times of India. (2025, July 22). Paytm turns profitable: Fintech firm posts ₹122.5 crore Q1 net profit, driven by cost cuts and payments growth. The Times of India. Paytm turns profitable: Fintech firm posts Rs 122.5 crore Q1 net profit, driven by cost cuts and payments growth – Times of India

Stripe. (2025, January 14). Scalability solutions: What determines scalability and how to approach it. Stripe.
A guide to scalability solutions for businesses | StripeTimes Now News. (2025, October 6). RBI tightens KYC regulations with fresh guidelines on customer verification and data sharing. Times Now News.
RBI Tightens KYC Regulations with Fresh Guidelines on Customer Verification and Data Sharing – Check New Rules | Personal Finance – Times Now