Are fintechs competition or partners to banks?

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The banking sector has been one of the most stable foundations of the Indian economy. It is at an interesting juncture now with some significant developments impacting profits and share of wallet, and giving rise to new opportunities. Customers today want greater personalisation, relevance and value-driven engagements than ever before. Digital-native fintechs are ready with their innovative uberised offerings to win them over.

At 87 percent, India’s fintech adoption rate is much higher than the global average.1 For traditional banks there is no wishing away fintechs. The question is, should they now prepare to compete with fintechs, or is it a better strategy to work in collaboration with them to create a comprehensive customer-centric banking ecosystem in India?

Holistic Financial Ecosystem

To answer the above question, one must consider the larger market context. The Unified Payment Interface (UPI) programme has seen steady growth in uptake since its launch and in October, the UPI transaction value touched $103 billion with 4.2 billion transactions.2 The progress made on the UPI front has opened new opportunities for banks to orchestrate a larger ecosystem with more relaxed data-sharing norms. Banks must now focus on quickly owning the customer journey with platforms that can assist in the process.

The biggest advantage banks have in this new digital economy is their vast repository of customer data. They can scale up their digital transformation efforts to implement the technology platforms required to change their business strategies, and come up with new value-driven offerings. But the future of banking and financial services does not lie in increased competition between banks and fintechs; it lies in synergetic partnerships.

A Symbiotic Partnership

Banks stand to gain from fintechs’ technology expertise, and fintechs are eager to leverage the data most banks have, in addition to benefiting from their geographical network, and continuing customer trust. In partnership with digital platforms, banks can look at transforming their own portfolios and services, and tapping into a new target audience. The relatively relaxed regulatory norms governing the fintech world makes it easier for them to connect with people previously left out of the formal banking system.

For example, those with poor credit scores are not considered for credit cards by traditional banks. In the new digital economy, however, innovative schemes such as buy now, pay later (BNPL) are being introduced to offer quick loans at the point of sale. These schemes do not require extensive documentation, are easy to avail, and easy to pay off, encouraging greater consumption of goods and services.

While banks by themselves may be hard pressed to roll out BNPL schemes, they can easily do so in partnership with fintechs. India has a vast young, digitally-savvy population that is just making its way into the formal banking economy, and such schemes can help engage them more effectively than traditional credit systems.

Partnerships between fintechs and banks are already a reality. Indian banks have also invested in fintechs, and will continue to do so to modernise their positioning. The recent tie-ups between HDFC Bank and Mintoak Innovations, and SBI and Cashfree Payments are examples of such symbiotic partnerships.3

As banking becomes increasingly customer-centric, the future for banks lies in becoming orchestrators of a comprehensive platform that serves the financial and non-financial needs of a customer even without them stating such a requirement.

For example, a customer taking a home loan will automatically be offered home insurance, and access to discounted services at partner organisations offering interior decoration services, furniture and furnishings, and more. Banks and fintechs working together can help build unique, customer-focused ecosystems that deliver hyper-personalised, relevant products and services for lasting customer satisfaction, and greater profits.

Despite the disruption of the pandemic, the banking sector is now faced with new opportunities for growth. It must now focus on ramping up its infrastructure and strategic partnerships to capitalise on these. Partnering with fintechs is the way forward for the sector. The coming years will see greater integration between banks and fintechs as both try to navigate the challenges of 21st century banking.This article was originally published in Moneycontrol, Read More.

“The views or opinions expressed in this article are those of the author. They do not purport to reflect the opinions or views of SunTec’’.

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