Digitization has fundamentally transformed every industry and the banking sector is no different –banking, branches, and wallets amongst others have all turned digital. While traditionally, banking software was used for operations such as managing customer databases, executing transactions, and handling accounts, today it has converted banking into an omni-channel offering that customers can access from anywhere at any time.
In India, FinTech led transformation of the banking space all started with the increase in smartphone and mobile Internet adoption followed by banks ‘app-ifying’ their products and offerings. This alongside the demonetisation of 2016 brought a lot of FinTech players to the limelight as they were quick to bring out new digital products and services with one sole motive – provide more convenient options for end users to carry out financial transactions. Furthermore, the emergence of e-wallets and peer to peer lending were good reasons for banks to consider FinTech players as a threat to their important revenue streams. This is why more and more banks have started investing in financial innovation, have set up FinTech units within their organisations or started working with technology partners.
The Opportunity for Banks
Traditionally banks are not designed to think and behave like a modern tech company given their legacy processes, red tape, and regulatory compliances. They have been used to a business model where customers have always come to them for their financial needs. However, in today’s digital age, it is important for a bank or in fact any business to go to the customer. This is where FinTechs with their innovative offerings come in. They can leverage the hordes of legacy data that banks have to gain deep insights into customer behaviour and come up with offerings that are relevant and customizable on a need basis. Going forward, FinTechs can also help banks harness the powers of AI and big data analysis to decrease risks and open up new avenues to connect and engage with the tech savvy customers of today that look for gratifying experiences in everything they do. Take for example, the doorstep banking feature by Equitas where a bank agent visits a customer at their home to help them carry out banking transactions, Canara Bank’s fully digital branch CANDI where a customer onboarding process is completed in less than 6 minutes where it would normally take days previously, or SBI’s chatbot SIA that is designed to handle nearly 10,000 inquiries per second or 864 million per day.
What’s in it for FinTechs?
It is interesting to note that it won’t be just the banks that will reap the benefits of collaboration. One of the key assets that banks have is trust; something they have earned over decades in the most traditional way. If we combine that advantage with FinTechs that are able to identify gaps, innovate quickly, and bring new products to markets quickly – you have a winning combination. Furthermore, banks already possess large customer bases and diverse product portfolios that FinTechs can readily leverage to innovate and flourish.
Scenario in India
India’s FinTech sector, though young is growing rapidly, fuelled by a large user base, an innovation-driven start-up landscape, and friendly government policies. According to NASSCOM reports, India has around 400 FinTech companies with an investment of around $420 million. This has been made possible due to the help of innovation friendly government regulations that has transformed India into a favourable ecosystem for the growth of FinTech. For example, in order to move from a traditionally cash-driven economy to a cashless one, the government offers tax rebates to merchants for accepting at least 50% of their payments through digital channels. Furthermore, the recent roll out of India Post Payments Bank (IPPB) validates the fact that the Indian Government is aiming big in the digital transformation of the financial sector. IPPB has used a powerful digital experience platform to build digital banking solution that will make it one of the largest banking network in India with all the 155,000 post offices across the country being converted into bank branches / customer touch points. As of December 2018, IPBB announced that it has onboarded over 1,900,000 customers.
Collaboration is the way forward for banks to stay relevant and for FinTechs to flourish. Today, more and more banks are willing to incorporate technology and innovation as a part of their business models that will make them more competitive in a digitally driven economy. Hence, the goal is to find the right mix of FinTech solutions and new age digital banking.
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