The fierce invasion of fin-tech companies in the banking space shook up its very foundations. These companies brought about such a global revolution in the sector that the way people bank underwent a drastic change in the last 10 years or so. Banking continues to evolve under the advent of the technological and psychological changes that these fin-tech companies compelled the market to make.
While banks quickly adopted digital technologies transactions and payments, they have lagged behind in incorporating these advancements in lending. Several young fin-tech companies have stepped into this gap and made quite a place for themselves by offering efficient lending solutions. However, in general, the trend seems to be more towards collaboration rather than rivalry, especially from the fin-tech companies. They realise that with the support of banks, they can rise to phenomenal heights. Banks will have to forge relationships with these fin-tech companies in order to innovate, and will continue to even invest in some of them. Most banks in India believe that tie-ups or collaboration with fin-tech firms would be an apt strategy to embrace digitisation. For now, multiple payment technologies will coexist in India, as it is a diverse market with different customer segments. Even globally, cards have not completely replaced cash transactions. There will be enough space and opportunity for different players – whether it is mobile wallets, payment banks, or a universal bank. Collaboration between banks and fin-tech companies would enrich customer experience while healthy competition is also necessary to evolve technology.
It is clear that the digitisation journey will not be easy. However, by breaking it down into stages and taking a disciplined approach, Indian businesses can go beyond merely doing better. Ultimately, they can transform their businesses by activating new sources of revenue that take full advantage of India’s rapid digital growth.
Most people in the banking industry agree that ‘digital banking’ is the wave of the future. Indeed, many would contend that it is not at all a future wave, but that it is already here. While digital banking is often equated with mobile or online banking– and these do involve digital applications of some sort –in the banking context, digitisation is mainly the process that all banks need to go through in order to provide better services to customers. Digitisation also empowers customers with self-sufficiency. Digital banking is so important because it allows banks to become virtually omnipresent.
Challenges often give birth to opportunities –the major challenge that Indian banks face today is digitisation, and this process has given birth to many opportunities such as netbanking, mobile banking, and insta-pay. Digitisation is enabling banks to meet the needs of its customers across the spectrum of age and gender.
Banking customers have been changing their behaviour in line with technological developments and increasing their demand for digital channels. Customers’ disloyalty to banks continues to increase. All of these have created the enabling conditions for start-ups to target the traditional financial sector. Backed by venture funds, many of these start-ups, which in banking parlance are called fin-tech companies, are providing banking products at much lower costs and with a greater degree of convenience. Today, fin-tech businesses are creating on-demand credit, using self-learning models to analyse risk, or making it easier for businesses and individuals to transact. Globally, the financial industry is seeing unbundling of services.
The big question is – will fin-tech firm steal a large part of the businesses from traditional banks? Will their efforts result in margin compression across the sector? What strategy would banks adopt to counter the fin-tech onslaught? Will the virtual branch replace the traditional brick and mortar branch? Mr Mahesh Makhija (Partner, Ernst &Young) believes that every part of the financial value chain is under threat from fin-tech companies; entire payment ecosystems have exploded and banks are trying hard to match fin-tech offerings. Even on the lending side, banks are trying to partner with fin-tech on the front-end for customer engagement programmes (need analysis, generating leads). On CASA (current account and savings account) fin-tech companies can be a threat. He does not see a risk to banks in the near term, but in the long term, challenges from fin-tech companies will force banks to collaborate with, acquire, or build these fin-tech companies.
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