What Impact Has India’s Fintech Ecosystem Created On Banking?

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Modern banking in India originated in the last decade of the 18th century. Struggling through colonial to post-independence era and from nationalisation to liberalisation, the fintech industry has witnessed a massive transformation over the last two centuries. 

The technology-led revolution in the 21st century, government efforts such as UPI and the rising fintech industry has placed the Indian banking ecosystem at the global epicentre. Going by facts, as per a report from May 2019 published by PwC and ASSOCHAM, the adoption rate for fintech in India is the second-highest globally at 57.9%. 

What Is Fintech?

The term fintech is said to be in existence since 2011 when new-age companies (startups) came into being to solve complex financial procedures/ transactions. However, it gained greater prominence post the November 2016 demonetisation. 

Investopedia defines fintech as “any new technology that seeks to improve and automate the delivery and use of financial services.” While that’s a broad definition, these days fintech is being used by businesses to help consumers manage their payments, transactions and billing, and for B2B payments as well. Specialised financial software, SaaS solutions and AI algorithms have played a major role in increasing fintech adoption.

What Is The Impact Of Fintech On Banking In India?

Gone are the days when customers visited the branch for their banking needs. Be it transferring money, opening a fixed deposit, or requesting for stop cheque payment, it can be done by sitting at home or office. The use of technology even made service delivery more efficient. For example, paper-based KYC docs were replaced with identity management tech, cheque based payments were replaced with NEFT or UPI payments or a multitude of wallets made available for the customer. 

The advent of the fintech industry has made banking simple and straightforward. Fintech products were built from the ground, keeping in mind the new audience, who were more tech-savvy and looked for ease in the transaction. Overall, fintech has brought some key changes in below-mentioned areas in the Indian banking ecosystem:

1. Enhanced opportunities for financial inclusion
2. A culture of innovation and entrepreneurship 
3. Rise of NBFCs as tech-enabled players
4. Tech-enabled credit assessment
5. Improved customer experience in loan approval and disbursal
6. Transformed KYC documentation process
7. Streamlines products and services for SMEs
8. Revolutionising how people make daily payments 
9. Faster and more secure money transfers 
10. Improved wealth management options 
11. Reduced complexity and ambiguity in insurance
12. Data analytics and blockchain for transparency
13. New banking models like neobanks, cloud banking and more

How Are Fintech Startups And Banks Collaborating? 

The relationship between banks and the fintech industry is of a collaborative nature rather than the competitive one. Fintech companies are enabling larger financial inclusion. As Gaurav Jalan, founder and CEO mPokket said, “The use of technology facilitates greater access and ease of use along with cheaper delivery of services to customers, thereby making banking services more inclusive and efficient”.

The banks are following suit with fintech companies for enabling smoother operations for consumer and business lending while UPI has brought top banking features, seamless fund routing and merchant payments at consumers’ fingertips. Also, fintech startups are working to bridge the gaps in sectors such as insurance, wealth management and remittance.

Fintech has also made data analytics and data-driven customer insight a focal point across the BFSI industry. The advent of technology has encouraged collaboration between multiple financial service providers to deliver products and services via an open architecture framework. Also, the adoption of technologies such as AI, blockchain, robo-advisors among others is bringing traditional banking ecosystem to the 21st century. 

What Does The Fintech and BFSI Industry Think?

To understand more on how the fintech industry has created an impact on Indian banking, Inc42 reached out to many startup founders, senior executives in the BFSI industry and fintech investors. 

Here’s what some industry experts, founders, investors and thought leaders from the fintech sector in India had to say: 

“Fintech has disrupted the banking industry and led to various new developments like payment banks, payment gateways, big data and AI in underwriting, automated customer service through chatbots, fraud detection, omni-channel banking, blockchain-based transaction management, among others.” – Abhishek Gandhi, cofounder and CFO, RupeeCircle

“Fintech companies have evolved a paperless and presence-less lending model powered by technologies such as AI, machine learning and analytics, transforming the way consumers access unsecured credit in India.” – Aditya Kumar, Founder & CEO, Qbera

“Developing economies are going through a transition from traditional branch banking to mobile-first banking. Leveraging mobile internet technology, fintech startups will target a completely new asset class of customers residing in the villages who were earlier thought to be unserviceable.” – Alekh Sanghera, cofounder, Farmart

“Banks have now come to realise the direct and deeper relationship between fintech and customers, which has thus led to the evolution of newer products such as digital banking and strategic partnerships with fintech companies.” – Akash Gehani, cofounder and COO, Instamojo.

“The idea of on-the-go, customised solutions for managing wealth and investments is attractive to millennials. While customised insurance plans, paper-free application and seamless premium payments are here to stay, fintech companies are also striving to make inbound and outbound remittance simple and affordable.” – Anuj Kacker, cofounder and COO, MoneyTap

“The collaboration between banks and fintech startups has resulted in many opportunities for new innovation ranging from designing banking products to distribution. Also, it has brought public sector undertaking (PSU) banks on par with the private sector banks.” – Archit Gupta, Founder, and CEO, Cleartax

“While fintech will continue to disrupt the market, it’s important to note that some of the more progressive Indian banks have done a much better job than banks in other countries to embrace fintech. A few of them have invested heavily in building capability while many have been forging partnerships with fintech players to be more relevant for their customers” – Ashish Sharma, CEO of InnoVen Capital India

“Digital lending is enabling easy access to credit to even the remotest corners of the nation and are helping in creating financial history for individuals and businesses alike.” – Bharat Aggarwal, Sr. VP – Operations Head, Lendingkart

“In future, fintech startups will drive banking through their interfaces as they understand consumers better. In fact, it has already started with some banks offering SME-related services through neobanks which operate only digitally.” – Bhavin Patel, Co-Founder & CEO, LenDenClub

“The fintech ecosystem has added a new dimension to our banking and financial services industry. It is not only increasing the formalisation of our economy through the extension of credit to new segments but also enabling traditional banking & NBFC players to deliver their products to customers at a much faster pace.” – Bhupinder Singh, founder, and CEO, InCred.

“Strategic collaborations between banks, NBFCs and fintech startups have led to co-opting of strengths that can potentially address the gigantic credit gap in the market.” – Gaurav Hinduja, cofounder and managing director, Capital Float.

“It is now extremely simple to invest online in mutual funds, stocks and other financial products. Investors can have their bank accounts linked to their investments and manage the flow of money with just a few clicks. Moreover, secure payment gateways and mobile wallets have made the process even more effortless. Needless to say, this has been possible due to the cumulative impact of fintech on various areas of the BFSI sector,” –  Harsh Jain, Co-founder and COO, Groww.

“Fintech companies have created an environment of partnership in the ecosystem by innovating in the way customers and banks engage with each other. The collaboration will be core to transforming the digital ecosystem,” –  Hemant Gala, Head of Payments and Financial Services at PhonePe

“Banks are realising that the landscape is changing and to survive they need to evolve. They are not only partnering with various fintechs but also partaking in this evolution by embedding the culture of innovation and entrepreneurship across their organisation,” –  Monish Anand, Co-Founder & CEO of Shubh Loans

“Advanced technology and availability of the internet can be easily utilised by a bank to reach out to the underserved audience. Legacy banking is evolving into digitised banking thanks to financial technology, making it easier for all to access any form of banking service.” – Ramki Gaddipati CTO and cofounder, Zeta

“As we speak there are banks coming into play with no brick-and-mortar offices around the world, I am sure we would see similar shifts in banking in India in the near future,”  – Saru Tumuluri, CEO, Khosla Labs

“Fintech has helped entities like banks and NBFCs to drive penetration into erstwhile unreachable markets and segments. All of this put together has positively impacted customer experience both from a purchase and a service standpoint.” –  Shachindra Nath, Executive Chairman at U GRO Capital.

“It’s not just that the consumer has become aware of the technological genius for banks, but banks with fintech have brought about financial inclusion for the consumer. Moreover, transformation at banks has come out in various forms, such as new market-based lending and payment opportunities and it’s vital that banks continue to indulge in the technological revolution.” – Suresh Ranganathan, Head of Banking & Financial Services, Aspire Systems.

In Conclusion

As fintech continues to disrupt the banking industry, we’re likely to see more and more innovation and changes in the months to come. The fintech startups are yet to show profitability and are striving hard towards building a sustainable business model. But it cannot be denied that fintech is a force to be reckoned with and much of the growth of the Indian banking sector will be shaped by fintech innovation.