SUMMARY
Fintechs, as it currently stands, cannot survive without traditional banks. And as time goes on, fintech-bank collaborations are only going to get stronger
It’s safe to bet that the next few years will see a host of new collaborations, financial products, and improved banking experiences
Will that mean a fresh set of regulations, or a new kind of banking license altogether?
When you think of a traditional bank – say the one you opened your first account with – you most likely think of a clunky website, physical documentation, and processes that took much longer than they should have. Compare that with today’s up-and-coming fintechs — lightning-fast, seamless user experience, and products tailored to a customer’s every need.
The two couldn’t be more different if they tried and perhaps that’s what has prompted research to proclaim the ‘death of banks’. Fintechs have indeed gained massive popularity in recent years, but for starters, each of them is backed by a licensed bank that provides capital. Fintechs, as it currently stands, cannot survive without traditional banks. And as time goes on, fintech-bank collaborations are only going to get stronger.
It’s no longer going to be an ‘us vs them’ – it’ll be about unique yet complementary strengths coming together. This is especially relevant considering our current context of two-plus years of rapid digitisation driven by a raging pandemic. While customers continue to rely on the trusted relationship they’ve built with their banks, they are no longer willing to spend hours waiting at a branch to open an account.
Fintech Partnerships — The Only Way Forward
Technology Meets Legacy
Banks have been around since we can remember and that itself is a compelling enough reason for customers to trust them with their hard-earned cash. Fintechs, on the other hand, are the new kids on the block, and while they have the tech, they don’t have consumer trust.
Coming together means that banks don’t have to spend millions on building their tech stacks from the ground up. They gain access to new-age underwriting models, smooth workflows, and APIs without having to do any of the leg work. Fintechs, on the other hand, benefit from banks’ already solid captive customer base and the consumer confidence they’ve built over decades.
Point Solutions Evolve Into Touchpoints
For banks to stay relevant going forward, they need to play a greater role across the customer journey. They will have to step away from the monolithic mindset that makes them rigid and stuck in time; evolving into a nimble, agile (maybe invisible) organisation that enables customers to access credit when they need it.
Point solutions, such as a mobile banking application, will not cut the mark. Banks need to be present at each touchpoint in the customer journey — from the merchant app to the payment gateway to the short-term credit provider. Fintechs can help them with customer behavioural insights and granular data analysis to identify customer needs, context and credit appetite, all in near real-time. They can also enable intelligent risk engines that cut down the loan approval journeys to one-tenth of their traditional length, helping banks disburse higher loan volumes within minutes.
Data Security Joins Regulatory Compliance
The most crucial entry barrier for innovation in the banking space is data security and balancing the scales on regulatory compliance. Banks that digitize customer data will need to implement strong security mechanisms at all stages of data collection, processing, and storage. Fintechs can help them onboard mission-driven technology and help deploy biometrics, data encryption and masking.
For fintechs, banks can bring in regulatory management that steers them in the right direction and helps them self-regulate based on best practices. This will set the blueprint for regulation that will standardise the market.
Future Of Legacy-Startup Collaborations
The last couple of years have already seen thriving bank-fintech partnerships in India and across the world. For instance, ICICI bank announced its partnership with NiYo in 2021. Together, they are offering prepaid cards to workers of Micro, Small & Medium Enterprises (MSMEs). SBI Bank too, has partnered with U Gro, a listed MSME lending fintech platform to provide credit to MSMEs.
It’s safe to bet that the next few years will see a host of new collaborations, financial products, and improved banking experiences. Will that mean a fresh set of regulations, or a new kind of banking license altogether? We’ll have to wait and see, but in the meantime, the benefits are clear for all to experience.
