Fintech, the new buzzword in the market, creating ripples in the startup ecosystem, has earned the status of being an enabler and a disruptor. Several verticals such as deposits, lending, wealth management, forex, treasury management etc. put together, forms the vast fintech space, which has the potential to change the existing banking ecosystem.
Facilitating technologies offered by fintech firms are not only relevant to existing banks, but also for the up and coming companies in the banking segment such as – classical enterprise technology stack in context of banks – right from core banking systems to new models of CRM, and to innovations aligned to what is now referred to as the India Stack (Aadhar, e-Sign, e-KYC, UPI).
Given this background of the burgeoning fintech sector, the question that arises is why is this surge of technology different from the previous waves? How is the new set of technology different from the gradually evolving technology of the past? Above all, what does this mean for incumbent banks, as they see a slew of specialist fintech companies spring by – is this a threat or an opportunity to cooperate?
Fintech – A Threat Or Opportunity For Banks
Operating in the market with a wide variety of business models such as new-age NBFCs and Payment Banks, some fintech companies look at controlling the entire value chain, right from customer experience to the balance sheet, while others, such as marketplace platforms, attempt to combine the best capabilities through a partnership model. With several other operational models, these fintech companies add value to financial services with their ability to reimagine the customer experience, through the diversity of ideas and approaches and deliver it through compelling usage experiences.
Additionally, while banks have always focussed on their products and offerings, these companies bring an unwavering focus on customer experience entrenched deeply in the organizational DNA. Nevertheless, despite such capabilities, most of these startups lack certain qualities that the banking system thrives on. Infrastructure being the first one, be it technology or operational, followed by comprehending risks, regulatory compliance process and sheer scale that leads to more efficient and reliable services.
Given these shortcomings on both sides, fintech seems to be a great opportunity for Banks and these companies to collaborate, filling in the gaps to offer all-inclusive solutions to its consumers. Consequently, the restructuring of banking services with a more customer-centric approach will happen through new partnerships between fintech companies and banks, leveraging their respective strengths to co-create customer value.
The Looming Drift Of Technology In The Banking System
The emergence of new technology is evidently different in nature from technology experienced in the past, more so because such adoptions were focused on aiding backend providers and middle office providers, be it mainframes of CRM, except for ATMS and Internet Banking facility. While these technologies enhanced customer experience, the primary motives to adopt them were to bring in efficiency and scale in the banking system.
However, these developments didn’t really change how people perceive the banking system, it is still a place, where people go to deposit money, take loans, transfer funds etc., which is now about to change and this is exactly what differentiates the emerging technology from technology of the yesteryears.
Financial technology is about to witness a paradigm shift that will define how customers perceive the banking system. This shift is primarily being enabled by a decade of accumulated gains in making the banking infrastructure streamlined. However, it will be driven by the biggest customer-interface innovation of our times – the mobile phone. For the first time, customers have anytime anywhere interactive access to services.
In addition to the evolving perception of customers, is the paradigm shift in customer experience through mobile devices, breaking through the barriers of monolithic service providers. Adoption of emerging technologies is creating a host of opportunities to rethink banking and make it pervasive to a point that it changes the whole outlook on banking.
In fact, the real disruption will be when, rearranging the banking services in amalgamation with other non-banking services will lead to a completely different user experience. That will be the real disruption evoked by the current generation of Fintech companies. Let’s consider few examples:
Tapping the hot button topic of demonetisation which caused immense financial mayhem, Paytm rose to prominence.
Paytm is mostly a payment system company that unbundles a select set of banking services (the consumer liabilities side of the business), and bundles it with non-banking services from mobile top-ups to ecommerce, to create a completely new customer proposition. Such unbundling and re-bundling of services lies at the heart of fintech companies, and are likely to change how consumer perceive banking.
Another roaring example of emerging technologies that adds value to customer experience is WB21, an online-only bank that enables foreign exchange settlements, conventionally provided by large banks only. WB21 creates a seamless customer experience and a pricing value proposition, which allows a customer to get the best forex service without ever leaving their desk or talking to a customer service representative.
Likewise, making waves in the lending segment, lenders such as Indifi enable credit in the customers’ business context. In many cases, the customer may not even think about taking a loan, but the offering is available in an integrated manner with their sales and purchases during usual course of business. Rich data analytics help address current limitations of credit algorithms. Such integration between business processes and financial services will address both access and usage gaps.
Fintech today is all set for its gen next evolution, where it is no longer confined to aiding operational efficiencies at the back end. It has a crucial role to play in strategies of financial institutions and has a bearing on customer interfaces. This transformation paves way for co-creation of new business models by fintech companies and banks, which will determine in what ways a customer can and will engage with their financial service providers.
About The Author
[The author of this post is Alok Mittal, CEO & co-founder, Indifi Technologies.]