BENGALURU: Demonetisation might have caused unprecedented disruption in the cash based economy, but one of the most lucrative of the new age technology sectors is seeing the event as a godsend. According to players in financial technology, both established and the fledgling, customers are noticing the value and services being offered and many are switching over.
But what are fintech firms? Simply put, fintech firms are companies that utilise internet and mobile technologies to reach out to customers. With many shifting to these solutions to transact even day to day purchases, the question that arises is how banks will tackle this competition.
According to Upasana Taku, Co-founder, Mobikwik, banks have not come up with a new way of technology based reachout. Bills can be paid and transactions done, but for loans and insurance, we need to go to a branch or someone comes home.
“Technology based distribution is not something they have figured out, which is strange, since in India you can’t set up a branch everywhere. We can see some banks being aggressive with mobile banking but most large banks are not up-to-date,” she said.
According to Srikanth Nadhamuni, Chairman, Novopay Pvt Solutions, most banks have legacy systems that are limiting them from fast paced changes.
Fintechs currently enjoy lower regulatory burdens than banks and demonetisation has fuelled their growth with easier access to funding. However, Upasana believes that compliance is not what makes fintechs popular, but the mindset around which these organisations are built around.
“If any large bank is given money to build a digital arm from scratch then it may be possible for them. If banks are set on an economic model where they are situated in the poshest of localities, if the cost of running the branch is Rs 2 crore and the cost of servicing the loan is Rs 5,000, then they will not want to disburse a Rs 15,000 to Rs 20,000 loan, they will want to give you something above Rs 1 lakh. They will always want customers who earn more than Rs 70,000 per month,” she said.
This presents a unique challenge to incumbent banks as technology has reduced barriers for new entrants, and placed before them a pool of customers previously unexposed to the banking system. This may lead to a revamp of the traditional model of universal banking, where one institution provides all banking services.
This is why fintechs are disaggregating their offerings.For every service offered by a major bank there is at least one fintech offering similar deals at a lower price.
Nadhamuni tells us that this will definitely disrupt banking. “What we know as banks will get dis-aggregated into different specialists delivering, specialities by sector — Business, SME, individuals, JLG etc. and lending methodology — collateral or digital. Similarly, we will see super specialization on the liabilities and investment side as well. While specialized financial services are offered, seamless integration of these services delivered on a smart phone app will differentiate various Banks and financial services companies,” he said.
According to Sashank Rishyasringa, Co-Founder, Capital Float, “By focusing on specific banking activities rather than the full gamut of services, fintech players have been able to carve niche domains. This ‘unbundling’ of a bank’s services by smaller players has indeed left some larger institutions with a lot of catching up.”
He also agrees that fintechs, by not focusing on the whole gamut, have been able to deliver better to end consumers. “By using a focused approach fintechs have build a far superior technology based infrastructure,” he said.
Founder of alternative lender Opentap, Senthil Natarajan says that banks don’t yet cater to populations that fintechs cater to. “We operate like a bank because it is difficult to borrow from banks. Regulation are important as banks borrow from the people, so the RBI wants to make sure that money in the banks is safe. But banks have not been catering to a certain population. Having a very regulated environment will not help this population who have been underbanked.”
There is also a significant amount of collaboration happening. As Rishyasringa tells us, “Collaboration is not restricted to peer group companies. These are symbiotic relationships where fintechs are able to leverage the reach and balance-sheet strength of an established institution and in return bring in technology led efficiencies to it.” IDFC bank has partnered with Capital Float for digital lending to SMEs. Rajiv Lall, MD & CEO, IDFC Bank, said, “Radical partnering with fintech companies will enable us to serve small businesses digitally, while rapidly building out customer base.
According to Mobikwik’s Upasana Taku, “A lot of evolution is going to happen now due to this unprecedented moment in the history of India which is the demonetisation drive. Due to this a lot of users are turning to digital transactions.”