The banking sector is one of the most stable foundations of the Indian economy. It’s an interesting time now, with major developments impacting earnings, portfolio engagement, and opening up of new opportunities. Today’s customers want more personalization, relevance, and value engagement than ever before. Digital native fintechs are ready to seduce you with their innovative and uberized offerings.
The FinTech adoption rate in India is 87%, well above the world average. There is no fintech desire for traditional banks. The question is, should they prepare now to compete with fintechs, or is it a better strategy to partner with them to create a customer-centric banking ecosystem in India?
To answer the question above, you have to consider the context of the broader market. The Unified Payment Interface (UPI) program has seen steady growth in adoption since its inception, and in October the UPI transaction value reached $ 103 billion from 4.2 billion transactions. Advances on the UPI front have opened up new opportunities for banks to organize a larger ecosystem with more flexible standards for data exchange. Banks must now focus on mastering the customer journey with platforms that can help them navigate quickly.
The biggest advantage banks have in this new digital economy is their large inventory of customer data. They can intensify their digital transformation efforts to implement the technology platforms necessary to change their business strategies and deliver new value-driven offerings. But the future of banking and financial services does not lie in increased competition between banks and fintechs; it lies in synergistic associations.
Banks can benefit from the technological know-how of fintechs, and fintechs strive to leverage data from most banks while benefiting from their geographic network and the continued trust of their customers. By partnering with digital platforms, banks can consider transforming their own portfolios and services and targeting a new audience. The relatively lax regulatory standards of the fintech world make it easy for them to get in touch with people who were previously excluded from the formal banking system.
For example, those with low credit scores are not considered for credit cards by traditional banks. However, in the new digital economy, innovative programs such as Buy Now Pay Later (BNPL) are being introduced to provide fast credit at the point of sale. These programs do not require detailed documentation, they are easy to use and reimburse, resulting in increased consumption of goods and services.
While banks themselves may find BNPL programs difficult to implement, they can easily do so in partnership with fintechs. India has a large young and digitally savvy population that has just entered the formal banking economy, and these programs can help engage them more effectively than traditional credit systems.
Alliances between fintechs and banks are already a reality. Indian banks have also invested in fintech, and will continue to do so, to modernize their positioning. The recent mergers between HDFC Bank and Mintoak Innovations, as well as SBI and Cash Free Payments, are examples of these symbiotic partnerships.
As banking becomes more customer-centric, the future of banks is to become the orchestrators of a comprehensive platform that meets the financial and non-financial needs of a customer without expressing such a requirement.