‘Finance’ has always been an
indispensable part of our society. Earlier, an unorganized lending
system reigned the market that was then taken over by an organized
brick and mortar model and today, with advancement, Fintechs are
competing fiercely for a substantial stance.
Gone are the days when the idea of integrating finance with
technology was a fantasy for a bunch of visionaries. Today, it is here
and now! Since the financial crisis in 2008, the banking landscape has
been undergoing a steady change. The Return on Equity (ROE) has fallen
considerably challenging the existence of traditional financial institutions.
The said transformational change can be attributed to the overall
evolution of the banking system. But, certain gaps accelerated the
revolution of a contender; Fintechs. Stated are a few key gaps that
paved the way to the rise of Fintechs-
Adoption of Digital Transformation- As per a report by the
Massachusetts Institute of Technology (MIT), going digital can
reduce the costs of banking by a massive 60–80%. But, since banks
have limited their footprint to fundamental offerings like lending,
investment, cards, etc., they are quite late in joining the digital
wave. Banks earn by adding layers and keeping their operational
activities complex and so, the customers have become weary of it. By
bringing in technology, Fintechs have taken advantage of this fatigue.
Patrimonial Infrastructure- The core banking solution is
composed of old data sets that are being used around the globe to
this day. Earlier, the said infrastructure offered banks stability
and security but with new alternatives creeping in, these data sets
come across as medieval. However, the said infrastructure is so
deeply integrated into the banking system that changing any aspect
may do more harm to the system than good. Hence, banks choose to
remain risk-averse and skip the adoption of alternatives.
State of Art Services- Traditional banks enjoyed a monopoly
for the longest time until Fintechs challenged them. Whether it was
lending or payments, customers were hassled by complex procedures
and timelines. Fintechs are enriching customer experience by doing
away with vile operational activities. Moreover, with the help of
Artificial Intelligence, they are offering customers exactly what
they need! While Fintechs have been more customer-centric,
traditional banks were more money-centric.
Inadequate Customer Engagement- Since financial institutions
worked in a reverse order earlier wherein they waited for a customer
to approach them, customer engagement did not hold any gravity.
Informing customers of all their available options and choosing a
state of art service is an evolution brought by Fintechs. Where
financial institutions have attributed more importance to business,
Fintechs have switched the attention to Customer Engagement and
CAPEX model- Traditional financial institutions have often
been thick in the book owing to the CAPEX model they follow. With
inherent expenditures, it is almost impossible for traditional
financial institutions to pass on any extra benefit to their
customer, a loophole Fintechs have heavily banked on.
Introduction of CryptoCurrency- Although cryptocurrency has
not received a green signal from the regulatory bodies in India, it
holds the potential to become a disruptor. Its underlying program
can simplify several financial processes. While money has been a
vital part of our lives for centuries, converting it into a digital
asset will enhance customer journey and experience.
Financial Assistance to MSMEs- While financial institutions
neglected MSMEs owing to their sporadic business cycles and cash
flow, Fintechs specifically targeted the sector. For instance,
Niyogin Fintech Limited, a unique early-stage Fintech, offers
impact-centric financial assistance to MSMEs intending to empower
them. Traditional financial institutions have always been wary of
testing deep waters and appraising their product and service stack.
At present, 1.7 billion adults remain unbanked globally of which,
two-thirds of them own a mobile phone. While the limitations faced by
financial institutions retrained them from penetrating markets,
Fintechs are moving head on to cater to all the untouched segments
thus, filling the void left by financial institutions.