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Traditional Banking: Rise or Collab?

Acceptance of Fintechs is on an upward trajectory owing to digitization in the financial world and with customers embracing the change, the shift is evident. Artificial intelligence, machine learning, robotics etc. have accelerated the acceptance and currently, Fintechs are better placed than before and are contributing to the financial world in multiple influential ways, for instance, they are attempting to bridge the $ 3 trillion global trade finance gap.

By forming a strong technological base, Fintechs can do what large financial institutions cannot, i.e., provide swift access to finance along with alternatives to collaterals especially for MSMEs, an otherwise underserved segment. As per reports, MSME loan value has increased to 24.6% in FY 2021 from 16.2% in FY 2017.

While Fintechs are still evolving, legacy banks; who have spent decades building their reputation and trust in customers, offer a wide range of products and services yet stand challenged today. While traditional financial institutions have shown little to no desire to reform, Fintechs have emerged as-

  1. Customer centric
  2. State of art service provider
  3. Sophisticated customer journey enabler
  4. Bank charters

These aspects have allowed them to navigate and penetrate the market successfully. For instance, digital payments have witnessed a sharp growth in India in the past few years. As per reports, India witnessed 48 billion digital transactions in FY 2020 and is set to account for 71.7% of total payments volume by 2025.

With Fintechs evolving so rapidly, traditional financial institutions view Fintechs as strong collaborators rather than competitors. Nonetheless, until the regulatory body does not recognize Fintechs as an independent body, they will invariably be considered lucrative alliances. For instance, Niyogin Fintech Limited, India’s unique early-stage public listed company, offers financial assistance to MSMEs by partnering with several leading banks like HDFC, Tata Capital Financial Services, IDFC etc. They are striving towards becoming a ‘banking as a service’ platform.

Why should Traditional Banks collaborate with Fintech?

  1. Increase Market Penetration- Fintechs can take advantage of traditional financial institution’s swelling customer data they have maintained over the years while offering their ‘banking as a service’ platform. This way, both, traditional financial institutions and upstarts can map out best opportunities for themselves.
  2. State of art stack- Fintechs offer state of art technology and service stack to traditional banks which otherwise may require high intensity brainstorming and most importantly, cost.
  3. Advanced Technology- Legacy banks often stick to unreformed systems and solutions due to limitations they face. Fintechs offer simple plug and play up-to-date technology and services.
  4. Cloud Based Stack- Fintechs offer technology stack that can be accessed on the cloud and so, cybersecurity, uptime performance, data storage and residency will be managed by them. This allows traditional financial institutions to add new scopes, technologies, requirements etc. at a much lesser cost.
  5. Increased ROI- With Fintechs offering platforms that enable out of the box services and technology stack, traditional banks can reckon on them for a better prospect thereby increasing their Return on Investment which otherwise is fairly short.
  6. Workable Regulations- While the regulatory framework for traditional financial institutions is quite stringent, Fintechs can prototype new technological approaches that work around current regulations and devise offering within regulatory boundaries.

Traditional financial institutions and upstarts both have better prospects if synergized. Both can work collaboratively to bridge gaps rather than competing.

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