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-
- Customer centric
- State of art service provider
- Sophisticated customer journey enabler
- 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?
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.
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.
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.
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.
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.
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.