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Traditional Banking: Rise or Die?

 

The origination of the banking saga in India dates back to the 18th century. Ever since, banks and their processes have evolved, adapting to prevalent market needs and sentiments. In comparison to yesteryears, banks have progressed and revolutionized but, with the introduction of Fintechs to the equation, banks are now facing the challenge to evolve further and adapt to the dynamicity rather quickly.

Today, traditional banks are keen to embrace a variety of tech solutions to enhance their user interface and customer experience. Only in a theoretical sense can banks exist in the digital realm, gain a vast market and penetrate underserved areas on its overheads. Hence, several small banks like Federal Bank, Equitas Small Finance Bank, etc., have allied with Fintechs to amplify their retail network by combining finance with technology. For instance, Federal Bank launched a mobile-first Credit Card for the millennials and Gen Z in alliance with OneCard, a Fintech, to extend services to their untouched database.

Traditional banks possess a sizeable database of customer information in addition to a bulging purse but, limited resources to channel it to their advantage. Fintechs have leveraged this restraint and offer traditional banks the resources and technology they require as the bargaining chip.

 

Traditional Banks Vs Fintechs

Traditional Banks are known for their deep pockets and while Fintechs can dent the dominance of banks, they cannot reign the financial world.

Moreover, owing to the Indian regulatory framework, banks are still backing most of the transactions creating a sense of dependability for Fintechs. For instance, although Fintechs have introduced the financial world to Unified Payment Interface (UPI), traditional banks act as the alpha in each transaction, therefore, barring Fintechs from operating solely.

In the financial world, a license is a prerequisite to lending and hence, Fintechs are heavily dependent on traditional banks when it comes to lending. However, there is a huge gap between the rates offered by traditional banks and Fintechs, creating an opportunity that seems more beneficial to Fintechs.

While Fintechs are doing away with brick and mortar model, thereby reducing operational costs, eliminating human intervention is a farfetched objective. Elements like customer on-boarding, collections, etc., cannot be digitized completely thereby, giving traditional banks the extra edge.

Looking at the Future / Shaping the Future-

Traditional Banks that are striving towards an equal share in the future of the financial world should create a bionic banking structure wherein Artificial Intelligence supports and enhances customer experience and relationships. By leveraging data and analytics, they should aim at serving a broad range of customer needs that extends beyond traditional banking products. This comes as a necessity when global brands like Amazon, IKEA, Mercedes, etc., are eliminating traditional financial intermediaries due to their limited service stack and plugging in software from Fintechs to offer banking services to customers.

Furthermore, banks that allow ‘technoid’ counterparts to build a platform and engage people for them to create a bionic banking structure, could end up being highly dependent on these third party service providers, pushing themselves away from the front end and thus, hazing their own brand recognition in the process.

The future of traditional banks largely depends on how they collaborate and co-exist with Fintechs while each maintaining its own value proposition. Today, though Fintechs can challenge Traditional Banks in certain aspects, like digital payments, it cannot eliminate or outweigh the whole structure.

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