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Jul, 2022     

Competitors Or Collaborators: Way Ahead For FinTech & Traditional Banks

With 80% of merchants going digital payment-enabled by 2026, the market will see more cash flow-based lending than traditional asset-based lending


Given that we’re in the digital era, it only seems fitting that banking and financial services keep up with the times and imbibe technology into most, if not all processes. With the emergence of FinTechs, what does it bode for the traditional banking system in our country? Will FinTechs and traditional banks work in tandem to diversify their suite of product offerings? Mrigank Gutgutia and team answer this question in this week’s newsletter.

1. India has the third largest FinTech ecosystem in the world.
Attracted by the immense scope presented by the Indian market, several FinTech players have entered the space

The rise in digital payments has created fertile opportunities for credit democratization and the trend is likely to continue, with the digitization of corporates, merchants, and retail consumers creating a vibrant digital payments ecosystem. With large captive customer bases, payment apps are expanding to other high-margin and large addressable markets. Since 2015, there has been increased investment into InsurTechs and WealthTechs, with payments and alternative finance segments constituting more than 90 percent of the sector’s investment flow. By 2019, 75 percent of consumers were using online money transfers, payment services, or both. In 2020, India had 25.5 billion transactions, ahead of the US, UK, and China combined. In September 2021, India had more than 5.7 billion digital payments worth nearly $2 trillion (roughly Rs. 1,55,17,500) (Total Digital Payments).The numbers tell a great story, but it seems that we’re only getting started.

2. And these are the major growth drivers responsible for India’s FinTech flourish

The ever-evolving payments industry has continued to attract underserved and last-mile customers with alternative forms of digital payments infiltrating areas where branch banks and ATMs are not feasible. With the high adoption of smartphones, digital payment channels provide an easy, convenient, and rewarding payment experience to customers. By leveraging digital payment options, MSMEs have been able to optimize both their front and back-end operations. Additionally, Government initiatives such as ‘Make in India’ and ‘Digital India’ played a significant role in accelerating FinTech adoption. Demonetisation and GST also contributed to the nation’s FinTech revolution, paving the way for a shift from a paper-based economy to a digital one.

3. Way forward: How can FinTech’s and traditional banks work together?

 

Traditional banks have more sophisticated security features and processes, established networks, and decades of customer loyalty, making it imperative for FinTechs to coexist with banks. The best way forward is for FinTechs and banks to collaborate and leverage each other’s strengths.

Following suit only after the US and China, the Indian FinTech market is poised for a quantum leap. The writing on the wall has never been clearer. The way forward would be for both banks and FinTechs to work together and enter the next digital wave as collaborators rather than competitors.