Advantage fintech

The Goliaths of banking and finance seem to fear the upcoming Davids. 

With increased digitisation and the aggressive thrust on quick adoption of innovative technologies, established firms in the banking, financial services and insurance (BFSI) space are feeling compelled to ally with fintech start-ups to leverage the latter’s inherent predictive, disruptive and technology-driven capabilities.

According to PwC, 82% legacy banks and financial institutions expect to increase partnerships with fintech start-ups in the next five years. 

In India, RBL Bank, Bank of Baroda, HDFC Bank, Axis Bank and ICICI Bank have all either tied up, partnered or acquired stake in new-age fintech players.

Experts predict these alliances will only increase.

Rajeev Ahuja, executive director, RBL Bank, says, “Fintech is one of the greatest transformation drivers for the banking industry and we have been early movers in forming strategic partnerships with various industry participants.”

Experts believe the increasing need to partner with fintech firms stems from the multiple advantages that they carry.

According to Ketan Patel, executive director and CEO of fintech start-up CASHe, fintech firms have the primary advantage of an innovative mindset, agility, a consumer-centric perspective and an infrastructure built for the digital. “These are advantages that most legacy financial institutions do not possess. The current alliances are mainly focused on fixing inefficiencies like customer on-boarding with ‘Know Your Customer’ – with a focus on improving processes, reducing costs and enabling better customer experiences. But there are other avenues which aren’t about collaboration, but actually trying to reinvent the banking system.’’ 

Adhil Shetty, CEO, BankBazaar, says by aligning with fintech firms, the financial services company is free to concentrate on its core activities as technology becomes the purview of the start-up. “Large companies can tap the power of innovation without actually recreating the entire infrastructure. With tech automation, we, for example, can deliver over 20% savings in the costs attached to customer acquisition for partner financial services institutions.”

Moreover, fintech start-ups have created a paradigm shift in customer experience that eliminates multiple pain points across the customer life-cycle, says Rathnaprabha Manickavachagam, director, innovation & digital transformation, Societe Generale Global Solutions Centre. “They design independent solutions that do not consider the existing legacy issues. Their predictive capabilities come in a developed and tested package that requires minimum amount of customisation and reduces the time-to-market cycle,’’ explains Manickavachagam, adding that Societe Generale has inked many strategic alliances with fintech companies in Europe, Africa and Asia.

“These alliances aid in the focused digital transformation efforts of the bank, while accelerating the internal efforts to transform employees, processes, customers and experiences.”   

Another key reason behind the lure of fintech is the rise in millennial consumers of financial products who seek solutions beyond the obvious. The PwC report states that 30% of consumers plan to increase usage of non-traditional financial service providers in the near future. 

“This necessitates traditional financial services firms to harness the capabilities of fintech at lightning speed, ” said an expert. 

And fintech firms, too, can benefit tremendously by capitalising on the might of their bigger partners.

Ahuja believes fintech start-ups can leverage the industry expertise and robust capital structure of BFSI companies, apart from their larger customer base and product portfolio. 

Also, they can get better and faster access to capital. 

DIGITAL REVOLUTION

• 82% – legacy banks and financial institutions expect to increase partnerships with fintech start-ups in the next five years
   
• 30% – Of consumers plan to increase usage of non-traditional financial service providers in the near future