India’s Fintech Revolution is Primed to put Banks Out of Business

At its heart, FinTech is the business of using technology to improve financial services. These services are the ways in which consumers and businesses manage, move and store their money: paying, lending, saving, borrowing, investing and so on. Fintech firms are aiming to fragment the finance industry by making these services more efficient, convenient and accessible.
Fintech enablement in India has been seen primarily across payments, lending, security / biometrics and wealth management. These have been the prime focus areas for RBI and we have seen significant approaches published for encouraging fintech participations.
Impact of Fintech in Banking
Banks have the two Cs which fintech start-ups want but cannot easily acquire—customers and capital.There are three areas where the Fintech disruption will be most keenly felt:

  • Consumer banking
  • Fund transfers
  • Payments and wealth management

Additionally, there is a second wave of disruption making its market in the asset management and insurance sectors. Banks are adopting new solutions to improve and simplify operations, which fosters a move away from physical channels and towards digital/mobile delivery. 80% of the leadership felt that FinTech is or will be a strategic partner to banks. More than 75% of the banks are involved with FinTech companies whose services are focussed on consumer banking, payments and remittances.
A recent survey among consumerson various offering by Fintech Cos. gave us the below result
Key service offerings to emerging on digital platforms by Fintech Cos. includes :

  • E-Wallet Services: Companies allow both private individuals and businesses to accept payments over the web and on mobile without needing merchant accounts. Transfers are made directly to the bank account linked to the payee in order to secure against fraud. Examples are Paytm, Mobikwik, and Oxigen Wallet.
  • Remittance Services: A few Startup ventures, albeit registered abroad, are trying to address the gaps in remittance transactions (both inbound and outbound) as the current process is cumbersome and expensive. These start-ups aim to disrupt the current monopoly held by firms like Western Union and MoneyGram. Examples are Remitly, Instarem, and FX.
  • Peer-to-Peer (P2P) Lending Services: Companies use alternative credit models and data sources to provide consumers and businesses with faster and easier access to capital. P2P lending allows online services to directly match lenders with borrowers who may be individuals or businesses. Examples are Lendbox, Faircent, i2iFunding, Shiksha Financial, MarketFinance, andGyanDhan.
  • Personal Finance or Retail Investment Services: Fintech companies are also growing around the need to provide customized financial information and services to individuals, that is, how to save, manage, and invest one’s personal finances based on one’s specific needs. Examples are, PolicyBazaar, BankBazaarand Scripbox.
  • Funding Services: This includes crowdfunding platforms that enable the funding of a project or business venture by raising funds from a large number of people. Such internet-mediated platforms are gaining popularity across the world as access to venture capital is often difficult to secure. These services are particularly targeted at the early stage of a businesses’ operation. Examples include: Ketto, Wishberry, and Start51.
  • Cryptocurrency: India being a more conservative market where cash transactions still dominate, usage of digital financial currency such as ‘bitcoin’ has not seen much traction when compared to international markets. There are, however, a few bitcoin exchange start-ups present in India – Unocoin, Coinsecure, and Zebpay.

The future of payment is undergoing a transformation, as new entrants are enabling the market with new technologies such as contactless payment, NFC enabled smartphones, cloud-based PoS and digital wallets. Existing players should opt for strategic collaboration across sectors to increase customer acceptance, penetration of digital payments and create a lucrative model for each participant.
Hence, instead of clamouring about lack of regulatory supervdraft for webision on fintech firms, existing banks could capitalize on their existing customer relationship and trust, and adopt products that allow for continuing these relationships via digital means as well. The growth of fintech presents an opportunity for them to not only reduce costs substantially, but also to modernize and attract those customer bases that are hitherto uncovered. Recognizing this potential, HDFC and Axis banks have launched mobile phone applications to ease handling of digital money for consumers. Federal Bank has partnered with
Startup Village to support selected start-ups in developing innovative products for the bank.
Following initiatives have been taken by Govt recently to improve the banking services :-

  • Apart from PPIs, another exciting development in the payments space is the so-called Payment Banks – new, stripped-down versions of banks conceptualized by the RBI.Approval to 11 entities for setting up Payments Bank
  • Introduction of “Unified Payment Interface” with NPCI,which holds the potential to revolutionize digital payments and take India closer to objective of “LessCash” society
  • Approval to 10 entities for setting upSmall Finance Banksthat can significantly run in favour of cause for Financial Inclusion.
  • Release of a consultation paper on regulating P2Plending market in India and putting emphasis for Fintech firms and financial institutions to understand the potential of blockchain.

At the end of the day, FinTech is here to stay and start-ups are leading the way. According to a report by an analytics company, Tracxn, there were 750 registered FinTech companies in India in 2015 of which 174 launched that year alone. Banking regulations are becoming more inclusive and banks are investing in FinTech start-ups. It’s yet to be seen which ones will emerge as winners but for now the momentum is on in this space.
The potential for FinTech start-ups to disrupt traditional financial services and banks in particular, has been recognised for some time now. In part, with the loss of confidence in banks following the financial crisis, some of this talk has taken the form of hope more than reasoned expectation. The start-up businesses we tend to refer to when we say ‘FinTech’ have certainly played up their difference to banks (and fair play to them), by marketing themselves as being able to provide a better service for less money thanks to new technologies.
But the question of whether they will replace banking and usher in a new era of finance without large banking institutions remains to be seen.
About Balkishan Chandak
Balkishan Chandak, Founder Partner of SMART CFO Services LLP. He has 20 years of post qualification experience in various industries in Capital Restructuring, Fund Raising, Financial Analysis, Strategic planning, Budgeting & Forecasting, Commercial Negotiations, Corporate Tax planning, Supply Chain Management, Legal & Secretarial, Systems Development and ERP Implementation (SAP & Oracle). Balkishan proves his excellence as leader with a track record of documented contributions leading to improved financial performance, heightened productivity, and enhanced internal controls.
With Balkishan’s superior management, communication, leadership and supervisory skills has “Hands on” style and willingness to embody the core values of the Company. A keen planner, strategist & implementer with demonstrated abilities in spearheading Finance function, he has accelerated the business growth. Under his headship, the company provides shared CFO Services to SME’s and Startups. Driving significant improvement to the clients financial health through innovative business solutions & supportive implementation, while building enduring business partnerships.

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