Fintech companies are revolutionizing and reimagining the way banking services are made available to consumers in India. The use of technology has made banking services accessible to all segments of society with extensive reach at much lower costs in a timely and efficient manner.
Lakshmi Devi,52, has owned a small Kirana shop for the past 15 years in a small village on the outskirts of Mumbai. In her free time, she also takes up tailoring assignments to supplement her earnings. Laxmi Devi, like most others in her village, has a low cost smart phone which she uses for both her entertainment and information needs. Lakshmi recently learnt how to check her bank account and transfer money through her mobile, it saves her the monthly trip to the bank and a working day. Her neighbour recently took loan from a company by applying through the phone, she is exploring the idea as well.
Until recently, this would have been a distant dream for Lakshmi Devi and many like her. Even accessing simple bank account services meant having to travel to the district level bank branches, standing in long queues or grappling with complex forms incomprehensible to customers with limited literacy. Most traditional financial services in India create products first, and then try to appropriate customers within the product requirements.
For instance, the credit application process for both an INR 10,000/- loan and an INR 1,00,000/- loan were similar, despite the wide margins. This resulted in long waiting time and high rejection ratio for small loans. This was a time consuming and costly affair for both the customer and the bank. Hence banks were unwilling to provide additional services to customers with low-value/volume of savings.
However, innovations by Fintech companies has made it possible for them to reach customers like Laxmi Devi in an affordable, timely and efficient manner
Accessibility and reach: Mobile technology has made it possible for Fintech firms to reach out to over one billion mobile phone users in India across geographies, across segments. In parallel, low cost internet data allows for cost-effective channels to reach out to a wider group of people. Most banking services today, such as checking bank balance or money transfers, a customer can now access financial service providers through their mobile app or desktop. For instance, SME Corner which offers loans to the unorganized retail sector can now reach small entrepreneurs such as vegetable vendors through their app.
Fintech companies employ flexible technology backends that are adaptable to needs of various consumer groups including corporate employees or unorganized labor.
In addition, fintech firms offer services on mobile apps in regional languages, explaining their products and procedures in a language relevant to the consumer.
Structured products: In the initial years of technology evolution in India, most fintech firms chose to focus on linear product models, offering single solutions like credit or savings. Back then, customer awareness and acceptance of online financial services was slow and hence offering them complicated products would have deterred the acceptance of these services. However, with an influx of smart mobile phones and mobile internet, customers now have access to new opportunities.
In the next fintech space, we expect to see a number of innovative platforms that offer a combination of services, backed by efficient customer service tools. For e.g. Kaleidofin offers their customers a combination of saving, investment, credit and insurance products.
A unified product approach provides the firm an opportunity to create a long-term impact on the customer’s life.
Improved Efficiency: The Indian Banking sector, until recently relied on ‘wet signatures’ and physical documents for almost every transaction, leading to high operational cost. High operational costs proved to be one of the major roadblocks for servicing customers at the bottom of the pyramid.
Introduction of new technologies led to the creation of new business models to reach out to a wider customer base. For instance, a paperless transaction, enabled through DigiLocker facility allows for faster and cost-efficient transactions. Digitization of records has enabled fintech service providers to service a large demographic of customers with small saving amounts. Innovations in the payments space, such as UPI and mobile wallets have also helped bring in efficiency in operations.
Algorithm based predictive solutions: Artificial Intelligence (AI) based on structured and unstructured data enables fintech firms to create an almost instant credit score and assess risk-taking capability of individual customers. This results in a quick and efficient decision-making process, especially for credit and investment services. For instance, MoneyTap, a new-age fintech targeted at mass-market, works on the principles of a credit card company. Based on its risk profiling of a customer, it provides an upper credit limit for a customer to borrow according to his variable needs on a per-day basis.
The use of AI has also reduced a financial firm’s dependence on multiple documents and introduced flexibility to the credit approval process. For instance, a fintech providing working capital uses easily available cash-flow statements to assess the credit eligibility of a small shop owner.
In India, about 600 million people do not have access to formal financial services or are underserved by the current banking system. The market opportunities therefore are enormous. Fintech firms are working systematically on customising products and services that work for the lower income group. It is heartening to see them adopt a customer-driven approach- create services that are customised for customer’s unique needs. We are hopeful that the new approach towards financial services will especially have a long-term impact on improving the economic conditions of millions in India.
About the Author
Spadika Jayaraj is the Associate – Network Partnerships at Kaleidofin Private Limited, a fintech company aimed at offering well-designed, financial solutions to address the needs of the 600 million underbanked and unbanked Indians. She helps financial institutions get on-board on the Kaleidofin platform. Prior to joining Kaleidofin, she was a consultant at McKinsey and Company. Spadika is passionate about financial inclusion and believes in the power of finance as a crucial enabler in people realizing their aspirations.
Using Technology for Reimagining Banking Services for the Masses
