Fin Tech Firms A Disruptor Or Partner To Banks
BANKING FINANCE|October 2020
As the finance industry grapples with what the next generation of banks and payment systems will look like, whether you’re a multibillion-dollar traditional bank or a startup looking to bring cutting-edge technology into the mainstream.
Gijo Verghese

Introduction

The initial offering in this segment came in the year 2005 with the introduction of BC (Banking Correspondent) model to increase penetration to unbanked areas. FinoPayTech and Eko India were the major start-ups that took advantage of this opportunity and built their services around the BC model. The year 2010 saw the slow emergence of fin tech companies in a heavily regulated market, but with lots of restrictions in financial sector the way forward for such companies was sceptical. In the year 2015 the Indian Fin tech sector, saw a spike in the emergence of numerous Fin tech start-ups, incubators and investments.

Banks have also launched solutions with the help of their in-house teams aimed at improving the digital financial infrastructure. Some of the initiatives include:

  • Union Bank of India launched the *99# mobile application in partnership with NPCI that allows basic services like balance inquiry, fund transfers and mini statements to its customers even when there is no internet

  • Axis Bank presented the 'Invoice to Payment' feature that provide end-to-end digital invoicing and payment solutions

  • ICICI bank launched a contactless mobile payment system which could enhance NFC payments in India

  • DBS introduced the first mobile bank that allows customers to open accounts digitally with their ID proofs.

Building a robust Fin tech ecosystem where start-up firms engage in external partnerships with financial institutions, universities and research institutions, technology experts and government agencies is expected to be a key enabler for growth and innovation in the Fin tech sector. With the new initiatives taken up by government such as financial inclusion and promoting cash less economy a lot of scope has been opened up for the fin tech companies. Despite wide branch network, the financial services still lag in terms of coverage. Over 40% of the population is not connected to banks and an estimated 90% of small businesses are not linked to formal financial institutions (FIs).

These gaps in access to formal financial services have created a large untapped market potential for Fin tech start-ups to develop a variety of offerings. A major role in kick-starting the evolution of Fin tech in India was played by start-ups offering digital mobile recharges. For a very long time, Indian consumers used coupons purchased from retail outlets, largely by cash for prepaid mobile phone recharges. This evolved to digital recharges, which in turn evolved into digital wallets and usage of wallets for various other commerce activities.

The fact that these new offerings have strongly impacted consumer behaviour has not only attracted attention from more technology savvy individuals, but also a lot of investments. Banking has been one of the sectors that were resistant to disruption by Technology. For centuries, banks have built robust businesses with high margins, high distribution through branches, and unique expertise in lending activity. The Banks have enjoyed the special status of being regulated institutions that supply credit which is required for the economic growth and have got insurance for their liabilities (deposits).

Moreover, the bank customers are slow to change financial-services providers. This has resulted in banks having a very resilient business model. However, the status-quo is changing rapidly. First, the financial crisis had a negative impact on trust in the banking system. Second, the pervasiveness of mobile devices has begun to undercut the advantages of physical distribution that banks previously enjoyed. In India Mobile phones have an 80% penetration vis-à-vis bank penetration of just 35%. The aforesaid factors have led to a huge change in the customer's tastes and preferences in favor of the new innovative financial products specifically, and environment in general. Fin tech companies have the advantage of reduction in both, operational and capital expenses.

Now let us see what exactly are fin tech companies??

Financial technology companies consist of both startups and established financial and technology companies trying to replace or enhance the usage of financial services provided by existing financial companies. India has become a hotbed for fin tech firms. India has a presence of approximately 400 companies in the Fin tech industry and NASSCOM report estimates the Fin tech software and services market to grow 1.7 times by 2020, making it worth Rs. 60, 000crore.

Continue reading your story on the app

Continue reading your story in the magazine

MORE STORIES FROM BANKING FINANCEView All

RBI CIRCULAR

BUSINESS IN INDIA BY FOREIGN LAW FIRMS

4 mins read
BANKING FINANCE
December 2020

RMAI Certificate Course on Risk Management

RISK MANAGEMENT ASSOCIATION OF INDIA (RMAI) has been pioneering the efforts towards awareness on the subject of Risk, creating academic and research environment to empower the professionals in this highly competitive financial services and allied industry.

3 mins read
BANKING FINANCE
December 2020

MERGERS AND ACQUISITION- A CONCEPTUAL DELIBERATION IN INDIAN CONTEXT

The merger of the three public sector banks- Bank of Baroda, Vijaya Bank and Dena Bank has raised a lot of curiosity towards consolidation process through mergers like never before. The reason being firstly it is directly related to public.

10+ mins read
BANKING FINANCE
December 2020

FARM AMENDMENT BILL 2020 AND ITS PROS AND CONS.

There are three bills which are passed by Government. First one Farmers' Produce Trade and Commerce (Promotion and Facilitation) Bill, 2020.

4 mins read
BANKING FINANCE
December 2020

FARMER PRODUCER ORGANISATIONS (FPOS) - AN AVENUE FOR FINANCING TO FARMERS

India has about 12.5 Crore farmer households of which over 85% are small and marginal farmers with land holdings of less than 2 hectares. The average size of land holding is 1.33 hectare/ farmer household. Due to this fragmentation and disorganization, farmers face constraints such as procuring inputs like seeds and fertilizers at reasonable prices, lack bargaining power in the market, realizing better value for their produce, access to technology, etc. As a result majority of the small producers are unable to realize optimal value from their farming operations and make economic progress. On the other hand, in case of non-farm sector activities, the problems relate more to the quality of the product and marketability. It is felt, by organising themselves collectively, producers can utilize scale to procure inputs at a lower price, and gain more selling power for their produce/product. Forming a producer organization can provide a strong platform to take up collective business activities, build capacity and provide linkages to markets.

7 mins read
BANKING FINANCE
December 2020

Net Stable Funding Ratio (NSFR)

The Basel Committee on Banking Supervision (BCBS) proposed certain reforms to strengthen global capital and liquidity regulations with the objective of promoting a more resilient banking sector.

10+ mins read
BANKING FINANCE
December 2020

Covid - Corporate Debtor - Central Bank

Introduction The Reserve Bank of India (the “RBI”) being the Central Bank has been trying to shield the borrowers from the effect of Covid-19 since the beginning of the pandemic by announcing several measures to mitigate the immediate impact on various sectors. One of the first set of measures announced by the RBI were the introduction of moratorium period of 6 (six) months in repayment of the borrowings to alleviate the immediate financial stress on the borrowers.

3 mins read
BANKING FINANCE
December 2020

THE 'CERBERUS TROJAN' : WAY TO 'PAATAL LOK'

"Let no such man be trusted" -- William Shakespeare

6 mins read
BANKING FINANCE
November 2020

MSME ADVANCES-ROOT CAUSE ANALYSIS OF POOR GROWTH & SUGGESTIONS FOR IMPROVEMENT

MSME ADVANCES-ROOT CAUSE ANALYSIS OF POOR GROWTH & SUGGESTIONS FOR IMPROVEMENT

10+ mins read
BANKING FINANCE
November 2020

ROLE OF AUDITORS AS A WATCHDOG IN A BUSINESS ENTITY

The great philosopher Desiderius Erasmus has said Prevention is better than Cure.

8 mins read
BANKING FINANCE
November 2020
RELATED STORIES

How May I Assist You?

Will robots replace journalists in the days to come?

7 mins read
Digital Studio
November 2020

WEATHER CHANNEL APP TO CHANGE PRACTICES AFTER LA LAWSUIT

The operator of The Weather Channel mobile app has agreed to change how it informs users about its location-tracking practices and sale of personal data as part of a settlement with the Los Angeles city attorney’s office, officials.

2 mins read
Techlife News
Techlife News #460

Inside Apple's Next Big Thing

Mike Rockwell’s team is developing superpowerful headsets blending AR and VR

5 mins read
Bloomberg Businessweek
June 29, 2020

The Future Of Work

A new era of work is coming. Work Club Global’s founder and chair soren trampedach says it will be smarter, more flexible and human-focused.

3 mins read
The CEO Magazine - ANZ
July 2020

The AI Revolution Is Coming: Here's How To Future -Proof Your Career

Robots are coming for your job. Not only yours, but another 20 million jobs around the world over the next 10 years. That’s how media outlets reported on the results of a 2019 paper released by global forecaster Oxford Economics. If you think that sounds rather dystopian, wait until your anxiety-fuelled googling brings up news headlines claiming it’s actually 800 million jobs – not a meagre 20 mill – that will be eliminated by robots by the time 2030 hits.

5 mins read
Women's Health Australia
March 2020

Utah School Software Will Send Alerts About Student Accounts

A Utah school district adopted computer software that alerts administrators and parents to activity in student Google accounts that may raise concerns.

1 min read
Techlife News
March 14, 2020

Ex-Google Self-Driving Car Project Picks Up New Investors

Google’s former autonomous vehicle project is becoming a more autonomous business by bringing it in its first investors besides its corporate parent.

1 min read
Techlife News
March 07, 2020

5 Amazon Echo Security Features, Tested

From monitoring the weather to controlling your smart home, Amazon Echo has hundreds of different skills.

3 mins read
Family Handyman
March 2020

The Five Trends To Future-proof Your Business

Some of these fads were slowly building in the previous decade, others are still nascent, but need your full attention to prepare your business for the times ahead.

4 mins read
Forbes Africa
March 2020

Tech To Make Guests Feel At Home, Part Two

In my last column, I discussed the generational improvements my custom installation company has witnessed since we started installing whole-house distributed audio systems back in 1995. Of course, almost everything has gotten better—and cheaper—over time, but one thing often overlooked in modern installations is operational simplicity for the guests who visit your home.

3 mins read
Sound & Vision
February - March 2020