India To Witness New Alliances

Lenders Join Hands With Fintechs For Expanding Business

Banks have become serious about how they collaborate with fintech companies and derive the maximum value out of these partnerships. Acquiring a stake in the new-age companies is one way of doing it and banks are looking to go big on this.

What Are Banks And Fintechs ?

Fintech is a term used to describe new technology that automates and improves the delivery of financial services. On the other hand, banks refer to financial institutions that are licensed to accept deposits from its customers and make loans.

Banks V/S Fintechs Which Is Better?

Fintech fill a specific gap in the market – one left open by how slowly traditional banking changes. The main goal of these disruptive companies, and their drive towards innovation, is leveraging technology in order to meet the financial needs of customers and deliver experiences that can’t be found elsewhere.
Banks, on the other hand, need to cater to a wide audience to function – their offers can be varied, but not niche – and a major concern of theirs, due to the critical role of banking, is risk management.
Historically, banks have lagged behind Fintech companies in terms of personalization, customer experience and innovation. They are highly regulated institutions which provide stable, trustworthy services via a resilient business model.
They are necessary to economic growth and the proper functioning of many modern societies. The Fintech industry rarely chooses to compete with that, and instead shifts focus to other areas, such as mobile experience, accessibility, contextuality and convenience. Their rising popularity is pushing customers’ preferences towards mobile banking and personalized finance solutions.

Fintech And Bank Alliances Are Not Just About Profits

Collaborations between fintechs and financial institutions do more than just boost the bottom line. They deliver new solutions, meet changing needs and safeguard customers from potential financial risks.
Bank and fintech collaboration also benefits the tech companies. They can expand into new markets while benefiting from the regulatory status of traditional banks. Continued collaboration and partnerships between fintech companies and banks are essential for the future of the financial services industry and the technology sector.
The evolution of the way people manage banking and financial services also highlights one of the reasons why fintechs and banks should work together.

ADVANTAGES	DISADVANTAGE
Building up brand reputation	Digital account opening delusions.
Offering more functions and features to consumers	Resource realities.
Increased ease-of-use	Culture change fantasies.
Broadened consumer base	Collaboration confusion
Reduced costs	Digital account opening delusions.
Ability to	Resource realities.
Scale quickly	Culture change fantasies.

An Overview

Over the years, the partnership between banks and fintech players has become stronger, thereby, accelerating financial inclusion, while cutting-edge technologies, such as Artificial Intelligence and Machine Learning, are helping out in quick digital adoption across the country. Small vendors, lacking their own bank accounts are able to seamlessly conduct digital transactions. Moreover, MSMEs in cash-dependent Tier-II and III markets, from grocery stores to neighbourhood hawkers, have been able to receive money digitally through UPI systems, QR codes, and payment apps.

In the bigger picture, the rise of innovative alternative lending platforms, brought by fintechs over the past years has enabled SMEs with no credit history or financial records to access much-deserved credit. With the advent of new-age technologies and digital tools apparatus such as AI, machine learning, and data analytics fintech companies now extend customised working capital solutions to the MSME sector, which currently faces a credit deficit of over Rs 16 lakh crore. Additionally, small businesses can now digitize their ledgers and cash flow management.

Examples

In August 2021, HDFC Bank Ltd purchased a 5.2 percent stake in Mintoak Innovations, a digital payments platform, following up on the December investment of an undisclosed amount in small case technologies, another fintech start up.
State Bank of India in June invested in payment gateway company Cash free Payments. ICICI Bank Ltd too has bought stakes in fintech start-ups, in February investing in digital payments firm City Cash and Thillais Analytical Solutions Pvt. Ltd.
India’s largest public-sector lender State Bank of India (SBI) announced it was partnering with Adani Capital, a non-banking finance company (NBFC), to dole out loans to the farming community.

Conclusion

Of late, banks have been actively exploring inorganic growth to widen their customer base through more offerings and solutions that would come from new-age fintech companies along with low-cost technology instead of building these solutions from scratch.
Banks don’t want to end up being just a source of capital, they want to continuously evolve into an all-in-one hub of everything that a customer would want through such strategic bets.
They might go ahead and acquire these fintechs in the future. For instance, Axis Bank’s acquisition of payments startup Free Charge in 2017 – the first acquisition of a digital payments company by a bank in India.