It’s hard to fathom how the fintech players-versus-banks plot will unfold. One thing is certain that the banks are not going to roll over and die, and it’s also true that there may not be any slugfest — collaborations are more likely in most areas . The old turf lines will, however, be redrawn; both legacy entities and newbies will have to walk through a minefield. Vaishali Dar and Raghu Mohan sought views of fintech thought leaders to depth-charge a few leading concerns. Edited excerpts:
What are we most likely to see in the fintech-space — collaboration or competition?
Abhishek Kothari (AK): The sequence is most likely going to be competition (short-run), followed by consolidation (stable state), and eventually collaboration (steady state). Banks looking to gain a foothold in the digital space, particularly in tier II and III cities, will either choose to collaborate with fintech players or acquire them. That will depend on the success and the reach of individual players.
Rajat Gandhi (RG): The environment of competition between the P2P lending and banking sectors across the globe has led to the creation of the ‘coopetition’ model. While digital players can bring their expertise in technology to the table, banks can provide access to their massive customer databases and financial muscle. We can expect leading P2P firms to continue to work on building technological infrastructure, product innovation, ease of access to credit, and automated services; while banks will lend payment gateway solutions and capital resources.
Samant Sikka (SS): Fintech has to be looked at differently — the list of things you cannot do is longer than the list of things you can do. There is a huge regulatory oversight, and compliance responsibilities, which is not the case in an e-commmerce or food tech. While there are green shoots visible where incumbents are embracing startups either by way of accelerator programmes, innovation hubs and strategic alliances, there are examples of startups building compelling business models that are giving good competition to incumbents.
Praveenkumar Vijayakumar (PV): It will be difficult for banks to hold on to their savings accounts as money will flow into new asset classes and innovative banking options from fintechs. It will be equally difficult for fintechs to take their innovations to the masses as the market is going to be flooded with innovative products and ideas. Customers will have very little sinking in time to understand and accept a new idea or product. Therefore, it will be imperative for both the legacy system and the new age fintechs to collaborate effectively and leverage one another’s strengths.
Naveen Kukreja (NK): As it is often said, ‘alone we are strong, together we are stronger’, I firmly believe collaboration is the future. We are likely to see a lot more collaboration between manufacturers (banks, non-banking financial companies, insurers and asset management companies), acquisition and data (fintechs such as Paisabazaar.com), technology (fintechs and large tech enterprises), and customer owners (Makemytrip, Paytm, Paisabazaar.com) and others.
Vaibhav Lodha (VL): There is an old African proverb, ‘If you want to go quickly, go alone. If you want to go far, go together’. Since cut-throat competition with unending discounts didn’t serve e-commerce or food tech in the long run, we are likely to see a lot more collaboration between banks and fintech companies going forward.
Will fintech players emerge as white-label agents of firms?
AK: When consolidation and collaboration happens, white-labelling is be one of the models that emerge. It is a good long-term solution from a consumer point of view, but there is a long way to go.
PV: If the crypto-currency establishes itself as a formidable asset class, it could turn out be the other way around — banks might sell white-label products of fintechs to counter the fintech revolution!
VL: A Zerodha could scale without white-labelling its solutions. If fintechs find comfort in creating customer-centric products and using the existing network of banks as the way to scale up, that’s a strategic choice, but not necessarily an industry phenomenon.
Akshat Saxena (AS): This would depend to a large extent on the precise problems that fintechs are looking to solve. If for instance, a firm is out to apply new-age technology or data-science to solving existing problems associated with credit penetrations, then yes, a white-labelled or co-branded solution may be a win-win.
How will fintech players create a client base of their own?
NK: This will depend on whether the fintech is consumer focused or a B2B or a B2B2C player. For consumer comparison and acquisition platforms such Paisabazaar.com, we will build a base as we would eventually be helping banks get more relevant customers at a lower cost. As long as fintechs are clear on what problems they are solving — acquisition or credit-modelling, customer experience or fraud detection — there will be enough scope to collaborate.
Sampad Swain (Swain): That’s a million, may be billion dollar, question! In the past, we have seen recharge companies moving to the mobile-wallet space and ending up in the banking domain with a large consumer base. Tomorrow, we might see e-commerce companies do the same or they might just move to the fintech space. Anyone with a large base of users — be it consumers or merchants — could end up owning different markets.
SS: This challenge can be examined from two perspectives, Firstly, are there enough un-served customers? Secondly, are there enough under-served customers? The answer to both questions is a big yes. Fintech players are, therefore, building client-acquisition strategies around B2C for the un-served segments and B2B and B2B2B for the under-served segments with alliances and partnerships with incumbent players.
Will the advantage for banks by way of low-cost Casa (current and savings accounts) be neutralised by fintech players?
Archit Gupta (AG): Banks are bound to see some threat due to small funds moving other platforms for slightly higher rate of interest or due to ease of use in payments. Payment banks and mobile platforms could threaten small banks or banks with smaller deposits as customers may move to other platforms for convenience.
Swain: The mutual fund industry has a very compelling proposition in liquid funds, which now offer almost double the returns (though not guaranteed) with daily interest gains, no lock-in, instant liquidity up to Rs 50,000 and a Visa debit card, all this being more tax efficient with no minimum balance and access with as little at Rs 100. There is no reason for anyone to keep any money in the savings bank account.
PV: With the advent of crypto-assets and the possibilities of people moving their part of cash savings to crypto assets, the blow to Casa is going to be much more severe. Banks that are not going to adapt to the changes are going to have a very tough time to serve their customers effectively.
SS: Casa is where the journey of a regular customer begins in the financial world. As the customer advances on this journey, there are several other things that would be needed. Over time, Casa will get commoditised and the profit pool will probably shrink as fintechs nibble away at core banking and financial solutions. This may render business models of banks obsolete, unless they wake up to this dis-intermediation that threatens their business model.
Do you foresee a situation wherein banks are no longer viewed as the service provider for consumer payments, which could lead to an adverse impact on their revenues?
AG: No. Banks have been around for a long time and they have experience and credibility on their side that is going to be hard to dissolve completely. Also, it will take time for technology to permeate to all levels of society. Until fintech solutions are used by everyone in the country, banks will have a big role to play in the economy.
AS: We see this not as a shift from banks to non-banks but from ‘classic banking products’ to ‘non-traditional products’. For example, a huge set of customers have already moved from debit cards to wallets for their online and offline transactions, thereby underlining the shift. We see a similar shift underway from credit cards to short-term digital credit products. We also expect the same to be a faster a change as the incumbent base is relatively much smaller.
NK: Banks would always be the custodians of consumers’ money, including new entrants such as payment banks, and hence, would play the primary role in providing payment services. Today, it is mostly through cash, cards and digitally. Tomorrow, it could be through Whatsapp, Google Pay and other means. So, while the margin of service may reduce over time due to other layers that enhance customer convenience, banks will still have a role.
Swain: It’s far more nuanced than that. A few things will take years, if not decades to evolve. I don’t see banks becoming completely irrelevant anytime in near future. However, legacy banks that don’t respond to the growing digital needs of customers stand the risk of phasing out in terms of impact on their revenue and profit pools.
PV: For those banks who have not responded to the latest fintech revolution, there will be a definite impact on their payments-related revenues. In fact, I foresee a major impact on the FIAT currency’s dominance itself in the remittance market.
AK: Banks are always likely to be the backbone for the economy. With a strong infrastructure in place, it’s possible for different players to use banks to their benefit as we are seeing with Unified Payments Interface and with Aadhaar Payment Bridge System. These are also government regulated and rely on banks to a certain extent. So banks need not fear that they will lose out on customers because of payment innovation. But innovation in payments could see them lose opportunities that they were best placed to capture.
RG: The collaboration of fintech firms with banks in the payments space is an indicator of the symbiotic relationship between the two categories. Neither fintech firms nor banking institutions can distance themselves from each other if they want to function in the market. While fintech firms require the infrastructural support of legacy banking systems, banks need to adapt to the emerging fintech model in order to reach a wider pool of digitally-savvy customers with tech-enabled financial services.