While accepting that new financial technology startups (fintechs) are disrupting financial business and transactions, Arundhati Bhattacharya, Chairman of State Bank of India (SBI), the country's largest lender, says, these new fintechs are redefining payment and banking transactions. "Mere replicating manual banking process on digital platform will not work. We need to be ready to imagine the unimaginable," she said while speaking a summit in Mumbai.
The SBI Chairman was speaking at BANKing TECH Summit 2016 organised by industry body Confederation of Indian Industry (CII). "With emergence of technology, banks are facing two challenges of managing their technology legacy stack and bringing the cost down for small transactions. With the advent of new age technology, banks need to learn from new kids on the block and foray into unexplored areas of services to customer for enriching their banking experience. Banks today need to cross sell in collaboration with fintech companies as they are here to stay. Banks are ready to collaborate with fintechs provided that there is a regulatory framework in place for these startups," she added.
CII along with PricewaterhouseCoopers (PwC) also released a joint study titled 'Fintech: redefining banking for customers' during the summit. Most of the respondents of the CII-PwC survey believe that consumer banking, payments and remittances, and digital banking will face the maximum disruption from fintechs. Banks have responded by making fintech a key part of their business strategy.
"Contrary to the popular belief that fintech will disrupt the existing banking industry, the majority of our survey respondents believed that fintech would act as a strategic partner to banks. Banks have already started collaborating with fintech companies with majority of them collaborating with fintech companies whose services are focused on consumer banking, payments and remittances," the report says.
Interestingly, while the theme of the CII summit was 'Fintech: redefining banking for customers', as usual, there were hardly any representations from banking customers or consumer organisations. However, Maharashtra's Minister for Industries Subhash Desai, who was present as chief guest, turned the tables. In his address, he said, "I am here merely as a customer of a bank. I very rarely visit my bank branch since all transactions are now carried out through mobile banking. While new technologies are welcome in banking, customers expect all services to be made available at affordable cost or as low as possible. I hope the bankers and technology companies present here will think about the cost factor."
"I would love if some bank or fintech comes out with an app that gives additional 1% interest for bank customers," the Minister said on a lighter note.
The CII-PwC study highlights that technology has evolved from being a mere tool to enhance efficiency, reduce cost of operations to being a critical component of the strategy mix. Whether it is to scale up business, grow volumes, service customers, strengthen delivery channels or manage risk and compliance. In today's environment, a bank is constantly getting bombarded with increasing customer requirements and the threat of customer loss.
"This report defines a structure for delineating advances in the fintech sector, on the lines of the 'digital out- digital in' frame work. No dialogue on advances in fintech would be complete without reference to blockchain technologies, which the next revolutionary wave that is waiting to happen with investments in Indian fintech companies growing to $1.2 billion in 2015 from $145.1 million in 2104", says Arun Jain, Chairman of CII Banking Tech Summit.
In such a volatile banking landscape, Mr Jain says, fintech has emerged as an innovator by providing out of the box ideas to approach and retain a customer and thus enhance the entire customer experience. With demographics and social changes, rapid urbanization and shift in global economic power to emerging markets providing further impetus to fintech growth.
Fintech companies cater to the entire spectrum of financial services-ranging from propositions that compete with core banking businesses to innovative lending facilities, seamless payment solutions and products that hit banking third-party revenue streams-be it personal finance management or analytics-backed wealth advisory services.
Speaking about fintech, Ms Bhattacharya explained SBI's idea behind launching its dedicated banking branch called 'InCube' for startups. "InCube will be very useful to the startups even though we are not giving them financing, because financing is not the only thing startups need. In fact, they really and truly need a lot of financial management advice, they need to understand how to manage their companies and they need to be free of these things to actually concentrate on what they do best. Cost of entry (into market) is definitely down, however, cost of remaining in business is not low and these fintechs need to understand this in order to survive in long term,” she added.
She also stated that new age customer is living by term 'GAFAA' - an acronym for Google, Apple, Facebook, Android and Amazon which has increased penetration of services through smart phones.
According to the study, over the past few years, technological innovation has allowed new players to change the way the world perceives financial services. Vivek Belgavi, Leader for Financial Services - FinTech and Technology Consulting at PwC, says, "The ripples that were felt a decade ago through digitisation of processes have resulted in continuous technological innovation through disruption. This disruption has touched every thread of the fabric of the financial services sector and promises to revolutionise it completely. The underlying principles for each of the innovations are simplicity, supreme customer experience and added value to the customer."
In the digitally vibrant world, the Internet and the smartphone have been the two most prominent factors behind the change in the consumption of financial services sector offerings. Traditional banks face the threat of irrelevance at each stage of this disruption, given the emergence of newer and more preferable modes of accessing banking and related services. "Bill Gates once said, ‘Banking is necessary, banks are not.’ Digital disruption is now surging ahead and bringing in new business models, new technology, a renewed focus on consumer experience and new players in the market," Mr Belgavi added.
The CII-PwC jointed study also highlighted that banks must continue to enhance customer experience through their journey of digital transformation, but instead of undertaking this journey alone, they should partner with fintech by utilising their innovations in their day-today functioning. "Upon analysing their core strengths and weaknesses, banks need to associate and partner with fintech start-ups which can bridge the gaps and thus create a win-win situation for both. There is the single core message to both banks and fintech—collaboration is key," it concluded.