Financial technology is changing the banking world
by Subhasis Roy
Fintech is the latest buzzword in the world of finance, where digitisation has gained significant momentum. Fintech is short for financial technologies, those that are disrupting traditional financial services, including mobile payments, money transfers, loans, fundraising and asset management.
As per a Capgemini survey, Indian and Chinese customers are most open to fintech (above 75%), followed by the UAE, Hong Kong and Spain. The lowest adoption rates were in France (36.2%), Belgium (30.4%) and the Netherlands (29.8%). Also, young, tech-savvy and affluent customers are major drivers of fintech products and services. Generation Y uses fintech services twice as much as others (67.3% versus 33.6%). Among all modes of banking channels, Generation Y and tech-savvy customers prefer mobile phones. But mobile is yet to overtake PC as the most preferred banking channel. Though computer-based banking has matured, a significant number of customers (excluding Generation Y and tech-savvy) are not yet fully utilising the potential of mobile application in day-to-day banking—globally, only 40.1% of customers prefer mobile banking as compared to 43.4% for branches, 45.4% for phone, and 56.8% for PC.
– Strategy for banks: A core business of banks and financial institutions is lending and borrowing money. Today, traditional banks are competing with fintech firms, but banks should not consider fintech as a threat but an opportunity to grow faster.
– Big data analytics: Banks need to develop a big data warehouse where they can capture potential customers’ transition patterns through applications like Google, WhatsApp, Facebook, debit and credit cards etc, so that they can targets potential customers and customise their products and services accordingly.
– AI and robotics: Banks need to develop software application based on AI, which may be useful to perform complex tasks relating to customer transactions, like small-value loan appraisal, KYC-related issues, loan monitoring etc—in the future, in order to provide quick services in a cost-effective way, there will need to be lesser human intervention. Banks also need to develop customer-friendly mobile apps as mobile banking will generate more revenue than other channels in the long run.
– Digital marketing: Mastering digital media, content marketing, digital customer lifecycle, management and marketing operations will be critical for success. For building these capabilities and recruiting and retaining talent, banks need to invest a significant amount of time and money.
– Digitisation and auto processing: Traditional banks can reduce costs and deliver services faster by digitising account opening and loan applications.
– Collaboration and co-invention with fintech firms: Innovative ideas and cutting-edge technology will be the deciding factors for success. Considering this, banks need to invest more money and time towards technological innovation, and need to develop a talent pool accordingly.
Currently, while fintech firms are strong on technology, they are yet to develop trust among customers, and banks that enjoy a strong trust must develop digitisation and newer technologies. Thus, instead of competing with fintech firms, banks must look at collaborating with fintech firms, going forward. Also, there are possibilities of cross-industry collaboration, where various banks jointly collaborate with fintech firms to develop new technological platforms for the country. For instance, mBank (part of Commerzbank Group) tied up with Orange Polska in 2014 to offer a joint banking service for phone and tablet. However, for such collaborations with fintech firms, banks will first need to change their organisational culture.
In this era of digitisation, fintech has grown rapidly in the last few years. According to a study conducted by PwC, Asia has now become the global leader in R&D across all industries and in fintech its rank is second, next to the US in terms of investors’ interest. This is due to the fact that Asian countries in general and India in specific have some comparative advantages in terms of talent coupled with lower costs. As the future growth of the financial sector will mainly depend upon cost-effective innovative technologies, India is likely to stay strong in what has become its natural core competency, due to the abundant cheap talent. In this context, it is the right time both for banks and fintech firms to work together by utilising India’s ready talent. This will also help the overall Indian financial sector to grow at a fast rate in the near future. At the same time, banks will need to develop robust risk management tools and techniques.
– The author is GM, IDBI Bank. Views are personal