The match-winning partnership - Banks and FinTechs
-By Priyasy Bokadia & Mintoak February 20, 2023 5 min read

The million-dollar question that sits with the financial services industry today is, "Are FinTechs revolutionising banks?" For the longest period, banks have been the only service that consumers and businesses relied on: money transfers, bill payments, loans, and other lending & credit services. So, what has changed, and why have fintechs become popular and important in the payment ecosystem? What has changed in the last decade is the adoption of digital technology by people, which has given rise to hundreds of FinTech companies in the payment space. This rise, in turn, has disrupted the banking industry and challenged its ability to adopt the technology. While banks have started adopting consumer-based solutions they are at the bottom of the funnel when compared to FinTechs - payment aggregators and gateway, and solutions for retail businesses is still an untouched area.

Is an alliance being forged?

Banks aren’t made of tech DNA but of trust, legacy, and infrastructure. However, securing a simple business loan from banks is still a cumbersome process in today’s time where payment aggregators provide the same to merchants within minutes through their digital infrastructure.

While banks are trustworthy, have wide distribution networks, and have brand value and recall, they lack the agility to adopt new technologies. FinTech aggregators in India today own banks. They are in a position to persuade retailers to take their business to a bank they own - millions of merchants who have boarded their platform and benefitted with solutions banks could not provide to SMEs is worrisome. If banks have to resurface at the top of the financial funnel again, they need to act NOW. It is no news that the market is observing a shift in the roles played by banks. The banking sector is gradually widening its service base and not limiting itself to loans or savings facilities. They realise their contribution can lead and speed up the entire digital revolution in India.

Banks have always had easy access to vast volumes of customer and business data. This aspect can help them develop information-driven, unique, valuable solutions that will enable SMEs to learn, sell and expand. Most importantly, because banks act as payment chain intermediaries, connecting with customers and merchants directly. And, the rise in fintechs is encouraging banks to face the challenge squarely.

In order to easily integrate and expedite operational capabilities, banks must leverage Software-as-a-Service (SaaS) solutions offered by FinTechs. With the integration of APIs, third parties can create value-added solutions and features which can be seamlessly integrated with bank platforms. Since banks have access to customer data, they can help analyse and study customer spending patterns, while FinTechs can utilise that information to develop products, tools, and services that serve the customer better and grow their businesses.

With the technological advancement we are facing today, there is a high potential for a PaaS to grow which brings the merchants/SMEs and banks together. And, not to forget, banks are in dire need of solutions that help them build deeper relationships with their current account holders which has been long neglected. What’s more? SMEs can improve their business models by using PaaS platforms, and increase the overall volume of transactions and scale their business. The SME community which is over 60 million in India is still underserved financially. The said data-focused approach will support banks while also taking on the challenge of supporting SMEs if banks and fintechs partner, and enable financial solutions which will drive financial inclusion for merchants and have an impact at a macro-level.

It is clear that banks and fintech will have to create an alliance that is mutually beneficial to meet technological advances. This partnership will not only grow the digital payment solution but also the entire financial service industry as a whole. Because when large financial institutions like banks move at high speeds, maintaining security, legacy systems, and service lines simultaneously is difficult hence complex. FinTechs can expedite the merchant product journeys revolution and benefit from banks' large distribution networks to create a tech-driven financial institution serving customers and SMEs digitally.

To answer the question we began with, are FinTechs revolutionising banks in the 21st century? YES. FinTech’s technology and solution-driven approach with the bank's infrastructural capabilities is a great solution for the banking sector. It is offering banks an opportunity to replace their positioning from being a safe place to park money to offering digital business solutions for merchants to grow their businesses. It can be safely said, FinTechs are enabling banks to come out of their comfort zone and do away with their clunky online products and solutions and instead strive for technology-driven business excellence.