How neo-banks are changing the traditional banking ecosystem
Just think you need to make RTGS payment or need bank statement for visa application processing. You have no choice but to take half a day off from your job. And when you walk up to the branch, some guy there will try to sell you everything, like the ULIP plan, which isn’t even in your best interest. This is the state of Indian banks, no matter how savvy and customer loving they claim to be. And don’t even ask me about spam calls for personal loans and credit card offers from your bank, even if you already have credit cards from the same institution.
The banking sector around the world, including in India, has long been considered archaic and out of touch with consumer needs. More than 50 digital banks have sprung up around the world in the past five years. Nubank in Brazil took nearly 25% market share in Brazil in the space of seven years, in a country where the banking structure was similar to India in 2014. The top 5 banks controlled 80% market share in 2014 in Brazil. Globally, regulators have proactively supported these innovations not only in the more developed markets of the West, but even in neighboring Asian countries, such as Singapore, Malaysia, Indonesia, the Philippines and others.
Although it is still early days, the numbers in India are holding up so far. According to Deloitte’s TMT 2022 Global Outlook, India had 1.2 billion mobile subscribers in 2021, of which around 750 million were smartphone users. It is on track to become the second-largest smartphone maker in the next five years. These consumers consume on average more than 17 GB of data each month, thanks to the penetration of 4G by Airtel and Jio.
Separately, transactions made using the Unified Payments Interface reached a new high of over 5 billion transactions in January 2022, surpassing the previous record set in October when the value of UPI transactions crossed for the first time $100 billion.
FinTech startups will also leverage two of their greatest strengths, the ability to innovate and access top tier tech talent, to deliver curated banking experiences that aim to meet all customer expectations, without weighing them down. additional or hidden costs or poor customer service. . In short, it’s smart and seamless banking on your mobile phone.
But there is a huge opportunity here for upheaval and overturning the rules of the game as they are now. Several pseudo-digital banking service providers have sprung up trying to bring greater transparency, additional consumer/SME benefits – essentially creating a customer-centric banking experience, providing current accounts to SMEs where traditional banks take weeks to open a simple bank account, while reaching consumers/SMEs, across demographics, in one of the most underbanked and underpenetrated banking landscapes in the world. In the digital world, customers deserve the right to equal service rather than service based on their bank balances.
Digital banks have a huge opportunity, leveraging increased mobile penetration, video KYC, the ability to assess SME credit-based cash flows, and the continued massive acceptance of digital payments, to achieve the stated goals of greater financial inclusion.
However, all of this must come together by keeping pace with policy makers and regulators. While RBI has played the crucial role of protecting India’s banking system and consumer interests, the need of the hour is to be more forward-looking with increasing digital adoption by consumers and MSMEs. This cannot be seen as a fight between traditional banks and new era focused fintech companies, but should be viewed more as a collaborative effort, designed to help the Indian consumer and SME’s, while placing the at the Forefront and Center of the Global FinTech Universe.
The RBI needs to consider how digital banking can be leveraged to provide better service, low cost banking services to the public and easy access to credit in general. Existing banks are trying hard in their endeavors but are struggling due to the legacy technology stack and talent mindset. Moreover, these entities always try to charge the cost of branches to digital customers even when these customers have never visited the branches. Most of these savvy banks claim over 250 APIs that never actually work.
Renovation is not the right way to think if one is to bring about real change. There is clearly a need to enable a new set of players to redefine banking experiences rather than so-called neo-banks trying to make a difference to customers with their hands tied at the mercy of traditional banks. Access to credit by SMEs has been a big challenge because MSMEs do not have durable assets to pledge each time they seek credit. Digital footprints are the only assets Indian MSMEs have. Digital banks can clearly leverage this and provide credit seamlessly.
In conclusion, it is time for government and regulators to rethink how India can become competitive in digital banking. So far, India has a clear lead thanks to UPI, but other developing countries are challenging the status quo. And if Indian policymakers play well, there is an opportunity for Indian digital banks to revolutionize the way banking can and will be undertaken in India.
The opinions expressed above are those of the author.
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