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The Expanding Spectrum Of Financial Mergers
Banks could be buying technology companies – and vice-versa. A new era of technology-driven inorganic banking dawns
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It is not hyperbole to say that technology will be one of the prime reasons why banks and financial firms will seek new partners, drive mergers and create new and even bigger financial entities. The transformative effect of technology is widely visible. In recent months, the mushrooming of various mobile applications from payments to e-banking to transfers has put banking at the fingertips of individuals and corporate bodies.
Technology is driving more banks to communicate with each person, facilitate cross-border transactions, and effortlessly move large amounts of money across the globe. More advanced layers of technology such as blockchain are adding another dimension of security in the paperwork, enabling tamper-proof systems that facilitate instantaneous movement of banking documents, thus further enabling financial penetration.
Technology enables massive scalability. Banks and financial companies are able to grow loan books without the need for branches. Newer payment banks have on-boarded a large number of customers in no time. Banks are able to service millions of transactions due to technology. Between April and December 2018, the number of transactions through IMPS increased to 1.22 billion, of a value of Rs 11.12 trillion.
In banking particularly, technology is no longer being used merely to automate services. It is being used to deliver advanced services to customers. As digital footprints expand, its effect on digital lending too has been exponential. Digital lending to micro, small and medium enterprises is expected to touch $100 billion by 2023. Teledensity increase in rural areas is seeing inroads being made as RBI and banks unveil banking services to the unbanked.
The adoption of technology has resulted in several benefits including greater productivity, efficiency, 24x7 operations, a huge reduction in operating costs, faster service and, more importantly, last-mile connectivity to ever larger sets of customers.
More relevant, technology is available on tap. A bank can now easily plug into new systems, access newer networks through fintech, and newer technologies. Banks and financial services with two vastly different technological ecosystems can quickly be integrated, thanks to switches, connectors and API. This makes it easier for them to merge and offer a more diverse set of products to one another’s customers.
Banks and financial services have an ever-growing quest for acquiring new customers and reducing costs. A merger such as between IDFC Bank and Capital First is clearly focused on serving more retail customers, especially through asset or loan products. It is possibly the best example of merger of a corporate lender and one with retail & MSME loans.
The recent mergers of PSBs (Baroda, Dena and Vijaya) to create India’s third-largest bank is the clearest example of how banks are coming together to cut costs, and overlapping.
Therefore, the growing influence of technology will create humongous partnership and merger possibilities for banks and financial-services companies, besides partnership opportunities for fintech and business correspondents. There are partnership opportunities from payment firms to lending firms, and from micro-finance companies and convenience-service providers to technology-enablers.
Therefore, were one to gaze at the proverbial crystal ball for trends in the next decade, mergers in financial services will not only be commonplace but also diverse and more unconventional. They will be driven by the need to acquire customers, cut costs, and for technological integration. Banks could be buying technology companies – and vice-versa. A new era of technology-driven inorganic banking dawns.
Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.