Banking On Banks In This Fintech Age

A look at human history will show that the banking is probably one of the oldest commercial and trust-based activity that has existed all these centuries. Earlier in 2000 BC, merchants gave loans to farmers and traders who moved between towns and cities to transact grains. Later in Ancient Greece, and in the Roman Empire, lenders gave loans as well as accepting public deposits. India has had its form of banking for so many centuries, as evidenced from our scriptures.

Banking, as a sector, has withstood economic upheavals, political battles, policy issues, consumer expectations changing, and need for safer and prudential financing aspect. The banking industry of the future will have to look radically different from what it is now. It is sure that ‘banking in the future’, as well as ‘future of banking’ will be ‘digital’. With technology as an enabler, banks have to add value to their customers and open up time in a day, by providing ease, convenience, and choices.

The millennial and Gen Z consumers have grown up entirely in a digital world. They are more conversant with phone passcode, than pin codes ! They prefer manage aspects of their daily lives through their smartphone. It’s no surprise that the banking industry to survive and to serve this generation of consumers’ expectations, have to be agile, and deliver efficient services.

The fintech revolution that’s all around us, received a massive boost as a result of the technology adoption to ride out the disruption caused by Covid. This is set to intensify further and become the key catalyst, as India looks to fast-track its economic growth in a cost-effective but inclusive manner. This could change our current status around ‘unbanked’ and ‘under-banked’. 

The pandemic has only amplified the need for easy access to easier banking products, services and information. With the developmental agenda of the regulatory environment, backed by patient and long-term capital to effectively strengthen the financial ecosystem, India can be a pioneer in increasing its economic might, by using technology in this fourth industrial revolution.

Looking back to now

The digitisation in the banking industry started in the 90s when Automated Teller Machine (ATM) and Electronic Fund Transfers (EFT) were introduced. Then with introduction of internet access, India adopted internet banking. With adoption of internet, both by the financial services sector as well as the consumers, a slew of products were launched that brought in convenience to the consumers:  National Electronic Fund Transfer (NEFT), Immediate Payment System (IMPS), RTGS, UPI.

Successful banks of the future will need to embrace emerging technologies, remain flexible to adopt evolving business models, and keep their customers at the core of their business existence. Unlike traditional banking, FinTechs are not burdened by legacy technology issues, and offer agility and products customised for the consumers. In this era of personalisation, banks have to create those, along with seamless experience for the consumer.

The survival and growth of many banks and other traditional financial institutions will not be defined by how they cut costs, but in how they innovate and serve the customer with a ‘challenger mindset’. Despite the benefits of large, existing customer bases, economies of scale,  balance sheet strength and trusted legacy brands, traditional banks are not guaranteed a successful existence or relevance to their consumers. 

If traditional banks’ only moat is that regulator won’t allow for digital banks, it’s a shallow strategy, and might work only in the short term. In this aspect, the concept of bank and FinTechs will have to collaborate, converge into digital finance for the consumers. A bank, by any name or with any regulatory blessing, has to enjoy the trust of the customer. There lies the task ahead for banking leaders.