The relationship with new-age FinTech is rocky, yet rewarding for banks, insurers, CIO News, ET CIO

Companies operating in the highly regulated BFSI sector are often limited in their ability to innovate at the same speed as new age FinTech and InsurTech businesses. Therefore, they often seek to partner and collaborate with these nimble and lightweight companies to respond to the changing market dynamics and customer expectations.

Large BFSI firms typically engage with emerging FinTech and InsurTech companies in three simple ways:

1. By partnering with them for new services, improve market reach
2. By integrating them to build new capabilities
3. By creating new solutions together with them

“We are experimenting with the ‘FinTech as a service’ model rather than onboarding or integration. If we need certain services from FinTechs, we use it and pay for it.” so Sandeep Ubale, CGM-Digital Transformation & e-Commerce, SBI. “We cannot experiment with the technologies in the same way that new age FinTechs can. We also have to be very careful, as we are not only dealing with customer data, we are also trusting their money.”

Hot areas for partnership and collaboration

A Balakrishnan, Director, Google Cloud India highlights four areas, where new-age FinTech and InsurTech companies can add great value to businesses in the BFSI segment:

1. Creation of new markets
2. Faster co-creation of innovative products
3. Manage operational efficiency
4. API Monetization and Automation

Federal Bank, for example, has worked with more than 30 new companies to build newer technology capabilities and explore new market/business opportunities. “We have also built up capacities in IT such as introducing chatbots, paperless HR, managing security, risk and compliance, with a focus on AI, Blockchain, etc.” said Jithesh PV, VP & Head- Fintech Partnerships, Federal Bank.

Abhijit Singh, CIO & CDO, HDFC feel the relationship between FinTech and banks has now become very symbiotic. It is similar to that between a phone and a charger in several ways, he said. “Plug and Play solutions in areas such as KYC or Account Aggregation have made it much easier for us to onboard customers, made the journey paperless, and even saved us a lot of time spent preparing credit proposals,” he said.

InsurTech companies have also played a crucial role in transforming the insurance industry by selling insurance online and also by automating underwriting, claims, insurance management, etc.

Goutam Datta, CIO & CDO, Bajaj Allianz Life Insurance said, “There are areas where creating new opportunities for regulated businesses is limited and partnerships with new InsurTech companies are useful. Apart from lead generation, another area where I see some smart Indian InsurTech doing a fantastic job is , to make the insurance sales and service process frictionless.”

Partnership warning

Partnering with banks as well as building banking products is cost-intensive for FinTech companies and has high customer acquisition costs (CAC), warns Jithesh PV of Federal Bank.

When considering such partnership options, major banks and insurance companies have some criteria that FinTech companies must meet. Business alignment comes first, followed by sustained interest in the game. It is also a must to meet security, compliance and regulatory guidelines, and last but not least, the partnership should make money.

Also, who owns the customer or who owns the intellectual property in these partnerships? “It’s important to determine whether you can use a customer you’ve acquired from a specific FinTech company to conduct additional business,” said Himanshu Mody, Founder and CEO, Tekno Point.

Assessing the partnerships involves a lengthy process of audits, due diligence, HR policy review, data segregation and so on, sometimes taking almost 6-9 months. Therefore, long-term sustainability for the FinTech startups and the adaptation of partnerships to business strategy have also been taken into account.

“One of the recommendations we made to the RBI in this regard was to require FinTech companies to commit to deliver for the next 3-4 years before being brought on board,” said Sandeep Ubale of SBI.

All these measures will help promote the relationship or take it to the next level, the banks and insurance companies hope.

Note: This article is an extract from a panel discussion at the ETCIO BFSI Digital Conclave 2023