From banking to fintech: reasons and benefits

Fintech, “the kid next door”, creates ripples in the start-up ecosystem, has today gained status as both an enabler and a disruptor. Several verticals such as payments, deposits, credit/lending, credit scoring, treasury management, asset management, forex, etc. put together form the huge fintech ocean, which has the potential to change the existing banking ecosystem. You may not be familiar with the term “fintech,” but you’ve almost certainly been introduced to the applications of financial technology. In fact, you’ve probably been using fintech without even knowing it – pay without an actual wallet, move money with ease, invest on your own terms, keep your money in order or as complicated as financially protect yourself and your assets. From car insurance that allows drivers to pay by miles to health insurers that register patients digitally, fintech is helping to make the world of finance and banking more responsive to users’ needs. However, the situation was very different in the early 2000s.

MAKING THE DECISION

Several factors came together when I was part of the banking industry that showed me that the time had come to build a fintech company.

Traditional formal credit channels in India were largely driven by constraints such as elaborate procedures and compliance checks – which are largely rigid and lack accuracy. The result is poor credit growth and delayed credit disbursement, which puts credit applicants in a bind.

In India, SMEs are considered suboptimal borrowers due to their small size, information asymmetries and the cost of credit provision. Since lending is highly subjective for small and medium-sized businesses, they have difficulty finding the right loan product to suit their needs based on needs-based assessment. They may not understand the many products available to them, only the requirement and may apply for the wrong products leading to high discovery timelines. The applications are often rejected due to incorrect paperwork, credit history and incorrect credit profile.

UNDERSTAND THE NEED

There was a great need to create an ecosystem where customers could have a one-stop solution to their financing needs, and a platform for financial institutions to reach out and assess borrowers and distribute credit and other financial products using technology. We know that for every borrower there is a lender who is willing to lend. However, today the customer has no sure way to find that bank. Fintech is a step forward towards digitization of Indian banking infrastructure. By integrating unique technology, fintech companies bring in the capacity to modernize and technologically upgrade the lending market by lowering the cost of ordering loans and increasing transparency and most importantly, reducing rejection rates.

The biggest difference between working in a big bank and a fintech firm is the wider exposure you get in the latter. Everything has to work together, from billing, service, technology, resource planning and price – whereas in a large financial institution you specialize in your own silo, so you tend not to be as aware or concerned about these other aspects on a day-to-day basis. Understanding the industry and customer perspective gives you a strong foundation for engaging with your fintech customers, and it also helps to understand the workflows and operations of the business.

FINTECH – A WELCOME INTERRUPTION

Today, financial technology is witnessing a paradigm shift that will define how customers perceive the banking system. It is ready for its next-generation evolution, where it is no longer limited to helping with operational efficiency on the back end, but more to meet customer expectations. Finance is itself a service-based industry. But in an effort to create the right financial solution in the SIMPLE, SHORTEST and FASTEST way, we need to incorporate technology thinking into financial services. The real disruption will be when banking services are reorganized in mergers with other non-banking services leading to a completely different user experience.

There will come a time when banks will become completely virtual and payments can be sent/received in an instant, (I mean, literally!). We must be ready to accept such disturbances; and fintech will play a major role in creating the new financial order in the country.