Banks, fintechs must collaborate to improve financial inclusion: Experts

Traditional players like banks and the new-age disrupters will both compete and collaborate as the Indian banking system matures, said technology experts at the Business Standard Annual Banking Forum 2018.

B Madhivanan, Chief Tech-nology & Digital Officer, ICICI Bank  said that they keep a close eye on new players. “If they plan to eat our lunch, we will play it in a different way, but if they decide to expand the plate, we are happy to play along and do what both of us do best,” he said.

Experts on the panel stressed on the importance of collaboration to improve financial inclusion in the country.

Payments Council of India Chairman Naveen Surya said the under-penetration of financial products points to the need to first build a digital system, before worrying about disruption.

“Disruption is only required for a small fraction of the population but there needs to be collaboration to service the rest. So what we need is a convergence moment and not a disruption moment,” he added.

Rajesh Mirjankar, MD and CEO, InfraSoft Technologies said that the convergence of banks and fintechs has accelerated digitisation in the country. “We are a large enough country to accommodate all the models that are coming up,” he added.

National Payments Corpora-tion of India (NPCI) is playing a key role in the collaboration between banks and fintech players as it is the fastest way to build a citizen-scale payments system.

“Banks are extremely good at the money management part and fintechs are good at the distribution part. Our core strategy is how to enable bank and fintechs to leverage the strengths of each other,” said Dilip Asbe, MD & CEO, NPCI.

Experts on the panel agreed that it is the growth story of NPCI’s Unified Payments Interface (UPI) that provided entry to non-bank players as well as allowed banks to keep a larger pie of the payments story.

Bank of Baroda’s Head of Fintech and New Business Initiatives Akhil Handa said that the payments market is dominated by non-bank players all over the world. “The reason that this has not happened in India is due to the banks’ privileged access to UPI,” he said.

Currently, UPI accounts need to be linked to bank accounts, even if they are set up on non-bank entities like Paytm and Google Pay, thus boosting the banks’ UPI transactions. The Reserve Bank of India’s (RBI’s) recent wallet interoperability guidelines will allow customers to link their wallets directly.

“It’s the era of financial services as platforms. It can be a bank or a technology company and in the future, even fintechs can scale up and become a platform and services will be provided on these platforms,” said Nitin Chugh, Country Head - Digital Banking, HDFC Bank.

Experts agreed that banks cannot avoid disruption but can leverage reach, technology and economies of scale of new-age players. In turn, banks can provide trust, engage with regulators and maintain a balance between security and innovation.

“Banks have no choice in being disrupted. There are way too many players in the ecosystem who have relevant access to eat into our market share, which is already happening all over the world,” said Handa.

Chugh said that banks should partner with fintechs and provide them the opportunity to expand, while fintechs help banks to provide better technology and services to customers.

However, banks need to differentiate between the areas to collaborate on and areas to be kept inside the bank.