Is it Time to Pass on the Lending Baton to Fintechs?
By Rajat Yadav on The Capital
I have long been an advocate of the fact that the Indian banking system has one of the worst technological stacks among institutions. They have even worsened the same decade-old legacy infrastructure by stacking layers of new technologies as “Add-ons”, while the core remains rusted. It is like painting a crumbling house and selling it at the price of new! I am not telling banks are bad overall, they are extremely good and experienced in certain services, but, not all.
Especially when it comes to Small & Medium Enterprise lending, banks have lagged far behind in:
1) Operational Efficiency
2) Credit Analysis
3) Customer Acquisition
All these points can be attributed to a legacy technology stack. Let us look at the stats below:
The data clearly represents the inefficiency of the banks to bring new businesses under the credit & financing system. This, in turn, is one of the major causes for GDP forecast going down because of the lack of financing opportunities to MSMEs.
The good news among this is that the banks have lately realized that their processes are substandard and new-age fintechs are way ahead when it comes to technological advances and infrastructure. They are very eager to look for partnership opportunities with the fintechs. Fintechs, on the other hand, are also eager because there are many services that they cannot provide due to regulatory or massive scale restrictions. The common path in such partnerships includes:
1) Fintechs, using their technology, acquire new customers
2) Banks, then include these customers in their own ecosystem by providing services which a fintech cannot
Banks should now understand that as technology is advancing, so is the number of financial-related services. And, if they try to provide all of those themselves, it will only result in overburdening the existing system. Banks should adapt to the changing scenario and understand that some services are better suited for fintechs and banks should do what they are best in doing and have experience in, leaving their weak-points to fintechs. This distribution of services, management & operations will lead to a micro-banking economy which will ultimately benefit the entire banking system. Only when the banks and fintech come together is when we are going to see a real upliftment of the sector. Government too will have an important role to play by bringing in regulations that do not curtail the wings of the fintechs, rather, the regulations should help to increase the synergy between the banks and the fintechs.
And that is going to happen when the banks are ready to forego their legacy and trust the fintechs. In other words, when banks pass on the baton to the fintechs and help them finish the race.
