Fintechs here to stay; banks, NBFCs, must find opportunities to work with them
NBFCs are a perfect fit for emerging Fintech start-ups as they offer far more agility and flexibility when compared to many of their banking counterparts.
Over the past decade, Fintechs have been focussed on customer-centric innovation. 2015 saw Fintech companies transforming customer experiences by focusing on convenience, efficiency and user interface. 2016 witnessed the emergence of several ventures creating new solutions to meet the needs of millennials, provide online advice and discretionary wealth management tools, utilise Big Data and analytics, provide greater automation of processes, deliver alternative finance options like peer-to-peer (P2P) lending etc.
Given the potential of the Fintech spectrum, traditional banks and financial services players need to find increased opportunities to work with them. With Fintech players offering innovative solutions across payments, analytics and supply chain financing, traditional players ought to view this as an opportunity to redefine their service to enhance consumer engagement.
Conversely, traditional financial players are lucrative for Fintech start-ups to partner with as it allows them to expand their footprint and get access to scale.
Thus far, NBFCs have shown robust growth, contributing significantly to the Indian economy. NBFCs have recorded a healthy growth—a compound annual growth rate (CAGR) of 19 percent over the past few years—comprising 13 percent of the total credit and expected to reach nearly 18 percent by 2018–19.
The role of NBFCs as effective intermediaries has been well recognized, with the core strengths of NBFCs being strong customer relationships, excellent understanding of customer needs and risk, well-developed collection systems and flexible and efficient services. Going forward, the latent credit demand of an emerging India will allow NBFCs to continue to grow. In fact, improving macroeconomic conditions, higher credit penetration, increased consumption and disruptive digital trends will allow NBFC’s credit to grow at a healthy rate.
NBFCs are a perfect fit for emerging Fintech start-ups as they offer far more agility and flexibility when compared to many of their banking counterparts. Such partnerships would present a strategic opportunity for NBFCs to ensure sustainable growth over the long term while offering Fintechs the opportunity to scale in a sustainable manner. Fintech companies can help NBFCs grow by value adding to the existing product portfolio, increasing process efficiency and creating a differentiated customer experience that is in line with needs and expectations. Additionally, Fintechs can help NBFCs make sense of the vast customer data via analytics to further hone current risk mitigation processes and ease the current credit process by lowering time and cost. Such a collaboration could possibly disrupt traditional banking.
An NBFC – Fintech collaboration would be mutually beneficial if they focus on collaborating in the following areas –
1. Customer Acquisition – By changing the customer experience, Fintechs can provide NBFCs access to greater customers. Further, given the increased use of Big Data and Analytics, Fintechs can help NBFCs stay ahead of the curve in terms of customer selection and risk management. NBFCs can help Fintechs achieve true potential by providing access to scale.
2. Product Innovation – This is one area that works well both ways given the focus on innovation based on evolving customer needs. In both cases, this is one area where NBFCs and Fintechs could focus on differentiation in terms of product portfolio based on market segmentation to provide consumers with global benchmarks.
3. Sales enablement – Given the costs of acquisition, tools that allow for increasing the efficiency of the sales force would be vastly beneficial to an NBFC. Fintechs operating in this space would find willing takers as productivity is the holy grail of such businesses.
4. Analytics - Fintech companies can support NBFCs in the provision of innovative credit-scoring models and risk assessment, which will eventually lead to the inclusion of previously inaccessible consumers. They can also help NBFCs with consumer authentication and verification that is requisite for regulatory compliance
5. Security – cyber security is a big area of focus and concern and Fintechs operating in the area of fraud and cyber security will find willing takers at NBFCs.
For Fintechs to grow profitably, collaboration with already established players can provide scale and reach. Rather than competing as independent entities, joining forces with reputable business houses can prove to be beneficial in terms of innovation, ideas and solutions.
In whichever way we look at it, Fintechs are here to stay and they will have a significant impact in how we transact in the days to come. For NBFCs the access to innovation through Fintechs allows them to create competitive advantages rapidly. Rather than competing, collaboration between NBFCs and Fintechs will be a win-win.
In any case, watch this space, as the action is just heating up!The writer is Chief Executive Officer at Aditya Birla Financial Services.