The following article is an initiative of KPMG India and is intended to create awareness among readers
Technology and innovation have brought a paradigm shift in the financial services system. With the rise of Fintech in India, the way of conducting business, operations and customer dealing has changed drastically.
Fintechs are nimble and innovative that have changed various elements of traditional financial services. They serve a dual purpose—one of helping financial institutions renovate their back-end processes and two- provide a competitive edge, and offer customers a smooth user experience using advanced tools.
As India is transitioning into this dynamic ecosystem, it is being assessed whether fintech and new entrants are disruptors or partners and to discuss this, KPMG and CNBC-TV18 held a discussion on ‘Disruption in Financial Services - Fintech & New Entrants’, where experts deliberated on the role of Fintech and how they are challenging the existing system and traditional services.
The experts discussed how the ecosystem has changed in past five years and also spoke about the road ahead.
Gayathri Parthasarathy, National Head- Financial Services, KPMG in India, said, “Top of the mind three or four very important aspects. 1. A platformisation has happened which has been very beneficial. It has also been disruptive and innovative. 2. A lot of changes that have happened in payments, take e-commerce, payments for wallets, anything that you can consider in the financial services industry that has changed in the last four –five years and 3. Credit scoring methodology has changed, we have come up with an alternate credit scoring now. In addition to these, small finance banks have come in place, the payments banks have come in place, the traditional banks continue to operate and Fintechs play well in the lending space as well, so there is a lot of innovation, disruption and also working with a variety of banking offerings for the consumers finally”
Apart from disruptors, Fintech are also considered as collaborators who have orchestrated a much needed change in the industry.
Sanjay Doshi, Partner, Financial Services, KPMG in India, said, “The Fintech players are really being able to acquire customers on board and hence to an extent it’s competition. But, going forward the way it is going to play out is that the same players can be a great support to the traditional financial services players by using that platform and distributing the financial products of the traditional financial services players on that platform, that’s where the collaboration is.”
As Fintechs are innovation and tech heavy, they have shown a phenomenal growth in the past few years.
Samir Bhatia, Managing Director, SMEcorner said, “If you see what Fintechs are really good at is being nimble, having technology, have a lower unit economics. So, if you take an entire piece from like salary wages as well as the processing cost and the extensive use of technology in acquisition and underwriting makes it easier and profitable for us to acquire a smaller customer. Banks would traditionally keep away from this because with their traditional processing and wage structure it’s hard for them. But what we lack is and what all fintechs lack is capital and it’s always going to be challenge to build our large balance sheet on our own. ”
Moving on FinTechs today are using data and taking out intelligence from it for underwriting. The experts stated that data without intelligence is of no use to anybody and the companies need to mine and use the data.
Another point that the experts spoke about is digital identities and providing the customer ease of transaction with a bank.
Shantaram Jonnalagadda, Country Head- India, Yoti said, “Yoti is like an identity wallet. Like we have a payment wallet. What we are doing with Yoti is taking your government-approved ID, which can be an Aadhaar or driving license or a passport, we verify it with checkers who are trained to check the authencity of the document and then we lock it with biometrics of the individual which is the face or the fingerprint. This becomes an identity wallet that an individual carries.”
This begs the question, is another digital identity the need of the hour?
Chetan Savla, Head- Group Strategy, Kotak Mahindra Bank, “There needs to be a digital solution, whether it’s through Aadhar or through an alternative solution. It has to come with the consent of the customer. But, there is a significant difference in terms of what you can do, once that is available, because the ability of the customer for example to open up financial services within minutes rather than in days is very important difference that this enablement brings.”
To sum up, fintech today is gaining significant traction in India. The country too is gaining ground on the growth of the fintech ecosystem with a fair supply of proficient and inexpensive talent, thereby increasing the potential to capture a large portion of the unbanked population and a steady inflow of funds.To know more about KPMG in India connect and watch out for more action @KPMGIndia with #KPMGJosh