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How FinTech Gained Supremacy Over Banks In The Business Payments Ecosystem

FinTech, short for Financial Technology, has been making waves in the Indian financial ecosystem for a few years now. FinTech is now a significant force to be reckoned with in this new age. Today, India is one of the largest FinTech markets with the highest FinTech adoption rate of 87% worldwide. Especially post-Covid, India, along with some of its global peers, has seen tremendous growth in FinTech. As per the latest report - "India FinTech: A USD 100 Billion Opportunity" by Boston Consulting Group (BCG) and FICCAI, India's FinTech Industry is estimated to grow up to USD 150-160 billion by 2025. The report also noted that Indian fintech companies have raised about USD 10 billion from investors all over the world over the past five years, catapulting the sector's total valuation to an estimated USD 50-60 billion. India is also only second to the US in emerging FinTech based start-ups with around 2100+ FinTech start-ups as per MEDICI's India FinTech Report, 2nd Edition. Of the over 2,100 fintech firms existing in India currently, 67% have been set up in the past five years. COVID-19 has further accelerated the pace of digitization across categories. While Indian FinTech has cumulatively raised more than USD 10 billion since 2016, eight fintech companies have reached the 'billion-dollar-valuation' milestone (unicorns) and an additional 44 are valued at over USD 100 million as of date, the report said. Between March 2020 and January 2021, UPI payments (by value) have risen to 3x of their pre-pandemic value, with three new unicorns and five new 'Soonicorns' (about to become unicorns) being created since January 2020, the report said.

"We believe that India's FinTechs are at the precipice of a significant value-creation of USD 100 billion over the next five years. To actualize this potential, the industry would require additional investments to the tune of USD 20-25 billion," BCG Managing Director and Partner Prateek Roongta said. Consequently, the number of Indian fintech unicorns will more than double by 2025, he added.

While fintech is becoming the lifeblood of an economy, Injeti Srinivas, Chairman, IFSCA agreed that despite enormous potential in India only a fraction of the economic transactions happen digitally. The government's Direct Benefit Transfer scheme, Digital India, Start-up India, UPI initiatives however can be a great trigger to this process combined with the talent at the grassroots level that made use of this opportunity, said Srinivas. A new report from Deloitte India also noted that Fintech companies have grown a staggering 13x to 70x over the last two years. The aggregated revenue of the top 10 companies has gone up from about USD 20 million to approx. to USD 70 million between the 2018 to 2020 period.

On the contrary, a new report from Accenture noted that despite the significant increase in the adoption of digital technologies over the past few years, there is a continued lack of technical expertise and digital fluency in the boardrooms of the world's largest banks and India, of course, is no exception to the rule. According to the report, Accenture recommends that 25% of banks' board directors should have technology experience. While the world's largest banks have made progress in adding technology experience in the boardroom, progress has been slow. That gets reflected in their way of dealing with customers and other stakeholders as well. On the brighter side, several banks are now joining forces with FinTech start-ups to upgrade their existing systems and enable smoother operations to deliver a better experience for consumers. Similarly, by leveraging data analytics, FinTechs have encouraged collaboration between numerous financial service providers and enabled them to deliver products and services through an open architecture. As Sanjay Doshi, Partner and Head of Financial Services Advisory, KPMG in India, commented, "Many of the banks in India are now going down the path of digital. They are looking at tech and fintech companies that can help them move their digital activities forward, either investing in them directly or using them as service providers. That is going to be a big growth area for investment here in India — banking-as-a-service platforms."

In a report by Infosys titled 'FinTech Revolution in Banking: Leading the Way to Digital' , crucial reasons are mentioned that led to the FinTech revolution. The traditional banks have many problematic issues that FinTech can help resolve effectively. According to the report, the various reasons are:

  • Banks are highly regulated and bound by numerous compliance norms
  • Banks have high operating costs due to the high number of branches across the world
  • Banks have poor visualization beyond traditional business lines as they are publicly held companies averting risk propositions
  • Low involvement of customers in the center of operations
  • Low investment in innovation and technology
  • Low collaboration with progressive minds Lack of focus on individual profitable products and services
  • Difficulties and resistance in upgrading legacy core banking infrastructure

Due to these reasons, banks shy away from adopting the full potency of FinTech that can truly enhance the way banking happens. What banks don't realize is if they partner with FinTechs rather than looking at them as rivals, they can earn many fruitful rewards from this dynamic partnership. Collaboration of banks and Fintech can result in:

  • Safe and Secure Banking
  • Mutual Growth
  • Wide Range of products and services
  • Ease of Transactions
  • Discounts & Offers
  • High Return of Investment Regulatory Support and Government Incentives
  • Venture into New Alternate Business

These reasons should be reason enough for banks to break all shackles and wholeheartedly embrace all that FinTechs have to offer. FinTechs offer services in the form of products, applications, business models, and business processes. FinTech start-ups are taking core and non-core banking business to the next level by providing faster, smarter, and more innovative solutions in all spaces.

Emerging FinTech players likeb EnKash offer the smartest all-in-one platform for all kinds of commercial spending and needs for B2B payments. By enabling card payments where cards are not accepted, EnKash has made B2B payments robust yet insightful.

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