Banks’ function is to accept deposits and make loans. They act as safe stores of financial wealth for savers and as sources of loans for borrowers. So the major business of banks is that of a financial intermediary between savers and borrowers. Hence, we can understand that the banking industry’s purpose is to provide Safety and the responsible management of customers’ wealth by optimizing their gains and losses.
Fintech refers to the use of digital tools to improve the delivery of financial services. Their top priority is to enhance the customer experience. it is easier for them to do so as they are not regulated by the Government like banks.
The strength of fintech is to use technology to address the customers’ concerns and create value-based experiences for them, and the fintech firms created several new propositions in the financial domain.
One of the most revolutionary contribution of digital disruption is Payments.
Along with Credit, one of the biggest challenges of the banks had been payment. Banks though might have had the intent but never forefronted any initiative to reduce the friction and waste of time that many people experience around payments. But, the Digital India revolution that started after demonetization, by the fintech firms, and further supported NBFC, RBI, and NPCI, tried to resolve this problem by providing many payment gateways like payment banks, smartphone apps, and UPI and brought about some financial inclusion.
Even today, the way the urban upper class or middle class does monetary transactions is different from the way people of the hinterlands of India do. The reasons are also clearly visible and the most evident reason is a lack of digital awareness and digital literacy, which further leads to a lack of trust in using digital services.
To achieve financial inclusion, a lot needs to be done. Because financial inclusion is a broader term than mere “payment/money transfer” It means access to a complete package of financial services — banking, investment, insurance, pension, and loan – everything that is needed for economic and social growth.
In order to achieve that banks should develop a collaborative relationship with all NBFC and different fintech companies that help them to create a “Business of relevance” and “value-based experience” for their customers.
“Each player in the ecosystem — whether it is a bank or NBFC (non-banking finance company) or a fintech — brings to the table its own strengths. I think the problem happens when we all think we are ‘superman’ and we can do everything,” Parag Rao, group head, of payments, consumer finance, digital banking, and IT at HDFC Bank said at the Global Fintech Festival held in Mumbai. “Sticking to the basic principle of business is key.”
The futuristic success of the financial sector lies in collaborating and not just competing with each other. The question is, if collaboration is the solution and why does the problem still exist?
Because collaboration is not an agreement done by companies on paper but it a commitment of involved people to create and achieve common goals and it requires alignment of the competencies of people, the challenge is that people sometimes operate from their limited viewpoint.
To date, we discussed business challenges in Banking Sector, in the next article, we will talk about people’s challenges and how they can be addressed.
