How Is FinTech Redefining Traditional Banking Practices?

Digitalization in India is on an all-time high. With almost everything shifting to the online mode, the BFSI sector, too, has undergone a paradigm shift. The emergence of FinTech has acted as a catalyst- transforming the way we perceive banking.

“The Indian Fintech market is currently valued at $31 Bn and is expected to grow to $84 Bn by 2025, at a CAGR of 22%”, Invest India.

Catching up to this trend, Indian Legacy Banks have also started investing in digital services to cater the customers. With India’s internet users increasing every second, the country’s youth is demanding fast, user-friendly and secure banking services. Although digitization has influenced online payments to a greater extent, the focus is now shifting to other BFSI sectors.

Let us dive deeper and understand the future trends of the BFSI sector of India.

BFSI: The dawn of Digitalization

The BFSI (Banking, financial services, and insurance) industry today looks very different from what it used to look a few years back. The internet has played a pivotal role to make the banking sector more accessible and customer-friendly. However, the onset of digitization in the banking sector is not sudden. Digitization of financial sector began in the early 90s with the introduction of Automated Teller Machines (ATM) and Electronic Fund Transfers (EFT). Consequently, internet banking was permitted in India, followed by the National Electronic Fund Transfer (NEFT), Immediate Payment System (IMPS), RTGS, etc.

Current trends in the Banking sector

At present, there are three technological advancements which are driving major breakthroughs:

Increased interaction with products through the internet.
Cloud technology.
Development of application programming interfaces (APIs).

Customers have become accustomed to blazing-fast money transfer (UPIs), thereby making the legacy procedure extremely tedious.

Source: Next billion

As it can be observed, the number of mobile-based transactions have increased exponentially in recent years. And are expected to grow even further.

With the growing demand for digitalization, customers are the ones who decide the product's fate. If it doesn't live up to their expectations, it will be quickly replaced with a user-centered alternative. This has forced the traditional banks to invest in digital banking methodologies, thereby fulfilling the customer demands. For the legacy banks, digital banking solutions are often created using an outdated approach. The mere creation of a banking app, doesn’t guarantee digitalization.

New technology disrupting traditionalism

“Nearly 78% of the companies fail to achieve their digitalization goals”, a study by Everest group.

Let us understand this by considering a case (not naming the bank). A certain bank had launched its digital banking app to satisfy customer demands. However, to open an account, customers had to visit the branch and wait in line for about an hour. The same effort was needed to add additional users to the account, transfer large amounts and apply for a loan, thus making the application redundant.

While for a common man, digitization of banking services may mean digitizing payments and receipts, it actually encompasses a lot of other activities too. Like any other business/organisation, banks too have vendors and customers. In recent years, banks have thoughtfully improved their tech quotient to cater to both customers as well as vendors.

But are legacy banks able to cope up with the speed of the process?

FinTech: The game-changers

To satisfy the customer demands, legacy systems are invading the market with new products and services. However, solving customer problems, and amplifying the user experience, is something FinTech has focussed on since day 1.

The key enablers for the emerging success of FinTech include:

Capital availability and Dynamic investment ecosystem.
Tech-savvy Indian youth (65% below the age of 35).
Booming internet users and customer awareness.
Government initiatives (UPIs)
Cloud-based networks eliminating infrastructure and transaction costs.

User Experience Transformation

Meanwhile, FinTech has fundamentally revolutionized the delivery of financial services in India. It has managed to capitalize the digital BFSI sector by precisely understanding what the customer demands. Apart from technological transformation that comes with digitalization, FinTechs have also focussed on “Experience Transformation”, by establishing intuitive interfaces making things easier for both customers as well as the employees.

Customer-Friendly RUPEEK

The FinTech companies such as “Rupeek” are well on their way to solve customer-centric problems. In their recent commercial, Rupeek has demonstrated how customers can apply for gold loans at the lowest interest rates. That too, sitting on their couch, thus eliminating the long waiting hours.

A learning curve for legacy banks

FinTechs have dominated the payment sector, and now they are slowly capitalizing on other domains as well. With the growing acceptance of digitization among the customers, legacy banks must ramp up their digital services. Legacy banks need to learn from competitors, and the major trends that have driven technological developments over the past decade, in order to survive.

Just like any other industry, those companies which are able to iterate quickly, understand what their customers want and provide a trusted service are the ones likely to prosper.

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