Financial Institutions (FIs) have been collaborating over the past few years to harness the technology offered by Fintech players to offer a plethora of more efficient, secure, digital-first financial products to customers. Fintech partners, on the other hand, are benefiting from the significant financial resources, valuable data on customers, and market insights that banks have to offer and create disruptive solutions. We evaluate some of the latest public-private collaboration trends and future opportunities in the same:
Public lending institutions and insurance companies have been paying increasing attention to blockchain and drawing on the technological expertise of blockchain-focused Fintech companies so they can continue to focus on their core business. Application of blockchain is in three forms: Cross-border payments, settlement of securities and trade finance.
Recently, a consortium of top Indian banks was formed for the purpose of collaboration on blockchain initiatives. As many as 11 Indian banks, including ICICI Bank, Axis Bank, Yes Bank, HDFC, Kotak Mahindra, Standard Chartered, RBL, and South Indian Bank, have aligned in the consortium to introduce and execute a blockchain-based loan system for small and medium enterprises (SMEs) in India. The FIs are looking to collaborate with blockchain developers/ Fintech start-ups which can demonstrate the use case and what is the role for the bank in that use case.
FIs have also started partnering with RegTech companies to strengthen their identification verification and background checks, financial crime surveillance and fintech risk management. Tech ventures, such as Mumbai-based CogNext Analytics, are collaborating with FIs, which are regulated bythe Reserve Bank of India (RBI), to help them comply with regulations for transaction monitoring, fraud and risk management, identity management, among other functions.
On the other hand, regulators are also benefiting from RegTech companies by using their artificial intelligence and other technologies to streamline resources, understand rogue consumer behaviour and to prioritise and maintain market stability.
The FIs are looking to collaborate with blockchain developers/start-ups which can demonstrate the use case and what is the role for the bank in that use case.
Open Banking Partnerships
Open banking is slowly growing in the Indian financial services with several Fintech partnerships happening in this area. During COVID-19, several banks adopted open banking via Open APIs and have started offering a major chunk of their banking services outside their firewalls. Fintechs are able to use data from banks using secure protocols built on sharing models via API. This trend is expected to magnify in India through 2021 as more and more customers demand digital financial services.
Fintech players, however, need to keep in mind the security challenges and bring in a tighter system in open banking platforms.
A recent example of this is the ICICI Bank’s collaboration with cloud-based accounting software solution provider, AlignBooks, to add accounting technology to their system and strengthen its SMB services. Current account holders at ICICI Bank can now link their bank account data into AlignBooks software to automate data entry and streamline reconciliation. The partnership will enable SMBs to access their account information even when they do not have an internet connection. FIs are looking for similar tie ups, especially with the ones that utilise secure cloud-based technology, to find unique solutions for better user experiences, personalisation and automation.
Neo-banking in India is expected to see a huge spur in 2021, attracting investments from global players as well. Indian Neo Banks like NiYO, RazorPayX, Instant Pay etc., have already collaborated with traditional banks and support them with customer acquisition as well as new-age digital services. The Neobank model is a little different in India as the RBI presently does not allow pure-play digital banks to operate yet. Therefore, collaborations are the win-win case scenario.
What is in it for me?
Fintech players/start-ups looking for successful collaborations must evaluate how their new product and service is bringing something new to the FIs—a new segment of customers the FI could not access earlier, or a new service to existing customers, or a new way to approach existing problems and workflows. FinTechs challenges revolve around areas like performance of systems, speed, security and vulnerabilities. Hence, they must standardise the systems performance, user authentication and security controls for a successful tie-up.