Hastened by the pandemic, but within just a decades presence, Fintech is silently transforming the traditional Banking space. It was just a few years ago that “PayTM Karo”, became a part of the Indian lexicon. Since then, Fintech has moved far into the Banking domain with its innovative resource raising and disbursal techniques, very different from the traditional norms. Would the Bank as it exists today remain a business entity?
The question is relevant in the context of the capital markets where share prices of Banks are witnessing a boom, quite unlike the swings in other sectors of the economy. What is the punters betting on? Simple logic would answer that they see a sustained growth in business. That would mean growth in deposits as well as in lending, the traditional intermediary role that Banks play. However, on both these fronts – deposits and lending the landscape is fast changing. The problem of the huge messy Corporate loans is being addressed with dollops of tax payers money. It is unlikely that Banks would venture out into that space any time soon. In the meantime, private funds are stepping in, with the added benefit of close monitoring and bringing in management skills as well. In the Retail funding space, Fintechs’ have transformed the process, aided by AI and an almost zero paperwork. Their sources are again specialist Fund House or refinance from Banks.
And that leaves our deposits. With Banks facing competition from the Fintechs and private Fund Houses in the lending arena, they have only Government paper to subscribe or lend to. The “spread” (difference between lending rates and borrowing rates”) will be under pressure and that should in turn affect profitability. One should expect decreasing profits (bottom lines) and not growth …
Whilst the increasing dominance of the Fintech is a positive development for the economy (reduces costs, efficient speedy processes), it does come with risks of shakeout and the prospects of a Red Ocean with the blood of the losers.
The survivors and leaders would require innovative digital marketing presence and techniques to build loyalty amongst its customers who just need a shift of a button to switch suppliers.