Differentiated banks, future of fintechs

Financial inclusion has been an age-old agenda for mass inclusiveness that has seen multiple attempts made at fulfilling it. Unfortunately, these efforts have not borne fruit due to the reticence of commercial banks, who have viewed it as an obligation, rather than as an actual business proposition.

The government and the regulator have used various strategies, including nationalisation of banks, targeted lending and assigning particular sectors as priority, with varying degree of success, never truly achieving financial inclusion.

However, in 2015, the RBI made its boldest move yet and disrupted the status quo by introducing the concept of Small Finance Banks (SFBs) and Payments Banks, whose business models revolved around financial inclusion. Today, entrepreneurs, forward looking regulators and data scientists are coming together with technology and placing financial inclusion at the heart of their operation. And with smartphones playing a prominent role in an individual’s everyday life, innovations in retail banking revolve around smartphones.

The payments space is revolutionised by the National Payment Council (NPCI) using its IMPS framework that allowed 24x7 instant payments. Innovations such as RuPay, e-NACH, CTS, UPI and BHIM are all stacks built on the premise of 24x7 electronic payments wherein no bank can hold back or slow down consumers from moving their money where they need it and when they need it.

By design, SFBs and Payments Banks are built for the masses. Payments Banks, characterised by instant mass transaction engines, are driving India’s charge towards a cashless economy. While, SFBs, most of which were microfinance institutions (MFIs) with a significant experience in catering to those at the bottom of the pyramid, have disrupted the lending paradigm by using a model of high touch and joint liability.

In a nutshell, these differentiated banks have embraced seven digital approaches that have set the ball rolling for rapid financial inclusion. They are:

Designed and built for mass transactions: The systems and processes of these banks are agile, with minimal human interactions and use of paper in order to achieve rapid deployment.

Instant gratification: Be it through instant loan sanctions, payments or KYC verification, Payments and Small Finance Banks have adopted instant gratification as a key value in their offering.

Integration and API banking: Payments and Small Finance Banks have achieved the feat of integrating multiple payments systems within a year through Application Programming Interface (API). Today, APIs have become the core of banking with multiple integrations such as with UIDAI for EKYC, utility providers, e-commerce firms, travel providers, and others.

Assisted digital: While conventional banks have viewed ‘digital’ as an alternate channel, the Payments and Small Finance Banks have placed digital at the core of their business. These differentiated banks have adopted assisted digital wherein their teams provide the exact same service seen in other banks but via the medium of digital devices.

Referred to as Phygital banking, tab banking, or in some quarters as assisted or agency banking, it has simplified the work of the banker and the consumer by bringing banking services to the consumers’ doorstep. Although complete digitisation will occur in the future, assisted digital is the model best suited to the present needs of the consumers.

Focus on 80:20: The differentiated banks are focused on addressing mass needs, such as payments and credit. By streamlining the processes, be it through making payments 24x7 or driving the process of credit through algorithms, the needs of the masses are addressed first and foremost. The boutique customers, with their specialised demands, are not the key target for these banks.

Service approach: The concept of bank branches is slowly fading away, to be replaced by the system of banking outlets. In essence, this offers consumers with a simplified touch point for banking services, backed by staff or a banking partner.

Technology: Be it intuitive UX or CX, mobile-first thinking, private cloud-based systems, agile development and deployment, the Small Finance Banks and Payments Banks have embraced and implemented all aspects of technology into their fabric. By focusing on the user and his experience, they analyse feedback in real time and concurrently roll out features on the go that would aid the consumer.

If conventional banks are embracing digital to become digital banks, the differentiated banks are the actual disrupters, and are better described as FinTechs with a banking license.

(The writer is Chief Strategy & Digital Innovation Officer, Fincare Small Finance Bank)