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They surely took their sweet time, but banks now finally catching up with the disruption caused in the industry by finance technology. With innovative ways to connect with their customers, digital wallet is still a young concept in India but a highly accepted one. The evidence lies in the fact that it has surpassed credit cards in terms of the number of users in just a fraction of time. Vijay Shekhar Sharma’s Paytm has 20 million users alone which surpasses the cumulative number of credit cards in India.
It was with a little ignorance that these banks responded to the emergence of digital payments in India. We don’t know how that came about – maybe they had a notion that this trend will also pass or they were a little too confident about their way of working- but banks have always been a little hesitant towards startups. This, however, is not the case anymore. Recently we have seen a new interest being awakened in banks towards startups. With SBI and RBL starting startup dedicated banks, and ICICI’s tie up with three startups, YES bank with another three and HDFC with five, we explore the reason for this sudden change.
A lesson learned the hard way?
The sudden interest of banks, particularly in payment driven startups have not gone unnoticed. According to experts small FinTech firms are emerging in areas such as building financial products, distribution, payment and analytics, activities which were once almost exclusively the domain of banks. This has instilled a fear in the banking industry that they can be taken over. But business has always proven that competition brings out the best products and services and we hope this brings the same.
A little hesitation is seen from the customers’ side. According to The Hindu, YM Deosthalee, Chairman and Managing Director of L&T Finance Holdings said at an industry event in Mumbai, “These fintechs are increasingly gaining legitimacy even with regulators. In time it is expected that they will also gain trust from customers.”
It was also about time for banks to realize that a little different approach could do a lot better. What startups like Paytm and BankBazaar are doing is that they are making their services very customer optimized. And technology has played a big role here. Not only did it help them expand their business but they were also able to establish a very personal relationship providing customers more options than just saving the money and granting loans. They provide exciting cash back opportunities (and who doesn’t like those), eCommerce platform and a chance to make the lay person a part of this startup ecosystem.
Nitin Mishra, Vice-President of Paytm said the same when asked about the popularity of Paytm. He told how an auto driver told him, “hume bhi acha lagta hai mobile se pese lena (we also like receiving payment through mobiles).” You can go around cash less feeling safe and technologically advanced. What Fintech did in way was repair the old banking system and their customer services with technology. And boy, did it do wonders for them or what!
In the spirit of 'Startup India' initiative
Another aspect to this is joining in the spirit created by our Prime Minister Narendra Modi. With the growth of 40%, India stands at third position in the world in terms of number of startups. Hence, this seems just about the right time, if not a little late, to get involved. And this involvement is not just for financial gains but collective growth of the country.
Explaining the help they can bring, Arundati Bhattacharya, Chairman of the State Bank of India said at the launch of their startup dedicated branch - InCube in Bengaluru, “We believe we will be very useful to the startups even though we are not giving them financing, because financing is not the only thing startups need. In fact they really and truly need a lot of financial management advice, they need to understand how to manage their companies and they need to be free of these things to actually concentrate on what they do best.”
Similarly, HDFC Bank has launched SmartUp, a dedicated solution for startups, to fulfill all their banking needs. The bank said that SmartUp is tailored to meet all the requirements of a startup, offering banking and payment solutions, along with advisory and forex services. Smita Bhagat from HDFC Bank said how the bank aimed at ‘creating solutions that evolve as the company grows’.
Also a great platform for new startups, these initiatives will give startups the exposure they need. Providing them with their credibility and market linkage, these businesses are very likely to scale up faster than they would have otherwise. This is a great brand push when it comes to visibility in the market. Also, pitching your idea to the whole leadership of the bank is a huge deal in itself.
When Entrepreneur asked Ramesh Dharmaji, Chief General Manager of SIDBI about this sudden change he commented, “The startup ecosystem in the country has been invigorated by the proactive steps taken by government, including setting up of dedicated credit guarantee fund. Further, the country has huge pool of technology graduates. Thus, the banking sector rightly feels there is going to be a surge of good innovative ideas and startups.”
What’s in it for banks?
The answer lies in just one word - technology.
Banks followed a system that proved successful for them for years but what defeated them was technology. Partnering with different types of startups, the aim is not only to make their payment platforms technologically efficient but also augment customer engagement.
A classic example of this is HDFC’s tie up with five startups taking care of five different domains. Senseforth technology, an AI based startup will provide a conversation platform where the bot will answer hundred of queries the banks receive everyday; NotifyVisitors will automate pop-up and push notifications, personalizing user experiences across platform; NetVigil Software will take care of cash less payments introducing QR code-based mobile payments where the consumer doesn’t require any Internet connection on their phone; Bug Clipper is an in-app reporting tool that helps report bugs sharing screenshots and screen recordings; and lastly, with Tapits Technologies, a biometric payment solution, a consumer can shop only with their biometric fingerprint, without needing any cash or credit card.
Co-founder and CEO of Telr, Sirish Kumar told us in and interview, "With huge e-commerce growth in India and with fresh impetus on digitisation initiatives by government in India , banks will need to offer services to online merchants , including government departments in India . More than 38k new entrepreneurs will sell online in this year alone in India . With experienced team from Paypal and WorldPay, and strong anti-fraud technology , payment aggregator Telr , have focused on partnering with banks to offer digital payment ecosystem . This partnership will help banks’ business clients of all sizes to offer secure payment methods of credit cards like Visa, MasterCard, net banking ,Rupay."
This partnership will help merchants to get better risk modules to secure their sales, high success rate of transactions from buyer and customised reports of their business performance . Further, Telr helps banks to provide automated process of submitting KYC documentation that helps merchants to avoid spending lot of time on physical paperwork. Companies like Telr also are increasing their offering by being more than a payment gateway, he added.
With various startups covering the smaller technological domains, it lifts the pressure off banks’ shoulder to handle everything and also makes them efficient.
With Paytm launching its own bank, we presume the banks and digital payments to merge in the future. We don't see the whole banking industry demolishing. No! Only its financial services have been disrupted but it will remain to be a repository for money and lending. Wallets, however, will modify itself from just being another means to tap into the bank account.
Also, we see a lot of mentoring happening here but a gap of financial investment still lies. Commenting on the same Dharmaji added, “The banks will eventually have to modify processes and products to cater to startups.” It means that the only banks to survive this disruption will be the ones who prove to be adaptable to change. What gives us relief is that the chances of that not happening are very low.