Coming Together of Traditional Lenders and Fintech Players, Creating Better Opportunities Traditional lenders like Banks and fintech firms get better at working together, this is essential to reap the full benefits of innovation

By Monish Anand

Opinions expressed by Entrepreneur contributors are their own.

You're reading Entrepreneur India, an international franchise of Entrepreneur Media.

Shutterstock.com

The banking and the lending segment have been under the constant current of reformation and innovation, lately. Thanks to the technological revolution over the years, the fintech ecosystem in India has caught up fast with its global peers in terms of adoption and is expected to reach USD 2.4 billion by 2020. Fintech firms are undoubtedly having a moment.Given the significant interest in fintech globally, and its ongoing evolution - the word "fintech" is now officially in the Oxford dictionary.

Fintech driven alternative lending is the second most funded and one of the fastest growing segments in the Indian fintech space. At last count, there were over 20 plus digital, alternative lending companies, each with their version of the truth, and probably another twenty in the stealth mode.

One thing common with most new age lending companies is that they rightly understand that they have a better chance of succeeding by collaborating with the existing lenders like Banks and NBFCs.

Banks and NBFCs have also reciprocated these sentiments and are actively tying up with fintech lenders.

How Are These Partnerships Faring?

Many traditional lenders are finding it difficult to "let go" and adapt. They are still second-guessing and in spite of various tech solutions, they want to "eyeball" physical documents. Fintech lending is so much more than just another distribution channel, it's an opportunity for the banks to reimagine themselves digitally.

As an ex-banker and now a fintech founder, banking and NBFC partners have to start by de-learning and adopt fintech lending truly. Every single process needs to be challenged, if it's not adding value then the same must be dispensed. Open Innovation is the core of digital revolution.

In their short journey, fintech in India have made credit process simpler, cost-effective and offer better risk assessment. However, while partnering with traditional lenders they are often expected to carry forward their archaic pre-credit and post-approval processes.

Some of the Gaps Which Need to be Filled are:

  1. Traditional lenders still expect physical business verifications though there are solutions like work email and domain validation.

  2. Instead of on-ground visits, use GPS tagging as an effective tool for residence verification.

  3. Application forms and pre-credit documents are often required in physical format through soft copies are available.

  4. In spite of eKYC facility, physical copies of KYC are required.

  5. Most of the existing lenders have not adopted e-agreements.

For traditional lenders, fintech is an opportunity to innovate and do away with artificially restrictive processes and documentation that have been embraced by their risk departments. They must see themselves as a stakeholder in fintech success.

Traditional lenders have an inherent advantage which fintech companies don't have, similarly, fintech companies have nimbleness and technology which acts as a great equalizer.

It's a Match Made in Heaven:

Fintech lenders also have a responsibility to deliver on their promises. A quick look around and all you can hear is big data and machine learning, it's all too early and too soon. It would be wise for them to look to the past and learn some lessons from traditional banks. Credit grows extremely fast in good times, but can also contract suddenly and if not prepared, it may be overwhelming. Traditional lenders like Banks and fintech firms get better at working together. This is essential to reap the full benefits of innovation.

Hopefully, these are starting troubles and this partnership will eventually thrive. All it needs is a real sense of commitment to re-imagine the business model.

Monish Anand

Founder and CEO, Shubh Loans

Related Topics

News and Trends

Kaynes Semicon To Invest INR 4,000 Crore On OSAT/ATMP

The investment is expected to create around 1,000-plus jobs

Science & Technology

How Technology Has Changed Business Communication

Technology has forever changed the business communication landscape.

Leadership

International Security Firm Welcomes Female India Native to an Essential Leadership Position

Yasmin Brar has been appointed as the Operations Strategy Director, a role that underscores the company's commitment to innovation, expansion, and strategic management

Growing a Business

Expand Your Knowledge and Unlock Success With These Must-Read Business Books

Top business books to ignite your entrepreneurial journey.

Health & Wellness

How Taking Up Boxing Transformed My Outlook on Entrepreneurship

Few things have taught me more about entrepreneurship than getting into boxing. Here are the three most important lessons I've learned from my time in the ring.

Starting a Business

3 Values That Empower Entrepreneurs As They Start Their Business Journeys

The initial stages of entrepreneurship can be tough, but these tips can help you power through.