Winds of Change: How Indian Banks are Evolving as Marketplaces

Experts believe that with Internet being the vehicle for economy, banks will diversify to suit the needs of different market segments

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Indian banking industry is abuzz with talks about the great merger of banks to create one global financial institution and about the possibility of their non-existence altogether in the next five-six years.

But behind this clamour, the banking system is being swayed by wind of change originating from within. From partnering with start-ups to innovating within the system, banks are now on track to transform into marketplaces.

Deepak Sharma, Chief Digital Officer of Kotak Mahindra Bank, in an earlier interview with Entrepreneur India had spoken about how Kotak Mahindra bank had ventured into being a marketplace. He had said, "The market is not homogenous anymore. There are multiple micro-segments, and we cater to the needs of each segment. For instance, we have a mobile store which allows customers to book flight tickets, bus tickets and hotel rooms, shop online, purchase movie tickets, etc. through our mobile banking app. This reduces the possibility of a transaction failure and allows customers to transact in a secure environment."

Banks Need to Change Their Business Models

With the need to keep up with advanced technology, banks need to be constantly coming up with new and novel ideas.

Stressing on the importance of the same, Rajneesh Kumar Chadha, advisor to banks and a digital transformation expert, said, "Banks need to evolve their business models. The arbitrage rate of banks in India is barely around 3 per cent, this despite it being the major source of revenue generation for them. In India, banks started selling insurance, mutual funds long back. So, they have huge opportunities to diversify as they understand the economy well. It all works in their favour."

The Marketplace Economy

Chadha expounded his views stating that the boundaries are blurring between banks and marketplaces. "Let's take Paytm for an example. It moved from being a marketplace to a payments bank. Even as a marketplace, they never called the money in their wallet as digital currency or cryptocurrency. They established their own brand and even introduced the cashback option. Marketplaces to banks and vice versa — this is bound to happen. So, the line of differentiation between banks and marketplaces is becoming indistinct," he said.

Deal Enabler But Not the Executor

Experts are of the opinion that most of the schemes and deals that financial institutions offer are meant to direct traffic into their websites. "Exclusive deals that banks offer will be curated. While there can be marquee offers in the travel or mobile phone segment, I doubt whether they will get into the logistics. The idea is to give customers complete exposure. Currently, banks come in at a point where payment is concerned. But they want to move up the chain, want to be evolved at the entry point itself," said Chandrashekhar Bhide, a mentor/advisor for start-ups and an independent business consultant, who used to earlier lead digital banking at DBS.

But Chadha believes that in today's internet specific world, you cannot rule out the possibility. "In the future, we never know, banks may even get together to create a global marketplace. The only disadvantage being they know how to do banking, but not e-commerce. What one needs to understand is that economies and internet are merging very fast. Internet is becoming a vehicle for economy and banks need to hop on that vehicle," he said.