Format of the conclave:
Panel discussions with audience participation on the first day. The panel would be made up of representatives of the world of fintech and academics. The second day would be divided into multiple sessions. One speaker would present his ideas in each session, which would be followed by questions and answers.
Theme: - Fintech versus Banks
Bill Gates once said ‘banking is necessary bankers are not’. Have we reached that point in time where we will shortly see this come to pass? Are the fintechs that have become such an important part of our lives set to make banks irrelevant? Will the RBI impose restrictions on the fintechs and reign them in? These are changing times and there is a need to sit back and ponder about these developments for they will impact each one of us.
It is the digital age after all.
The banking industry has been dominated by the big banks that use a conventional brick and mortar model. They have been in business for a long time and are immensely profitable. Entry barriers for the new fintechs are daunting as this is a domain that is founded on trust, which each of us underscore every time we place our money in a bank, confident in the belief that we can withdraw it whenever we want to. The advantage the fintech has is technology, which opens up a world of new opportunities. While their rise today is fueled by the enthusiasm of the new generation, over time, as they mature, it is likely that fintechs will have the ability to service customers that larger institutions would prefer not to, among them the unbanked sections and high-risk consumers and businesses, among others.
At a point of time when mobiles have become ubiquitous fintechs have the advantage of unmatched reach. User friendly apps allow clients to conduct transactions smoothly and visits to the bank are getting more and more infrequent. There are very few among us who do not use an app designed by a fintech, particularly for making small payments. With substantially lower operating costs, as compared with mainstream brick and mortar banks, fintechs today are in a position to leverage their advantage and disrupt the industry.
While digital wallets and mobile-only banking are commonplace, fintechs are gradually moving on to more complex products. Pay day loans are already common and a start has also been made with peer-to-peer lending and crowd-funding.
Methods of credit appraisal are changing with the use of algorithms to gauge credit worthiness of prospective borrowers on the basis of their digital footprint. Online purchase behavior and social media posts are all factored in to build a complete picture of the prospective borrower and fintechs are able to decided almost in real time on the decision to extend finance or not. This is a far cry from the traditional appraisal methods adopted by bankers which are sluggish by comparison and hopelessly out of touch with today’s world.
Developments in this area have been so rapid that it has become a challenge for the Reserve Bank of India, which is the regulatory body that oversees the banking sector. Traditionally the RBI has been used to dealing with brick and mortar banks that function subject to its approval. As the new players operate in the virtual space, regulating their activities becomes complex. RBI takes the view that regulation is desirable wherever entities deal in public money and have a fiduciary responsibility, such as fintechs do. The need for regulation becomes evident in times of crisis when systemic risks emerge and weaker players struggle to survive. In the process they jeopardise the funds that they have been entrusted with by their clients.
The ReBIT (Reserve Bank Information Technology Pvt. Ltd) is an initiative that will help to strengthen regulation in the cyber space and will also provide a platform for fintechs to communicate with RBI. With time it is likely that regulations will make the fintech space safer and enable them to function with greater confidence.
What lies ahead?
These are interesting times for the financial world and it would be interesting to fathom what awaits us in the days ahead. Will we see fintechs emerging as giant slayers that push banks into oblivion or are we going to see banks reinventing themselves and retaining their hold on the market? Perhaps we will see the two work together as bigger is often safer in the banking world. Or perhaps there are other possibilities that we do not see as yet. Be it as it may we trust that this conclave will provide insights, more so because we will have the benefit of the views of players from the fintech industry and academics who study the field.