(From left to right) Suchintan Chatterjee, partner at Deloitte India; Sudin Baraokar, chief mentor of BankChain Alliance; Leslie D’Monte, national technology editor of Mint; Ritesh Pai, chief digital officer of Yes Bank; Bhavesh Gupta, CEO of Clix Capital Services; and Venkatesh Hariharan, director (fintech) at iSpirt, at the Mint Fintech Summit 2018 in Bengaluru.
(From left to right) Suchintan Chatterjee, partner at Deloitte India; Sudin Baraokar, chief mentor of BankChain Alliance; Leslie D’Monte, national technology editor of Mint; Ritesh Pai, chief digital officer of Yes Bank; Bhavesh Gupta, CEO of Clix Capital Services; and Venkatesh Hariharan, director (fintech) at iSpirt, at the Mint Fintech Summit 2018 in Bengaluru.

Future is where both banks, fintechs collaborate

In thelong-term,banks that have best constellation of tie-ups with fintech start-ups will have competitive edge, say panellists at Mint Fintech Summit

Bengaluru: Banks have begun outsourcing core banking features such as loans, payments and credit risk underwriting to fintech start-ups. While fintech start-ups provide a better payment experience with a superior user interface and faster processing, banks can provide them with a stronger foundation to stand on, noted banking and fintech experts during a panel discussion at the Mint Fintech Summit 2018 held in Bengaluru last month. The very future of fintech companies, in fact, will be a blend of co-creation with banks and the use of emerging technologies, the experts agreed.

The panellists were Ritesh Pai, chief digital officer of Yes Bank Ltd; Sudin Baraokar, chief mentor of BankChain Alliance; Bhavesh Gupta, chief executive officer of Clix Capital Services Pvt. Ltd; Venkatesh Hariharan, director (fintech) at iSpirt; and Suchintan Chatterjee, partner at Deloitte India. The discussion was moderated by Leslie D’Monte, national technology editor of Mint. Edited excerpts:

Banks are good at areas to do with regulation, governance, audit, settlement, reconciliation and they have the much needed plumbing pipes…for fintechs to play their strength, said Pai.

The payments segment has seen the first set of partnerships between tech start-ups and banks, and that more such partnerships can be expected across robo-advisory and wealth advisory segments, Pai added.

India’s core banking processes around 24,000 transactions per second and 1.5 billion transactions per day. That capacity may increase multifold over the years as technologies such as blockchain seem promising to traditional banks, said BankChain Alliance’s Baraokar.

More than 20 banks have already signed a coalition to explore, build and implement blockchain solutions under an alliance named BankChain formed in February 2017. BankChain already has big names like State Bank of India, ICICI Bank Ltd, Kotak Mahindra Bank Ltd, HDFC Bank Ltd and Yes Bank Ltd, among others.

“A fintech can leverage blockchain and overnight virtually build an entire financial superstore. Fintechs can itself become a bank or become a trusted aggregator to the entire ecosystem. The future is where both banks and fintechs can collaborate," Baraokar said.

Clix Capital Gupta said fintechs are just starting to scratch the surface of the banking industry, having only touched around 5% of the entire credit market. “Over the next 12-14 months, you will see a big tipping point happening in this (lending) space, where there will be one-three people (companies) who will break through the clutter, and that breakthrough is going to happen through adoption (of partnerships with banks)," Gupta added.

While experimenting with new technologies such as blockchain does hold promise for banks, in order to really make a compelling case to their stakeholders, it is important to take a leap of faith some panellists said.

For instance, if a bank decides to back its new technology strategy with a 1,000-crore investment, and really goes all-out and implements machine learning and distributor ledger technology, then there is a definite return on investment, said Gupta.

Banks need open application programming interfaces (APIs) and sandboxes that are permissionless, where start-ups can come and build products on top of APIs. Over long term, banks that have best constellation of tie-ups with start-ups will have the competitive advantage, iSpirt’S Hariharan said.

The road ahead for banks and fintechs is clear, but tech start-ups require a free and unrestricted environment to beta test their ideas, which at times cannot be tested commercially either due to regulatory restrictions or because of shortage of resources.

In these cases, the best way forward is to test products in a sandbox—a testing environment that allows isolated execution of code, away from main servers and systems, and in turn, away from the commercial market. In the long term, banks that have the best constellation of partnerships with fintech start-ups will be those that will end up with a definitive competitive edge, the panel of experts said.

"The fintechs that will survive are those who can differentiate because it is becoming crowded and there are a lot of ‘me too’ models coming in," said Deloitte’s Chatterjee.

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