Home / Industry / Banking /  Banks tap fintechs to deliver new-age credit products

Mumbai: Banks and non-bank financiers are partnering with fintech companies to offer new-age digital products to their customers in areas they would otherwise have to invest significantly more if developed in-house.

While the thrust is on retail products, banks are also working with these nimbler fintechs on business products. Areas of collaboration include buy now pay later (BNPL) for retail and merchant credit, trade finance for small businesses and commodity financing.

For instance, public sector lender Bank of Baroda (BoB) is implementing a project for digitization of both the liabilities and the asset side, particularly when it comes to retail.

“We are closely collaborating with fintechs. We believe that half of all our retail loans will get processed digitally with the help of our fintech partners. I think covid-19 has accelerated the process of digitization and the next 12 months will see deep transformation in terms of how the bank works," said Sanjiv Chadha, chief executive, Bank of Baroda.

Last month, SBM Bank India partnered with Drip Capital, a fintech provider of cross-border trade finance to offer trade financing solutions customized for small and medium-sized exporters in India.

“It is much cheaper for lenders to invest in a fintech startup or simply partner with them for new products than hire a team to build it. Moreover, some of these fintechs work on artificial intelligence and machine learning to underwrite credit risk and therefore offer a fruitful addition to legacy models used by banks," said a person aware of the development.

On 12 August, non-bank lender IIFL Finance said it has partnered with Bengaluru and Gurgaon-based FinBox, to offer digital credit products to its merchants. The lender said it will offer digital credit avenues to its merchants, business-to-business e-commerce traders, using FinBox’s buy-now-pay-later (BNPL) and working capital credit products. Through this partnership, IIFL and FinBox plan to disburse 1,000 crore in loans over the next two quarters.

Buy now pay later essentially offers around 15 days of interest-free funds to small borrowers. Experts said these products act as the first step towards assessing the creditworthiness of a borrower. Once, they have built up some repayment track record on the BNPL product, banks can offer either a credit card or a personal loan to that customer. What it does is, it brings more people into formal credit channels, despite having no credit scores. Banks assess credit worthiness of retail borrowers through a plethora of data points, credit scores by credit bureaus being one of the most important ones.

When fintechs started arriving on the financial services space, it was though they would compete with traditional banks and non-bank lenders for a share of the credit pie. However, lenders have taken the opportunity to use their lending muscle in collaboration with the new-age expertise of fintechs.

Meanwhile, lenders are also attempting to develop the financial startup ecosystem. Earlier this month, Equitas Small Finance Bank launched Equitech, a fintech accelerator aimed at the start-up ecosystem that will help fintechs curate their products and define a go-to-market strategy.

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