Banks And Fintech Startups - Collaboration Or Competition?

Now every time we do a transaction, it is equally possible that it has been mobilized through a fintech startup. Technology has driven financial services industry strongly and the startups have brought to us ways that have made our lives easier. Now, if you have access to the internet, you can save your money in the mobile wallet and simply use it from there for any kind of payment. It has been argued several times whether fintech companies and banks have grown a competition in the market among themselves. It is quite a complex equation of both of them. Fintech cannot survive without the presence of banks and the banks are launching their own duplicate applications to provide similar solutions to their users. Still, both the industries, banks and fintech startups have yet not come face to face in competition.

Banks define a bigger entity in terms of financial services, they are the economy stabilisers and they are the ones who are to be put in charge when an economic crisis the country. At that time, startups or other private companies would have no liability towards the economy. In the past 5 years, the number of fintech startups have increased and currently it is more than 1500 in the country itself. All of them are working in different domains and segments which they are providing with the help of technology. Fintech startups have lesser responsibilities but greater technology intervention. The issues of security reside with both the banks and the start-ups involved.

In the past few years, banks have been taking advantage of the technology that the fintech startups are providing and having got the understanding, some of the banks came up with their own apps. This gave fire to the talks regarding banks attempting to compete with fintechs. However, it has to be understood that fintech startups are totally different from banking, they have nothing to do with lending and borrowing. Also, they don’t require to follow the norms and regulations set up by the government on the banking institutions. However, in a way banks and fintech startups are working on one similar platform by meeting the financial services of its customers. Fintech is basically “a new financial industry that applies technology to improve financial activities”. In other words, in the financial services industry, it’s a new process, application, products and business model providing one or more financial services through the Internet as an end-to-end process.

Banks & Fintech startups Workings- Similar to Each Other or Different

Fintech startups have been described as the biggest reason for disrupting banks and increasing competition for them. But it does not seem like that the above statement is true. If we take a look at the situation, then it would be absolutely wrong to say that banks and fintech startups have similar operations. Where fintechs are focusing on one particular solution in which they have gained expertise through an end-to-end process via the Internet, banks have a greater role to fulfil other than meeting the financial needs. Banks are the medium to balance the whole economy, follow the policies that can uplift the poor, provide assistance to entrepreneurs, maintain balance in the economy, check the credit score of the individuals, providing loans, checking the credibility of creditors etc.

Segments of Fintech

According to a report published by Craft Driven Market Research the above segments define the whole fintech industry and as per the table, it is quite clear that fintech startups can be an add-on to the banks and they cannot alone provide all the banking services while banks need these startups to help the consumers do banking transactions and using banks with an ease.

Business Model	Description
Investment Solutions	Companies provide solutions for easy investment. This may include using data to provide accurate investment answers, providing market data for informed investment, companies providing support in investing in shares etc.
Technology solutions	Companies that work on technology to solve several issues of finance industry (excluding security). May include app development.
Investment/ Loan platform	These are the companies that have given a platform to the users, merchants and retailers to invest in other companies/ shares etc. or lend money from banks/ others etc.
Investor Firms	These are crowdfunding and investor companies that invest money in other start-ups or businesses in return of shares.
Analytics Solutions	These companies are based upon the use of big data analytics for different purposes in financial services.
Advisors	These companies consist of consulting and advising groups. These companies either work as an information portal or through consulting.
Payment Solution	This is one of the biggest sub-segment in which companies provide different options for payment through mobile wallets, credit cards, online payment gateways etc.
Insurance platform	These companies consist of insurance providers, insurance advisors and comparison companies.
Personal finance	Companies in this segment provide assistance in the matters of personal finance such as tax filings, personal advice etc.
Security Solutions	These companies provide technology solutions to minimise the risk and ensure security in different kinds of transactions.

For more details on Fintech (startups), you can go through the whole report – Fintech.

As has been discussed above, the working of fintech startups is quite different when compared to banks in terms of operations. Banks work on more complex and complicated process with different departments working on different services even though they are interlinked. However, for startups, they have quite a singular focus. Even if they are providing multiple solutions to the consumers, they have a focused working pattern. Where bans form the foundation of financial structure in a country, startups work as value added services.

Bank Apps – A Success or A Failure

It is quite interesting to know how different banks are now developing their mobile apps so as to ease banking facilitation for the consumers. Considering the fact that the internet is more accessed on the mobile phone as compared to the desktop and laptops, banks have ventured into this arena. However, the banking apps have a typically different use case and they have nothing to do with fin-tech apps. Nevertheless, fin-tech apps bring value to banking services and banking apps if they exist in collaboration.

Considering the HDFC bank app:

The bank app is typically mobile friendly access to net-banking, however, with limited access. You can view over 75 past transactions on your app, do balance enquiry, funds transfer, credit card payment, locate nearby ATMs, get offers or cash backs and can also apply for different kind of loans.

This is a typical banking app which actually eases out your banking services and provides you with easier access to the bank in your hands at all the time.

However, considering popular fin-tech apps:

Due.com is an invoice generation and management app which is not feasible for a bank to provide. Another app SoFi gives access to private creditors which can provide loans and debts to the needy on an interest. Planwise does financial planning while PayTm works as a digital wallet where people can add money to their virtual accounts or send money to their contacts directly. However, it has to be understood that apps like Paytm cannot work alone and they need to connect with the banks for any transactions.

Government intervention:

Government is also introducing their apps for ease of transaction facility and in support of a cashless campaign. But the interesting fact to know about these apps are how much they were successful in the market. Government apps are BHIM, Unified Payment Interface (UPI) and soon to be launched Aadhar Payment App. Others apps are SBI’s app Go Mobile, ICICI’s app Pockets, Video Banking and more, HDFC’s app PayZapp, Loan Assist and more, PNB’s app PNB Kitty, PNB Yuva and more, Axis’s app Axis PayConnect, Axis Mobile and more, BOI’s app BOI Mobile Banking, StarToken and so many banks and their apps. All these apps are tailored to ease of use and convenience of customers.

The success of government apps such as BHIM has been recognised quite early. In just 20 days of launching, there were more than 1.1 crore downloads of the app and it was among the top list of the different play store. However, it has to be analysed regarding the percentage of people still using the app who downloaded it in the first instance. There is still some time required to analyse the current usage pattern, however, Google trends show quite an interesting story to be analysed. The trend shows an instant hit in Jan 2017, at the time of launch but then the interest subsided soon after. It is safe to say launch created a trigger and may prompt people to download the app but people did not actually move on to BHIM completely.

If expert opinions are to be considered (names not disclosed), banking apps definitely are helpful in order to banking easily at any time. This is just a solution to doing net-banking but it cannot replace the services that are being provided by certain fintech apps. In addition, none of the banking apps can be called as a successful attempt that created a stir in the market since they have limited users but fintech startups have created noise in the industry and have attracted mass consumers.

Do Banks Really Need to Introduce Their Own App, When They Have the Option of Collaboration:

Introducing a banking app is an add-on service that a bank can provide to its customers. Banking services available 24×7 and that too in the reach of a hand is quite beneficial and very approachable. However, there is no point of competing with fin-tech startups on the services that they are providing. Reasons include:

Limited customers: A particular bank can have limited customer range. They cannot allow customers from different banks to use or access their app due to security reasons and they cannot devise something that can work in unison to other banks due to industry competition. However, there are no such restrictions for fintech startups. They do not hold liabilities to any particular bank and devise solutions that can be widely accepted by different banks. This provides them with a bigger pool of customers.

Banks can leverage fintech services and collaborate, banks and fintech startups to develop solutions directed for their particular banks. This duplicity of innovation can be avoided and the customers receive a unified standard solution.

Focused interests: For a banking app, it is difficult to focus on one particular aspect of banking services, they have to work in unison. While for fin-tech startups, it is easier to focus on a particular service and provide innovation in that. This leaves a lot of space for fintech startups for innovation and experimentation unlike for banks. Banks have lots of other responsibility to focus, they have to manage the cash flow, bank accounts, etc other than managing apps.

But if we talk about banks and fintech startups collaboration, then it’s not a bad option to work upon. Many questions have been raised in the past few years about agility, relevancy and contingency of the banking fraternity in India. So in this contrary, banks pay heed towards their own work rather than providing already existing solutions.

Banks and fintech startups both should accord for collaboration as the Fintech has a massive vision of new innovations, work plans and aggression towards their creation. On the other side, Banks have greater accountability. Banks and Fintech startups can aid each other and help our economy in another tract. In this way, they both can execute their excerpt in the economy and technology.

A Myth – Competition Between Banks and Fintech startups:

A book can’t be judged by its cover, so can we how? In the past, or say, for a few years, there have been rumours about the competition between banks and fintech startups. And it was assumed that Fintech can be a cause of disruption of banks. It would be wrong to justify the above statement. Both are diverse from each other in several ways that have already been mentioned above. Fintech is based on bestowing the end-to-end customers need via the Internet, concentrating the need for financial services. At the global level, banks and fintech startups have collaborated and expanded the horizon of their services, such as a French bank group BPCE acquired Fidor; a German startup, HSBC aid Xenomorph, for financial analytics problems.

All these partnerships are proving that a successful collaboration can be held between Banks and Fintech startups. This clearly demonstrates that the cooperation between Banks and Fintech startups are going to yield great profits and better cost savings.

Let’s see where the idea of collaboration takes the banks and fin-tech sector and whether it opens up more advanced, and varied services for the consumers.

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