It is about 5 years since the banks and fintech companies have begun their friendship in India.
The advantages of banks are that they have a physical reach through their network, a wide range of customers. Their biggest asset is the trust they have developed over the years.
Fintech firms have smoothened the way for digitalization in the finance sector. Though initially, it was not in sync with the legacy system, it provided a better service, that is flexible banking.
The partnership between the fintech and banks has been a win-win for both parties and more improvements are happening.
Before the arrival of fintech, everything was handled only by banks. Now banks are mainly used for disburses while fintech is used for everything.
The real changes happened in relationships. Customers are developing closer relationships with fintech while banks are reducing to capital providers.
A lot of fintech-bank partnership has occurred in the last five years. These partnerships focus on the digitalization of credit investments to MSMEs. Digital payments are also gaining popularity.
Around 10 percent of the overall gross bank credit is contributed by MSMEs through the credit gap for MSMEs in the country has been $380 billion.
The main advantage of such partnerships is that both parties can make the best use of each other’s capacities.
Fintechs reach out to customers faster. The collaboration enables better engagement with various sectors.
Developments in technologies like Artificial intelligence and machine learning are smoothing the digitalization of the finance sector. Even small vendors can carry out transactions easily through digital platforms. UPI systems, payment apps, and QR codes help them.
SMEs which did not have a financial record in the past are now able to keep one because of fintech.
Small firms find it very difficult to compete with the stiff competition happening among big firms. Even the digital banking opportunities that came up during the COVID-19 pandemic were not able to be made use of by many.
Collecting credit information and providing tailor-made services is one thing banks and fintech can adopt to help SMEs.
Banks are not willing to stay as capital providers alone. They wish to develop into all-rounders.
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