While the process of re-imagining bank business models has already begun, former RBI deputy governor S S Mundra warned on Tuesday that banks should not ‘try to replicate’ fintech startups in their entirety because this is not the correct strategy.
As time goes on, it appears that banks are developing into fintech corporations that accept deposits and lend money. Mundra made the remarks while presenting at the CII-sponsored 14th Banking Colloquium.
He added, “Banks must keep in mind that fintech startups are small and agile enterprises. So, in my opinion, banks imitating a fintech company in its entirety is not a good methodology or a good business model”.
According to him, a real collaboration between banks and fintech startups would benefit both parties, allowing them to harness their unique strengths. “So it’s that position where there’s rivalry but also collaboration.”
Fintech companies, according to Mundra, have the benefit of being nimble and innovative, but banks have the advantage of having solid resource bases, reach, and consumer trust. “As a result, these things can be complementary and advantageous to both,” he stated.
Both banks and fintech startups, according to the former RBI deputy governor, should ‘avoid the temptation’ of offering too many products and processes in short intervals, whether through collaboration or in-house.
“From my observations and experiences, it appears that both of their key constituencies are perplexed. And the most essential constituents are their employees and customers,” he added.
According to Mundra, banks must take a “close look” at the old business strategies they have been pursuing.
“I am not recommending that branches be phased out, but the business model must be reimagined. “One has to see which branches are losing money and which are contributing positively, which branches can be downsized and which branches can be eliminated, and where you can rely completely on technology and where you can rely on agency arrangements,” he said, adding that each bank should conduct a comprehensive holistic assessment of its operations.
In terms of corporate financing, he believes that banks should not merely offer products to businesses because most businesses now expect the banking system to provide them with “solutions.” “So, if you solely focus on products, you’ll only make a little money on top of that, but it won’t help your bottom line. If you want to conduct corporate banking, you need to have a solution-based approach,” he noted.
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