Fintech players will get a big opportunity

Growing pie: Technology spend in Indian banks is low but that could change with mergers, says Arun Jain.  

Consolidation among public sector banks is expected to throw up enormous opportunities for financial technology (fintech) companies which see a surge in demand for their products and services in the medium term.

“In fact, it can give [fintech players] good business,” said Arun Jain, chairman and managing director, Intellect Design Arena Ltd.

“Fintech companies should get better opportunities, not immediately, but in the next two-three years. The positives will be much better than compared with where we are today,” he said.

Bank mergers, for one, could mean lesser number of large clients to sell to, according to him. “Mergers would reduce the number of banks in operation which, in turn, would de-congest the market with a handful of fintech players vying to sell the same solutions to limited number of banks.”

As per indications emerging from the Centre, three or four banks could be merged with a stronger bank in a bid to address the issue of burgeoning non-performing assets that had been plaguing the sector for a while now.

Despite the optimism, there is also a contrarian view on bank consolidation not doing much to positively impact the balance sheet of the fintech companies, especially where core banking solutions were in vogue.

State Bank of India’s consolidation with five associate banks and the Bhartiya Mahila Bank, all smaller in size, is cited as an example. All five associate banks were on the same core banking solution platform while the Bhartiya Mahila Bank used a different technology platform. In normal circumstances, this would have provided a fintech company with business opportunities to integrate both the platforms.

However, in the above instance, Bharatiya Mahila Bank, a new entrant, smaller in size, switched over to SBI’s technology platform seamlessly thereby saving on costs in appointing a fintech services provider to assist in integration process.

In India, TCS, Infosys, Oracle, FIS and Intellect Design Arena, among others, provide core banking solutions. Another 6-7 players provide allied solutions and payments services such as ATM switches and managed services.

“One might lose business if the anchor bank does not use your technology or software,” said V. Balasubramanian, president -retail, Chennai-based Financial Software and Systems.

“But, you might get benefited from another four banks getting into the anchor bank’s fold [thereby bringing more business opportunities as they may be using different software],” he said.

Rajkiran Rai, MD & CEO, Union Bank of India, said that the Centre would opt to merge all those banks on same technology platform, making the process a smooth one. It was time for the banks to look into issues that might crop up in the first phase. However, there is no clear direction that the technology platform of the acquiring bank would be the de facto post merger.

Ramaswamy Venkatachalam, MD, India and South Asia, FIS, a global banking and payments technology provider in India, said that technology platforms of banks would consolidate and that it was not very clear at this moment whether the core banking system of the anchor bank would be the default provider of choice for other banks.

“CBS is not the only source of revenue for some players. It is like a track on which other applications such as mobile, Internet banking will ride on. They also perform various other financial and payment solutions and hence the opportunity is huge,” Mr. Rai said.

Lose some, win some

However, Mr. Balasubramanian viewed the opportunity from the lens of scale, rather than technology. “Consolidation will be done based on the bank’s product portfolio, bank size and profitability instead of technology. In the end, it will be a mix of strong and weak banks.”

“Right now, in the same street there are four to five Automated Teller Machines (ATMs). After the merger, it will be reduced to one. We cannot say that the ATM service provider has lost business. But the ATM can be moved to under-penetrated, Tier-3 or Tier-4 cities. Banks will also emerge stronger,” he said.

Mr. Venkatachalam said that each bank merger would be different and that it would provide certain types of opportunities. In a merger scenario, factors that needed to be assessed were technology, scalability, features and network connectivity.

“The first challenge will be migrating the accounts; the second will be to rewire the channels to the new core. Redundancies would need to be eliminated, which will make the overall system efficient in terms of customer service,” Mr. Venkatachalam said.

Banks in India still have a long way to go, in terms of using technology, said Mr. Jain. “The technology spend in Indian banks is substantially lower than that of banks anywhere else in the world.”

“As of now, that budget is substantially constrained; but if there are lesser number of banks they can have better budgets so I expect their technology budget should go higher and they should spend higher on technology,” he said.

Mergers could result in entities having better capital adequacy ratios. “They will be able to pay vendors much better and their procurement process can become more efficient,” said sources.

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Printable version | Sep 25, 2021 7:32:24 PM |

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