BUSINESS

Sleeping with the enemy: big banks skirt confrontation to embrace fintech startups

Disruptions in the financial services space spur partnerships for apps and systems to detect fraud



Financial technology startups are typically portrayed as small firms run by a bunch of young geeks in T-shirts and hoodies backed by venture capitalists to disrupt the financial services and banking industry.

Instead of going head-to-head with the so-called fintech firms, big banks are partnering with them. They are finding financially-focused software, and apps and systems to detect fraud, developed by these firms, very useful.

Banks are now hosting tech competitions and pouring in money into these young companies as they scout for innovations to meet new-age security, digital and regulatory challenges.

First of its kind

YES Bank, India’s fifth-largest private sector bank, recently introduced the first of its kind ‘Fintech App store’ for Indian fintech startups in association with software product think tank iSPIRT. The app store will hold a governance structure making it easy for any startup to access it.

The mutual understanding will enable both the bank and the firms to build on each other’s strengths and willingness to support each other.

“Fintech companies, as they’ve come to be called, are easing payment processes, reducing fraud and saving users’ money,” said Ritesh Pai, senior president and country head at YES Bank in a statement. “They are promoting financial planning, and ultimately moving a giant industry forward.”

Mr. Pai said the Indian landscape is primed for entrepreneurs using technology to promote financial inclusion. This is because about 60 per cent of Indians are unbanked and 90 per cent of small businesses have no links to formal financial institutions. Yet 80 per cent of Indians own mobile phones, and 32 per cent will own smartphones by 2017.

Industry leaders are also educating the banks about the need to partner with new-age fintech firms. In Mumbai, Infosys co-founder and billionaire Nandan Nilekani who spearheaded the country’s massive unique identification project gave insights to an audience of top bankers and financial industry experts about the influences that are driving the disruptions in financial services. He told them how software product companies are leveraging these influences to introduce innovative business models.



He is of the view that these models would fundamentally change the way financial services are conceived and delivered, laying stress on cashless payments.

Fintech boom

The Reserve Bank of India (RBI) too has understood the importance of the fintech boom. It recently announced the introduction of a technology competition. It has invited startups and individuals to build innovations to prevent fraud, bring convenience to customers and use emerging technologies for payments.

The contest would be organised by RBI’s innovation arm, Institute for Development and Research in Banking Technology (IDRBT). The Reserve Bank said the idea of having such an event, stems from its strong belief that “right innovation” has the potential to change the payment landscape of any country.

State Bank of India, the nation's biggest lender, is also very keen to tap innovations developed by fintech firms. SBI Chairman Arundhati Bhattacharya flew to Bengaluru to attend an iSPIRT startup session and understand how young firms are disrupting the banking industry. Fintech companies such as Novopay, Happay, Vote4Cash, Probe Equity, Capital Float and enStage pitched their innovations to her.

SBI has already awarded a contract to a young firm called Ezetap to offer mobile point of sale devices across India. Ezetap makes devices that can be plugged into any phone and convert it into a card-reader. This way, virtually anyone with a phone can accept cards – from merchants to pizza delivery boys, from cab drivers to hairdressers.

The closest parallel to Ezetap's point-of-sale device is the one offered by U.S.-based Square, co-founded by Twitter co-founder Jack Dorsey.

E-wallet

Large organisations like Bank of India, Axis Bank and RBL have partnered with another young firm Novopay for transactions through e-wallet. Backed by billionaire investor Vinod Khosla, Novopay unveiled a consumer payment application. The app enable users to reduce dependence on cash and buy goods and services in neighbourhood shops through an e-wallet.

“We are in discussions to partner with various banks,” said Gaurav Hinduja, cofounder of Capital Float, a fintech startup that uses technology to ensure that small and medium enterprises have access to collateral free working capital. It uses algorithms and sifts through data to find hidden insights in order to make lending decisions quickly. This ensures efficient and fast turn-around time.

Investments in fintech across Asia-Pacific skyrocketed in 2015 — from about $880 million (Rs.5,828 crore) in all of 2014 to almost $3.5 billion (Rs.23,150 crore) in just the first nine months of 2015, according to a report by Accenture.

India’s fledgling financial technology area is also attracting the attention of global banks. American multinational banking and financial services corporation Citigroup conducted an Asia Pacific Citi Mobile Challenge in Bengaluru to come up with innovative solutions in areas such as e-commerce, transactions and instant customer service.

About 1,300 participants including tech startups and employees from large and mid-sized companies across 100 cities registered for it.

“This region is home to a fast growing fintech community,” Francisco Aristeguieta, Citigroup’s Asia Pacific CEO, said in a statement.

The global bank has about 200 million customer accounts and does business in more than 160 countries.

“The challenge is fostering the development of the next generation of fintech solutions,” said Mr. Aristeguieta.



The challenge is fostering the development of the next generation of fintech solutions

Francisco Aristeguieta,Citigroup’s Asia Pacific CEO



SBI, the nation's biggest lender, is also very keen to tap innovations developed by fintech firms





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