2020 has helped customers preferred traditional banking to open up and experience the power of new-age banking and Fintechs. Today, customers are choosing a complete digital experience and are demanding better services and new products. This has motivated public and private banks to partner with Fintechs, rush up to meet consumer demands. Major Fintech companies like Google Pay, Whatsapp Payments, PhonePe are diversifying offerings and entering the banking segment through partnerships.
Diversification and Consolidation
According to our research, the Fintech segment received over a 1.4billion dollars in funding in the year 2020. The focus on diversifying the service offerings to pile in more useful features is driving force for Fintechs in 2021. In addition, fintech players have witnessed an uptake in consolidating activities over the last year. With Big Techs venturing into the Fintechs space, the traditional competitors like Paytm have approached RBI for an In-principle license as an SFB offers credit and loan services.
It is only time that many payment bank Fintechs could soon follow this path respecting the Five-year rule from RBI. Paytm is also investing heavily into democratizing wealth management, said Varun Sridhar. Due to the GOI initiative of Zero MDR on UPI and Rupay cards, Fintechs in the payment segment is also looking beyond payments to improve profitability. Like Paytm, other Fintechs can venture into diversified services like credit, insurance, and other confined activities to Banks.
Big Techs and Banks Entering the Fintech space through innovation or acquisition
The Big Tech companies have a clear distribution advantage to reach out to consumers faster than innovative Fintechs. With immense trust in their capability to achieve high distribution, the big Techs are hoping to overcome the roadblock of soaring acquisition costs while providing unique offerings and their current products to limit competition across spaces. In the year 2020, several key acquisition deals take place. This includes the acquisition of payments and banking infrastructure provider Galileo by SoFi, the acquisition of US fintech lender, Kabbage by American Express, and even the acquisition of Fincity by MasterCard.
Goldman Sachs, one of the world’s elites in investment banking, launched its Banking-as-a Service platform Marcus in 2016. Now, Marcus, in partnership with Apple, has launched its most successful consumer credit card product. Apart from this, Marcus has also partnered with Amazon to offer lending services and JetBlue to offer point-of-sale financing. With Innovation and Diversification in focus, Marcus has begun internal testing of a new automated investment service called Marcus Invest, which is aimed at regular retail customers. They plan to integrate this with other offerings, including a personal finance tool called Marcus Insights.
Walmart announced its venture into the Fintech space headed by Omer Ismail and David Stark from Marcus (Goldman Sachs) in a strategic partnership with Ribbit Capital to offer innovative and economical financial solutions.
The start of the Hybrid Banking Era
Though ‘Neo Banks’ have proved their worth during 2020, RBI is yet to grant them baking licenses. Players like RazonpayX, Niyo, and other Neo-Banks are partnering with traditional banks to achieve customer success. This may lead to conventional banks provide the customers with flexible, convenient, and personalized services through Neo-Banks. The Hybrid model will help Banks find the right balance to become competent and take advantage of the current situation.
2021 has seen several corporates enter into the banking ecosystem looking to encash on the buzz like AI and Blockchain. Conglomerates like Tata Sons and Aditya Birla group will be keen to expand their NBFC segments with smaller Fintech players. Its only time before the virtual Banking ecosystem explodes beyond the concept phase with advanced digital banking solutions to a step towards financial inclusivity. By 2025, the high-tech digital initiatives that new Fintechs or existing Banks/Big Tech/ Corporate conglomerates will contribute to the mainstream growth areas in Banking Operations.