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Planning to apply for small finance bank: Don’t outsource your core

RBI has recently opened on tap license for small finance banks. As qualification criteria is not as stringent and capital intensive as for universal bank, many Nbfcs, MFIs, Fintechs (in lending) are expected to apply.

These small finance banks may go for total outsourcing of technology to jump start the launch (this is what has happened in past as well). These banks may end up with the following challenges:

1) Slow and inflexible tech resulting in direct business impact

2) Low digital business as no one within organisation understands business and tech correlation

3) Poor technology architecture

4)Low availability of critical systems

5) Higher technology costs (2 to 4 times higher than what is optimal)

This is based on what we have seen in most of the banks. In next few blogs, I will share more insights on setting up banks.

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