Collaboration between Financial Institutions and Start-ups

In today's dynamic financial landscape, collaboration between traditional financial institutions and FinTech start-ups is crucial for sustained success. Banks and financial institutions recognize that innovation is key to profitability and market relevance. This has led to the emergence of "sharing economies" where established banking platforms integrate with agile FinTech start-ups.

Driving Forces for Collaboration

• Customer-Centric Approaches: FinTech start-ups have gained significant market share by focusing on customer-centric solutions.
• Government Initiatives: The Indian government's promotion of initiatives like JAM (Jan Dhan Aadhaar Mobile) trinity, AePS (Aadhaar enabled Payment Systems), and UPI (Unified Payments Interface) has facilitated collaboration between financial institutions and FinTech start-ups.
• Synergistic Strengths: Traditional financial institutions bring robust processes and regulatory compliance, while FinTech start-ups offer technological innovation and agility.
• Market Growth: The digital payment market is experiencing rapid growth, with projections indicating significant increases in transaction volume and value. According to PWC report, the digital payment market has grown at a CAGR of 23% in volume and 21% in value since 2018. Digital transaction volume is estimated to reach INR 167 billion and value to touch INR 238 trillion by 2025.

Benefits of Collaboration

• Introduction of Specialized Platforms:
  • FinTech start-ups enable the development of tailored financial services, such as digital payment platforms, supply chain finance, and virtual money, which traditional banks may find challenging to create independently.
• Customer Selection and Pricing Improvement:
  • Financial institutions possess vast customer data, which FinTech start-ups can leverage to understand customer preferences and develop targeted products and services.
• Cost Reduction:
  • FinTech innovations, such as virtual assistants, robotic process automation, and electronic identification, help banks reduce operational costs and improve customer service.
• Optimization of Processes:
  • Technology-driven automation reduces staffing requirements and streamlines processes, such as loan approvals.
  • Example: SBI's E-Lobbies in India, which automate transactions and reduce the need for physical branches and staff.
• Enhanced Risk Assessment and Customer Onboarding:
  • Partnerships allow institutions to improve risk assessment, customer onboarding, and alternative credit scoring, creating a more efficient and transparent credit ecosystem.
• Addressing Shortcomings:
  • Collaboration allows for the combining of strengths, and the covering of weaknesses, creating a much stronger entity.

The New Normal

The collaboration between financial institutions and FinTech start-ups represents the "new normal" in the financial industry. This synergistic approach fosters innovation, enhances customer experiences, and drives market growth, paving the way for a more efficient and accessible financial future.