Fintech and Banks: Collaborating for Scalable, Compatible Solutions

New Delhi, Aug 7 (PTI) Financial Services Secretary Vivek Joshi on Wednesday urged the fintech community to work closely with banks to develop scalable and compliant solutions.

Speaking at the FICCI-IBA PICUP Fintech conference, Joshi said the fintech sector is growing very rapidly and India has the highest rate of fintech adoption compared to the global average.

Noting that fintech has transformed the architecture of the financial sector by providing innovative solutions for various services, he said, “I would like to urge fintechs to work hand in hand with banks, rather than building solutions on their own and then approaching banks… because banks, especially public sector banks, are dealing with very big, bigger problems.”

In his opinion, it would be better if the bank suggested the problem and the fintech ecosystem provided the solution.

“Since you (fintechs) are not working hand in hand with banks, a lot of information about the kind of challenges that the banking system is facing may be limited… so that would be the direction we should be heading in. A lot of banks have started engaging startups. So the idea is to present them with the problems and then ask them to come up with a solution, which would be very good,” he said.

Joshi said that while the potential of financial technologies is huge, the growing scope of their use brings certain challenges.

“Digital growth has thrown up some unique challenges, including governance, regulatory and statutory compliance, consumer protection and fair practices. Striking a balance between fintech innovation and rapid regulatory response is essential,” he said.

It is equally important to ensure that innovation does not outpace necessary security measures, he said, adding that cybersecurity, data protection, identity theft, digital financial fraud and financial education are other areas that require our attention.

Speaking about the Budget announcement, Joshi said banks should come up with new models for lending to SMEs.

Instead of relying on the balance sheets and profits generated by SMEs, the new model will rely on the digital footprints left by SMEs, especially micro and nano ones.

“I think fintech companies can help banks improve their ability to make digital loans,” he said.

He added that given the size and growing size of the market, there is huge opportunity for the fintech sector due to the growing share of the SME sector in exports.

The growing number of internet users in India, favourable regulatory and policy environment create huge potential for all entrepreneurial ventures, including fintech companies, he added.

Joshi added that emerging technologies hold enormous potential for the sector in terms of improving service quality, strengthening safety measures and increasing efficiency across the industry.

Speaking at the event, Indian Banks’ Association (IBA) CEO Sunil Mehta said that financial technologies have revolutionised the payments space and now it is time for the sector to transform the lending space.