Are Traditional Lenders Ready for Partnerships with Fintech Companies?
Given the significant interest in fintech globally, and its ongoing evolution - the word 'fintech' is now officially in Oxford dictionary. The fintech ecosystem in India has caught up fast with its global peers in terms of adoption and is expected to reach USD 2.4 billion by 2020. Fintech firms are undoubtedly having a moment. Fintech driven alternative lending is the second most funded and one of the fastest growing segments in the Indian fintech space. At last count there were over 20 plus digital, alternative lending companies, each with their version of truth, and probably another twenty in the stealth mode. One thing common with most new age lending companies is that they rightly understand that they have better chance of succeeding by collaborating with the existing lenders like Banks and NBFCs. Banks and NBFCs have also reciprocated these sentiments and are actively tying up with fintech lenders.How are these partnerships faring?
Many traditional lenders are finding it difficult to ‘let go’ and adapt. They are still second guessing and in spite of various tech solutions they want to ‘eyeball’ physical
documents. Fintech lending is so much more than just another distribution channel; it’s an opportunity for the banks to reimaging themselves digitally. As an ex-banker and now a fintech founder, I feel that banking and NBFC partners have to start by delearning and adopt fintech lending truly. Every single process needs to be challenged, if it’s not adding value then the same must not be dispensed. Open Innovation is the core of digital revolution. In their short journey, fintech in India have made credit process simpler, cost effective and offer better risk assessment. However, while partnering with traditional lenders they are often expected to carry forward their archaic precredit and post approval processes.
Some of the gaps which need to be filled are:
1. Traditional lenders still expect physical business verifications though there are solutions like work email and domain validation.
2. Instead of on ground visits, use GPS tagging as an effective tool for residence verification
3. Application forms and pre-credit documents are often required in physical format though soft copies are available.
4. In spite of eKYC facility, physical copies of KYC are required
5. Most of the existing lenders have not adopted e-agreements
For traditional lenders, fintech is an opportunity to innovate and do away with artificially restrictive processes and documentation that have been embraced by their risk departments. They must see themselves as a stakeholder in fintech success. Traditional lenders have inherent advantage which fintech companies don’t have; similarly fintech companies have nimbleness and technology which acts as a great equalizer. It’s a match made in heaven. Fintech lenders also have a responsibility to deliver on their promises. A quick look around and all you can hear is big data and machine learning, it’s all too early and too soon. It would be wise for them to look to the past and learn some lessons from traditional banks. Credit grows extremely fast in good times, but can also contract suddenly and if not prepared, it may be overwhelming. As an eternal optimist, I am sure traditional lenders like Banks and fintech firms get better at working together. This is essential to reap the full benefits of innovation. Hopefully these are starting troubles and this partnership will eventually thrive. All it needs is a real sense of commitment to re-imagine the business model.
Some of the gaps which need to be filled are:
1. Traditional lenders still expect physical business verifications though there are solutions like work email and domain validation.
2. Instead of on ground visits, use GPS tagging as an effective tool for residence verification
3. Application forms and pre-credit documents are often required in physical format though soft copies are available.
4. In spite of eKYC facility, physical copies of KYC are required
5. Most of the existing lenders have not adopted e-agreements
For traditional lenders, fintech is an opportunity to innovate and do away with artificially restrictive processes and documentation that have been embraced by their risk departments. They must see themselves as a stakeholder in fintech success. Traditional lenders have inherent advantage which fintech companies don’t have; similarly fintech companies have nimbleness and technology which acts as a great equalizer. It’s a match made in heaven. Fintech lenders also have a responsibility to deliver on their promises. A quick look around and all you can hear is big data and machine learning, it’s all too early and too soon. It would be wise for them to look to the past and learn some lessons from traditional banks. Credit grows extremely fast in good times, but can also contract suddenly and if not prepared, it may be overwhelming. As an eternal optimist, I am sure traditional lenders like Banks and fintech firms get better at working together. This is essential to reap the full benefits of innovation. Hopefully these are starting troubles and this partnership will eventually thrive. All it needs is a real sense of commitment to re-imagine the business model.
