Reserve Bank of India Deputy Governor SS Mundra on Monday said it may make business sense for brick-and-mortar banks to collaborate with the more efficient and agile financial technology (fintech) players.

This observation comes in the context of fintech companies disrupting every facet of the traditional financial services business and emerging as a challenge to the banking system.

Referring to a PwC 2016 Global Fintech Survey report, Mundra said up to 28 per cent of the banking and payments business would be at risk by 2020. The imminent competition to banks’ business comes from the new breed of fintech companies having capacities to address specific pain-points of financial customers such as remittance, credit, and savings.

The report added that micro, small and medium enterprise (MSME) banking is likely to be the fourth-largest sector to be disrupted by fintech in the next five years after consumer banking, payments, and investment/wealth management.

Jobs at threat

Another study done by Citi researchers predicted that the fintech revolution will wipe out nearly a third of all the employees at traditional banks in the next 10 years, said the Deputy Governor.

This prediction is essentially about the lack of growth and loss of business over time, though it may be difficult at this juncture to accurately gauge the possibility of any particular benefit or risk materialising in the fintech universe, he added.

In view of the challenges that fintech companies may present, Mundra felt that banks would need to assess the likely impact of disruption and reorient their business models.

“As the incumbents, they (banks) may need to leverage their comparative advantage to improve their customer relationships, change their internal processes, mindset, and internal structures. Some banks have already adopted the ways of the fintech companies by employing technology for making credit-decisions in a limited way,” said the Deputy Governor in his inaugural address at a seminar organised by the College of Agricultural Banking in Mumbai.

Fintech firms, according to Mundra, are good at innovative skills and mindsets supported by the regulatory freedom presently available to be innovative, to leverage Big Data and to be nimble in responding to market changes.

Despite some inherent advantages that the fintech players enjoy, it is not a one-way street for them, Mundra said. He added that they do not have a big client base of their own and without the expertise to navigate the regulations and licensing discipline of the finance industry, they can’t go very far on their own.


The Deputy Governor highlighted that a major strength that traditional banks possess is a reputation for trustworthiness built over several decades. Banks have capital and can weather intense competition. They also have the benefit of experience and tried-and-tested infrastructure, alongside specific financial knowledge of risk management, local regulations and compliance.

“In fact, on-the-ground market and customer knowledge and pre-existing client base of banks can be of immense value to fintech projects. In a nutshell, banks and fintech firms have different comparative advantages and a strategic collaborative partnership between the two would liberate them to focus on their respective core competencies and contribute to the innovation process,” said Mundra.

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