Growth in Indian digital payment market not resulting in competitive advantage for fintechs: Moody’s

Payment-focussed fintech companies have led rapid growth of the digital payment market in India, but this may not lead into competitive advantage to expand to other financial services, said a report by Moody’s on Thursday.

This is because the primary network for digital transactions in India has an open architecture that levels the playing field for all companies, it said.

“However, their dominance may not lead to significant advantages over banks, because the UPI’s open architecture means that a large user-base does not necessarily make a particular service provider more competitive than others on the system,” said Srikanth Vadlamani, Vice-President and Senior Credit Officer, Moody’s.

The report also noted that major banks have also significantly beefed up their digital products that their customers have adopted widely.

To defend against fintechs and meet growing customer demand, private sector banks and State Bank of India (SBI) are increasingly shifting to digital channels across all key retail services – deposits-taking, lending and wealth management, it said.

“Fintechs will continue to try to move into other areas. The large digital-savvy banks will be able to withstand this competition,” it said, adding that public sector banks other than SBI have weak digital offerings and will be negatively impacted.

UPI transactions

It also said that as UPI transactions are not remunerative, the payment fintechs have been trying to use their platform to cross-sell other financial services. But, so far, their penetration in other retail financial services has been low, reflecting limited competitive advantages from, the report added.

By contrast, banks have increased their market share in sale of third-party products such as life insurance in the past five years.

It, however, said that while competition will increase, so will partnerships between banks and fintechs, or non-financial technology firms.

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