The Future of Banking in a Fintech-Disrupted World

Making projections for the coming year is difficult. However, because the FinTech sector is expanding in sync with market trends, 2023 will surely be significant for the financial industry. These big techs are developing tremendous technological advances that will continue to shock the traditional banking business. According to recent data, the global Fintech market is expected to reach $305 billion by 2025, growing at a compound annual growth rate of 22.8% from 2020 to 2025. This growth is being driven by a number of factors, including the increasing adoption of digital technologies, the changing needs of consumers, and the growing demand for financial services. India now has around 2100 fintech startups in different phases of development, all of which are upsetting well-established, conventional business models.

The expansion of the internet and mobile banking is one of the major sources of disruption. According to a report by Accenture, mobile banking users are expected to reach 8 billion by 2025, which is an increase of 39% from 2017. This is driven by the convenience and accessibility of these platforms, which allow people to manage their finances from anywhere at any time. These Big Techs are outfitted with AI, blockchain, and machine learning technologies, which have the ability to simplify the payment process and lower the cost and complexity of traditional banking systems. According to a report by PwC, blockchain technology is expected to add $1.76 trillion to the global economy by 2030. Additionally, the number of contactless payments is expected to reach $7 trillion by 2025, driven by the increasing adoption of mobile wallets and other digital payment methods.

Even though the Reserve Bank of India (RBI) claims that the banking industry in India is adequately capitalized and equipped with modern technology, for example, according to the Reserve Bank of India’s (RBI) data, digital transactions in India have been growing at a rapid pace, with the number of digital transactions increasing from 757 crore in January 2017 to 1,850 crore in January 2022, yet they are facing challenges such as rising bad loans and the need for greater financial inclusion.

The phenomenal growth of FinTechs is eating away at the banking industry’s market share in transactions like payments, investments, and now lending. Online lending platforms, such as peer-to-peer lending, are connecting borrowers with investors, allowing people to get loans more quickly and easily. According to a report by KPMG, the global peer-to-peer lending market is expected to reach $897 billion by 2025. This is driven by the convenience and accessibility of these platforms, which are providing access to credit for people who might have been excluded from traditional lending systems. Recent Fintech companies like PhonePe, MobiKwik, Google pay, Paytm and others have taken advantage of UPI’s favourable regulatory environment to increase their market share. Moreover, in the investing arena, Stockal, IndMoney, Appreciate, etc.; and lately, LendingKart, KredX, etc.; can be observed slowly attempting to create their niche in the Indian financial industry.

Intelligent minds focused on customer pain points have used faster, cheaper, and better technology to disrupt the established business models in a variety of industries, with banking being the most easily disrupted. Due to a current lack of funding, and resistance to change the majority of them haven’t been able to scale up and establish an entrance barrier. It remains to be seen how this will play out in a world with excess investable assets and big internet companies (Google, Amazon, Facebook, Linkedin, Instagram etc.) making significant forays into this sector.

Thus, in order to meet these customer expectations, the Indian banks will have to beat the FinTechs at their own game. All that they need is a change in mindset; they already have the funds and clients. Though, due to their licensed liability franchise, India’s biggest banks will survive, but not thrive. They might be able to keep their clients by developing strong alliances and spending money on technologies that would speed up integration. However, there is a chance that compliance, data security difficulties, and the ensuing regulatory oversights would raise their operating expenses.

However, while this is going on, the FinTechs sector will continue to proliferate. These Fintechs are everywhere, and the majority of them have benefited from the long-felt demand for facilitating seamless transactions.

It resembles a tug-of-war between old and modern ideas and as technology will continue to evolve, one can expect to see even more disruption in the banking sector in the coming years. Banks are being disrupted by Fintech startups, but they also want to collaborate with banks to maintain stability. The ideal strategy, according to T. Rabi Shankar, Deputy Governor of the RBI, is for banks and other financial institutions to view Fintech startups as partners and facilitators.

Who will prevail in today’s conflict is uncertain. But one thing is for certain. Our banks could win the war if they could master the brutal Tach data exploitation techniques.