The driving force behind digital banking is not just the availability of technology but also the rising level of competition. Already 21 provisional banking licenses have been given, which is such a steep rise compared to the past that it boggles the mind. RBI governor Raghuram Rajan has now expressed that banking licenses will become available on tap for qualified applicants. So, the number of banks will surely jump up.
Most of these new banks will definitely chase the most accessible customer…the typical middle and upper class mid-age person who is tech savvy and looking for good deals. Numerous wallet companies have already targeted this segment and made inroads.
And then there are customer facing fintechs. While many fintechs target banks as their customers, there are many others who are directly targeting the end customer. While banks are banks at heart and adopt technology, these fintechs are IT companies at heart and they are adopting financial services. One major difference between them and banks is that fintechs are specialized entities – they focus on a single or few aspects of financial service and aim to excel at that. Typically, their objective is market domination for their chosen service. With that mission, they are well poised to make deep inroads into selected aspects of the banking space.
One advantage for fintechs is that they face far fewer regulatory and compliance issues. That gives them greater freedom and the ability to be very very agile. They are funded by venture capital and private equity rather than public deposits. So, the future of financial services is a battle between safety seeking pubic deposits and risk taking private funds. The regulator will surely have to resolve a lot of dilemmas to find the right way to bridge these two super-powers.
