How Banks and FinTech companies can hold the economic fort together?

Recently, a UK based FinTech company came up with a tool to assist businesses in securing loans based on their past incomes as collateral. Once fully operational, this tool could be a great support for smaller businesses to stabilize their revenues and keep afloat in these uncertain times.

The phrase, “When the going gets tough, the tough get going” holds true now more than ever; and testimony to this are several FinTech companies that are stepping up to the ongoing global health crisis and brainstorming innovative solutions within the confines of their homes.

The virus is moving at a rapid pace and whilst the government is rolling out several initiatives and funds to support the masses, it cannot be denied that SMEs and MSMEs are facing the brunt of the economic downfall. Without strategic support from larger financial entities, these businesses will not be able to survive the storm for long.

Two sides of the same coin

The past year had already promised greater collaboration between banking and FinTech firms with the aim of quality solutions for customers. This year, as we enter the second quarter with anomalous challenges hovering over the global and national economy alike, banks and NBFCs need to come together to innovate and create relevant solutions for people and enterprises while addressing liquidity and credit concerns at the grassroots level.

Banks have worked relentlessly over the past 20 years to produce sticky solutions for business and customers. However, a lot of traditional banks that want to deploy and lend funds, are willing to do so but are not operationally equipped for the same as they are used to lending in a more traditional mechanism. They are getting overwhelmed by loan requests from small businesses. Thankfully, FinTech companies are built with technologies that can help approve loan applications in a much faster manner, scale accordingly and get money to where it’s needed the most.

Several companies are already addressing key hurdles faced by enterprises when it comes to business lending. FinTech companies have also extended support to banks in loan application assessments and disbursements. They are modifying their offerings to accommodate the needs of banking companies that want to connect to businesses and distribute funds with their existing capacities. These are great examples of how FinTech inventions if supported adequately by concrete banking tools, can help with some of the most difficult challenges faced by the government.

An important time for FinTech

FinTech innovators are capable of reaching out to those parts of the economies that were relatively untouched by banks; being too small or risky or areas wherein banks are uncomfortable to operate. This enables them to serve a broader digital economy. The role of FinTech firms is key in the current scenario because they can easily adapt to new environments and technologies.

Global FinTech companies offering diverse solutions from procurement services, digital payment tools and digital lending technology have stepped forward and vouched to protect economies from a possible wave of bankruptcies, by extending faster payments to people and businesses.

Further, as the WHO encourages contactless payments, many businesses are moving towards digital payments for transactions to prevent the spread of infection. This dependence on digital banking is a great opportunity for FinTech firms to bring enhanced solutions to the table.

Although this increases the proportion of digital transactions, there has been an evident overall reduction in payments across the country due to reduced spending, leading to lower profitability for firms. Additionally, with people being inclined to invest more ‘safely’, investments in risky early-stage FinTech startups are slowing down. In such times, the collaboration of FinTech with traditional banks could be a win-win for both.

The Way Forward

Unprecedented crises like these demand competitive solutions to meet distinguished consumption needs. The future will require us to reconfigure value chains for financial services across the board and pick up from distressed times, strategizing for a new tomorrow.

Empowering organizations by AI and cloud computing, FinTech companies are helping organizations to derive macro business insights on a real-time basis and assisting them to make informed decisions in these testing times. On the other hand, banks need to be more involved with FinTech innovators by allowing them to discover more on the UI/UX space and backing them with improved core banking functionalities.

As banks hold on to their customer based models and gradually progress on the principal banking front, they must partner with technology innovators that have lesser resource requirements for quicker, better and futuristic outputs. This will enable FinTech players to produce need-based services for businesses and customers with better revenue modelling for both. Also, they will benefit from solid financial systems of banks and a larger business/ customer base to interact with.

Since FinTech players are not bound by the shackles of traditional restrictions, they can help other sectors to emerge from these crises. The emergence of alternative credit platforms and innovative business models are set to shape the lending space and drive financial inclusion.

At this time, beneficial partnerships across industries including telecom, e-wallets, banks and similar can contribute to meeting evolving needs. An entity’s capacity to innovate will dictate the path ahead for it. Decisions have to be made dynamically and aggressively.

Collaborations between banks and NBFCs can indeed step up and assist governments to protect economies, rather than functioning independently or in competitive space. The government must extend sufficient support to FinTech partnerships to unearth their true democratic potential.

Hozefa Muchhala, Founder and CEO, Ginger Root Code Factory