India's fintech expansion a threat to traditional banks

Retail banks can offset the "competitive threat" by adopting rather than ignoring innovative solutions, according to a new report.

People queue outside a bank to withdraw cash and deposit their old high denomination banknotes in Mumbai, India, December 2, 2016. To match Insight INDIA-MODI/CORRUPTION  REUTERS/Danish Siddiqui/File Photo - RTSVBDM
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The financial technology (Fintech) sector is rapidly expanding in India, which could pose a potential threat to retail banks.

There have been a wave of start ups in India in the Fintech space aiming to capitalise on the country's growing economy, rising incomes and gaps in the market, such as a large unbanked population.

One of many such companies, LoanTap, based in Mumbai, which launched last year, is completely online and specifically targets salaried professionals with loan products that are customised using minimal human interface behind its algorithms.

“We felt a constant need for credit solutions in the upwardly mobile salaried segment for acquiring assets or for personal consumption,” LoanTap's founders Satyam Kumar and former tech professional Vikas Kumar said in a statement. The company says it is using technology to target millennials.

A report released last month by Tata Consultancy Services and Clayton Christensen Institute for Disruptive Innovation, said that new entrants posed “a competitive threat to banks” but that if banks “are incentivised to adopt these solutions, rather than ignore them, disruption could be less of a factor”.

“The consumer lending space is where we see the most significant threat today, with the current wave of innovation and new entrant competition having the most impact”, said Aroop Gupta, the co-author of the report.

Indian banks are also pushing to make use of the latest technology.

For example, India's fourth biggest private sector bank Yes Bank, recently announced it is using digital technology and an artificial intelligence backed chatbot for retail loans to reduce the time it takes to issue a loan and save costs for the company through automation.

Veerchand Bothra, the chief innovation officer at Netcore Solutions, a marketing technology company, said the use of data analytics was helping banks to “position themselves as a financial supermarket”, so they can “upsell their various products”.