Technology came to the rescue in the unprecedented year of 2020, when the sudden outbreak of COVID-19 threw a wrench into many plans and predictions. Banking, being one of the core sectors for socio-economic development, expedited adoption of digital technologies on priority as the lockdown hit.
Many public, private and even cooperative banks with customers who are not tech savvy attempted to meet the demands of their business and customers in the new normal. Fintech firms stepped up to accelerate the adoption of technology which led to the banking industry witnessing digitalisation it had not seen in the last five years happen in the span of five months. Video-based KYC was one such product of digitalisation that enabled banks to onboard customers virtually and reduce acquisition costs.
‘Hybrid Banking’ to be the norm
The year 2020 saw the concept of online-only ‘neo-banks’ rise in popularity, especially due to their key characteristics of providing financial inclusivity, competitive pricing and transparency of personal finances. Since the RBI does not allow the existence of digital-only banks yet, neo-banks have been helping traditional banks seamlessly acquire customers through partnerships. Therefore, we expect a Hybrid approach, where digital solutions and traditional banking to take off in 2021.
Fintechs will cater to the needs of both – the customers who prefer traditional banking and those who lean towards the digital experience. Banks that embrace the efficiency, flexibility and convenience of digital banking while providing the benefits of personalization and relationships of traditional banking will succeed in an evolving new normal.
New entrants in the cosystem
The banking ecosystem will welcome new players in 2021 who will bring in a new era in India banking. Corporations such as Aditya Birla Group and Tata Sons that already have NBFC arms will be keen to act on the RBI working group’s recommendation of permitting corporate ownership in private banks. Blockchain and Artificial Intelligence (AI) will become mainstream. An explosion of hi-tech digital initiatives by new and existing players will spell growth and financial inclusivity for the unbanked and underbanked areas.
Technology brings a new era
Alternate data will be more commonly used to determine credit scores by financial institutions that have been equipped with AI, video and other solutions by fintech partners. AI will lead to smarter lending where people who are diligent about their daily financial obligations will no longer be rejected for bank loans solely on the basis of a non-existent credit repayment history.
The adoption of blockchain will bring in transparency and security and eliminate the need for time-consuming manual intervention. It will expand the banks’ reach to small and medium enterprises.
Account aggregators will widely start implementing Open Credit Enablement Network (OCEN), a credit protocol infrastructure that will democratise the lending ecosystem and foster innovation. This will not only enable mediation between lenders and marketplaces, but will also deliver credit to small and micro-enterprises who usually find it inaccessible.
In conclusion
In 2020, businesses had no option but to learn and evolve. 2021 is going to see these learnings being executed. Undoubtedly, it is going to be an exciting year, one we hope will witness new milestones for the banking industry in India.