With the rise of BaaS and FaaS to Neo banking, one thing is certain: these trends mark the crossing of the threshold into the future of banking and fintech.
This article was written by Dale Weinbaum and originally published by California Business Journal.
While 2020 was a year where banking and fintech had to undergo unprecedented disruptions, 2021 is shaping to be a year where it’s all about how the industry is adjusting and adapting to them. According to the KPMG Pulse of Fintech report, India has already attracted over $2 billion investment in fintech in the first half of 2021.
This does not come as a surprise for the top fintech leaders and banking veterans, as they have already kick-started transformation within their organizations to ride the wave of ground-breaking trends in the industry.
This adaptation to last year’s upheaval means an increased emphasis on digitalization, customer centricity, and value differentiation by the top financial leaders in India and the world. So, what are these trends that are changing the banking and fintech industry in 2021? Let’s take a look.
AI in banking is growing quickly
As per a study, banks are set to witness a 22% reduction in operating costs by 2030, thanks to AI implementation. But what is it about artificial intelligence that has sent it high atop the list of famous financial leaders in India like Sanjiv Bajaj? The answer lies in automation and data intelligence. As more and more customers get on board, digital banking, banks, and fintechs have diamond mines of personal data at their hands.
With AI, they can track and collate this data and also refine it into critical insights that enable banks and fintech to introduce more personalization, barrier-free communication, real-time support, and open banking services. As such, Sanjiv Bajaj – top fintech leader in the country – has made it a mission to integrate machine learning, AI models, business intelligence, and data analytics across all the stages of the consumer life cycle at Bajaj Finance. This has propelled their new customer acquisition, cross-sell, propensity management, risk management, collections management, and customer service to new dimensions.
Rise Of BaaS
The industry is also witnessing a massive shift from online banking to digital banking. So, what’s the difference between the two? Well, the latter goes a step further and automates all banking services via core digital platforms. It represents the crux of the BaaS (Banking as a Service) model, where top financial leaders in India’s banks are integrating innovative financial services via 3rd party APIs. This fosters even greater avenues of collaboration between the incumbents and new-age fintech, giving birth to an interesting new-age paradigm that only spells good news for financial consumers. The boom in open API-like services like AEPS, UPI, mobile wallets, POS terminals, etc., is a testament to this shift.
Neo Banking Is Seeing More Takers
How about banks that have no physical presence at all? Yes, that trend is also gathering a significant pace in the industry. Enter neo banking – a term that the top fintech leaders and banking veterans can’t stop raving about. While digital-only banks with an operational license have still not been approved by RBI, ‘over-the-top neobanks’ by existing incumbents and fintech players are certainly coming to the fore. Additionally, existing banking leaders are also targeting the younger, more tech-savvy generations with digital-only brands – neo-banks of parent banking corporations, only with a different, more contemporary branding identity. Neo-banking in India has raised a funding of around $230 million – a sign of times to come.
Insurtech Is Gaining Popularity
Interest in insurance amongst the consumers seems to be peaking in the post-pandemic era. This need is now being met with the rise in the insurtech segment that has become the next great opportunity for both banks and fintech. Gone are the days of facing hassles and complexities in understanding, comparing, and buying insurance. 2021 has seen a rise in a plethora of digital platforms bringing everything about insurance together – right from comparison to personalisation to customised plans tailored to the needs of individuals at the click of a button. Already, there are over 100+ aspirants in the segment, primarily focused across aggregation and distribution, APIs, online-first insurance, IoT, claim management, etc.
Digital Payments Gearing Up For Large Funding
Another trend that we are witnessing is how digital payment entities are expanding vociferously to become all-around financial solutions providers and generating revenue from cross-selling other financial products by using digital payments as a draw. One instigator of this evolution is the reduced margins in the segment. Moreover, digital payment solution providers are also receiving huge funding and even lining up to dish out IPOs – such as the much-talked-about PayTM.
2021 is definitely the banking and fintech story for the ages. If there is a common thread amid the year’s trends, it is one of increasing affinity for collaboration and partnership between the incumbents and fintech players. Top financial leaders in India understand that if they are to keep pace with the rising consumer demands and technological interventions, then they must share their IP, customer bases, data, and platforms in the near future. This is indeed what visionaries like Sanjiv Bajaj hope for if India becomes a financial powerhouse – all while enabling financial inclusion and self-reliance for millions of people.
Thanks to the pandemic, 2020 proved to be quite an eventful year for both banking and fintech segments, leading to mass upheaval and disruption of value chains, customer interactions, and services. On the other hand, 2021 has seen the emergence of certain trends that are a sort of response to the events of the previous year, right from the rise of BaaS and FaaS to neo banking and more. One thing is for sure: these trends are geared to change the industry forever and mark the crossing of the threshold into the future of banking and fintech. In this article, we cast a closer glance at these game-changing trends of 2021 in fintech and banking.