Adopt tech and be agile, else become history: Mundra to banks

Reserve Bank deputy governor SS Mundra warned that unless traditional banks quickly convert themselves in to a new-age digital banks, they face the risk of becoming history.

"The age of fintechs is here and for the incumbent banks there is no time to lose. Banks that do not quickly convert in to a new-age digital banks run the risk of becoming history," Mundra said here while addressing the NAMCABS Seminar on MSME financing organised by the central bank-run College of Agricultural Banking.

Asking the brick and mortar banks not to treat fintech companies as "threats" but as an "opportunity", he said "traditional banks would need to tap the requisite talent and create an environment where such talent can innovate and be agile. Banks must view the success of fintech ecosystem as an opportunity and not as a threat."

Noting that fintech companies are disrupting every facet of the traditional financial services business and have emerged as a challenge to the banking system, he quoting a recent PwC global report said "up to 28 per cent of the banking and payments business are at risk by 2020."

Mundra said the imminent competition to banks' business comes from the new breed of fintechs having capacities to address specific pain-points of financial customers such as remittance, credit, savings etc.

The 2016 PwC report predicted that the MSME banking is likely to be the fourth largest sector to be disrupted by fintech in the next five years after consumer banking, payments, and investment/wealth management.

Quoting another study done by Citi, he said the fintech revolution will wipe out nearly a third of all the employees at traditional banks in the next decade.

This prediction is essentially about the lack of growth and loss of business over time, though it may be difficult at this juncture to accurately gauge the possibility of any particular benefit or risk materialising in the fintech universe, Mundra said.

"In view of the above challenges that fintechs may present, it seems to make business sense for traditional banks to collaborate with them as they are more efficient and agile. Banks would need to assess the likely impact of disruption and re-orient their business models.

"As incumbents, they may need to leverage their comparative advantage to improve their customer relationships, change their internal processes, mindsets, and internal structures," the commercial-banker-turned-central-banker warned.

Though some traditional banks have already adopted the ways of fintechs by employing technology for making credit- decisions in a limited way with many using credit scoring models for retail and SME borrowers, he warned that "what still eludes them is the nimble-footedness of fintech players, which alienates the potential borrowers."