It’s often been said that we live in extraordinary times. Not only is it true of the pandemic we’re experiencing, but also of the fintech revolution that is quietly taking place amongst us.
As a founding member of one of the globe’s fastest-growing neobanks, I have had the good fortune of going beyond shallow waters and dive deep into the upcoming market & technological trends shaping our financial future.
Three years ago, when I co-founded Open, the big banks had just started to open up to the idea of collaborating with fintech companies. And just a year before that, demonetisation forced India to consider digital payments as a legible option.
Fast forward to 2020, a total of 155 banks are now live on UPI. In September, they clocked 1.69 billion transactions which were worth INR 2.98 trillion. Meanwhile, here at Open, we saw a 164% rise in the value of collections made online by businesses. This is a clear indication of an up and coming trend.
Digital India is now leading the way to a fintech revolution
The 2,174 fintech startups that operate out of India have a pivotal role to play here. They’ve been merging financial services with every single layer in our daily lives.
But, and there’s always a but, banking has been the slowest amongst the rest of the financial services. The reason being, unlike other financial services, banking has always been a brick-and-mortar service provider.
But, most people don’t want to think about banking. They just want it to work. This is true of people like you and me. This is also true of businesses who have to focus on scaling and have very less time to bother about day-to-day banking.
This is exactly where neobanks like Open come in. To bridge the gap between banks and the customers who now expect a fully digital & seamless banking experience.
Ladies and gentlemen, welcome to fintech 2.0!
In the previous paradigm, banks forced customer journeys to revolve around them. This changed rapidly when PSD2 was administered by the European Commission in early 2016, which in turn led to a rise in open banking practices.
It all started in 2013 when RBL Bank & Yes Bank exposed their APIs to other developers/partners to build innovative financial services. Back then this was limited to powering a few of the leading wallet providers who didn’t have a PPI (Prepaid Payment Instruments) license. Soon enough, many other banks like ICICI Bank, DCB Bank, and Kotak Bank followed suit.
The game has become much bigger in 2020. And those of you who are fans of World of Warcraft like I am will know that it is now a multilevel one with multiple players who are working towards building their own empires.
Or in simpler terms, non-finance businesses are now looking to build & offer integrated financial services to their customers. We now live in a world where a food delivery company can soon provide a debit card to its customers for retaining loyalty points and other rewards.
And the magic tool which allows them to do so? Banking-As-A-Service or BAAS – the latest buzzword to rock the fintech ecosystem.
If you’re a business owner, you can use BAAS to offer your customers your own debit card where they can collect loyalty points thereby increasing your brand engagement. You do not need to rely on a bank to partner with you anymore.
Just a few lines of code and any business can become a banking or rather a financial services provider. That is the beauty of BAAS.
Ok, understood. But considering that banks are already providing BAAS, a pertinent question arises here.
Are 3rd party BAAS providers going to be redundant soon?
The honest answer – no, not at all.
While legacy banks are still struggling to update their APIs to the modern infrastructure, 3rd party providers have been quick to provide easy-to-adapt API infrastructure to businesses to build a variety of financial verticals for themselves.
They provide a less stringent compliance procedure which means that it only takes a business about 2-3 months to build, test and finally release a financial product out of the sandbox. FYI, this process takes about 8-9 months with a traditional bank.
My point is: 3rd party providers, by the nature of their flexible structure, can provide customized offerings to each and every one of their customers. This means that small and medium businesses who up until now did not have any customized banking solution can now look forward to having all their banking needs (and more) taken care of, the way they want it.
And in India, we’re talking about taking care of banking for all 51 million SMEs. This number is only growing day by day.
So yes, BAAS providers are here to stay and they’re at the helm of the financial revolution that is slowly but surely penetrating our lives.
Truly what exciting times we live in!