How Financial Institutions and Online Lenders Can Thrive Today

In the ever-evolving world of finance, the rise of fintech has been nothing short of revolutionary. However, as Federal Bank's Managing Director and CEO, Shyam Srinivasan, rightly points out, fintech is not necessarily the harbinger of doom for traditional banks. Rather, it has reshaped the financial landscape, offering new opportunities and challenges for both sectors.

Recent data from the FACE-Equifax Fintech Lending Trends Report reveals that digitalized fintech companies disbursed a staggering 71 million loans worth Rs 92,267 crore in the year ending March 2022. This represents a significant increase of 21% in value and an impressive 49% in volume. These numbers alone underscore the fintech sector's rapid growth and influence.

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However, Srinivasan's perspective emphasizes that fintech has not yet fully infiltrated all revenue-generating areas within the banking sector. Traditional banks continue to hold their market share, especially in long-term credit provision, where fintech companies may struggle due to risks and uncertainties.

One of the key challenges in this evolving landscape is the potential for misunderstandings or difficulties in fintech-traditional bank collaboration. The two sides may have different approaches, priorities, and risk appetites, making synergy a complex endeavor.

Interestingly, the research highlights that 80% of digital lending customers are under 40 years old, with a notable 16% comprising clients under 25. While the 31–40 age group still dominates the market share, the younger demographics are witnessing substantial growth in disbursed funds, signaling a shifting preference toward digital lending platforms.

The focus on payments by tech giants, referred to by CS Setty, Managing Director of State Bank of India, as "Big Tech," is a notable trend. These companies have been quick to adapt to shifting payment trends and technologies, potentially leaving some traditional banks behind.

Personal loans have emerged as the dominant digital lending product, constituting a remarkable 83% of disbursements, equating to over 60 million dollars and approximately $803 million. In 2022, personal loans from digital lenders witnessed a remarkable 46% increase in volume and a 35% surge in value, with consumer loans experiencing the most significant volume growth at 63%.

Setty's assertion that traditional banks that initially missed the payments sector's wave might not need to rush to catch up raises intriguing questions. Established players often enjoy a significant advantage in terms of trust and infrastructure, which can be difficult for newcomers to replicate.

However, as with any rapidly changing landscape, there is a delicate balance to be maintained. Uday Kotak of Kotak Mahindra Bank raises the question of consolidation in the banking sector, echoing a broader discussion within the financial industry about the ideal number of players for maintaining competitiveness.

The financial industry's future lies in its ability to strike a balance between innovation, consolidation, and adaptability to meet the evolving needs of a diverse clientele in the digital age.