How fintech firms are disrupting the corporate banking ecosystem

The new age companies use different tenets of digital technologies to keep them agile and keep the business model transparent to service the digital savvy customers effectively

Corporate banks in India face greater degree of disruption today than even before, thanks to the mushrooming of new age digital banking platforms and fintech companies. With no legacy system to drag them, these new age companies with their asset light models use different tenets of digital technologies to keep them agile and keep the business model transparent to service the digital savvy customers effectively. In their 2019 report Unlocking Success in Corporate Banking through Digital, Boston Consulting Group and SWIFT India have pointed out that corporate banks need to ride the digital wave by leveraging Big Data and analytics among several other digital tools in order to thrive in this environment.

Key facts and figures

• $960m investment in India fintechs in 2018

• 42% yearly growth in fintech investments in 2018 vs 2017

• 1260 India fintech startups founded between 2015-2018 (second highest globally)

Coporate banks face key challenges on multiple fronts

Shrinking lending revenues: Erosion in share of corporate lending revenues to overall banking revenues

Increasing credit and fraud risks: Growing NPAs instances of reported fraud on LoUs (Letter of undertaking)

Rising customer expectations: Increasing expectations of sophistication and convenience in digital banking

Competition from Fintechs: Disruption in business model across the banking ecosystem through digital offerings

Key facts and figures

• 45% of India corporate banks showed declining profits in FY’18

• 64% of india corporate banks had return on capital below hurdle rate (6%) in FY’18

• 10% difference in pre-tax returns on regulatory capital between top quartile and bottom quartile banks

• 2.7% increase in gross non-performing assets from FY’17 to FY’18

Options before corporate banks to survive in the game   

• Develop productised solutions for clients across priority sectors

• Drive operational excellence by digitising their front-end channels and back-office processes

• Leverage Big Data and advanced analytics to transform their topline through a mix of pricing, selling and retention algorithms

Note: Coporate banks refers to those banks that offer banking services. Hurdle rate refers to the repo rate of 6%,  Source: BCG Research, FIDAC survey 2018 (Covering 30+ Indian banks including public and private sector banks)