Banks, fintech firms tie up to grow biz

A growing number of small and mid-sized banks in India are partnering with fintech companies to expand their reach and tap new customers, saving on costs and time to ramp up their retail network.

While large public sector banks are better placed in terms of branches, smaller private lenders are taking this route to onboard new customers.

Traditionally, banks have relied on their network of branches, especially in semi-urban and rural areas.

However, the smartphone boom and ultra-low data cost have given banks an avenue to expand their business without building new branches.

“Physical branch expansions are a costly affair and involve long-term planning. The challenge with physical branches is that you would be operating in a specific catchment area, and if you get it wrong in terms of identifying it, branch profitability may be hit,” said Parijat Garg, an independent fintech expert.

Garg said fintech partnerships also offer regional lenders the ability to reach customers across the country. “Lenders that are relatively new or have limited branch presence are more aggressively taking this approach,” he said.

A slew of banks has inked deals with fintech companies to augment their reach. For instance, SBM Bank India, a unit of State Bank of Mauritius; Equitas Small Finance Bank; and even large lenders such as HDFC Bank and Bank of Baroda have partnered with fintech firms.

Kochi-based Federal Bank, which has tied up with some fintech companies, plans to partner with more such firms. The bank has 1,272 branches, most of them in Kerala. In a recent interview, the bank’s chief executive, Shyam Srinivasan, said for about five years the bank’s incremental business growth from Kerala has been 20%, with the rest of India contributing the remainder.

“The next three-four years we think distribution will be manifold but not necessarily branch network. It requires us to work with fintechs. It gives you access to a different profile of clients, and if you are getting people digitally, chances are you are getting a lot more data,” Srinivasan said.

Some banks have teams working on artificial intelligence (AI) and machine learning (ML) to harness data, but it is easier to have a fintech firm that exclusively works on such tech. For instance, in August, Kotak Mahindra Bank deployed a do-it-yourself platform for missed loan repayments in a tie-up with fintech firm Creditas Solutions. Kotak said the platform, powered by AI and ML, delivers a personalized and non-intrusive experience.