IDFC First Bank MD & CEO V VaidyanathanThough financial institutions in India have moved to digitise their products and services and have started offering them through the mobile channel, there has been little effort to redefine financial products in order to make them more inclusive, IDFC First Bank MD & CEO V Vaidyanathan said on Wednesday. Fintechs should, therefore, work to reimagine product suites, he said, speaking at the Global Fintech Fest 2020.
Vaidyanathan said most banks in India and all over the world have now started providing almost all services on mobile phones, such as opening bank accounts, getting an account statement, enabling transactions and free credit reports. Yet, the underlying product has remained unchanged. “What many banks and financial institutions have done is that whatever was going on in the physical space has moved to mobile, but the underlying product, which says that a personal loan needs to be a three-year loan and if you prepay you have to pay a charge, has not changed. Therefore, apart from digitising, there is a big opportunity for fintechs to completely reimagine the product suites that are being offered,” he added.
Vaidyanathan cited the example of the annual percentage rate (APR), or the interest rate charged on credit cards, which stands constant at 36% even as the product delivery has moved to the digital space. “If someone is coming along and creating products and services which fundamentally redefine the credit card business, there is a very big opportunity, which comes up,” he said.
The existing structures in the financial system do not sufficiently address the needs of the lower strata of India’s population as this segment of people continues to remain cut off from credit. They continue to be served predominantly through the physical channel. “We probably nationalised banks thinking that we will meet the financial needs of these people and probably at best open bank accounts, but never lent credit. Now, there is digitisation possible in terms of collecting money from them but the big game is actually to use technology to provide not just credit but financial solutions to that segment of society,” Vaidyanathan said, adding that fintechs could achieve this because they were born to the ecosystem, against legacy institutions that are trying to adapt to technology and change.
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