3 reasons why Banks and Fintech startups are collaborating for financial services

We are living in an age of a revolution that is data-driven and new technologies are being founded everyday to bring forward artificial intelligence (AI) and machine learning. This is in turn changing the way people live their lives and every sector imaginable is impacted – including financial services. How does this bring about a co-existance of banks and fintech startups?

Fintech startups that leverage AI and machine learning to bring about better financial services are becoming more mainstream and popular than ever. While this could be a threat to traditional banks, on the contrary we are seeing large financial corporations investing and partnering with these new-age fintech firms pushing digital advancement and growth.

Recently, the country’s largest bank, State Bank of India (SBI) had invested 20 crores in Aye Finance which will further help the Gurgaon-based fintech startup in last-mile outreach of MSMEs. While the benefits for such startups are more obvious, one could ask the question of why banks seem to be taking such decisions. They seem to have realized the value in collaborating with fintechs and here are the three main benefits of doing so:

Adapt or perish

With the digital revolution growing, banks are faced with the choice to either adapt or lose market share. Fintechs have the ability to expand and grow at a speed that banks cannot match. Thus, partnering with fintechs offers banks the chance to also expand and grow while piggy-backing on the agility startups.

Using tech-driven outreach and expanse, established finance firms can now reach low-income earning populations in even more remote areas – which in India is a large market to tap.

Unbiased, accurate decision-making

Using machine learning and other technology helps people make faster, better and more accurate decisions. When humans make decisions, it is inevitably a biased one, which is eliminated when using algorithms. With fintech startups implementing machine learning algorithms for data collection and decision-making without human interference brings less prejudice and a fair outcome.

Industry specific problem-solving

Fintech startups are bringing resolutions that traditional banks face which are specific industry problems. Be it ensuring credit flow for SMEs, introducing digital financial transactions, quicker and efficient loan application processes and more.

Thus, the value in tying up, acquiring or investing in fintechs is multifold for banks since they offer fixes for gaps that require improvement in financial services.

On the face of it, the relationship between fintechs and banks may seem like a David and Goliath battle. However, with banks depending on startups for machine learning and solving industry-specific problems and fintechs in turn depending on banks for scale, capital and other support it really is a match made in heaven.