Rising technologies assisting NBFCs to evolve

Non-banking financial firms (NBFCs)

Non-banking financial firms (NBFCs) have been critical in serving the financial requirements of individuals and businesses that have historically gone unmet or neglected by banks. However, NBFC laws have recently been stiffer, borrowing costs have risen, and NBFCs are focused on niche markets and personalised goods and services.

NBFCs are currently concentrating their efforts on producing innovative products and serving low-income urban clients in unorganised industries. In such a setting, NBFCs are embracing business and operational models that are backed by technology that enable the smooth design, launch, implementation, and execution of customised goods and services.

Investing in new technologies and forming strategic alliances with incumbent financial institutions and FinTechs also allows NBFCs to reduce their costs when it comes to expanding their customer base, lowering customer acquisition costs, servicing existing customers, or de-risking the portfolio while attempting to overcome the increasing formal credit penetration in a growing economy.

New-age NBFCs are leveraging partnership networks across the value chain of lead generation, client onboarding, underwriting, credit/loan disbursement, and collection more than ever before.

AI, machine learning (ML), and big data have enabled lenders to evaluate individual consumer insights and develop alternative credit rating algorithms. Mobile and smartphone penetration has enabled NBFCs to connect with low-income consumers who can utilise their mobile devices throughout the lending cycle, including application, engagement, e-KYC, and e-signature for disbursements.

RPA has enabled the simplification of operational procedures, boosting productivity, accuracy, and cost savings. NBFCs are also experimenting and beta testing distributed ledger technology for a variety of applications like e-KYC, data interchange, loan disbursement and collection, and cyber security. Furthermore, application programming interfaces (APIs) are being developed and tested in order to create resilient linked ecosystems of diverse institutions and stakeholders.

FinTech and NBFC collaboration models

The FinTech business is moving quickly with cutting-edge technologies to make borrowing easier for clients and to address the shortcomings of the banking and NBFC industries. Banks and NBFCs are transforming their business models as well, but at a far slower rate due to legacy infrastructure, technologies, frameworks, approval procedures, and tight integration across business and technology value chains.

This is not to say that banks and non-bank financial companies are not innovating. The problem for banks and non-bank financial companies is determining which concepts to aggressively pursue in order to incorporate capital and technology. Banks’ complexity, scale, and compartmentalised structure make it difficult for them to perform all of this efficiently.

Given the velocity of change and client expectations, NBFCs recognise that by partnering and pursuing strategic alliances with new-age FinTechs, they have a higher chance of success.

Traditional NBFCs have an inherent edge that FinTech firms do not have. FinTech firms, similarly, have agility and technology, which function as a tremendous equaliser. Below, we look at the strategic collaboration and innovation methods used by banks, NBFCs, and FinTechs to get to market.

Praveen Khanna, Vice President Alliances, Scoreme Solutions Pvt Ltd. talked about the present and future of digital banking, the future of fintech and NBFCs at the BFSI leadership summit 2022.

He stated, “now if we move towards the future, the story has changed completely with the advent of fintech and the partnership between fintech banks and NBFCs digital banking ”.

He stated that fintech is now clearly present,right from wealth management to insurance. Digital lending is taking shape,so one could suggest that the Indian fintech market is expected to rise from 2.3 lakh crores to almost 8.35 lakh crores by 2026.

Padmabhushan Bahadure, Chief Technology Officer, IDBI Bank, said, “We are still grappling with studying deregulation. If I go back to the digital lending side, banks and NBFCs typically lend. And because of this legacy process, it takes longer for a borrower to get his money.

Now banks are engaging with fintech, but the process on the bankside needs some major overhaul. System integration is simpler, comparatively, but the process side is something where the banks become the bottleneck.

The Future of NBFCs

Adopting technology advancements throughout value chains can help in resource and process optimization, decrease turnaround time, promote intuitive and automated decision making, and assure consumer access to credit/loans at rates customised to their socioeconomic profile. This would provide NBFCs with significant power over traditional banking institutions, allowing them to achieve maximum expansion.

The capacity of NBFCs or FinTech businesses to make the most use of technology, human resources, and strategic alliances is critical to their success. NBFCs have a huge client base, and FinTech businesses have the necessary technology assistance; together, they may build a mutually advantageous partnership to enable customers acquire credit/loans.

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