Indian banks have ceded the payment ground to financial technology companies, but it is time to “wake up!”, said Uday Kotak, managing director and chief executive officer (CEO) of Kotak Mahindra Bank on Friday.
He was speaking at the inaugural InFinity Forum organised by International Financial Services Centres Authority (IFSCA) and Bloomberg. The topic of the event was “FinTech Beyond Boundaries - A Banker's Perspective.”
When it comes to adopting digital, “Indian banks have been behind the curve,” Kotak said.
“Indian banks have allowed the growth of Unified Payment Interface (UPI) payments and essentially, they've been monopolized by key players – Google Pay and PhonePe – and they have got 85 per cent market share,” while the Indian banks dragged their feet in the space expecting not enough income in payments.
“It’s a wake-up call for Indian banking. Wake up! Large parts of the traditional financial markets are moving out,” he said.
“Bankers were short-sighted over past years. Their standard response was ‘Oh!, there is no money in payments,” and they let the payments market effectively be taken over by these two or three companies,” said Kotak.
Consumer technology companies have revenue models outside finance, for example in the advertising space. However, banking regulations prohibit banks from having non-financial businesses.
“There are serious issues about how to draw the lines and simultaneously there's an issue about financial stability. All that I'm saying is we need to make sure that in the name of competitive service, we don't have a systemic and a stability challenge at the same time,” said Kotak.
On fintech companies allowing deposit mobilisation through their platforms, the veteran banker said the terminal issue was the risk of “who is raising the deposit? Is it the consumer tech company, which is the apparent front engine which is going to the customers and marketing deposits, and who runs the risk of the underlying asset?”
“So we need to make sure that as we vote for FinTech, you must also be clear that we do not betray trust. The Prime Minister this morning mentioned the most important aspect of the digital growth is consumer trust that has to be protected at all costs.”
Banks must have the ability to feed the enormous data being churned out by the financial system into analytics and machine learning. Especially, the turnaround time for micro-small and medium enterprises (MSME) must enable an MSME to get clarity on a loan in minutes, if not seconds.
“I think that revolution is on us. The whole lending and the platform which will develop will make it possible for MSMEs to raise money, at least within the same day, rather than having to wait for a few weeks before they know whether they're going to get the money or not.”
The banks are working towards that transformation beyond Aadhar, UPI and India Stack.
Non-resident Indians with passports and persons of Indian origin could be allowed to use UPI to popularise the instrument.
“Geography is history in the post-covid world,” said Kotak, stressing the need to expand the Indian payments system globally.
“I would like to say that India has revolutionized in the area of digital payments and the digital systems. In many ways, we are leapfrogging many countries and I do believe that our UPI payments systems, as well as our Aadhar unique identity basis for transactions, is a world innovation,” he said.
“I would love to see how we can export it globally. Frankly, it can be used even in developed countries, but certainly in countries which are developing and I would strongly encourage building bridges using these two systems to make India a global financial technology and digital player,” said Kotak.
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