The RBI’s move to grant a small finance bank (SFB) licence to the consortium of Centrum Financial Services and BharatPe, the digital payments platform, is welcome. The bank, named Unity Small Finance Bank, will now take over the assets and liabilities of the troubled Punjab and Maharashtra Cooperative Bank, providing relief to depositors. India needs more competing banks and innovative kinds of banking to extend the reach of formal finance to every section of society. Banks provide credit services, while fintech firms are capable of mining data from multiple sources to assess the creditworthiness of the borrower and viability. When the two work together, it can transform finance.
Banks have been slow to leverage digitalisation and data, while fintech firms collect data from multiple sources on their customers, markets and their finances, and deploy analytics, machine learning, artificial intelligence and algorithms to derive intelligence and insights. The new SFB will also open up the services native to new-age digital banks. The experience of China’s ecommerce giant Alibaba and Ant Financial Services that was spun out of it offers learnings on the power of data and digitalisation to bring in new services to small businesses. Alibaba created an SME lending business, using the volumes of transaction data generated by many small businesses on its platform, and later bundled its lending operation with Alipay to create Ant Financial Services. Its ecommerce sales generate different kinds of real-time data (such as company turnover, supplier volume and sales, customer profiles and so on). Ant could analyse all the behavioural data of borrowers in real time and process small loan applications within minutes.
But Ant feasted on captive data, and Chinese regulators have now clamped down on that model. India has taken a step forward and introduced a consent layer on top of the data so that the data-subject can share its data from multiple touch points with select bodies, who can process it to take decisions. Get going, Indian fintech!