Banking technology companies have witnessed a strong demand for their services as banks look to increase the pace of technology adoption. In a bid to minimise costs, banks have opted to outsource certain key functions to these service providers instead of rebuilding their own tech infrastructure, say experts.
“Obviously, the need for technology and digitisation has grown. While banks tried to do everything in-house, it has not completely worked out. After COVID, banks have realised that digitisation is imperative,” said Rohit Arora, chief executive officer and co-founder, Biz2X. He added that with the entry of platforms like Unified Payments Interface, customer exposure to digital channels has significantly improved and banks are keen to integrate various technology solutions to cater to these customers.
The latest Traxcn Geo Annual Report listed banking technology companies as among the top-performing segments in the Indian fintech sector. According to the report, loan life cycle management, lending-as-a-service and financial institution KYC software were among the top-funded business models in the last one year.
Experts note that the confidence around the business models of these firms has enabled them to raise funds even in a challenging environment. In 2023, Bengaluru-based Perfios Software Solutions raised $229 million in its Series D round, led by private equity firm Kedaara Capital.
Several other firms have also witnessed traction for banking technology solutions. “We aim to solve a genuine problem of the industry which is providing tech solutions that will help banks manage asset quality better and hasten the disbursement process,” said Manu Prakash, MD and head – partnerships and FI coverage, CredAble.
CredAble has enabled transactions worth Rs 5,000 crore in 2023. The company earns nearly 40% of its revenue from banking-as-a-service-tech licence. Its technology enables lenders to disburse working capital loans to small and medium enterprises.
Banks require technology to run key operations like account opening, customer onboarding and loan servicing. Banks’ attempted migration to digital has been limited to front office operations while the back-office technology has remained archaic.
“These core set of technologies in the back-office is ripe for disruption by banking tech startups which partner with banks and help the latter achieve operational efficiency,” said Rangarajan Vasudevan, chief data officer, Lentra.
Enkash co-founder Hemant Vishnoi said since it is difficult to update technology at a fast pace, banks prefer to adopt solutions provided by banking technology companies.
Lenders work with technology providers to build a middleware that acts as a bridge between their legacy system and the new technology. The market size of the banking technology industry is estimated at $16 billion. This is expected to more than double in the next 10 years.
Reserve Bank of India’s guidelines on establishing digital banking units and norms on outsourcing of IT services will help foster product innovation, say experts. Artificial intelligence, machine learning, data analytics, and blockchain are key areas for banks.