Banking on startups: How banks are chasing young enterprises to expand, become more agile

Startups are helping banks become more technology efficient and improve customer service.

Banking on startups: How banks are chasing young enterprises to expand, become more agile

Leading public and private sector banks in India are tapping into startups eyeing business opportunities by helping them with a host of services including financial, advisory, technology, etc. Banks are also seen as potential customers for startups’ products and services even as they help startups in testing their innovations. Such tie-ups or partnerships between banks and startups have increasingly become common now to reach out to a larger set of customers as smartphones have become the de facto channel to run businesses and bring into fold customers who were traditionally been untapped or neglected by banks.

HDFC Bank, for instance, through its SmartUp solution offers services right from incubation at different startup incubators, to helping them list on BSE, capital support, and multiple business services. The bank has set-up SmartUp Zones in 70 of its branches in 30 cities. The bank has also given Rs 14 crore in grants to more than 60 startups in the past three years, PTI reported, even as nearly 9,000 startups are currently banking with HDFC, according to Smita Bhagat, Country Head, Government & Institutional Business, e-commerce and start-ups, HDFC Bank.

Public sector lender Bank of Baroda also introduced its services for startups as it aimed at “establishing connect with at least 2,000 startups over the next two years,” the bank said. The initiative called Baroda Startup Banking was on Wednesday launched in 15 cities to offer customized current accounts, payments gateways, corporate credit cards, corporate salary accounts and credit facilities apart from its other existing products. Through tie-ups with different service providers, the bank would also provide cloud credits, mentorship, co-working space etc. 

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“Startups will be instrumental in shaping the MSME landscape in the country, over the next few years. We see a business opportunity in identifying young and talented businesses and increasing engagement with them as they become bigger,” Sanjiv Chadha, MD and CEO, Bank of Baroda in a statement. The bank claimed more than 400 startups as its customers. Similarly, there are programmes including iStartup by ICICI Bank, YES:Head-Startup by Yes Bank, Start-up Banking by Axis Bank, SBI InCube by SBI.

Startups, on the other hand, are helping banks become more technology efficient and improve customer service. For instance, artificial-intelligence-based regulatory technology startup Signzy helps banks and financial institutions with real-time customer onboarding, verification and fraud detection through its video KYC solution. Similarly, risk management platform Datacultr helps banks and financial institutions significantly reduce their risk on ‘new to credit’ customers in giving microloans by asking borrowers to present their smartphones as collateral. On the other hand, sound-based payment acceptance startup ToneTag works with banks like Yes Bank, HDFC Bank, First Abu Dhabi Bank to help their customers make sound-based contactless payments.

The growing significance of startups for banks is also likely to help boost the investment ecosystem for startups that have largely been raising capital from foreign investors. Infosys co-founder R Narayana Murthy had recently urged banks, as reported by PTI, to invest in startups as there is the requirement for domestic money to play an important role in the ecosystem. In fact, only one-tenth of $60 billion invested into startups in India since 2014 has been invested by domestic investors, said former Infosys director Mohandas Pai.

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First published on: 26-02-2020 at 18:30 IST