Tech-ing the financial system forward: Equitas-Google tie-up will target a clientele uneconomical for legacy banking to serve

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September 13, 2021 5:30 AM

For lenders like Equitas that have found it hard to build a deposit franchise, Google Pay’s Spot platform is a way to source deposits from a whole new set of customers who would otherwise have been impossible to reach.

fintech sectorBut it is more than likely possible RBI will soon insist on more regulatory oversight for a whole host of new-age lenders. (Representational image)

On the face of it, it is no more than a symbiotic relationship with gains for both partners. But the ramifications of the tie-up between Equitas Small Finance Bank (SFB) and GooglePay could be larger. Whether the regulator will worry BigTech might be getting into territory that could pose risks, we may not know for some time. For the moment, it is other lenders who will sit up and take notice of Equitas’ move to garner deposits on Google Pay’s business section through Google’s Unified Payment Interface (UPI), for a fee. It is not as though banks and other intermediaries have not been mopping up deposits through marketplaces and aggregators.

Equitas is clearly using Google Pay’s vast reach; although there is no official data on how many users the platform has in India, it accounts for 35% of UPI transaction volumes and not too many others can match that. More important, GPay is used by youngsters—in the gig economy, for instance—and others who may not have sizeable fixed deposits. A big chunk of these could be these workers, yet untouched by the traditional financial system that found the unit economics of reaching out to them unviable. The ease of creating the deposit and the relatively high rate of interest can be a winning combination.

For lenders like Equitas that have found it hard to build a deposit franchise, Google Pay’s Spot platform is a way to source deposits from a whole new set of customers who would otherwise have been impossible to reach. And, it is not just deposit-sourcing that Spot facilitates. In a recent blog post, Google India said products and services from the financial sector have found Spot to be particularly useful, with lenders like CashE and Zest Money, investment platforms like Groww and brokers like 5paisa seeing significant engagement from Google Pay users.

There’s no immediate threat to legacy banks because while it is true that the customer segments that traditional banks and their new-age challengers cater to are different, there are significant overlaps too. For instance, the ‘buy now pay later’ (BNPL) consumer of today could be the credit card user of the future and the hairdresser accepting UPI payments could be a potential auto loan borrower. That some legacy lenders have fashioned a form of BNPL or debit card EMIs shows they’re eager not to lose out. Nonetheless, many of the traditional banks could find it hard to keep pace with nifty new lenders, especially their more lightly-regulated competitors while innovating with products or marketing solutions. They can’t be relying forever on regulation to remain relevant in some segments of the digital space, such as the UPI platform, and must spruce up their suites of products and services.

But it is more than likely possible Reserve Bank of India (RBI) will soon insist on more regulatory oversight for a whole host of new-age lenders. This universe is expected to include fintechs of all hues, given their increasing presence in the financial system, and more importantly, their linkage with existing players. To be sure, the pure digital lenders account for a fraction of the total loans, but they are building scale, and regulation needs to come in early rather than later. Moreover, the linkages between BigTech and lenders could worry the regulator. Google may not have visibility on what products customers are selecting on merchants’ platforms and the responsibility for the deposits lies with the lender. To that extent, it is merely a platform, no more. Nonetheless, RBI would want to keep a close watch; it wouldn’t want BigTech to become too big in India’s financial system.

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