Who said Banks and Digital Wallets Can’t Be Friends?

Up until recently banks would see fintech companies like Paytm as a huge threat to their existence. Simply because it influenced the way we handle our day-to-day transactions. But now banks and digital wallets have set their differences aside and joint hands instead.

Here is an insight into their relationship right from their break up to their make up:

1. The fallout:

Before Paytm or Freecharge even happened to us, people trusted banks for all their money matters. Right from paying regular phone bills to sending money to someone banks were our go to stop for everything. But after people realized the convenience, ease and discounts fintech companies offered shifting to these alternatives did not take much time.

However, this did not last long as Fintech companies could not afford offering hefty discounts always and banks gradually started coming up with their own digital wallets. Moreover, the older generations still preferred banking on banks for their money matters because of security reasons. That’s when it made sense for Fintech companies to reconcile with banks.

2. The Beginning of a friendship:

These are the different ways in which fintech companies joined hands with banks to become a more recognized and reliable entity:

Axis Bank and Freecharge:

Axis Bank acquired Freecharge for Rs. 385 crores to enter the fintech space. This provided them access to about 20 million mobile wallet holders of Freecharge as well as around a million offline and online sellers along with a strong tech team and support.

Paytm with ICICI Bank:

Paytm partnered with ICICI Bank for a short term credit product for its customers. This product called Paytm-ICICI Bank Postpaid gives customers instant credit for regular use like bill payments, movie tickets etc.

MobiKwik and Bajaj Finance:

This is a tie-up between MobiKwik and one of the largest non-banks in India – Bajaj Finance Ltd, to launch India’s first debit and credit wallet. This tie up will help, Bajaj Finance Ltd. extend credit facilities through MobiKwik’s innovative mobile app to the wide customer base of both the companies. MobiKwik is also in talks in talks with two or three banks to form a partnership.

Indepay partners with SBI Bank and DBS Bank:

Indepay decided that collaborating with banks would be beneficial to both parties and thus they changed their business model to partner with SBI and DBS Bank. They provided them with back end help so that their users can turn their cash transactions into the digital mode.

RBL Bank Ltd and IDFC Bank Ltd are providing prepaid cards linked to The Mobile Wallet and Mobikwik e-wallets:

Currently Digital Wallets might not be acceptable at all e-commerce sites or vendors. Even transactions between two digital wallets for example: Between Freecharge and Paytm or Paytm and Mobikwik aren’t possible. To overcome these issues, these companies have started offering virtual prepaid cards on apps for their customers. These cards work just like a regular debit card and has a 16-digit unique number along with an expiry date and a CVV number. They work on all Visa or MasterCard platforms and almost all online merchants accept Visa- and MasterCard-enabled cards.

But the biggest problem is that these fintech companies can’t independently offer Visa or MasterCard prepaid cards, they have to partner with banks for this. As per regulations, only banks can issue these cards. That’s why banks are providing prepaid cards to digital wallets.

3. Some animosity still continues:

Despite these collaborations few banks are trying to achieve the services of Digital Wallets on their own. Since fintech companies have stricter regulations imposed on them and people trust banks more, banks have an edge over fintech companies.

In March, Kotak launched a zerobalance account called 811 that would allow customers to make payments and simultaneously earn interest on the funds kept in the account, a facility wallet companies cannot offer. Further most banks now have their own digital wallet facility that can be linked to savings accounts, ensuring ease of payments.

4. But they both need each other:

Both banks and fintech companies have now realised that collaboration rather than competition is the way forward. Apart from digital wallets even fintech companies that give loans online find it better to collaborate instead of compete with banks. This is because its way cheaper to take a loan from a bank than take one online. Moreover, depositing money or taking a loan involves regulations that every fintech company needs to go through but banks already have that advantage.

So you might see a lot of such friendly collaborations in the future between banks and fintech. What’s your take on them?

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