How the COVID pandemic is changing the lending market for SMEs?

We invited Mr. Sudin Baraokar,?Global IT & Innovation Advisor (Ex. SBI, Barclays, GE, IBM) for the first session by Spatial Insights on Clubhouse.

Here are some highlights from that session:

How should financial institutions embrace FinTech to evolve and grow, and unleash the potential of FinTech in banking?

Banks make money only on lending, and the FinTechs need to step in and look at where the opportunity is. There are specific schemes guaranteed by the regulators which they can use to target startups wherein the need for guarantee is underwritten by regulatory authorities. FinTech startups are often asked for collateral by banks when they ask for loans. However, this is where FinTechs need to map the algorithm right, check out which government scheme can come to their aid and how, and then have the banks underwrite the loans.

As far as the SME Lending is concerned, what has already been done by the Lending Institutions so far and what remains to be done? What role do you think the FinTechs can play in this part?

In 2017, I benchmarked (as the Head of Innovation at SBI) our core banking systems at approximately 24000 transactions per second or 1.5B transactions in a day to serve more than 500M+ customers and 700M+ accounts. This is the most advanced, scalable, and state-of-the-art core banking system in the world, made in India and this is why, in spite of the lockdown last year, the banking services remained unaffected. There is a need for financial institutions to come together and figure out the one trillion dollar opportunity and tap into the potential of FinTechs.

Do you think FinTechs, instead of focusing on competing with banks, should focus more on coming up with complementary products or services??

Well, my view is that Banks are better collaborators. In 2017, I founded the Bank Chain Alliance as Head of Innovation at SBI. This was India’s first kind of FinTech blockchain collaboration alliance. I called 30+ banks and 10+ technology partners over lunch and I told them all a very simple thing- let’s shred our ego system and work on our ecosystem. We decide to share our resources, evaluate all these technologies and prioritize use cases. With such an immense focus on Deep tech, I also feel that the entire banking industry is on the way to go completely autonomous. So, the strength of the startup/FinTech must be in the technology. FinTechs cannot compete with a large bank in terms of balance sheet, reserves or resources. If the FinTechs can crack Deep tech expertise which indeed is the need of the hour, that is where probably the collaboration can happen better between banks and them.

Our banking system keeps evolving and improving their fraud safety system. Do you think FinTechs can survive and manage such frauds and defaults without any aid from the government ?

Frauds happen to be a huge opportunity for FinTechs. Over the years, the banks have tried to resolve and fix it but the amount of frauds continues to be massively high. FinTechs can really help in the technology, analytics, database, aggregator services or in collaboration with banks in solving frauds. FinTechs may even use synthetic data techniques for confidential data, run analytics and get back to the banks drilling down the problems and solving frauds. Risk management as a service is a good domain for the FinTechs to be stepping in.

How do you think Spatial data can aid the growth of the FinTech market in India?

Location intelligence helps you sit on a lot of monetization opportunities. You get the location data, map it to the category of people, run analysis and help tap the legislative ecosystem- an MP/MLA would need that data to serve the people right in order to be re-elected. It is a fantastic use case.

Shifting towards the risk and credit system, with the advent of models like Buy Now Pay Later or Micro Loans, how do you think the relevance of Credit bureaus is going to change? Do you see Alternate Data as one of the game changers and an alternate credit bureau?

The credit risk models have worked for centuries and they continue to work. Yes, Alternate Data models do exist but I feel the ones that would work the best are the ones that are linked to established risk models, for instance GST data can be used instead of traditional credit history. Social media data can often get you wrong information when it comes to serious business like money lending. Models based on existing KYC data or GST data is probably a better way to assess the creditworthiness of individuals.?

Coming to a slightly different domain, what is your take on Open Banking? Do you think it can power the next wave of FinTech? What do you think banks can do to promote its mass adoption?

Open banking is a scenario wherein the vision, innovation and transformation must come from the regulators and authorities. Open banking can happen only in an open, collaborative environment where everybody needs to support each other. We have to get this policy technology, financial innovation and transformation agenda started again to let open banking power the next wave of fintech. COVID has actually resulted in the disruption and in the short-circuit of all existing credit or lending models. Innovation has to be further pushed by the authorities and innovators and only then the FinTechs would be able to make complete use of the massive opportunity offered by open banking.?

A lot of FinTechs out there are not being able to balance their focus on both Technology and Finance. They are focused more on technology. Do you think it is high time FinTechs start getting themselves educated more on the financial terms?

I feel FinTechs should be thoroughly studying the existing Financial services and logical data models as well as focus on studying newer credit models. They need to focus on the working of equity markets, hedge funds and venture capital funds

Data Sutram, as an Intelligence Delivering Company is on its way towards the complete enhancement of the SME Lending Space in India. Our Alternative Data services are aimed at helping SMEs drift towards lenders offering more flexibility & prepared to extend credit to sector-specific lending risks. What is your take on this?

I think FinTechs need to have the aid of enterprises like Data Sutram. They need to have an in-depth knowledge of the sectors and their offerings, the platform shelf-life of their industry, and a lot more. A deep understanding of the industry, the work pattern, the money making means are a must for FinTechs to run analytics. FinTechs need to further go to the depths of companies and look at newer models and emerging patterns (For instance, the equity vs debt model), and for that 360 degree overview, they do need the Assistance of Business Intelligence offering companies like Data Sutram.?