In the swiftly transforming arena of Indian finance, the alliance between traditional banks and fintech entities is set to further reshape the industry in 2024. While industry lobbies may claim that the symbiotic relationship formed by the convergence of innovative technologies and financial services, one may legitimately ask: where, precisely, are these new possibilities for customer-centric solutions materialising? Especially considering the huge regulatory moat that banks have vis a vis fintechs.

Amidst the regulatory upgrades orchestrated by the Reserve Bank of India (RBI) in the year 2023, Indian fintechs have had to navigate a period of turbulence. Rather than hastily attributing any challenges to the regulator, the industry must acknowledge that the era of regulatory arbitrage is diminishing, with 2024 poised for additional tightening.

While some uncertainties persist, it's evident that the RBI is not inclined to transform fintechs into digital banks. At least for now. Unless the central bank’s internal bench strength and capabilities on digital supervision improve, it cannot afford to jeopardise financial stability in the name of nurturing disruptive innovation. A discernible hierarchy of regulatory acceptance is evident, particularly in the lending space.

Getting digi with it

Indian banks, traditionally perceived as conservative, are now actively embracing digitisation. On a lighter note, some of them have been claiming to be pioneers in digital banking, and yet their own internal systems, processes, and culture are not digital-first. But then, the year 2023 showed what happens when top management and boards push for digital engagement but do not follow this up with governance measures, as Bank of Baroda recently found out. The bank was barred by RBI from onboarding new users onto its mobile banking platform over “material supervisory concerns” about how it was onboarding users.