It’s no secret that digital banking apps of banks used to be full of friction. Some of it was caused by lack of customer orientation of bank IT and the others, by intrinsically friction-inducing regulations like two factor authentication for online payments.
Nonbank fintechs like PayTM spotted a play there. They delivered apps with far superior UX and CX, while finding ways to comply with or sidestep the same regulation that hobbled the UX and CX of bank apps. This created a natural attraction for fintech apps among consumers.
Fintechs then gave cashbacks and other incentives to acquire millions of customers for their apps, using oodles of venture capital to subsidize the resultant losses.
In the process, PayTM et al gained a big first mover advantage.
It’s true that some banks did a great job at being “fast followers” and relaunched their digital banking apps with more functionality and equivalent, if not, in some cases, better UX than fintech apps.
But there will always be a glass ceiling for the CX and UX of banks and their apps. More at Ketharaman Swaminathan’s answer to Why don’t Indian banks work on improving the UI of their mobile apps?.
Besides, banks’ business model will not permit them to make losses on a consistent basis, so it’s highly improbable that banks will keep giving cashbacks and other incentives to acquire customers over an extended period of time.
As long as fintechs are able to attract venture funding to “buy customers” and fund their losses, they should be able to survive the counterattack from banks.