What Yes Bank crisis taught FinTechs?

What went wrong?
Reserve Bank of India put Yes Bank under moratorium and the whole digital payment system disrupted. Payment companies like PhonePe, Google Pay, Paytm, Bharat Pe and those who are using UPI to transfer payments went through chaos. Customers and merchants found their money stuck in wallets and many restaurants, ride-hailing cabs avoided digital payments. This was because Yes Bank could not process or settle online transactions.

Yes Bank being the youngest bank in the country adopted digital rapidly. Yes Bank was very aggressive in adopting technology and opened its API for the FinTechs. Almost 40% of UPI business was managed by Yes Bank and 70% of FinTechs were connected with Yes Bank in some way. With the closing of Yes Bank infrastructure, wallets and FinTechs went on a pause mode.

Lessons that FinTechs learnt
As financial advisor recommends, “Always Diversify” your money and never invest in one single product. The same applies to FinTechs. FinTechs should never be dependent on one bank. It’s better to diversify. They should not rely on one bank one network. This is what I gathered from talking to many FinTechs. They are agreed to “Never put all your eggs in one basket” policy.

FinTechs must offer a choice to their customers and chose more than one bank. Let’s hope Yes Bank incidents will not repeat, but even if a designated bank is unable to settle or process the transaction due to network or server failure, the customer should have the alternative. In fact, initially, when payment companies started offering UPI services, there was a recommendation that more than one bank should be part of the network.

FinTechs now are approaching other banks to get access to their APIs for the payment settlements. What Yes Bank lost, will be a gain for new private banks.

Generally, the end-users get panic when he sees unsuccessful transactions and money is stuck. Because they don’t know what goes at the back end when they transfer money.