BS Banking Annual 2018: A few million users going digital is not enough

The banking technology environment continues to see disruption. Traditional finance was challenged by fintech players like the wallet and payments players or even distribution players selling mutual funds or insurance using technology. Meanwhile, techfins — technology companies like Google and Amazon getting into finance — are challenging the incumbents. Leading experts discuss what the future of banking technology will be. Edited excerpts:  

Has the WhatsApp moment arrived in India? How do you see the fight between fintech and techfin panning out?

Nitin Chugh: The WhatsApp moment arrived when we launched the Unified Payments System (UPI), which opened up the payments infrastructure for everybody — fintech and other players. WhatsApp is yet to arrive in India (in the payments space) but the WhatsApp moment has already arrived. I don’t think there is any fight between fintech and banks, it’s only a perception. What most people are talking about is promoting a collaborative ecosystem.

B Madhivanan: We always keep a watch on new large players and the approach depends on their business model. If they plan to eat our lunch, we will play it in a different way but if they decide to expand the size of the plate, we are happy to play along and do what both of us do best.

Dilip Asbe: The whole issue is how quickly can we get to the WhatsApp moment. We are not fully there, but on the right track. We need a lot of changes in the ecosystem. While debating at a core strategy level, we have looked at all aspects of banks and fintech and how they can leverage the strengths of each other.

Akhil Handa: UPI is the starting point and moving forward, the ecosystem enablers are firmly in place to start delivering more and more services on a digital platform. The challenge I see is that some of the key ecosystem players have been put on a shaky pedestal. If we are to move towards not just digitisation, but financial inclusion driven by digitisation, we need some of those key enablers back.

Rajesh Mirjankar: Every bank and the sector itself has benefited with the emergence of fintech and techfin, and the merger of the two. The Indian ecosystem is large enough to accommodate every possible model of business.

Naveen Surya: In the Indian context, given the size of the market, a few million people coming onto digital services is not enough. We need to raise our aspirations to an even higher number. 

Should banks allow themselves to be disrupted and be forced to forge alliances? Or should they themselves disrupt and emerge out of the system taking a new form? 

Handa: Banks have no choice in being disrupted. There are way too many players in the ecosystem who have relevant access to eat into our market share, which is already happening all over the world. The real question is how we defend ourselves and how we pave the way for the future. 

Asbe: Collaboration is the only way, going forward. Banks should start to invest in fintechs that add value to their business and technology, and help them to dramatically change customer experience. This would extend the model beyond collaboration.

Madhivanan: Large techfins bring technology at a low cost and bring in a dramatic amount of scale. Whereas banks, as regulated entities, can bring trust and the right elements and work closely with regulators to keep the right balance. Each one of the new age players brings a new unique set of technological propositions, and there are dramatic synergies to expand on.

Surya: The penetration of financial services is currently still very low in India. Disruption is only required for a small fraction of the population, but there needs to be collaboration to service the rest of the population. So what we need is a convergence moment and not a disruption moment.

Mirjankar: The National Payments Corporation of India has provided the fast roads and manufacturers need to think whether they need faster cars. It is a no-brainer that all banks will go in for digitisation as and when the pace catches up.

Chugh: We strongly advocate a collaboration-led system. It is better to partner with fintechs, help them expand their ecosystem, help them scale up and also bring the best offering to the customer.

So you believe that alliances are the future and best way for digitisation?

Madhivanan: The biggest strength of banks is trust. So to that extent, regulation is both an asset and sometimes a liability. Some of the stuff that we would love to do, as we have more and more core technology in our DNA, the regulator might not allow us to do and for the right reasons. Some of the fintech players get to play the game and we play second fiddle, so the crossroads where banks and fintechs meet is the big story. In some areas, we will compete directly, and in others we will look at collaboration. It will be a wait and watch approach instead of jumping into everything.

Mirjankar: There are some changes that banks would need to look at. They can’t just ride a digitised environment like the payments system, but will also have to utilise artificial intelligence to ensure that the data of customers is bringing out the positives, and identify how to increase consumer stickiness.

Chugh: Fintech and techfin are interchangeable. It’s the era of financial services as platforms. It can be a bank or a technology company and in the future, even fintechs can scale up and become a platform, and services will be provided on these platforms.

Asbe: In the last three-four years, the debate in our boardroom is how NPCI can build a citizen-scale payments system. Banks are extremely good at the money management part and fintechs are good at the distribution part. With a collaboration model we can reach there faster.

Handa: We have a three-tiered strategy. One, we have established three centres of excellence — analytics, IT and shared services. These are core assets that we think we cannot outsource. The second part is partnerships. Whatever we need to do as a quick pilot or feel that we don’t have the current capacity to do ourselves, we partner others for these. The third is investment and here we have been a little slow. While we have made investments in the past as well, I feel that we need to do more. 

   

Will ATMs and branches become irrelevant? And will bankers remain relevant, while banks do not?

Mirjankar: We have seen that the volume of digital transactions is up by 50 per cent every quarter and there has been a gradual decline in ATM transactions. This is mainly due to the ease of digital transactions. It is the percentage and not the actual volume of ATM transactions that is going down. Digitisation has been a focus area, with banks looking to provide a digital experience within the branches. It will be a staged approach before branches move out and become service centres or kiosks.    

Chugh: We believe that five to ten years down the line, it will be common for customers to interact with robots in most places. So it will not be out of place for customers to interact with a humanoid in a bank branch.  

Surya: Given the condition of our country and the segmentation, India will remain an omni-channel country for at least another five to seven years. This means that you will need all kinds of channels, physical and digital, for different kinds of customers. However, the role and activity of these physical channels will be shifting.

Madhivanan: Physical channels will definitely remain. The closest model that we can visualise is that of the Nordic countries, where the number of branches has come down where it is feasible. But the size of the branch has definitely come down and the services rendered at these branches are different from the ones today. Micro and high frequency transactions will move away and never come back to branches but relationships, trust building transactions and large complex transactions will remain with branches.

Asbe: We will become a high-tech, high-touch model, going forward. ATMs are still required for tier-two to tier-six centres. The problem is that operating ATMs is not viable, as costs have gone up due to regulations, and interchange has not increased. So there has been a flattening in ATMs. Cash is still there and ATMs will still be needed for three to five years, so we need to find a way to grow them.

Handa: Our branches outside metro areas see an incredible amount of footfalls, from all sorts of people and not just senior citizens. There are people who need help filling up forms and other basic services. The high concentration of branches in urban and metro areas would require them to be refashioned into an advisory and light asset model.