Intel's founder Gordon E Moore had in 1965 predicted that overall processing power for computers would double every two years. Half a century later, we know his prediction proved to be true - computers over these years shrank from large roomful of apparatus to swanky smartphones.
The evolution of technology and banking might seem unrelated but they are not. In the 21st century, banking is all about cutting-edge technology, with decisions being taken using 'big data' analytics, and transactions taking place in real time over the internet. "In many ways, we see ourselves as a technology company with a banking licence," Citi Chief Executive Officer (CEO) Michael Corbat had said at the Mobile World Congress in Barcelona on February 25, 2014.
Mobile banking & e-commerce
Long, serpentine queues for even basic banking activities are now a story of the past; today's banks - billions of them, and counting - reside in customers' pockets, on their mobile phones.
The sector has changed considerably in the past 15 years, and India's banking regulator is aware of this evolution. "The day is not far when banks will be viewed more as technology firms offering banking products and services. While this will be a new challenge, I see this as an opportunity for banks to find new growth drivers," said Reserve Bank of India (RBI) Deputy Governor H R Khan in August this year.
Banking is undergoing a transformation, and the world, including India, is at the cusp of that change.
The concept of brick-and-mortar branches is fading fast, with consumers increasingly embracing technology for their basic banking needs, especially driven by a rise in e-commerce. According to an Assocham-PricewaterhouseCoopers study, India's e-commerce sector could rise beyond $100-billion mark in five years, from $17 billion at present.
Mobiles as virtual debit cards
Bankers see a future where the entire payment system will be built around the mobile phone architecture. And, given the rapid clip at which mobile apps are being adopted for banking, this seems credible.
"Five years ago, we did not expect mobile phones would have such a huge impact on banking. Now, we cannot think of a future without them," says Chadra Shekhar Ghosh, managing director (MD) & CEO of Bandhan, India's newest bank. "You already pay your taxi fares through your mobile. You could soon pay even your vegetable vendor through your mobile. The only challenge is how quickly we can educate the vegetable vendor."
A unified payments interface, launched in February this year, aims to make mobile phones double up as virtual debit cards. It will allow account holders across banks to send and receive money through smartphones using Aadhaar, phone numbers, or even virtual payment addresses like e-wallets. No bank account details will be required. Improvement in mobile data speeds, with 3G, 4G and beyond, will make the process hiccup-free.
Rise of the mobile wallet
Digital wallets have already become extremely popular with consumers, and all banks have launched their versions of wallets, or virtual prepaid accounts.
According to a Business Standard report, the number of transactions via mobile wallets in 2014-15 stood at 255 million, compared with 172 million transactions through mobile banking. Though the size of transactions through wallets remains smaller, mobile wallets exceed mobile banking in the number of transactions.
Given these, the concept of money is surely changing. "A currency note is only a token, not money itself. With mobiles, the token changes its form but money essentially remains the same," says Vijay Shekhar Sharma, founder & CEO of Paytm, one of the 11 entities that recently received payments bank licences.
India's banking challenge
More than half the Indians remained excluded from the formal banking fold, Prime Minister Narendra Modi said at the RBI's 80th anniversary in April this year. He urged RBI to set the target of bringing all Indians in financial fold by the central bank's centenary year. Work on that has already begun.
Under the Pradhan Mantri Jan Dhan Yojana, about 195 million accounts have been opened so far, and more than Rs 27,000 crore has been collected in deposits. The aim for now is to have at least one bank account for every household.
However, many of the accounts opened remain unused. To incentivise both the bank and the customer, the government is now transferring subsidies directly to linked bank accounts. Payments bank companies plan to target this segment.
According to Rishi Gupta, CEO of Fino Paytech, another payments bank licence holder, there are 175-200 million people below the poverty line in India; of them, at least 100 million are bankable, albeit through small-value transactions. The bottom 75 million people are bankable with various subsidies they get from the government.
A recent report by Accenture and CARE International UK said financial inclusion was a $380-billion opportunity in Africa and India.
Old vs new
Will banks cease to exist in their physical form? Probably not; but they might become less relevant. "Both traditional and new banks will co-exist and complement each other. The pie is big enough to accommodate all of us and more," says Paytm's Sharma.
However, with banking moving into the virtual world, the only option with the existing banks is embracing technology.
There already are some mobile-only banks - Fidor Bank, Number26, BankMobile, Hello Bank, Simple, Soon Banque, GoBank, Moven, Atom and even children-focused Osper Bank - that have turned the concept of banking upside down.
The payments firms are expected to have a similar disruptive impact on India's banking industry, but established banks are not ruffled. "Banks have a tremendous ability to disrupt the disruptors. Payments firms can provide plain-vanilla digital wallets. But banks have a lot of data; they can provide other services," Mrutyunjay Mahapatra, deputy managing director & chief information officer, State Bank of India, said at the annual Business Standard Banking Round Table, on December 8.
"Mobile is only an enabler. Wallet is also loaded on to a mobile. We must distinguish between technology as an enabler and technology as a business," said HDFC Bank MD Aditya Puri at the same function. ICICI Bank MD & CEO Chanda Kochhar said banks already had mobile offerings; technology might change the business model, but not the business itself.
Crypto currencies - Bitcoin became the first decentralised crypto currency in 2009 - are also seen becoming more mainstream, especially for large-value transactions. HDFC Bank's Puri sees the future of crypto currencies as "bright", provided the regulators are fine with it.
But Arun Tiwari, chairman & MD of Union Bank of India, doesn't think so. "You cannot wish the regulator to allow something that was created to bypass regulations," Tiwari says.