The banking and financial services sector in India has been one of the country’s most stable and dependable economic pillars since Independence. But today, it stands at a critical inflection point. Over the last few years, the sector has had to withstand several disruptions. The ongoing COVID-19 pandemic has proved to be the biggest challenge it has faced in recent times. The restrictions necessitated by the pandemic accelerated the pace of digital banking adoption and changed the way banks operate. And these changes are likely to stay even after the novel coronavirus is vanquished. For traditional banks with their decades old operating models this is an opportunity to reinvent their business models with a digital technology powered front-end that supports a robust traditional banking core.
The Optimal Growth Environment
If the demonetization drive gave an impetus to digital payments, the ongoing COVID-19 crisis has fast-tracked the digital transformation of the entire customer experience – ranging from payments to even KYC and authentication processes, deposits withdrawals and more. In 2020, India overtook China with more than 25 billion transactions, and digital payments are expected to account for a whopping 71.7 percent of total payments volumes by 2025. And this shift to digital modes was not restricted to big corporations or metro cities alone. 72 percent of MSME payments went digital in 2020 as well. Experts expect this trend to continue in a post pandemic world, fueled by changing customer demands.
What Customers Want
What, then, do customers want from their banks? To put it simply, they want a better and more value driven banking experience. This includes ease of use, on demand access, hyper-personalized and relevant products and offers resulting in better and more meaningful engagement with their banks. This is easy to understand in the context of other services the modern customer avails of today. Consider the viewing recommendations on Amazon Prime based on viewing history, or preferred routes saved on Uber based on ride history. Most interactions customers have today with brands are hyper-personalized based on their previous engagement and usage and they naturally expect the same from their banks. The problem is that traditional banks with their legacy infrastructure and data silos cannot deliver this level of personalization. But digital native fintechs can and are making significant headway already. With an 87 percent adoption rate, India is the third largest fintech market in the world. Traditional banks need to relook at their strategies and reinvent their operational models to keep up.
The Opportunities to be Explored
Right now, the banking sector in India is sitting on a goldmine of opportunities. The Government of India is actively pushing the digital transformation and inclusion agenda. The Aadhar program is the world’s largest biometric identity program and provides the foundation for successful financial inclusion initiatives like the Pradhan Mantri Jan Dhan Yojana. The country’s burgeoning young and digitally savvy population demands innovation and uberization of services andincreasing penetration of smart phones and internet has brought on demand hyper-personalized services to their fingertips. By leveraging technology powered solutions Indian banks can overcome most of the hurdles in their way to consolidate their leadership position.
The Technology Powered Transformation
Banks have two major advantages. One is the significant customer trust they enjoy. And the other is the huge reams of customer data they hold in their repositories. It is now time for them to leverage this data as they move away from transactional banking models to behavioral ones. They must break down data silos to comprehensively understand customer behavior and engagement. These insights will then form the basis of their behavioral strategy and shape their hyper-personalization approaches to pricing, offers, bundles and even loyalty and rewards programs. And as the banking customer base expands to include new customers and previously unbanked ones, banks must consider new innovative models such as BNPL to effectively connect with and offer what these new customers want. Special schemes such as the Visa Bring India Home program to connect with MSMEs and artisans and bring them into the digital banking ecosystem are also important. Eventually, banks must move towards becoming orchestrators of a comprehensive ecosystem that brings together everything a customer needs and wants under one umbrella.
Of course, to capitalize on the opportunities before the sector, banks need to have a powerful and advanced digital foundation in place. Traditional systems, technology and capabilities will not deliver the agility, scalability, analytics,or behavioral business models banks are looking to implement. They must now modernize their systems to implement capabilities like relationship-based banking, hyper-personalization, and more. Many traditional banks are adding powerful digital capabilities to launch value driven platforms and business models. SBI’s YONO, DBS’ Digibank, the IDFC First Bank and even the India Post Bank that takes banking to every doorstep in the country are some interesting developments. This trend is likely to continue to pick up pace over the next few years with more synergetic partnerships between banks and fintechs and innovative new strategies from banks themselves. Implementing powerful middle layersolutions can help banks adopt digital models without disrupting the core banking platforms.
The business of banking is undergoing significant transformation, and organizations that do not take this opportunity torevamp their business models will lose out on future growth. It is not a question of merely adopting cloud models for greater scalability and agility. Right now, banks must focus on transforming their business and operational models to unlock a new digitally powered customer centric era of banking.
Views expressed in this article are the personal opinion of Amit Dua, President and Global Head – Client Facing Group, SunTec Business Solutions.