Banks started as a place to keep money safe and have now evolved into a supermarket of financial services. They cater to almost all of a human’s direct and indirect needs through financial products or solutions that enable them to live their lives better. The past two years have pushed the industry further and faster into the future. For the everyday financial services experience to move to a fully virtual environment, banks are now focusing on experience-driven, platform-based banking leveraging the larger ecosystem. Here are the trends driving the future of banking in India.
Digitisation- As banks look to drive efficiency and modernise their infrastructure across the board, digitising processes and reimagining digital technology is today’s topmost strategic banking agenda. Processes like customer onboarding have already witnessed the transformation from physical papers to digital onboarding. However, customers today seek engaging and customised service designs that match the offerings of Internet companies. Hence, banks need to accelerate their digitisation process to meet the customers in their journey. It will lead to radical process changes helping in cost reductions, higher employee productivity, and seamless customer engagements.
Growth of Banking as a service (BaaS) model- The concept is emerging as a game-changer for many banks as they allow other partners to use their core infrastructure (including tech and regulatory licenses) to extend their products and services to a larger market. Banks benefit massively from this as their services (Remember, banks are the only entities that are allowed to sell certain financial products by the Central Bank – RBI) are consumed by downstream entities such as FinTechs, NBFCs, NEO Banks, and others that open these up for newer markets and customer segments. Banks have a regulatory arbitrage and can use BaaS to become a marketplace of financial products. While some banks are leading on this front, many banks are yet to tap into their full potential.
Modernising Payments- Payments and settlement systems are the foundation of the Indian economy. For the digital payments industry, in particular, the pandemic has played a pivotal role in introducing new developments coupled with technological advancements and regulatory support, leading to industry transformation. UPI has contributed significantly to this growth. However, building a robust payments ecosystem requires the infrastructure to be enhanced to support digital payments. Today, Cards, namely credit, debit, and prepaid, are one of the stable contributors to the growth of digital payments owing to the increasing number of physical acceptance points and rising adoption of e-commerce. In the future, banks will need to find an avenue to leverage UPI and Cards to offer newer services to customers. Collaboration with Card networks that are innovating can help banks to discover and reach a new audience segment with custom payment programs.
The proliferation of Super-Apps- Gone are the days when customers used to use an app for a particular service. For example, many apps that started as single-use case apps have transformed into providing a bouquet of services so that they can capture a larger wallet share of the user. Banks have to make considerable efforts and investments in ensuring that their customers can use their apps for all their daily needs. Banks will need to reimagine their customer journeys, and interaction points, using data for recommendations and intuitive suggestions, and gleaning insights from data to predict what the user needs next. These are all critical aspects of how banks can capture a larger wallet share of their users. FinTechs are valuable allies in this process of transformation from a single-use case interface to a daily use app as they not only act as aggregators of such complimentary services but also understand how to harness data to make the customer experience incredibly delightful.
Collaboration with FinTechs- Growth via partnerships in a disruptive environment is the way forward. Banks are constrained by legacy and a complex decision-making process, making them less agile and responsive to changing market conditions. For example, despite having successful retail franchises, many banks face challenges to grow their card business. Cards (Credit, Debit, and others) are important sources of revenue and banks require the flexibility to launch card schemes that are customised for a customer with all the features that such a customer requires. FinTechs, on the other hand, are built ground-up to be extremely agile and responsive to markets. FinTechs today partner with banks to open accounts, manage balances, execute transfers, invest in savings products, and provide access to on-demand short-term and long-term credit products and prepaid/multi-currency instruments. They can help banks grow their markets, widen the base for financial products, especially credit and also help contribute positively to the GDP. Overall, this can drive lower transaction and acquisition costs, enhance processing time through digitisation, leverage various mediums like mobile, driving consumption among consumers, specifically millennials, by impacting their decisions.
Views expressed By Ajay Pandey, Co-Founder, CARD91