‘Banks Can Learn A Lot From Telcos’

Chet Kamat, MD & CEO, Oracle Financial Services Software sports a big smile these days — the tech firm has bagged contracts for three small finance banks and the National Securities Depository’s payment bank. The entry of these entities will reshape the financial inclusion landscape in India. BW Businessworld’s Raghu Mohan caught up with Chet, the global giant’s “oracle” in India to get a sense of where we are today on the use of technology and what more can be done. Excerpts:

The lion’s share of the banking system’s assets are with state-run banks. Had they leveraged all the technology in this world, Indian banking would have been so very different. That’s not the case. Why so?
There is a human capital dimension to this. The approach for building the talent pool at these banks was you hired at the entry level, grew it in the system. But for seven, eight or 10 years whatever, recruitments didn’t happen. You also had two voluntary retirement schemes in the early 2000s to which you lost some expertise. So you suddenly lost that virtuous effect of growing people on a continuous basis.

You have junior people from the current generation, who live in the same world you and I live in, but the guys who actually run the bank are from a generation that’s missed all of this technology thing. If I want to activate my Net banking at a state-run bank, the branch manager wants nothing to do with it because he doesn’t understand it. A khaki-clad gentleman with a big moustache is actually the most knowledgeable, but he heads security! Of course, senior executives at these banks deal with a much more complex chain management problem. You have to give them credit for the progress they are making.

The cost of capital is going up. Technology helps you to cross-sell and cut back on the cost of acquiring that incremental customer, but we are still where we are…
To cross-sell you need to know your customers to be able to sell them the next thing. It’s also about pricing. If I have an existing relationship with a bank and seek a loan, will you treat me like somebody else walking off the street? Banks have not deployed the technology to be able to look at it in this fashion; they are not leveraging the wealth of data they have. The world’s leading banks have recognised the model of interaction has to transform to one that starts with the customer first, not the product. To be able to do that, customer-data needs to be available in one place; not partly in the savings system, partly in the loan system, or partly in the credit-card system.

Are you telling me Indian banks still don’t have a full view on their customers?
I am just telling you globally the bulk of banks don’t have it!

And compared to them an HDFC Bank or a YES Bank is contemporary…
Compared to that, yes. For the domestic markets, absolutely. You see, we do a lot of things that’s internationally not available to customers. Your credit card has a chip on it. In the US, the majority of point-of-sale (PoS) devices will not be able to read it; you can’t do your PIN addition. So your transactions are ironically, safer in India than overseas! You see the other thing that’s happened is there’s been a lot of bank mergers and acquisitions. So you have banks which have four deposit systems, five loan-systems, all of which are of 30-, 40- or 50-years’ vintage. The problem, of course, is a lot more complex; I am just simplifying it for this conversation.

And we may well run into a like mess given big time bank consolidation is a given…
It depends on what path banks take to consolidate. If they continue to co-exist two systems, they will introduce complexity. Think about it this way: 40 years ago, the Internet didn’t exist; 15 years ago, mobile phones were not ubiquitous. And these systems were designed five years before they became operational and at a time when the technology landscape and customer interaction paradigm wasn’t conceivable -- it takes a lot of time to build these things.

So people have put on layers on layers of technology in a bank. They have built advanced solutions, but the core-solution comes from an era when the design wasn’t cognisant of the way the customer would access a bank. Forty years ago, the way to access was either through a branch, or an ATM; maybe even 15 years ago, it was mostly that way. Then you added the internet, mobile, now an Apple Watch and other access points. You need to have an underlying way of disaggregating the functions within a bank and the way they are solved technically, so that you have the ability to adapt to future technologies.

Is that why some private sector banks ran into tech-legacy issues?
The solutions they were deploying were from a generation of serving customers that were evolving in a silo-fashion. The way they evolved 40-50 years ago, people would have deposits, then do credit cards, trade finance, treasury and so on. They hadn’t conceived of it all together at one time.

And that explains why an i-Flex solution for Citibank (incubated within it) didn’t work in a state-run bank?
In banking, you operate on a very product-based model; the documentation changes with every offering. It’s not as if telcos don’t have documentation or KYC norms, but they onboard the customer comprehensively across all potential offerings. If I want to give this individual an international roaming limit of some kind, what’s it going to be? While we take a long time to decide what we want to do, whom we want to buy a service from, once we’ve made that decision, we want instant gratification. And the next generation wants it even faster. To be able to do that, you need an ‘activation mindset’; you need to run completely automated processes with minimal human interaction as possible; that’s how you crunch time.

If you start a conversation about a loan by putting a question on to the ‘Contact Me’ page of the bank, you don’t want to walk into a branch and explain it all over again. For the bank to do cross-selling, I need to have to carry this context. Customers don’t have a lot of patience these days. And they are expecting this as normal. What behaviour you experience on Amazon, you want that behaviour from your bank.

Can you elaborate on this approach?
We’ve been working with banks in Australia to have them originate a loan for a customer in the shortest amount of time by having the entire process completely automated. So if you’re doing a mortgage, you want to be able to (in the simplest of cases), be able to do it without any human intervention as long as you have the rules baked in. And you need to be able to validate who the customer is. You can go to the passport office, you can go to government registries, and get it validated. If they want a loan against a particular property or buy a property, you need to be able to get online valuation of what that should be worth. You want to be able to do an online credit check to understand what’s the amount of risk you’re going to take in terms of the quantum of loan you’re willing to offer; at what rate do you want to offer that loan.

It’s important in the case of originating customers because if I don’t take you off the market right away, somebody else is going to appeal to you with their proposition. And the more important part is, you’re never walking into my branch. You are doing the scan online somewhere and that’s where I have to be present. Oracle has won contracts with four new next generation banks of which three are small finance banks and NSDL.

Mint Road has spoken of differentiated banking licenses which by extension is basically asking of banks decide what you want to be. Does that clarity exist today in the business?
If you look at the Nachiket Mor Report and the logic for payment banks and small-finance banks, it is all coming fundamentally from the point of view that after all of these years, we still have a fair bit of way to go for financial inclusion.

Let’s take advantage of regionally focused NBFCs; let’s experiment and get the ecosystem benefit these guys already have. If you look at the people that have walked away from the payment-bank licenses, they are entities that didn’t have that ecosystem advantage af scale.

What ecosystem does a PayTM have?
I think you have a very legitimate point there. The challenge for urban-focused PPIs is how they leverage that capability to go after a semi-urban and rural customer base. A typical customer of a mobile wallet is using it for simple discretionary actions, whereas what you are looking for from a financial service inclusion perspective in the semi-urban and rural sector is you want to go after the non-discretionary spends of the rural community. So you have put your finger on it; I have an agreement with you. The only thing I will point to in that kind of a situation is unlike other players which have an existing ecosystem, these guys typically tend to have an unlimited source of cash, because there are people who are funding; the valuations game.

But in the case of payment banks, you have taken out the payments part out of a commercial bank and said now you can do all this, but no loans please. What stops a commercial bank from hooking into the same market to say it will offer all of these and more?
You are highlighting a potential problem the whole market, the semi-urban and rural market will be taken up and, therefore, there will be nothing left for these new layers. We would be fortunate when we get into that situation!

Is tech-investment on the compliance front huge?
If you look at IT growth investment in compliance systems, be it operational risk, KYC, anti-money laundering, capital adequacy, it is significant. Every Indian bank has to comply with FATCA (Foreign Account Tax Compliance Act, 2012), a US regulation. And that’s another area where the data supply chain of banks is in a real mess. If I have to report you to a regulator what you have been up to, I can’t report Raghu Mohan five times; it has to be one Raghu Mohan. Its worthwhile polling how many banks can do it. I work with banks in Lebanon. Now there is a US regulation which says banks should not allow any payments to happen to terrorist groups like a Hizbul. You have to be assured who the ultimate end beneficiary is. With technology you won’t get a lot of false positives, but you still have to do some manual checking, but maybe it will take lesser time.

Will the bank of tomorrow be more like an Amazon?
Think of both Tesla and Amazon — that’s what banks need to be aiming for.

raghu@businessworld.in, @tabonyou