‘UPI Is To Online Payment What ATM Was To Withdrawals’

Stuart Milne couldn’t have been more upbeat about India given that creating a digital footprint is the driving focus for the bank that introduced ATMs in India, HSBC. Milne remains optimistic that demonetisation will ultimately benefit the economy. BW Businessworld’s Clifford Alvares recently caught up with the chief executive officer of HSBC India for his thoughts on demonetisation and digitalisation.

How do you see the present demonitisation program impacting the economy?
Demonitisation is a positive development. First, it attempts to reduce the black money in the economy. That has long-term benefits. Second, potential benefits are in terms of widening the tax base and increasing tax collection. More citizens will enter the tax net. Only 3 percent pay taxes in India, against say 45 percent in the US; there is still much to be done. Over time, it would offer some flexibility in reducing tax rates, which is the government’s intention.

On a second level, it would boost the digital economy. We are seeing many using mobile apps to make payments, which would result in benefits to the economy. In the short term, there is some disruption as we see some negative effect on growth. But, overall, there are more positives. It’s a challenge for citizens to pass through this period, but we have to move as quickly as possible so we can return to a normal way of doing business.

Credit off-take in the corporate sector is low. Do you see that being impacted because of the demonetisation?
The issue of credit off-take in the corporate sector has nothing to do with this situation. I don’t think demonetisation has any longer-term impact. Credit off-take is more due to macro issues, the fact that many companies have spare capacity and don’t need any more now. We are probably not going to see that change to any significant degree for the next 12 months. Toward the end of next year, we will start to see companies looking more seriously at drawing on credit facilities to building capacities.

How have you been managing your cash balances and cash facilities during these times?
Our business is more focused on digital solutions rather than old banking solutions. We are actually seeing very little cash coming in terms of cash as compared to the size of our deposit base. The share reflects the fact that our customers are utilizing electronic means of payment rather than cash.

The trend now for banks is going cashless and digital banking. How are you gearing up on that front?
Over the last several years we have seen that customers are shifting more and more to digital banking, and the old model of distribution relying principally on a branch network is fading quickly. We had something like 400 branches in 1983; today, we have just around 100 in Hong Kong with a much larger business.

In the UK, branch networks expanded for a long time. Then 20 years ago with the advent of the Internet, branch networks began to come down sharply. We will see the same in India too.

For now, branch networks are increasing because of financial inclusion; that is needed. At some point, though, that will turn. Now, with mobile handsets priced below $50 and with the lowest data rates, banking will move from a branch-based model to a mobile-phone-based model.

HSBC is trimming the number of its branches in India. What is the impact on customers?
We are re-modeling our branch network and reducing branches from 50 to 26; that would be complete by this year end. We are not saying that the branch channel will not be there, but there will be a focus on the digital channel. The other point to note is that the branches we are closing cater to a very small percentage of our customers, and to the total balances we have, less than 10 per cent.

It makes eminent sense for our customers to move to digital channels.

At the same time, the challenge for us is to develop more customers in places such as Mumbai. Our market share is very small. We don’t need to be in thirty cities across India. We need to be in the large cities, and build on market share in cities where we can make more of an impact.

A smaller branch network will save costs. Is that a driving factor?
Some efficiency arises in terms of costs. But costs are not the driver; the driver is more strategic. It’s about the future trend and how we can capture that. Just as HSBC was the first bank in the country to launch ATMs, we want to continue to be at the forefront in digital technology. UPI technology is a good example. To me, UPI is as significant as the ATM was for cash withdrawals. We will be going live with our UPI application for corporate and retail customers; testing is on and it will presently be launched.

How will people use these digital platforms? Do you see it gaining traction?
We certainly expect to gain much traction very quickly. When most customers use Internet banking, they are checking their accounts or making payments; that is usually 99 per cent of online banking ‘transactions’. Some people may go further and check their mutual-fund holdings and things like that. That is probably what they are going to do on their desktop.

We have a sizeable customer base. When we launched mobile phone banking here in India three years ago, we had the fastest download rates of any HSBC country globally. That reflects the fact that the customer base is very comfortable. So anyone can download our app. The HSBC brand is well respected, and we would like them to use that app even if they are not our customers. And that is good for us because it helps us to establish first-time contact with a first-time bank customer.

What are your investment in digital technologies?
HSBC has invested about $200 million in different aspects of fintech. We have conducted the first trade-finance transaction in partnership using block-chain technology. Since HSBC is the world’s leading trade bank, we are keen to see how we can apply these emerging technologies in trade finance, since in trade finance the process has not essentially changed in many years. We are making investments in fintech to improve the process of trade finance.

We are not looking at fintech as private-equity investment that we will sell. By making some investments, we are looking at how can we kickstart technology to benefit our customers? How can we significantly improve the security process of banking? This is the key focus for us in fintech. We want to see ourselves as a fintech company. We are putting money to work with third-parties. Some of our ideas will work, some won’t, but we are putting that seed money to transform the way we do in business.

In what areas do you see HSBC launching more products?
Our approach is customer-centric, not product-centric. We are looking at how we can be relevant in areas where state banks have a solid base, emerging private banks have very good offerings and a strong market position. We believe we are relevant with an upscale client base, internationally mobile, or with aspirations to be internationally mobile. We try to ensure that we have relevant products for that customer segment.

We are focusing on wealth management. That’s the business we want to continue to do well. Of course, we have lending products and mortgage products. How do we make that more digital and more convenient, and ensure we are adopting the right technology?

How are you going about acquiring customers because this is quite a niche segment that you are focusing on?
As we are focusing on such a narrow segment, we are conducting events. Much publicity is through word of mouth. We don’t do much mass-market advertising, because that is not an efficient way for us to spend. It is better for us to conduct events targeting the appropriate customers.

How are you looking at corporate banking services?
We want to be known as an international bank of choice for any company in India. You can be a small company and want to export for the first time; we have banking experience in that. If one wants to make an acquisition, we have an M&A team for advice. Of the year-to-date FDI to India, HSBC has handled 25 percent. We have very strong businesses in the US and Europe; we are able to support customers who want to invest in India. We are seeing a lot of global companies investing in India. Perhaps because of the slowdown in China, many global companies want to invest in India. Our international operations in the US, Europe, the UK, Asia are the biggest strengths we can offer customers.

Sporty products. In India, there is a preference for classics.