The growth in role of technology in every sector today is incontestable in the times we live in. While the Covid-19 pandemic brought digital transformation to the limelight, businesses have now realised that tech adoption is the only way to bring more customers into the fold. At the forefront of this evolution has been the financial services industry, which has had to move swiftly to adapt to the new normal and deliver banking services to customers' fingertips – wherever they are.
The process of digitalisation had begun in the Indian financial services space a decade ago. But reaching the last mile has never been easy. The breakout success of fintechs more recently brought upon the realisation amongst the largest banks of the country that working towards financial inclusion backed by technology is the only way to survive and thrive in the era of ‘digital’.
A NITI Aayog report from earlier in 2022 said that the present commercial banks have business models that have high cost-to-income and high cost-to-serve numbers. Meanwhile, banks and fintechs that offer digital banking services using digital channels to serve their customers, have significantly higher efficiency metrics in comparison to commercial banks.
“This structural feature makes them a potentially effective channel through which policymakers can achieve social goals like empowering the hitherto under-banked small businesses and enhancing trust among retail consumers,” noted the report.
But commercial banks in the country are fast switching gears to catch up. In fact, one of the leading banking entities in the country, Kotak Mahindra Bank, reports that a large percentage of its transactions are now happening through digital and mobile platforms. This means that the considerations around performance, availability and user experience on the bank’s digital platform have become the highest priority.
“Digital is becoming the primary and dominant channel for customers to interact with their bank today. That’s the biggest change which is shaping our industry,” says Milind Nagnur, President & Chief Technology Officer at Kotak Mahindra Bank.
Tech-ing Off
Gone are the days when banks would have long-drawn tech projects that took 12-18 months to implement. The world is now developing technologically at a pace like never before and this has meant that banks have had to do away with the old ways.
Today, banks undertake even the most complex tech projects and deliver them to the customer within four to six weeks. This could include the smallest of functionalities on offer for customers but could contribute greatly to the bigger pie. Banks then work on testing, learning and getting valuable feedback to adapt and improve. This approach to banking has helped many commercial entities with legacy structures to turn a new page in their growth story in the digital era where new-age fintechs have a clear advantage.
Nagnur shares that he along with Kotak Mahindra Bank’s Chief Customer Officer, Bhavnish Lathia, has reworked several project plans to stay ahead of the curve and be agile. “Technology is the basis of P&Ls within our company. Our 811 business is a great example of an entire P&L running with technology,” says Nagnur.
Collaboration Or Competition?
During a recent event, Minister of State for Commerce & Industry, Som Parkash said that India’s fintech adoption is significantly higher at 80 per cent in comparison to the world’s adoption at 64 per cent.
“India is the best investment destination in the world despite the three covid waves. Now, it is time to convert fintech initiatives into fintech revolution to make every Indian citizen empowered financially," he said.
But does the adoption rate of fintechs strike fear amongst the commercial banks of India? This is unlikely because banks have decidedly harnessed the very wind that powers the sails of fintechs in the country to beef up their own digital products.
Consider the example of State Bank of India (SBI), the largest public sector bank in the country. Not too long ago, the bank was looking to develop a comprehensive platform that included a financial superstore featuring investments and other financial services, an online marketplace offering lifestyle products from partners and an overall digital transformation with analytics that connected these options end-to-end. So, SBI came out with You Only Need One (YONO) in 2017. Today, it logs in over nine million daily logins and offers more than 100 digital customer journeys.
But a recent report by IBM suggests that a mix of macroeconomic stressors paired with new competition from fintechs and non-traditional players presents an environment more challenging than ever for banks. So, there is a need to embrace continuous reinvention, augment business profitability and reduce costs that stem from a substantial transformation of operations.
This has meant that CIOs and CTOs have shifted focus from “pure” digital transformation to digital business transformation. The report by IBM found that 78 per cent of banks are now modernising platforms by leveraging AI. This modernisation includes the areas of customer care, credit risk evaluation, workforce engagement and financial crime protection. All of these areas help improve operational efficiency.
But it's not that commercial banks are building all the technology on their own or relying on large vendors. They are also collaborating with new-age fintechs to be agile and tap into the power of data. This is also giving rise to combined capabilities that are helping banks in the country improve their processes and refine business models.
“I think it is going to be an era of collaboration and competition – both,” says Rishi Aurora, Senior Partner & Financial Services Sector Leader at IBM. “Today, you can collaborate on a platform where you don't have competing products and at the same time, you can compete in a market where you have similar products. So, it's a very interesting time to be living in.”
While banks and fintechs continue to compete in several categories, they have sought partnerships with each other to deliver services to the last mile. This has helped banks accelerate their processes while fintechs have built reputations for being the ultimate problem-solvers. Together, both seem to be working towards the common goal of financial inclusion in India.
Master Strokes is a series produced by BW Businessworld and Presented by IBM India. This series will present the efforts and accomplishments of technology leaders across sectors on how they use and continue to leverage technology to bring about business transformation creating a positive impact on their organisation.