Is Banking Disruption On?

Just like the brick & mortar retail sector, banking in India has to change radically or get prepared to be disrupted.

Let's reflect on what's trending in this sector & in the Eco-system.

- financial stress & NPA growth,
- Ongoing fintech disruption of banking technology - e banking led by superior customer experience (just like all online e commerce sectors).

Banking NPA growth is getting reported frequently in the earnings season and is occupying significant mind space.

What seems to be resonating is that the sector is now going after the wilful defaulters with a vengeance - which is good as it's about time that the industry started doing what it should have been doing all along.

The economic slowdown over the last couple of years is also contributing to the rise of NPAs in the sector globally.

Given additional capital/reserve requirements of Basel III compliance, improving profitability & NPA management is right now a priority with the banking sector leadership, besides the bank staff specifically working in areas like business operations, portfolio management, collections, etc. There must be pressure internally to collect somehow, reduce NPAs & underperforming assets - and shore up reserves.

Meanwhile let us step back & reflect on some of the headwinds impacting the industry.

* The consensus view seems to be that the banking sector is in dire straits, also reflecting the overall economic conditions. Given this shift in overall approach vis-à-vis defaulters & banking activism in India, it maybe pertinent to reflect on how the average customer gets treated today, who is not a wilful defaulter but who is in genuine temporary cash flow problems owing to the state of the economy, and who with some support (repayment reschedulement,etc ) can become a good paying customer, a performing asset again for the banks, especially since there seems to be incipient signs of recovery, round the corner- with normal monsoons expected, enhanced government spending, etc.

* In this context, It is important to recognise that all online digital disruption across sectors (including e commerce(online retail), online taxi & other services, etc.) have grown rapidly, because online options deliver a far superior ease, convenience and customer experience vis-à-vis the traditional delivery & service models.

* Experts worldwide are talking about rapid tech disruption of financial services, in the change to customer experience driven models. The Financial Technology space is one of the world's fastest growing sectors today with estimates for investments made in 2014 ranging from $6-11Bn and for 2015 upwards of more than $20Bn. Traditional banking is being challenged right to the core and the next 10 years will see more changes in banking than in the last 100 years.

* The pressure on banks has got heightened owing to the disruptive impact of new technology led developments such as payment e-wallets & peer to peer lending which is growing & working quietly in the background, to improve ease of banking & financial transactions faster & smoother.
 
Amidst all these economic & disruptive challenges, the Banking sector needs a survival & growth strategy- by ensuring that its customers remain happy with its services. Given the demographic mix and the urban-rural diversity in India, the service approach in all channels & aspects of banking services, including at all stages of customer life-cycle needs to become superior - including e.g. in sensitive areas like debt collections (in the context of today's weak economic environment). Not only is the customer far more aware and powerful today to exercise choice & express his/her happiness or displeasure, including on social media, etc - there's an opportunity for the industry in these economic conditions, wherein an empathetic & friendlier approach could result in improved customer satisfaction and long term loyalty- while the reverse approach can make the banks seem to be just fair weather friends.

While all this is logical & no bank management will be caught saying anything to the contrary, how this is implemented on the ground & how this is ensured operationally is therefore key for the entire industry. Sector needs to ensure that banking loyalty scores & compliant handling scores do go up sharply, where the customer notices & experiences a more empathetic approach especially in stressful times like those prevalent today.

This is true not just in the corporate banking (i.e. big loans) where owing to the size of the loans and borrowers- some of this does get handled), but is as important in the b2c space, where customers may not get the support they deserve and may not be aware of banking practices/possibilities like resetting of overdue loan repayments, resetting repayment schedules, interest rates, etc. or may get mis handled by collection agencies, who are often deployed to collect/recover on behalf of the banking sector.

In times like these, customer care & empathy, becomes even more important & the view being expressed here, is that unless this subject is recognised & brought to the fore front, there is a risk that the pressure of all these head winds may make the sector end up taking the short term survival steps such as collecting at any cost and end up with more customer ire and lose not just the respect of its existing customers - but also push new prospective, the socially expressive & more aware customers, towards the new emerging e-banks…which may disrupt the industry.

Customer care and treating customers fairly & with empathy is thus even more important today.

Is the industry listening?
Let's take a look at retail customer satisfaction levels of the Indian banking sector.

While the Indian banking sector & regulatory framework is well respected - specifically the consumer customer satisfaction levels being delivered by the Indian Banking sector as a whole vis-à-vis some other countries, indicates some opportunity to improve.

The sector's score for India is at 69 on a 100 point indexed scale (see the Indian Customer Satisfaction Index (ICSI) scores for the recently concluded study using the globally acknowledged ACSI model) in comparison with that of other countries like US, UK, South Africa at 76, (although better than Brazil at 66) indicates an opportunity area for the sector to seriously tighten its shoe strings in India and work rapidly to improve overall service quality & customer satisfaction levels.

While all these headwinds play out their impact on the sector, it's critical that banks make customer care a strategic priority across all channels, to survive and grow.

Believe that an obsession to deliver a vastly superior customer experience will help the traditional banks in India to survive & thrive and go a long way to improve banks in India as well as India's global competitiveness.