The Nachiket Mor Committee has recommended the RBI new banking concepts such as payments banks to boost financial inclusion. But there is also a strong pitch for embracing new technology to reach unbanked areas of the country.
When it comes to money management, India has proved that it has miles to go in bringing banking facilities at the doorstep of every Indian citizen. The Reserve Bank of India (RBI) admits that half of Indian population still don’t have a bank account, which means they don’t have access to keep money safely with decent returns or borrow money for various requirements.
There’s an answer to this problem. Bringing new technology in banking is a key factor. The banking regulator and banks have seen the writing on the wall. “Fifty per cent Indians still don’t have bank accounts. How do you allow this 50 per cent to be part of the economy? You thus have a revolution of demand. How will you ensure that they can avail of banking services?” asks Deepali Pant Joshi, executive director, RBI.
How will you use technology to reach out to the vast unbanked population and, at the same time, give a better and more user friendly experience? “This is the biggest challenge and opportunity facing the Indian banking industry,” Joshi said.
Arun Jain, chairman, CII Banking Tech summit and executive chairman Polaris Financial Technology, said, “The ability of technology to bring together various aspects of banking has added phenomenal value to every day banking transactions for customers. In today’s challenging times, when broadening reach and access to banking is the key to drive growth in business, innovations in technology in all likelihood will change the equation between cost and access.”
What’s the need of the hour? A report by Confederation of Indian Industry (CII) and PriceWaterhouseCoopers (PwC) says that measures like data aggregation, customer relationship management and financial inclusion initiatives is essential to take banking to the next level of growth.
According to CII-PwC, technology is considered as a critical pillar to meet the strategic objectives of the business by 63 per cent of banking survey respondents. “Thirty eight per cent of the banks felt that technology has played an important role in bringing improvements in operational efficiency. 52 per cent expects the investment in technology to be primarily around regular maintenance and improvements in infrastructure,” it says.
Debdas Sen, leader, Tech Consulting, PwC India said, “Indian banks have grown accustomed to using technology. However, we have now reached a point where technology needs to be used as a value lever to traverse a fast-paced growth trajectory.”
Innovation to help develop the product, process and service is the new mantra. Increased customer awareness has mandated banks to align their strategies to provide an enhanced customer experience. The advent of social media, changing regulatory environments and other macro-economic factors are further strengthening the strategic role that technology plays in the industry.
“Over the years we know how to manage traditional media, but social media does not have editing and anyone can say anything. How do you react to it?” said Shikha Sharma, managing director and chief executive officer, Axis Bank.
The RBI says things are happening. Real-time funds transfer through the Immediate Payment Service put in place by the National Payment Corporation of India has contributed significantly towards growth of mobile banking. The Aadhaar Payment Bridge System allows government benefits to be transferred through the use of Unique Identification number given to the citizens. With over 900 million mobile phones, the potential for mobile banking as a delivery channel for financial services is a big opportunity in India.
On the other hand, the RBI is getting ready to issue new bank licences with focus on rural unbanked areas. The Nachiket Mor Committee has recommended specialised banks like payment banks, wholesale banks and consumer banks to boost financial inclusion.
RBI Governor Raghuram Rajan recently said one of the difficulties the poor and small businesses have in accessing credit is the lack of information about them — both up front as they are being evaluated for credit, and after lending where the lender has to monitor them. If savings and payments products are sold widely, and information, including payments to mobile companies, utility companies as well as the government, collected, then the excluded can build information records that will help them access credit.
Another key factor is consumer literacy and protection. As the banking sector reaches more and more of the population, they will have to be sure that they understand the products they are being sold and have the information to make sensible decisions. “Caveat emptor or let the buyer beware is typically the standard used in financial markets — that is, so long as the buyer is not actively misled, she is responsible for researching her product choices and making purchase decisions,” Rajan had said.
“Technology keeps advancing and customers are smarter and their ability to find our price difference puts immense pressure on us,” said Thomas Schickler, Global head of Liquidity and Investments, Global Payments and Cash Management, HSBC, Singapore. Going forward, what’s on the anvil? Banks will invest in platforms such as integrated payment hubs which supplement existing core banking systems and provide a consolidated view across all payment channels. Big data use in payments or unstructured areas like social media, customer care and internalcommunications will mature.
The sector is likely to witness increased use of mobile specific features such as geo location, camera or scanning and voice identification. And banks in the small to medium space will start looking for entire core banking platforms as a service, while more established banks increase cloud adoption in non-core areas such as HR.
According to KC Chakrabarty, Deputy Governor, RBI, technologies could enable banks to “go-to-customers” and enable door-step banking through virtual banking. For instance, cloud computing and big data technologies can reap both scale and scope economies. What is important is not the name of the technologies, but what they do eventually. Banking technology is poised to make a big leap in the near term towards integrating customer data across banking platforms, facilitating trading in a more secure manner, developing virtual desktops and private clouds to centralize information across desktops by making them available to different employees on need-basis, enable speedier transaction processing and faster settlements.
Technology should not, however, be acquired for the sake of it. Unless, it is employed gainfully and helps enhance procedural and cost efficiency, technology adoption cannot be considered meaningful. “The technology ought to help banks achieve cost-effective scalability in the services they render. Such technology should contribute to enhancing productivity, especially through total factor productivity growth in the banking industry,” Chakrabarty recently said in a banking conference.
However, bankers complain that the cost of service delivery has escalated post adoption of technology, prompting them to consider levying charges on their own customers for using their ATMs. “I find the position quite amusing actually. Have we made a comparative assessment of the expenses of delivering services at the branch and the ATM? I urge my banker friends to take a holistic view of things and harness the technology to its optimum rather than blaming the technology itself,” said an RBI official.
Banked & unbanked
A report by Confederation of Indian Industry and PriceWaterhouseCoopers says that measures like data aggregation, customer relationship management and financial inclusion initiatives is essential to take banking to the next level of growth
According to CII-PwC, technology is considered as a critical pillar to meet the strategic objectives of the business by 63 per cent of banking survey respondents
Real-time funds transfer through the Immediate Payment Service put in place by the National Payment Corporation of India has contributed significantly towards growth of mobile banking
Aadhaar Payment Bridge System allows government benefits to be transferred through the use of Unique Identification number given to the citizens. With over 900 million mobile phones, the potential for mobile banking as a delivery channel for financial services is a big opportunity in India
RBI Governor Raghuram Rajan recently said one of the difficulties the poor and small businesses have in accessing credit is the lack of information about them — both up front as they are being evaluated for credit, and after lending where the lender has to monitor them