About ConQuest‘We aim to provide participants consulting projects and challenges that will equip them to tackle future assignments confidently and competitively. We also aim to facilitate growth of collective knowledge of the entire student community interested in the Consulting and Strategy domain. This magazine says it all. In this issue of the the Strategist, we have emphasized on Digital Banking offered by the banks to their customers to conveniently conduct their banking transactions at any time of the day and can access their bank account 24*7. We have tried to cover the topic in an exhaustive manner. We hope you enjoy reading this issue of the Strategist as much as we enjoyed creating it.’
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-Team ConQuest
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FROM THE EDITOR’S DESK In this edition of Strategist, we take a look at the impact of technology in the banking sector, opportunities and challenges faced by digital banking in India and the achievements in digital banking by Indian Banks. The rise of technology in banking has been slower in comparison to industries, i.e. Media and Entertainment, because of a certain number of regulations. With time, the Internet has procreated a whole new league of competitors in banking. It has made bank-related processes faster and more reliable than before. Even operational level activities like maintenance and retrieval of documents and records have become much faster and easier. Computerised banking has also improved the core banking system. With CBS (core banking system), all branches have access to common centralised data and are interconnected. With the innovation of the MICR cheque processing system, processing of cheques has become faster and efficient than before. USSD (Unstructured supplementary service data) was launched by Government, so people with no internet-connectivity too, can access their bank accounts without visiting the branch. Banks have been able to execute all these and plenty of other initiatives by investing in innovation, and they need to continue to do so for further growth of the sector. Open innovation models are critical to organisations seeking to overcome their limitations and attract the best talent to work on better value propositions. Employees, customers, shareholders, and other bank stakeholders should brainstorm together to deliver better content. With time, it becomes a necessity for the banking industry to focus on its digital channels as it is now a preferred mode of communication between bank and customers. Improving the digital channels is more of necessity also because of the disruption that is being caused by all the new-age fintechs. These new players are free of legacies — obsolete and inefficient IT systems and costly physical distribution networks. The financial services industry is moving toward an “ecosystem model” in which many small businesses have opportunities to achieve global success in their specific domain. This model is similar to what Amazon has been doing by opening up its platform to a wide selection of suppliers who offer customers an extensive range of products and services. With the rising adoption of digitalisation, there are growing concerns about the threat of data privacy breach and other cyber-attack on the IT infrastructure. Further, with banks introducing mobile wallets and payment apps on the back of the Government’s digital agenda, there is an increased threat as cybercriminals would like to make most of such opportunities. In such a scenario, the key stakeholders, including the Government and regulators, need to be prepared with agendas and procedures to protect the system from such threats. TEAM CONQUEST
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Perception of Digital Banking in Rural India
Chaitanya Sethi Srishti Wahie IIM Indore
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Digital Banking, A Boon for Rural India Rampati, a resident of Jhusi village, on the outskirts of Allahabad, lived in state of penury, in utter hand-to-mouth situation as income from her small shop didn’t even suffice to provide square meals for the family, let alone afford her children’s education. But the situation didn’t take long to turn the other way as soon as she heard about digital solutions provided by Sonata Finance, which helped improve her condition of deprivation. She bought 12 goats after getting access to the loan. Her happiness had no bounds when she could see her children going to school because of India Grant Innovation Program, designed by Grameen Foundation India, in partnership with Sonata and Oxigen Services. Likes of Rampati are venturing into small businesses to take care of their families, support their husbands, and/or establish their self-identity to live life their own way, owing to the rising popularity of financial stability among rural women. India, “the Land of Villages”, and “a rich country inhabited by poor people” derives its authentic “Bharat” essence from rural India which constitutes roughly 60% of its total population. Yet, a huge chunk of this population was earlier deprived of access to basic services like banking, healthcare and education, resulting in a wide socio-economic gap which could be bridged only by economic empowerment and financial inclusion initiatives such as digital banking which facilitate quick and convenient disbursement of various banking services. Mahatma Gandhi had rightly said that “The future of India, lies in its villages”, hence it is imperative to tap the opportunity in rural market.
Owing to this, many initiatives such as Unified Payment Interface, Bharat QR, Aadhaar Enabled Payment System, Direct Benefit Transfer, Digitalised Common Service Kendra, Bharat Bill Payment System, and easy loan availability by private banks for MSMEs have been rolled out. These task-technology fit efforts are being appreciated and welcomed by rural population as they bring a sense of technical significance & convenience to their lives. For example, Suresh Pal, a small photo studio owner from Dhaturi village, Haryana, doubled his revenue stream, acting as a retailer for Payworld (An electronic transaction processing platform, guiding people to open an assisted mobile wallet account), which was able to capture over 25% more new users across rural and semi-urban areas over a fortnight. Another digital payment company, ItzCash, offering omnichannel presence through mobile wallets, outlets and cards has also experienced 40% increase in transaction volumes, marking the positive rural attitude towards digitized banking solutions. In another instance, Sohan Ram, a bread pakora, noodles and tea stall owner from Karur Village, Haryana is highly enthusiastic about mobile wallet payment, as it ensures the payment of each &
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every rupee, without customers’ excuse of unavailability of loose change. Kishore Chand from the same village, who runs a kirana store, installed a POS machine and also started accepting payments through Mobikwik, which helped him directly receive payment in his bank account conveniently. Cofounder of Mobikwik corroborates the increased incidence in usage of mobile wallets by stating, “From a local cycle shop owner to a sugarcane juice seller to even a temple priest, all have started using mobile wallet”. Additionally, digital solutions have smoothened the process of bill payments, deposit and withdrawal of money. Tapan, a resident of Bhogpur village, located 75km from Kolkata, had to travel over 15km to do something as trivial as money deposit or withdrawal, but things changed pretty fast with opening of Digitalised Common Service Kendra in the close vicinity of village. Not only banking, but mobile top-
ups, DTH recharge, train ticket booking and online motor insurance also became digital and was brought at his doorstep. One stop solutions combining finance and technology are being widely adopted by rural population and are successfully plugging in the socio-economic divide between the ‘urban India’ and ‘rural Bharat’. This wave of digitisation which originated first in urban areas is gaining traction in rural regions and unstoppably flowing towards the bottom of pyramid.
Digital Banking : Is It All It Was Cranked Out To Be? Laxmi is worried. Sitting in a cramped room inside her house, which functions as her tailoring shop, in a sleepy little village in Madhya Pradesh, she’s just received an SMS from the city retailer. “Transaction failed. Will try tomorrow.”, translates her daughter and runs off to play, leaving Laxmi concerned. Her payment hasn’t come through. She’s lost count of how many times this has happened in the last few months. This raises a flurry of questions in her mind. Along with managing the finances of her household, she now faces the challenge of making payments to the kirana guy and the milkman, both of whom she had convinced to wait until this week.
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Laxmi is one of many people who were lured into the rhetoric of the utopian digital India. Handed a smartphone at 30 when her family had taken away her books and pencils at 10, she now relied entirely on her daughter to make sense of the erratic beeps and buzzes. At the meeting presided by the Sarpanch, the spokespersons for the digital revolution had sang praises about the digital wallet platforms and how they could do away with keeping cash. Laxmi had come home and taken out the hidden reserve of money she kept underneath her saris. She didn’t understand how she could send and receive money while this cash remained unused.
Egged and incentivised initially, she joined such a platform. She remembers the apprehension she felt when she pressed the ‘Confirm’ button for the first time and she was told she was 20 Rupees poorer. Her daughter was more adept at this. Laxmi would take her along to help her. Emboldened by observing her daughter, she once attempted the entire thing herself. A mistake while typing added another 0. She panicked. The slipup was rectified but the fear of losing money gripped her. She hasn’t made any transaction without her daughter’s supervision since.
surly moodiness, prone unpredictable annoyances.
While Laxmi has her daughter to rely on, the same cannot be said for the elderly and the abandoned in the village, who still make do with petty cash stuffed and stocked in odd spots in their shanties. Laxmi has also stopped seeing the point of using these applications. It’s the insistence of the city retailer that keeps this digital albatross hanging around her neck. Majorly, she uses cash, comforted by the tangibility of the notes in her hand.
explained about the possibility of using multiple apps but why one would go through all this trouble when you could simply pay cash, she couldn’t comprehend. As Laxmi sits today, devising a way to pacify the kirana guy and the milkman, she wonders if this digital malarkey was all that it was cranked out to be. The comfort of tip-tapping away your money from your phone was nowhere near the anxiety of wondering if it reached, if it was accepted, or if the right amount was put in. As far as she knew, her life before these apps was a maze of uncertainties. And as she charges her phone and the light goes off, she feels, sitting in the darkness, not much has changed.
Electricity is a big concern. Surviving is the biggest but electricity comes close too. The electric tower stands, well, towering over the village and presides over their chores with a
to
On a whim it gives and takes away power, leaving lives and transactions hanging. And with every such incident, it chips away at Laxmi’s faith in the wonders of technology. Once Laxmi had attempted to make a transaction, only to be told by the shopkeeper that he now used another app. Worried that her own app was now obsolete and her money gone, she frantically went about asking others. She was
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Opportunities and Challenges faced by Digital Banking in India
Shubham IIM Visakhapatnam
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Banks and e-wallet companies enjoyed a surge in digital transactions right after demonetization. The profits for e-wallet companies soared, and banks recorded exponential growth in e-banking. According to RBI, UPI transactions raised to 482 million in October 2018 from 0.2 million in November 2016 and debit card transactions surged up to 105% in 2017. Although the growth figures started coming down following the cash flow into the market, but at least for a year, we observed the future of digital banking in India.
India’s 68% of the population still resides in a rural area, where technology has not penetrated that much, banks have the perverse incentive to educate the people to make them save more. Places where banks cannot be opened, mobile banks with ATM can be established. Because people do not have much knowledge about the digital products offered by banks, workshops can be conducted in village schools for the parents to educate them about the offerings. Since rural market is quite significant in monetary terms, digitizing it will also significantly
People did not hesitate to opt for the digital medium, and also expressed their willingness to learn about it. Demonetization may have caused trouble to the people, but it also laid the foundation of digital India in the banking sector. Banks and financial institutions have started to implement more customer-centric approaches. As most of the people who use digital platform, prefers its ease and convenience. Still, there is a plethora of opportunities that remain untouched in this sector .
increase the tracking of money. Robotic Process Automation can be manifested in the banking and finance sector to nourish digital banking. Currently, getting a loan requires much manual intervention, which reduces the efficiency of the whole process. By automating the intermediate steps, we can save a lot of time from applying for a loan till sanctioning.
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For KYC, some of the banks and payment banks have started using this technology to streamline their processes. Similarly, RPA is useful in insurance as well. It can monitor and record the paperwork for claims processes and ensures quick results which enforce trust in the customer.
Financial institutions can incorporate smooth transactions options in social media applications to make the process hassle-free for the users, for example, WhatsApp introduced in-app payment options for its users, making it suitable for those who could not understand the complexity of net
E-wallet companies like Paytm and PhonePe with the help of UPI based apps such as BHIM has revolutionized the way people used to transfer money. Now people can transfer money anywhere anytime over the internet. Introduction of a more secure platform like blockchain will enable people to transfer a large sum of money with more reliability and trust.
banking.
About 281 million people use Facebook (approx. 20%) in India, and the number is only increasing.
ATMs could become card-less, and to withdraw money, banks can use two step authenticators where user
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Although it is less secure, it has a scope of improvement. As we know, Facebook’s cryptocurrencyLibra is going to launch soon; the security aspect of WhatsApp pay will improve drastically. Similarly, we can expect more in-app payment options from multiple mobile application.
can use biometric identification followed by a personal question to login to their account. Increasing customer’s experience will be the goal of digital banking in the future, and every product will be totally customer oriented. You never know what technology will come into the future, but right now, we can rely on the above opportunities with slight to a significant modification in the ideas.
Another challenge is creating confidence in customers about digital banking. Any transaction issue makes the users paranoid, and they start complaining about it. Because of some scams such as getting calls from an unknown number asking about bank details has made people lose trust in digital banking. There have been instances where a person has shared the information to the anonymous person considering
But opportunities and challenges come hand in hand. Because if it were easy, it would have been done. The primary problem for digital banking is the risk of security. According to UBS evidence lab report, more than 50% of total internet users use m-banking because but those of who does not, cites security as one of their concerns. Although we have advanced in terms of security, people still prefer cash transactions over anything.
him/her as bank employees and then losing money because of that. News of such kind of fraud infuses intense fear in people and their reluctance to use digital banking increases. Customers need to be informed about such possible scams and also, about the degree to which a bank can interfere in their privacy. But it is easier said than done. The interaction between banks and their customers happen very rarely.
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Hence, communicating important issues becomes very challenging. Apart from safety, even to educate the customer about the bank’s offering is very difficult. The low literacy rate among people obviates them to learn themselves, and banks cannot educate each customer individually. Therefore, it becomes the major setback for digital banking in India. Introduction of capital-intensive infrastructure is required to change the traditional banking system to digital. Automating process will cost the banks a fortune, and similarly, the adoption of other technology will invite more legal hassles. In the end, I think the future of digital banking is very bright, and the industry will overcome any challenge that will fall in between them and the customers. We have already come so far within a decade, and we can expect phenomenal changes in the services provided by the institutions to make their customers’ lives easier.
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Impact of Technology in the Banking Sector
Astitva Kumar IIM Shillong
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In today’s times, it seems nearly impossible to think of anything that has not been affected by technology in a big way. That being said, it is inevitable that technology played a major role in the world of finance, particularly the banking sector. Technology has already changed the way the businesses operate and is still continuing to do so as we go through this write-up. FinTech has changed from being a buzzword to a commonplace. A couple of decades ago, bank related tasks meant tiresome paper work and standing in queues at your bank’s branch. Over time, it has all evolved to digitized banking systems. This has had a two way effect. Firstly, the clients are being served faster and in a more efficient manner than ever before. And secondly, the bank staff’s responsibilities have changed for better.
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There is less scope for human error and the redundancy in work has gone exponentially down as the labour work gets taken care of by the computers while the human resources can be used for more meaningful work. As the article progresses, we’ll see how the technology has had a positive as well as a negative impact on the banking sector. Post that, we’ll see what the future holds in this domain. So to begin with, let us take a look at some of the major positive impacts that the technology has had in the banking sector •
Internet Banking
The first and the foremost disruption that FinTech has caused is the internet banking. All the banks now have websites where the customers have their accounts
and can carry out nearly all the transactions without ever needing to visit a bank physically. Things like money transfer, making fixed deposits, going for investments, banking from abroad as well as online shopping are all available at the click of a button. The greatest relief for customers is that they do not have to go through the ordeal of visiting a bank during its working hours and not to mention, waiting for the infamous “lunch breaks” to end. •
Ease of lending
With the onset of credit cards, the banks find themselves in a favourable position to lend and the customers too need not think twice about going in for small loans. By having a database about each of the customers and possessing analytical capabilities, the banks easily define the credit limits for their customers individually and reduce the risk of NPAs.
Below is a graphical representation of number of credit cards in circulation in 2012. The total from just these vendors comes out in excess of 2.1 billion. Although people do hold multiple credit cards but this gigantic number gives us an idea of the vast majority of population that has access to easy lending that has only been made possible due to technology. •
ATMs and Kiosks
Even when the customers have to physically go and carry out a banking task, it is not necessary for them to come into human contact and stand in queues. State of the art ATM machines and kiosks are set-up across the cities and villages which help people in depositing and withdrawing money, checking their bank statements, transferring the funds etc. This saves time for both customer as well as the staff. It is estimated by Statista Research Department that the world will have around 4.3 million ATM machines by 2020 making banking simpler for billions of people.
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•
Rural Banking
We come from a world where banking meant going to the urban hubs. However, the technology has now made it possible for banks to be present everywhere even without physically being there. According to report by the All-India Rural Financial Inclusion Survey, 88% Indian rural households have a bank account despite the fact that only 34% of banks in India are in rural areas. The fact that internet connectivity worldwide has dramatically gone up, paired with the smartphone revolution has also played a huge role in banks being able to serve the rural sectors. • Chatbots In the past, without a great customer service team, it was not possible for a bank to keep its customers happy. This meant huge investments in training and recruitment of people. However, with the advancements in Artificial Intelligence and the enormous capabilities of Big Data, chatbots have become mainstream assets for banks.
The more customers interact with it, the smarter it becomes. Digibank by DBS is a great example of chatbots. They have their virtual assistant that solves nearly every possible issue a customer might face and being a Digibank customer myself, I can affirm that the chatbot indeed works rather impressively.
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On a different note, it is interesting to realize that technology has enabled business models such as that of Digibank’s to thrive where they have hardly 20 branches in the entire country and therefore enjoy an asset light model. The reduction in costs gets transferred directly to the end consumer who enjoys 6.5% interest rates even on savings accounts. •
Fraud Detection
Banking frauds have unfortunately been pretty common ever since the banking system came into place. This meant a huge amount of resources being drained into fraud detection. Moreover, it was difficult to stop fraud from happening at early stages. But with the increasing power of AI, it can quickly detect changes in user behaviour that might lead to fraudulent transactions and can immediately ask for necessary human intervention. Without AI, spotting such anomalies in an infinite ocean if data is humanly impossible. •
Centralised Banking
All the talk about E-banking, chatbots, plastic money and rural banking would not have been possible if banks would not have been able to get all their information centralized. The concept of visiting the “home branch” in order to carry out certain transactions seems a vintage one only due to the rapid advancement in technology that allows everyone to be in sync with their money across any of their bank branches. Listed above are the major positive impacts of technology in banking. But hardly any major revolution comes without its downsides. So technology did have its negative impacts too but the positive ones far outweigh them.
Mentioned below are few of the major negative impacts. •
Loss of Jobs
Not just across banking but in all domains, the loss of jobs due to technology has been a vital issue. With the Artificial Intelligence on its way to become smarter than the ones who created it, the situation is only bound to worsen up. A major amount of backend jobs have been lost to the much famed Chatbots. A major study by Financial Times revealed that in 2015 alone, almost 1,00,000 bank jobs were lost to technology, while the Ex-Barclays CEO Antony Jenkins has warned that world will lose half of its banking jobs by 2025.
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Cyber Attacks
The biggest drawback of technology apart from job loss is the threat at which it puts everyone. Since everything is available remotely, the fraudsters get an added benefit of undertaking robberies without ever being physically present.
Although banks deploy state of the art cyber security infrastructure and highly trained professionals to guard their assets, it is still not safe to assume that your money is completely safeguarded with the bank. According to Financial Conduct Authority, the banks in UK saw a fivefold increase in cyber attacks in 2018, with 145 breaches being reported. With all the buzz happening around in banking, it is inevitable that the future holds a lot more. The Blockchain is regarded by many as the next biggest innovation after the internet itself. What it basically
does is decentralize the finances from central authorities and spread it across a widespread network of computers.
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The name Blockchain comes from the fact that the data, which is financial transactions in our case, being processed through the blockchain network gets broken down into small blocks of data which get added to the chain of computer code while getting encrypted. This results in much more autonomy for the sender and the receiver while also achieving extremely high levels of cyber security. We all know the sensation that the Bitcoin had created and interestingly, it is the Blockchain technology itself on which the Bitcoin and other cryptocurrencies run.
Apart from Blockchain, banking services will start getting rendered on a wider number of devices such as wearable smart watches. Moreover, in order to extract the best out of the technology, companies would need to partner with each other. For instance, credit card providers can partner with major banks to get access to customer data and provide tailored services for their clients. All this and a lot more that we cannot yet think of, has already happened and more is poised to happen in the near future.
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So yes, impact of technology in the banking sector has been phenomenal.
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