Banking on technology: India’s banking industry
Banking today is a flourishing industry, focused on technological innovation. Internet banking has emerged as the biggest focus area in the “Digital Transformation” agenda of banks.
In 2012-13, Indian banks deployed technology-intensive solutions to increase revenue, enhance customer experience, optimize cost structure and manage enterprise risk. However, there is a wide variation in the technology agendas and implementation capability across different players of the banking industry:
- Enhancing core banking value
- Revamping the digital agenda
- Moving from information to insight
- Dealing with a changing risk regime
- From cash to electronic modes of payment
- Grappling with financial inclusion
- Empowering employees
- Accelerating innovation
- Internet banking:
The shift towards internet banking is fuelled by the changing dynamics in India. By 2020 the average age of India will be 29 years and this young consumer base is internet savvy and wants real time online information. Indian banks therefore need to aspire high and move toward implementing a world class internet banking capability.
Urban areas had a total of 205 million internet users in October 2013 that accounts for 40% yoy growth, while rural India have 68 million users and a growth rate of 58% yoy.
- Business intelligence
India’s banking industry is on the cusp of a major transformation, with new banking licenses expected to bring in more players in an already competitive environment. In such an environment, banks across India are increasingly adopting business intelligence (BI) and analytics to drive their overall profitability.
RBI has also encouraged banks to adopt BI to increase transparency and control over the banking business. The Automated Data Flow (ADF) initiative has been a strategic step in this direction, seeking to ensure submission of correct and consistent data from banks’ systems to the RBI without any manual intervention.
- Customer management
Banks need to clearly articulate and measure the expected benefits from the winning strategies which would be dependent on the value various initiatives provide customers. These include:
- Customer segmentation
- CRM to customer experience
- Use of alternative channels
- Effective cross and upsell
- Risk management and information security
The Indian Bank’s Association (IBA) survey and EY analysis reveals that Core Banking System (CBS) is widely used across the banks for transaction management. However, its integration with risk management and other enterprise level applications is still at preliminary stages.
Some key risk management methods include:
- Credit systems
- Enterprise Risk Management Systems
- Liquidity risk systems
With the advent of mobile computing, social media, cloud computing and increasing sophistication of hackers it is evident that the risk environment is changing. With more and more cases being registered under the IT Act 2000, banks can no longer ignore privacy of customers.
To tackle this challenge, EY suggests a three-pronged approach to improve, expand and innovate information security.
- Technology in training and e-learning
The last decade, which marks the era of liberalization and reforms in the country, has been an eventful one for the banking sector, changing the face of the industry in a big way. The increase in investment on training and development by banks in India is caused by a variety of motives, which include — new technology adoption, productivity, responding to skills deficiencies, new hire inculcation, and staff performance management.
- Financial inclusion
The six cornerstones pillars of financial inclusion
The ability of technology to bring services to people wherever they are and whenever they need them is the biggest driver of achieving comprehensive financial inclusion.
Electronic payments are accelerating this drive, and new developments, including Big Data, ubiquitous internet access and cloud computing, are expected to have enormous impact.
Regulators should consider relaxing restrictions in areas that disproportion ally affect unbanked customers, e.g., through KYC, agent banking and mobile banking.
Interoperability can create value for customers to attract large volumes.
Keeping pace with technology changes in the financial inclusion space will require significant investments in the regulatory capacity and changes made in regulatory processes.
Government can incentivize service providers to introduce technologyenhanced business models that improve last mile delivery by deploying their own resources, e.g., DBT payments and universal service funds.
The spread of digital connectivity and mobile phones have created attractive opportunities in the Indian financial inclusion landscape. In particular, technology promises to enable hundreds of millions of people to access financial services for the first time due to its wide reach, convenience and low cost of delivery.
India is experimenting with several new ideas in financial inclusion in almost all areas requiring immediate focus — banking and payment channels, technology platforms, regulatory. Significant progress is required in financial inclusion, as indicated clearly by the World Bank Findex Survey 2012.
- Mobile banking
Mobile banking continues to be a focus area for all banks in India. Our survey indicates that they are not only looking at this channel as a way to increase their customer engagement in urban areas, but also to reach out to new ones in rural regions, and thereby significantly further their financial inclusion agenda.
- Payment systems
In the last decade, India has seen a shift from traditional payment methods, i.e., cash/paper-based payments to modern electronic payment systems. However, 97% of payment transactions for public sector banks are paper based as compared to 60% for private sector banks.
In the recent past, the RBI has taken multiple steps to promote electronification of payment instruments such as:
- Framing the Payment & Settlements Systems Act to provide for the regulation and supervision of payment systems in India
- Providing robust RTGS/NEFT platform, establishing National Payments Corporation of India (NPCI) to act as an umbrella institution for all the retail payment systems
- Regulation and promotion of acceptance channels including ATMs, POS and payment gateway policy
- Issuance guidelines and security measures for all card transactions
Debit cards (43%), credit cards (28%), internet banking (29%) all comprise a substantial percentage of the overall number of electronic transactions for private sector banks.
Risk management and information security
The diagram below provides an overview of the segment-based service model.
Final list of award winners:
Final list of award winners: