2016: Crucial phase for banking industry in the digital marathon

It’s a no-brainer that banks are the backbone of any economy. They sink or sail with it. And Indian banks are no different.

But what isn’t common knowledge is that this sector has experimented the most with technology. Though riddled with a lot of risk, banking services have steadily moved forward with digitization to offer customers services at their fingertips and laptop screens.

Over the last decade, banks have used technology consistently to change their operational landscape. Core banking platforms have also given banks a strong launch pad to offer digital channel capabilities. Almost all banks today are feverishly building out their online and mobile channel offerings.  ATM deployments have serviced large parts of the Indian hinterland. Internet and mobile banking have seen steady enrollment and adoption.

But are they moving fast and doing enough?

The number of smartphone users have risen. There is a whole new set of customers: New generation millennials. With the Digital India campaign announced in the country, the push to digitization has been major. With all this lined up, 2016 will determine if the Indian banking sector will make it to the finish line on time.

The Healthy Pace of Growth

2016 will definitely bring in good news and set the cash registers ringing, literally.

According to the World Bank bi-annual flagship report Global Economic Prospects, released by PHD Research Bureau, India is expected to accelerate its growth rate to 6.4 percent in FY2016 and 7 percent in FY2017. The Bank reported that this is helped by a sharp slide in inflation to multi-year lows and improving export momentum in line with rising demand from the US, a major trading partner. According to Goldman Sachs, India’s GDP will grow 7.9 percent in 2016-2017.

Gartner estimated that end-user spending in 2016 will be $366,673 million. That’s a 3.27 percent increase on last year’s $355,065 million.

Rajesh Kandaswamy, research director, Gartner, suggests that this positive trajectory will continue in 2017 too. The estimated end-user spending in 2017 is $380,408 million, indicating a 3.75 percent rise in two years.

International ratings agency Moody’s Investor Services too revised its outlook on the Indian banking system to stable from negative, suggesting that the operating environment for local banks is improving. The rating agency had maintained a negative outlook on Indian banks since November 2011, reported Livemint.

The CIO community, too, echoes the same positive sentiment of growth in the banking sector.

M.A. Nayagam, GM-IT of Tamilnad Mercantile Bank is of the opinion that banks always have to grow and there is no alternative. Every year the growth varies from 5-20 percent. “2016 will see major growth in the sector and it will range from 18-20 percent,” he says.

Apart from supportive government and regulatory policies, banks are also working on a business model that leverages analytics and social media to improve and customize services for its customers. Nayagam says that these factors will contribute to the growth of the banks in 2016.

This sets the ball rolling for various business and technology opportunities. Established banks can maximize customer value by engaging them through relevant channels and create newer and more innovative revenue streams for banks.

Also read: Digitalization can help banks to reinvent themselves: Anand Bajaj, YES BANK

“Public sector banks will try to focus on retail segment. They then have to improve their customer service leading them to opt for digital channels to compete with the private sector banks,” says Shiv Kumar Bhasin, CTO, State Bank of India.

Mobile Banking Beats Internet Banking

As digitization made it to the top of the buzzwords used in the technology industry this year, banking sector was sure to make good use of it.

Warning, you’ve to run a marathon to be a digital bank and not a sprint.

While investments in digital technologies are continuing at a high pace, there is still a lot of scope to turn many aspects—both consumer and corporate—fully digital.

According to a report by Boston Consulting Group (BCG) and Google India, in 2015, paper-based transactions accounted for 25 percent of total transactions during the year, down from 34 percent in the previous year.

Read: Make Payments to Any Bank Using Kotak Mahindra Bank’s FB App

The 18th Annual Global CEO Survey suggests 78 percent of Indian CEOs believe mobile technologies are the strategic focus for better customer engagement.

Top private banks in India have already rolled out mobile banking apps as they expect mobile to be a predominant banking channel in the future.

“Mobile banking is growing 100 percent and we expect that this will overtake internet banking by next year,” said Nitin Chugh, head-digital banking at HDFC Bank, told TOI while launching HDFC Bank’s mobile application for the iWatch

According to news reports, Kotak Mahindra Bank has already seen customer log-ins from mobiles outstrip those through Internet. Transactions in value terms through the mobile channel are already at par with internet transactions for Axis Bank.

Asit Oberoi, group president and COO at YES BANK, says banks will also be exposing APIs for their services to customers. “Small payments using banking apps or through social chat platforms will gain popularity within customers and will surpass existing online payment modes such Internet banking, utility bill payments, etcetera,” he says.

Wallets took off in a significant manner too. To give an example, YES BANK partnered with   Snapdeal/Freecharge wallets that was launched in September 2015. “The wallet has received an overwhelming response from customers with a significant number of wallet sign-ups,” says Oberoi.

The New Banking Correspondent: E-commerce

Another facet of digitization will happen as banks will venture into B2B environments. Banks will tie-up with various e-commerce companies. “It is a win-win situation, where both of them will help each other grow in the digital ecosystem,” says State Bank of India’s Bhasin.

Earlier in 2015, Reserve Bank of India said it was open to form ventures with e-commerce companies and let them act as banking correspondents. This partnership will definitely provide both competition and opportunity.

Tying up with e-commerce companies will prove advantageous to banks as it will create new opportunities to sell products. This will also prevent technology companies and non-banking financial companies to poach their customers.

“Banks will have to take cognizance of e-commerce the way it is galloping,” said HR Khan, RBI deputy governor in a report in The Economic Times.

In 2016, a lot of new players entering the wallet field will enable traction in the e-commerce space, and fuel growth by enabling friction-free payments.

But the opportunity doesn’t come risk-free. First, there is competition from technology companies acting as banks. Second, network failures can damage the brand. Then, hackers could get into the system and create fraudulent transactions.

Tying up with e-commerce companies will prove advantageous to banks as it will create new opportunities to sell products. This will also prevent technology companies and non-banking financial companies to poach their customers.

Banks have no scope to slow down in the transition to a digital ecosystem. Customer awareness has increased this past decade. Soon there will be an inflow of demand for newer digital products. Newer technologies have to be used as a strategic tool to fulfill the demand. This will determine the leaders from laggards and how fast can we achieve our goal of complete digitization.