The coming revolution in Indian banking

Increasing penetration of smartphones, Aadhaar-linked bank accounts and a host of powerful open and programmable capabilities is set to create the ‘WhatsApp moment’ for Indian banking.

Once in a while a major disruption or discontinuity happens which has huge consequences. In 2007, the internet and the mobile phone came together in a whole new product called the smartphone. This phone, with its own operating system, such as the iOS or Android, could support over the top (OTT) applications. The messaging solution for the smartphone did not come from the giant telecom or internet companies. Instead, it came from WhatsApp, a start-up. WhatsApp does 30 billion messages a day, whereas all the telecom companies put together do 20 billion SMS messages per day. Such is the power of disruption!

Such a “WhatsApp moment” is now upon us in Indian banking. This discontinuity has been caused by several things coming together. Smartphones are growing dramatically and are expected to reach a penetration of 700 million by 2020. Over 1 billion Indian residents now have Aadhaar, an online biometric identity. The government promoting financial inclusion through the Jhan Dhan Yojana has led to over 200 million new bank accounts being opened. With the RBI giving licences to over 20 new banks, including small banks and payment banks, the competitive intensity of the sector is set to increase. One can visualise a future where every adult Indian has an Aadhaar number, a smartphone and a bank account. Already over 280 million Indian residents have an Aadhaar-linked bank account and around 1 billion direct benefit transfer (DBT) transactions have happened, whose value is in the billions of dollars.

On top of this, a set of powerful open and programmable capabilities, that are collectively referred to as the “India Stack” by the think-tank iSPIRT, has been created over the last seven years. Aadhaar provides online authentication using one’s fingerprint or iris, which can be done from anywhere. This can make transactions “presence less”. The e-KYC (know your customer) feature of Aadhaar enables a bank account to be opened instantly, just by using the Aadhaar number and one’s biometric. The e-sign feature enables online documents to be digitally signed with Aadhaar. The “digital locker” system enables the storage of such electronic documents safely and securely. All this can make the entire banking process “paperless”.

The final two layers of the “India Stack” have great relevance to the future of banking. The Unified Payment Interface (UPI) layer, a product built by the National Payment Corporation of India (NPCI), a non-profit company collectively owned by banks and set up in 2009, will revolutionise payments and accelerate the move towards a “cashless” economy. So “pushing” or “pulling” money from a smartphone will be as easy as sending or receiving an email. This product from NPCI is the latest in several payment systems that they have developed, from the National Financial Switch, National Automated Clearing House, and RuPay cards, to the Aadhaar Payment Bridge, the Aadhaar-enabled Payment System and IMPS, a real-time payment system.

The move to a “cashless” economy will be accelerated by the Aadhaar-enabled biometric smartphones. So credential checking in banking will move from “proprietary” approaches (debit card and PIN) to “open” approaches (mobile phone and Aadhaar authentication). As such, the holy grail of one-click two-factor authentication, now available only to giants like Apple, will be available to kids in a garage to develop innovative solutions.

Finally, as India goes from being a data-poor to a data-rich economy in the next two to three years, the electronic consent layer of the “India Stack” will enable consumers and businesses to harness the power of their own data to get fast, convenient and affordable credit. Such a use of digital footprints will bring millions of consumers and small businesses (who are in the informal sector) to join the formal economy to avail affordable and reliable credit.

As data becomes the new currency, financial institutions will be willing to forego transaction fees to get rich digital information on their customers. The elimination of these fees will further accelerate the move to a cashless economy as merchant payments will also become digital.

This will also shift the business models in banking from low-volume, high-value, high-cost, and high fees, to high-volume, low-value, low-cost, and no fees. This will lead to a dramatic upsurge in accessibility and affordability, and the market force of customer acquisition and the social purpose of mass inclusion will converge.

These gale winds of disruption and innovation brought upon by technology, regulations and government action, will fundamentally alter the banking industry. Payments, liabilities and assets will undergo a dramatic transformation as switching costs reduce and incumbents are threatened. As the insightful report from Credit-Suisse has so well explained, there is a $ 600 billion market capitalisation opportunity waiting to be created in the next 10 years. This will be shared between existing public and private banks, the new banks and new-age NBFCs. It may even go to non-banking platform players, which use the power of data to fine-tune credit risk and pricing, and make money from customer ownership and risk arbitrage.

The public sector banks, which occupy the commanding heights of the economy with a 70 per cent market share, will be particularly challenged. Even as they deal with the inheritance of their losses, they will have to cope with, and master, enormous digital disruption. This will require their owners, the government, to give them the autonomy and freedom to experiment and innovate.

To quote Shakespeare, “There is a tide in the affairs of men, which, taken at the flood, leads on to fortune”. The $ 600-billion opportunity is here. The WhatsApp revolution went unnoticed by incumbents. Normally such disruptive changes (like bubbles) are only recognised after they have happened. In this case, the forces of change are evident and can be anticipated. The opportunity for the banking sector has been called, and it is equally accessible to incumbents, both in the public and private sector, to the new banks, to the NBFCs and the tech companies. The future will belong to those who show speed, imagination and the boldness to embrace change.

This article was written as foreword to a Credit-Suisse report on the Indian banking sector

An Indian Fintech Entrepreneur’s Views on UPI

Ever since UPI (Unified Payments Interface) alpha launched on 11th April 2016, I see much confusion amongst various stakeholders. For me, the most relevant question is will UPI kill payment gateway aggregators and PSPs (payment service providers) ?

My answer is No. If you’re interested to know more, please read on…

To understand in detail, let’s understand below 5 pointers:(1) What is UPI (Unified Payments Interface) & what is it’s objective ? And who is an Aggregator /PSP & what is their objective?

For the uninitiated, UPI is a layer on top of the IMPS etc (see image above) which will work on a network of banks, facilitating account-to-account transfers in a simple and secure manner .

In other words, UPI (standalone) will just be another way of transferring funds from ones’ bank account to another without going through the hassles of adding someone as a beneficiary / IFSC / account no (NEFT) or entering MMID / mobile no (IMPS) . The objective is to simplify the payment process vis-a-vis NEFT / IMPS which didn’t reach critical mass required to make India cashless — both from person-to-person (P2P) and merchant payments standpoint.

Whereas, a n aggregator /PSP is one which continuously works towards empowering its customers aka Merchants ( in our case, mostly long-tail online merchants and individuals desirous of collecting online payments) with as many payment options possible & more. For example, debit cards, credit cards, net-banking, cash-on-delivery, IMPS, cash deposits, prepaid wallets etc. The objective is to provide one stop payment collection solution that encompasses all possible payment instruments in one bucket. But that is not all. The PSPs also supports its clients by creating new products & features to enhance their business outcome too!

Now here is what a PSP brings to the table which UPI does not today :

  • Provide other payments instruments which comprises a significant majority portion (~ 60 -80 %) of the total online payments. May be, UPI might become the new net-banking, by replacing it as a payment mode.
  • Detailed information on received payment (who paid & for what), apart from providing transaction management, reconciliation, insights etc.
  • Customisation at every level (payment options, payment page, etc) which is beyond a simple push-n-pull movement of money via UPI.
  • Trust custodian — one who provides protection against any dispute between merchant & consumer (this is completely missing in UPI today).

(2) What UPI adds to existing systems & processes?

The apps that will be built on top of UPI architecture might not only be easy to use — but the mobile first, secure & interoperable ( any bank to any bank) nature of UPI makes it one of a kind. With the learnings of digital wallets and IMPS adoption in the past , NPCI now has all the ingredients to revolutionise the the way Indians pay one another.

(3) Can UPI act as a catalyst and benefit Indian Fintech ecosystem?

We at Instamojo will add “UPI as a payment option” in the checkout page (representation image below) along with other available payment instruments and ride the wave of consumer adoption.

(4) Can UPI adversely affect anyone in the Fintech space?

Launch of UPI at this time is actually a blessing in disguise for payment agnostic players like Instamojo. Because the likely causalities of UPI will be those who have invested time & money in building non-interoperable and siloed products. Namely,

  • Digital wallets — UPI doesn’t allow interoperability of wallets on its platform today. Hence, P2P payments might shift entirely via UPI.
  • Net-banking network providers — Many players in the ecosystem had long enjoyed the relationship they had with each banking partner to put the net-banking infrastructure in place. If UPI picks up, it might become a one stop solution to get connected to all the network of banks due to inter-operability. Thus making all their hard work redundant. Now simply getting connected with UPI architecture via one banking partner will give exposure to all others banks required to process merchant payments.
  • Card network providers — If UPI is going to hurt anyone in a meaningful way, it will be the card networks like VISA/MC which will loose out of the Debit Card interchange to some degree, provided RuPay card become predominant.

Moreover, this revolutionary approach might make more consumers “online payment ready” in a very short span of time. And I hope, what Telecom revolution did for communication, UPI does the same for the Fintech space in India.

(5) What happens if UPI takes off massively?

Most digital wallets will lose relevance in the P2P payments space and will ultimately phase out and die like good old pagers . However, there can be a counter argument that in a winner-take-all or winner-take-most market, the digital wallet provider with largest merchant acceptance network might win due to inter-operability as consumers would gravitate towards the player which provides max fungibility for one’s wallet balance.

So, merchant payment collections via net-banking and wallets will be replaced by UPI. VISA / MasterCard will loose it’s share of revenues from debit card processing since RuPay (India’s own VISA/Mastercard) will share the interchange nuggets which is part of UPI now.

However, aggregators and PSPs will still be central to a Merchant, since such players bring other modes of payment collections too e.g. credit card, unified reconciliations of orders with payments, integration & APIs, customization, industry specific pricing & features, data and analytics and possibly discovery — apart from UPI enabled payments too!

On top of above, an online Merchant who is shifting from NEFTs / Cheque / Cash to PSPs for their payments need, will still turn t o the PSP as the pain-points still remains the same , with or without UPI coming into play i.e.

  • Integration & APIs
  • Order and transaction management
  • Unified reconciliations — orders with payments
  • Refund management
  • Dispute resolution
  • Customization — at every level
  • Industry specific pricing & features
  • Data & analytics
  • Support management
  • Risk management

Even if UPI solves all the above issues for an Online Merchant, they will still solve a portion of their payment collection needs, as UPI does not support VISA / Mastercard led credit card processing which stands at 20–25 Mn active users in India today.

Conclusion

It is evident that UPI is a boon and might be the much needed catalyst to increase the digital shopper base of India and in the process, might take a stab at the real enemy — CASH or unaccounted money exchanging hands; thus hurting the progress of our economy!

Hence, UPI is working very closely with banks under the guidance of RBI. In turn, banks are partnering with various players to take this new payment instrument to merchants & consumers.

Footnote:

  • For an aggregator/PSP , it will all be the same — only the graph of the credit card processing will dip while a new segment will rise.
  • Lastly, if someone thinks that banks will themselves act as an aggregator and offer UPI directly to the Merchants. W ell , they tried that before by offering IMPS to merchants which did not work . For argument s sake if one says it failed because of the complex MMID etc and now with a simpler process it will work, it won’t work for entire suite of payment instruments that a merchant needs.
  • And finally, if one believes that banks would offer a bundled solution of Cards + UPI — well I would say its will be a good debate to be a part of but end of the day, even banks know what they are good at i.e. retail banking / CASA / lending & deposit arbitrage!

Credits:

Guest blog post by Sampad Swain, Instamojo. The original article can be accessed here

Top 10 Expectations from Digital Banking Users

Digital banking has caught the fancy of every bank in the world, from small to large. Digital, which assumes internet connectivity, allows customers to avail of banking services anytime, anywhere from their digital devices. Digital devices include laptops, tablets, mobile phones, ATM, Kiosks and may be even large touchscreens. Every time a customer or a prospect is interacting with a digital device and learning more about a bank or transacting with a bank, the bank is providing an experience (even if the bank knows it or not). Whether that experience is making it easy for the customer to remember, come back, start a process, complete a process, ask for support, recommend to a friend etc. is what defines the essence of digital experience.

In other words, digital banking experience is a series of interactions a customer has on his/her digital device. Most of us would pay attention to the “series of interactions” and forget about the “customer” part. We need to look at the experience from a customer’s perspective. What’s missing in most of the digital banking experiences is the emotional aspect. We don’t need to run a Yash Raj Films musical score in the background while banking. But, are we able to empathize with our customers in a way that we can capture their intent logically and emotionally and solve it so that they can be both successful and happy after the interaction?

Why is this important? There is a huge realization that if banks don’t get their digital banking strategy and execution right, their customers might leave them for another bank that does get it right. Banks have realized that digital is a fundamental new challenge for them. It is also a huge opportunity to re-imagine customer experience. So, what does a digital banking user want or expect the bank to provide? There are many things, but we need to remember, everyone in this world has a relationship with money. And they need help to manage that relationship so as to maximize their wealth. Digital makes that possible like never before.

But, are banks ready? It all depends on how well we know our users. So, here are top 10 things a digital banking user expects based on my observations. Some of the examples and jargons used like NEFT are familiar in the Indian context. But, the principles remain the same for any global bank.

#1 Digital user has a goal to accomplish. Digital banking is pretty convenient in terms of time and effort. It beats driving to the bank and standing in line any day (nothing personal). To provide the best customer experience online, we need to know why is the user visiting the web site or mobile app? Do they want to transact, as in check balance or transfer funds or do they want to shop for loans and fixed deposits? It’s very easy to find out depending on what they choose to click (or touch). Unfortunately, there is a lot of information thrown at the user. This causes cognitive overload and the unintended effect is that the user will learn how to ignore everything except a sequence of clicks built into muscle memory to get their jobs done. So, are we helping the user get their jobs done or are we throwing hurdles along the way? Next time you login, count the number of horizontal scrolls, vertical scrolls, flashing news, ads, popups and extra pages you see on the way to checking your balance! To get this right, we need to provide relevant information based on customer intelligence. For this to happen, we need to begin with really understanding the users.

This requires deep capabilities in product management and a product mindset.

Yes, the hidden question is, so how do we market our billion other products now that we have the attention of the customer? Agreed, the website is a great channel to market new products, but we need to first focus on making the customer successful in their intended jobs.

#2 Digital user expects anytime, anywhere, anywho service. This is a very basic expectation from internet services. The beauty of digital bank is that it’s always there with the customer wherever they go and whatever the time or day of the week is. So, for example, instead of saying NEFT option of funds transfer is not possible now (after entering all the details) since its beyond office hours, how about providing the user with a workable set of options based on the time of login, from the moment they choose to transfer funds?

It was funny to find out that NEFT (before RTGS came along) couldn’t batch my requests to transfer funds beyond office hours. I recently found out NEFT and RTGS are platforms that are government owned and operated. Commercial core banking system vendors can only do with what is possible. So, the interesting bit was the online fund transfers are timed for clearance at the same time as the manual cheques! Internet runs 24×7. Think Flipkart or Google.

There are times when the user wants to communicate with the bank via their preferred option of email, facebook or twitter. It is not important who they communicate with or when but that their problem gets solved. For this to happen, banks should put in place mechanisms to create an integrated session across multiple channels of communication. Banks should also stop viewing emails, facebook or twitter as silos and have an integrated strategy in communication.

This requires deep technology platforms and robust customer data.

#3 Digital user expects banks to simplify the security process and yet keep it 100% secure. Two factor authentication is becoming the world standard for secure logins. More and more banks are deploying this measure for greater security. It is no doubt commendable that banks take our money deposited with them seriously and put strong security measures around them. Still, there are too many passwords to remember. I bet most senior citizens are writing down the passwords somewhere and reading from it. Hence, banks need to consider biometrics based logins urgently for mobile apps. Not sure if Aadhaar can verify biometrics but that’s a start for leverage.

However, there are some pretty confounding security measures followed by some banks. For example, a few banks don’t allow you to copy and paste (Ctrl-V is disabled) credit card or account numbers. In some cases, the account numbers are treated like passwords and masked. But there is another field right below that asks you to confirm the account number, which is not masked. Even OTPs are masked. I am not sure what’s the rationale behind this but isn’t it better if data doesn’t get transduced for integrity? May be someone can enlighten me behind the security use cases that demand masking every input. It will be great if banks develop a sense of graded risk tolerance. Once the user is authenticated and authorized there can be a scale down in terms of masking inputs or asking more passwords. Knowing user location can also help in grading risk tolerance. For example if the user is checking in from home it is much safer than from anywhere else outside.

A few banks want to educate the customers. Unfortunately, users have neither the time nor the inclination to read user manuals or attend workshops or watch videos just to figure out how to login! This is true for any digital service not just for banks. An eclectic mix of design and security can keep the vaults unbroken forever.

To build this capability you need to innovate rapidly or invest in a promising startup.

#4 Digital user expects that you don’t make them think. This is taking words from the title of a book by Steve Krug on how the best user experience designs don’t make the users think. This is true for even first time users. The questions in user’s minds are intuitively answered through thoughtfully designed interfaces. Getting to this point is an iterative process but this needs to be understood before growing the customer base. A very simple example is the design of choosing payees in some online banks. You are asked to remember the beneficiary id (numeric). It’s scary enough to remember your wedding anniversary. Who remembers beneficiary ids? Seriously! It’s incredibly over-engineered! I have figured out some short cuts – like for example, you can click on Search without giving any inputs and it will show you all the current payees.

Another example is interchanging the location of Change and Confirm buttons in subsequent pages in the same process flow. These are all actually hygiene factors in good design. It gets even more critical when you design mobile apps with limited real estate and shorter attention span.

Another example is NEFT, RTGS, IMPS are great technology platforms but for an average banking customer, they sound like jargons. How about showing a default (recommended option) along with other available options at the time of transaction with clear charges?

To build this capability you need a strong design organization. Banks may consider hiring a Chief Designer too!

#5 Digital user expects omnipresence. Omnipresence means being available and usable across all digital points of interaction. This is applicable for marketing channels across digital devices. A Facebook user may be looking for home loans for his/her new apartment. How can banks identify, participate in this conversation and help him/her make a decision? Are you there when the customer is looking for you? Think about rural users with feature phones. The second scenario is when the user is already a customer and needs to interact over their preferred choice of digital device. For e.g. how many users are using Windows Phone? Users would very much appreciate a consistent user experience in terms of layout, style, fonts, colors, design etc across all digital points of interaction. The third scenario is customer support when the user has a grievance and there are no easily available redressal mechanisms, the user has the power to vent on twitter letting the whole world know what a shameful service he/she is getting.

Having a presence is one thing and being effective is another thing. For example, it sounds like some banks that have twitter presence have given out a Standard Operating Procedure to their twitter reps of entrusting the responsibility of solving the customer’s problem back to the customer itself by asking them to navigate through their organizational maze. Wouldn’t it be great if these twitter issues and sentiments are also tracked and ticketed? All the bank needs to do is to link the twitter handle to the account and your twitter rep can solve the problem!

To build this omnipresence capability requires not only an integrated technology platform that bridges all silos but also an organization that is empathetic and aligned towards customers.

#6 Digital user expects “You must know me by now”. You would think that simple things like choosing “No Thanks” to downloading mobile app should be recorded but they keep showing up every single time you login! Going from fixing this to recommending the most relevant product based on my age, profession, income, savings, loans, where I live, my spend history, family information and a dozen other parameters; would be an ideal trajectory. Banks need to focus on conversions than clicks. Few and most relevant messages would be more meaningful than throwing a dozen messages and hoping for the best.

To build this capability, consider Predictive analytics and a robust customer database platform.

#7 Digital user expects that you are rethinking the WHOLE process and not just mirroring offline processes. Digitization of business processes presents a tremendous opportunity for improving efficiency. This should not be lost by simply taking the existing process with a mix of manual and semi-automated process and offering the same experience online. Digitization needs to be thought through in disruptive ways and this is certainly in the realm of several technology platforms available today. Digital needs an end-to-end perspective. For example, a few banks expect paper letters to initiate or re-initiate logins and request certain documents. It sounds like this is to ensure the person requesting is the same who owns the account but that should be obvious with a few security checks online.

To build this capability, we simply need better empathy of users that can be woven into product features and design! There may be a need to make core banking systems more open in terms of API support, but I will leave it to the experts.

#8 Digital user expects speed… and they get it! The speed of online banking is one thing that banks do get right. Speed is something that a digital user has been pampered with thanks to Google, JustDial or even online display ads served within 200 milliseconds from inMobi and the likes. Here speed should be viewed not just in terms of online site or mobile app responsiveness which is pretty good, but broadened to include overall online process duration. For example, time taken to approve a loan online or open a bank account online.

This highly engineering scalable capability is already or mostly built!

#9 Digital needs to augment hybrid experiences. Customers, retail or merchant, may need to visit a branch for various reasons. The frequency and the need may have already reduced and may further reduce. But, I think branches are not going away anytime soon. When the user visits a branch, is it possible to predict their questions given their historical pattern or an open case? How wonderful if this information was ready at the fingertips of the bank staff to satisfy the customer’s questions immediately. For example, every year around tax time, I need to make 2 visits to the branch to get a tax document. The first visit, I need to submit a written letter asking for the information and then come back the next working day. This needs to get online immediately but until then assuming regulatory procedures can this be solved in one visit? You can use the rest of the time in understanding your customer’s upcoming growth plans or life events and thereby using this opportunity to share more information about your other services (up-sell/cross-sell). This is probably the best outcome you can get out of face time!

To build this capability, bank staff needs to be equipped with customer intelligence management tools.

#10 Digital user expects you to be there for him/her. Just like personal relationship banking, digital doesn’t take away the need for the user to know a human on the other side. Adding a human relationship element in the world of bits and bytes is going to be a key differentiating factor in a bank’s success. The scope and quality of the conversation needs to be reconsidered once the basic transactional experiences are taken care of.

To build this capability, you just need good leadership!

In summary, be bold to put customer success first. WhatsApp founders were bold to say no to ads and the result is a super clean interface that is simple and powerful. In the words of Steve Jobs, Simplify, simplify, simplify and hide the complexity behind this simplification. It is not the customer’s job to understand how we work. It is our (as in the creator/service provider’s) job to understand what customers need and deliver value. To re-imagine a superior customer experience we need a holistic approach that spans business, products, design technology, analytics, marketing, support and most importantly new skill sets for the people who run and represent your banks.

What do you think?

To know more how you can go about building these capabilities and to improve customer experiences, email [email protected]

The author is the founder of Pravi Solutions, an Innovation and Marketing Consultancy enriching digital experiences!