The Indian banking landscape has been transforming over a decade, from changing customer expectations and evolving technology to innovation in products and services, fueled by a democratised digital infrastructure.
Over the same period, India changed from a savings to a consumption-driven economy, with rising incomes and declining household savings. As per RBI data, the disposable income and consumption levels in India have also grown at a healthy rate of 9-12 per cent since 2012/13.
Demand for credit, specifically retail credit, has been rising at 15.7 per cent every year over the past three years. This interplay of factors sets the tone for future evolution of banks to meet the need for better products, especially at the point of consumption. Three factors are expected to impact banks' efforts in building a 'bank of the future': changing customer expectations, evolving technologies and design of innovative banking products.
Banking customers, be it retail or corporate, are demanding customised products, incorporating decision points such as family circumstances, risk tolerance and life-stage. Traditionally relying on transaction volumes to segment customers, banks must transition to behavioral banking - assessing customer value based on financial behaviour derived from digital data.
In future, the demand for an integrated set of financial services such as payments, remittances, loans, and others, from a single institution is expected to be commonplace.
Individuals today are channel agnostic. Hence, a truly omni-channel experience, with a connected enterprise focus is essential. It analyses channels from multiple lenses: products/services optimised real-time, responsive supply chains, synergy with third parties to overcome enterprise barriers, data analytics to optimise experiences and an experience-centric culture. True omni-channel connects capabilities of front, middle and back offices to keep customers at the centre.
Another rising demand is self-service functionality, especially on mediums such as apps or websites, helping customers do maximum tasks with minimal intervention. The modern banking customer is also sensitive to data privacy, and banks offering higher security levels are expected to see more profitable customers in the future.
Using data driven insights to drive personalisation of products and services is going to be the key differentiator for the future bank.
Banks have long been aware of a huge unbanked customer base in India, and the challenges and rewards of serving them. But surging internet penetration (about 550 million internet connections as of September 2018) and smartphone growth (about 829 million smartphones by 2022) present an opportunity to use technology to design products that have lower costs and turnaround times. Banks must tap into last-mile channels such as kirana stores, logistics companies, and postal networks to act as micro-branches. Low-cost devices with biometric authentication and fully digital transactions and onboarding can greatly reduce the effort to serve such customers.
The national postal service is on its way to provide basic banking and third party financial products distribution in remote corners using its vast network. Moreover, the rise of multi-lingual and 'light' apps that run on lower data speeds provides an opportunity to offer services through them. Aadhaar and Jan Dhan Yojana have already set the stage by opening up millions of accounts for previously unbanked customers. Future banks must innovate to tap this segment, and ensure that such accounts act as revenue sources, and not lie dormant.
Technology-led disruption has become the status quo, and banking is no exception. Technologies such as artificial intelligence, machine learning, big data analytics, blockchain and hybrid clouds are becoming mainstream. A combination of technologies is essential to transforming banking.
Customer onboarding is an area undergoing a lot of technology-led developments, from digitalisation of documentation, to consent-based architectures. With digital identity being a top concern, developments in biometrics such as 3-D face and iris scanning must be applied to apps through an intuitive interface for an extra layer of security and convenience. One of the largest global banks launched FaceID-based login for customers to access applications, reducing log-in times to under a second and adding extra security. Going ahead, this technology has the potential to transform KYC and customer onboarding processes.
Illustration by Raj Verma
Retail banking has also seen transformation. High data speeds are expected to make technologies such as AR/VR mainstream in virtual retail branch experiences and personalised real-time deal or offer finder. High speeds and low latency can enable more secure server-based biometric authentication instead of device-based, which is prone to hacking.
Literacy and vernacular self-service options are critical in meeting inclusion goals. This, in combination with voice recognition, can bring in a larger base into the banking ecosystem.
With demand for integrated services, wealth management is expected to see technology-driven developments, either assisting advisers in better decision making, or through fully automated advisory.
Technologies such as AI and machine learning are changing corporate banking too. A large global bank is leveraging AI and machine learning to automate invoice and payments matching process and detecting irregularities. In corporate banking, evolution of Internet-of-Things and blockchain is also disrupting trade finance through secure smart contracts for goods such as perishables.
In transforming the banking business, care needs to be taken to follow a holistic approach, rather than a fragmented use-case based approach. When it comes to defining the right technology roadmap, both too much and too little is not right. What is right for one bank might not be for others.
Product and Services Innovation
Creating a niche through innovative products and services is both challenging and rewarding, and leveraging technology in the right way is critical.
Frictionless payments remain an area where banks must continue to innovate. Payment mechanisms such as biometric authentication must be explored. One of the largest e-commerce giants has piloted 'invisible' payments, allowing shoppers to pick items and walk out, with automated sensor-based payments.
Millennials today not only demand basic banking, but also help with managing expenditures through budgeting and investment tools. Hence, banks must design personal finance tools that leverage analytics and AI to offer expenditure management and investment advisory.
Designing a delightful experience is incomplete without transformation of the branch, which has been the prime channel for years. Futuristic branches might aim to be more space optimised, use biometric authentication for self-service and hold fewer staff doing high-value tasks requiring human judgement. Digital walls can provide personalised offerings and allow for instant account opening and loans. A large global bank is testing zero-staff branches called 'virtual centres', where customers can make ATM transactions and consult staff via video-conferencing.
On a broad level, two models are set to emerge - a utility bank, providing basic banking services and acting as a utility provider; and an everyday bank, providing services across all touchpoints, in addition to its core services. Fintech collaborations for integrated services is expected to be key to adding that extra bit of customer value. For instance, a large German bank tied up with a fintech company to help customers verify identity remotely via smartphone/computer to sign up on its app. Partnering with both online and offline merchants, banks need to leverage transaction data and behaviour to provide instant services at all possible touchpoints.
Moving towards a future-ready design comes with its own challenges, ranging from misaligned strategy to silo-ed technology, data and supply chains. Increasing concerns around data security, privacy and compliance have diverted attention from the real transformation agenda. Similar issues need to be addressed while dealing with third-party service providers, which are key to providing integrated services.
Designing a bank of the future is no easy task, given the dynamics of customer preferences and evolving technologies within the framework of regulations. Larger banks with investable capital must lead the way, starting with pilots. RBI's fintech sandbox has the potential to go a long way in helping banks and fintech companies experiment with solutions in a controlled environment, eventually helping roll out superior products and services.
Gayathri Parthasarathy is KPMG Partner and National Head, Financial Services
Company and individual names mentioned in the article are based on publicly available information and should not be construed as testimonials or any kind of endorsement by KPMG in India.