Bankless banking is coming. And traditional banks have to get ready.
The explosive evolution of mobile computing, coupled with growing internet penetration, cloud technologies and social media access globally and in India, has led to traditional banks being challenged in their modus operandi and having to embrace technologies of the future. The graphics below, courtesy McKinsey Global Institute (MGI), are reflective of the growing digital penetration in India:
That said, let’s take the current scenario of banks — for a larger part they are still pushing products to their customers. This leads to a situation where the customer ends up having different relationship managers for the multiple products from the bank e.g. savings account, credit card, auto loan, home loan, car insurance, home insurance, life insurance, investments, trading, etc. Banks have tried to integrate these products through their apps, where these apps have ended up reducing cost by shifting the workload from the bank employee to the customer in the form of Do It Yourself (D-I-Y). However, if you have a problem or want a service, then you would be typically directed by their IVR/app to different customer service personnel for different products. The result is that the bank stops understanding the customer, reducing personalization and bespoke support for its customers creating dissatisfaction and trust deficit.
As an alternative specialised NBFC’s/banks dedicated to one or two products that are offered by universal banks. This creates an entity highly efficient in one or two products, but ends up replacing the above problem with another : customers having to deal with different entities for different products/services. Case in point : PayTM, Groww, Sqrrl, Policy Bazaar. Great companies, but narrowly focused.
The future bank would have a structure that starts with the customer once he registers, uses his digital footprint and behaviour analytics to build an understanding of him, identifies his needs and dovetails its communications, products and services into a seamless experience using AI driven CX supported by a dedicated Human Intelligence — whether employed or influencers. The same has been wonderfully captured by Nandan Nilekani in his presentation “Indian Banking — In a Time For Change”:
According to Accenture’s Technology 2020 Vision paper titled WE, THE POST-DIGITAL PEOPLE: Can your enterprise survive the “tech-clash”?, “The full potential of AI has moved beyond being a mere automation of simple tasks to being a powerful collaboration tool between human employees and machines. Successful businesses will understand the importance of context in human-machine interaction and take advantage of advances that help them collaborate on a larger scale. This will position companies to reimagine all aspects of their entire business from the ground up”. Case in point: Movenbank, which uses behavioural gamification and AI to engage with their customers on a day to day basis, offering value added services like personalised expense management to cash flow seamlessness to on-tap products.
A deeper look at the components of this disruption reveals that it comprises of the advent of 5G, Blockchain, distributed cloud, RPA, integration of FinTech & HealthTech, payments embedded into technology to deliver AI based CX, unlocking of attention spans due to self-driving/autonomous cars, voice programming, quantum driven irrelevance of cybersecurity & hacking, combined with the potential unleashed by the India technology stack (Aadhar + UPI + eSign + DigiLocker + Mobile). The coming together of such technologies will not impact only specific banking services, but most to all of them. The same has been captured again by Nandan Nilekani in the aforementioned presentation.
It is not that leaders don’t know the solutions or what the customer expectations beckon — rather it is the inertia to drive change, which would inevitably face resistance, budget shortages and risks rocking the boat. The CEO of NITI Aayog has gone on record to state that in this decade, banks as we know them would be dead . It is the coming tsunami of disruption driven by the tools, technologies and business models of the 4th Industrial Revolution that will force the change.
The early signs of digital / bankless banking shift in India are here already (Source: IBEF):
India’s digital lending stood at US$ 75 billion in FY18 and is estimated to reach US$ 1 trillion by FY2023 driven by the five-fold increase in the digital disbursements. This means Indian banking customers use and will continue to incrementally leverage digital banking services in their personal lives. In such scenario if someone has to choose between commuting all the way to the bank to spend hours waiting in a long queue or rather getting the same task done with a few clicks of mouse, the answer is pretty obvious
In October 2019, Government e-Marketplace (GeM) signed a Memorandum of Understanding (MoU) with Union Bank of India to facilitate a cashless, paperless and transparent payment system for an array of services
Transactions through Unified Payments Interface (UPI) stood at 1.15 billion in October 2019 worth Rs 1.91 lakh crore (US$ 27.33 billion)
RBI has allowed, regional rural banks with net worth of at least US$ 15.28 million to launch internet banking facilities
Additionally, per McKinsey Global Institute (MGI), digital adoption is estimated to create 170X incremental economic potential for the Banking and Financial Services sector in India.
The future of banking is coming at a breakneck speed, which will lead to the irrelevance of existing systems and legacy institutions, and survival of those organisations who are proactive to accept change, take the required risks and evolve their business models — yet most incumbents fail to recognise the change until it is too late.
To that extent, it is important for banks to change their mindset — from pushing products to a customer that they are currently doing, to a mindset of partnering with a customer in his engagement journey — as a “digital financial concierge” that’s personalised, frictionless, intelligent and just a click away.