Finacle Blog

A staggering 2.5 billion people, or about half the world's adult population, are unbanked posing a massive challenge to conventional modes of reach such as ATMs and local correspondent networks. But analysts believe that the mobile phone is well set to become the most important electronic banking channel in emerging markets, which incidentally house the bulk of those without access to financial services.

There are several instances of collaboration between telecom operators and banking institutions - Vodafone and Safaricom's m-Pesa and Standard Bank's community banking to name a couple - improving financial inclusion in the markets of Asia-Pacific, Africa and the Middle East. The attractiveness of the mobile channel can be attributed to its much lower cost, ubiquitous reach and ease of use.

Typically, mobile-led financial inclusion initiatives either depend on the correspondents' device for delivery or define the customers' handset as the identity element. In the former mode of service, popular in Asia and parts of Africa, the agent or banking correspondent uses a particular mobile device to help customers fulfill their transactions. Security is enabled biometrically and through the use of one-time passwords generated by a combination of PIN grid and static PIN. When the customers' phone serves as the identity element, it is loaded with their bank account; users carry the device to an agent or kiosk where they follow a set of simple procedures built around SMS and USSD, to complete transactions.

That being said, mobile banking is fraught with several challenges including the inability to conduct biometric authentication on all devices; difficulty in supporting complex transactions; need for widespread customer education and; questionable security of the SMS mode. If mobile-driven financial inclusion has to keep pace with mobile adoption, it must be supported by various measures such as but not limited to, the adoption of device-agnostic Open Standards Architecture providing a common platform on which all financial inclusion programs may be run; the broadening of regulation to allow participation of telecom firms; the availability of speech recognition systems on devices to minimize keypad data entry; support for biometric authentication even on standard devices and; regulatory clearance for security technologies such as face and voice recognition.
 

Posted by Gautam Bandyopadhyay at 3:11 AM | Permalink | Comments (1) | TrackBacks (0)

Crystal ball gazing is an imperfect science at the best of times, yet I find myself wondering what lies ahead for banks that made it past the finish line of the economic crisis. What challenges do the new dynamics of compliance, consumerism and inclusivity bring?   And what must the industry do to turn those into opportunity? This is my checklist.

Allow personalisation and participation.  With banks fighting to reclaim their trust and their patronage, consumers have the upper hand once again. And they're flexing their muscles, demanding greater fulfilment and participation in return for their business. Therefore, expect the trend of product personalisation and consumer involvement in shaping both opinion and new offerings, to continue.

Bring in best practices. In an uber-connected world, banks compete for customer mindshare not only among them themselves but also with other industries. So, it's natural that they're expected to evolve the same as anyone else. Some other industry best practices worth considering - creating closed loop communities to foster peer interaction, humanising self-service channels with intelligent technology and enabling end to end online transactions.

Manage risk. Tighter regulation is here to stay, with not just lawmakers, but even consumers insisting on compliance. The industry's response will be twofold - complying with capital, KYC, lending norms etc. to mitigate risk, and acting with integrity and openness to restore its reputation. Moves such as stronger customer identification and multi-layered transaction authentication will gather pace.

Soothe apprehensions about restructuring. As banks reorganise either as a matter of consolidation, merger or optimisation, they must have a plan for reassuring their clients about the need for such change. Mostly, customers will worry about how the new entity will treat them. Will the bank charge more or impose new processes? Will they retain their erstwhile privilege status? It's important to set the record straight at the earliest and also let customers know about any benefits anticipated from the reorganisation. 

Don't just compete, collaborate. There are other ways to engage competition, besides all out war; I foresee more co-opetiton between banks with complementary strengths. The threat of disruptive competition - such as P2P lending platforms from Internet companies, m-payments from telecom operators or consumer financing from retailers - will rise as players from outside the banking space enter the fray. 

Make use of partnerships. Banks must draw upon the collective strength of their partner eco-system to better fulfil various expectations through product, technology or distribution alliances. They must nurture their partners' performance by equipping them with the required tools and knowledge, and by involving them closely in both operational and strategic matters.

Go green. Eco-consciousness is no longer just nice to have. With green regulations becoming mandatory, banks need to pay more than lip service to sustainability. On top of e-statements and branchless banking, expect to see a reduced carbon footprint through sustainable lending and green infrastructure.

Make use of technology. Technology will sharpen the competitive edge by improving efficiency resource utilisation and customer service. Emerging technologies in the area of NFC, Biometrics, Smart Cards and Cloud Computing could be the next game changers, rewriting the way banks go about securing transactions, spreading inclusion and acquiring software.

Needless to say it is not enough to simply 'tick' the activities in the checklist and move on. Banks must introduce a sound innovation strategy which permeates all business levels and empowers them with a combination of agility, efficiency, diversity management and growth. There is no doubt - Innovation is a continuous cycle.

Posted by Arunnima B S at 9:47 AM | Permalink | Comments (0) | TrackBacks (0)

Often, innovation is simply an ingenious response to a difficult situation - the inventor of the ATM thought up a cash vending machine when he couldn't withdraw money because the bank had just closed. The extension of this argument is that innovation is not only borne out of challenge, it is also its antidote. This is why an innovation strategy is so important to the survivors of the financial crisis.

Of course, a strategic innovation such as the ATM happens only once in several years and is usually pioneered by big banks with deep pockets since it has a longer payback, carries greater risk and needs more resources. But the 'little' incremental innovation which is variously a competitive defence mechanism, growth lever and survival tool, is a necessary component of every bank's business strategy. Leveraged properly, it can help the bank respond to current forces of change and turn their challenges into opportunities. For instance, technology innovation imparts flexibility so that the bank may comply with the regulatory changes of different jurisdictions, launch products and services ahead of competitors, and understand its customers better; process innovation raises efficiency and improves experience and; channel innovation extends its footprint to new frontiers including the world of social media.

Incremental innovation works in a continuous cycle, feeding off change as well as new ideas. With social media connecting banking organisations directly with millions of customers, they can easily tap into a goldmine of ideas to improve existing products and co-create new ones. And when an opportunity for strategic innovation arises, the leaders must grab it with both hands to wrest first mover advantage. On the other hand, smaller banks have the agility, and sometimes the spare resources to adopt new strategic innovations soon after they've been introduced in the market. That being said, strategic innovation is not the exclusive preserve of the biggies and can originate anywhere.

Posted by Balwant C Surti at 5:36 AM | Permalink | Comments (2) | TrackBacks (0)