Digital disruption is paving the way for newer, more agile banking models and India is becoming the poster child for banks all over the world. Between the innovations in mobile and social banking, and progressive regulations, India has managed to leapfrog the legacy systems and processes that burden most banks in the world. One of the most recent technology led revolutions in the banking front in India, was the launch of Unified Payments Interface (UPI), by the National Payments Corporation of India (NPCI). The UPI has the promise to be a game changer in the era of cashless payments. Imagine a scenario where you don't have to jump through all the hoops to make a payment, and just need a unique ID, similar to an email ID, to make a payment. Imagine a cashless transaction, that doesn't require you to type out your credit or debit card details.
This level of convenience and customer experience emerging in India, is second to none, and is an aspirational goal for global markets. The SEPA instant payments and Payments Services Directive II (PSD2) in the EU is trying to achieve the similar level of customer-focus and competition in the banking sector.
Four main forces driving winds of change
There are four main forces that are responsible for these winds of change in the Indian banking sector:
Demographics and Changing Customer Behavior
India is a young country with over 350 million digitally-savvy millennials. Banks have taken the lead in leveraging the latest technology in the form of mobility, analytics, and automation to understand and serve this segment better. However, it is not only the millennial crowd that is embracing the new technologies but the average Indian internet user is also getting in the thick of things. Between April 2014 and April 2015, the National Payment Corporation of India's IMPS recorded a 4x growth from 3 to 13 million in the number of monthly transactions. With the Indian consumers becoming more aware of the choices at their disposal and increase in digital connectivity, banks understand that they need to innovate to compete.
Evolution of Technology
India has leapfrogged to a level of technology that is head and shoulders above the rest; today every bank in India runs on modern core-banking systems, which provides a real-time view of the customer and hence enables banks to provide better customer service. With the advancements in cloud infrastructure, even smaller banks now have a faster-time-to-market for new products and services, and more opportunities for innovation without getting bogged down by capital investments. Many banks are adopting and rolling out use cases for leveraging analytics and blockchain in their banks.
Some banks have launched biometric authentication, smart watch applications and social media banking services, which means that they are ready for the next wave of mobility and wearables. On the other end of the spectrum, banks are also leveraging technology to bring more people in the financial bracket. With banks and the newer, more innovative fintechs trying to access existing and untapped market, the ecosystem and the consumer is benefitting from the healthy competition.
The banking sector in India is also supported by progressive regulators. Regulators in India are forward looking and they create policies that fosters an environment of healthy competition and focuses on financial inclusion. The Reserve Bank of India (RBI) is planning to have licenses for banks available on tap, and it has created quite a bit of news. In the last couple of years, RBI has granted in-principal approval for 2 universal banking licenses, and 11 payments bank, and small finance banks licenses each. This has opened up the market for more innovative, newer entrants and is an early warning for established players. NPCI had the foresight when it came to digital transformation and gave consumers access to their money in a cashless format 24×7 through IMPS and UPI.
After Narendra Modi came into power in 2014, he wanted to provide more efficient public services, and he saw the JAM trinity - Jan Dhan Yojana, Aadhar, and Mobile - as a real way to usher in an era of change and financial inclusion. As a result of a push from the government, Aadhar crossed 1 billion registrations in May this year and, Jan Dhan Yojna led to opening of 200 million new bank accounts; India is taking to smartphone usage like a fish to water with the penetration expected to reach 700 million by 2020.
With these drivers at play, and a bigger focus towards the end consumer, a series of initiatives to build a new-age digital infrastructure was conceived, which makes it easier for digital pioneers to run faster and reach more people. This infrastructure not only sets the foundation for futuristic banking, but also fosters the idea of "Banking for All".
The goal of focusing on the customer along with the ability to leapfrog to the latest technology has served the Indian banking sector well and the banks, along with their newer, more innovative counterparts are showing no signs of slowing down. With the regulators creating opportunities that will open up the market for rapid innovation, the Indian banking sector is moving ahead full steam. In the next few years India is poised to become a leader in banking, and a poster child for banks to emulate the world over.
This article first appeared in Express Computer. You can access the original article here.