One of the major advantages offered by digital technologies is that they enable enterprises to modify business processes to attain operational and financial excellence. In addition, they can improve customer experience substantially.
The banking sector has been at the forefront of digital adoption- both in business as well as technology. In the past six to seven years, banks in India have evolved to provide digital avenues from Internet banking to mobile banking to more recently, social application banking. Banking will continue to go digital in a wider manner, as Digital India government policies to enable mass financial inclusion across the country will gain steam.
According to a CII report, the banking sector in India is currently worth INR 81 trillion, and is expected to become the fifth largest in the world by 2020. The BFSI sector contributes about 40 percent of the revenue for major IT companies. As digital technologies evolve around the concept of data sharing over public networks on a number of devices, ensuring privacy and security related with banks are the major concerns at all levels. Hence, adoption of digital technologies will impact the core processes of a bank at a much deeper level, requiring them to revisit their legacy IT infrastructure and workflows.
A major differentiator among banks is the speed in customer query resolution, the response time, and the extent of omnichannel support. A service oriented industry; there is growing expectation that customer service and response is instantaneous as well as appropriate in tone. It is a daunting task to ensure such services when responses and notifications are triggered through non-human interactions. For example, when and how should an alert be sent to a credit card holder if the credit limit is reached, has to be carefully devised in order to expect quick action from the customer without sounding negative.
The other challenge is that use of various channels for financial transactions requires that the transactions are ubiquitous and migrate seamlessly between channels. For example, if a transaction is initiated in one device, the user should be able to complete the transaction in another device, even if on another network.
These are but a small percentage of challenges that are shaping the contours of new-age banking. Digital transformation initiatives in this vast industry are gaining momentum due to the increase in consumerization of IT. The use of digital technologies in the sector has enabled banks provide differentiation in terms of services and solution and hence attract new customers as well as retain existing customers. Two major challenges of the Indian banking sector are presence of huge unbanked population and heterogeneous economic and social conditions of the existing customers. These challenges can become opportunities for banks, if strategies are framed by banks to address pain points of all the people.
Banks have two approaches with respect to adopting digital transformation. The first one is to upgrade back office systems to address demands of the new age technologies. This will involve modification in the current IT systems to be compatible with analytics and mobility tools, revamping the data centres to move into service based offering, improving the usability of application interface (API), and developing a suitable enterprise architecture framework with service oriented architecture enabled core system. The second approach, digital banking, is the key to improve banking experience of the consumers. It includes all services from missed call banking to mobile phone banking to address the requirements of various set of customers. Banks have utilised digital technologies not only to improve internal processes and address the digitally-aware population, but also to reach the unbanked population. For example, HDFC bank has the facility of missed call banking, wherein the rural population can give a missed call and get a call back from the call center in the local language to address their query. At the same time banks are catering to the highly techno savvy customer as well. For example, even before the introduction of Google watch in India, HDFC had launched mobile banking Apps for Google watch.
Many initiatives adopted by Indian banks are within the social, mobility, analytics and cloud (SMAC) framework and related technologies. While some of these initiatives are still conservative, they have enabled banks to look at newer ways of customer and employee engagement and empowerment.
Social: Indian banks are not only using public social networks for consumer interaction, understanding customer sentiments, and personal branding, but also offering real time money transfers. Banks such as Kotak Mahindra (KayPay on Facebook) and ICICI (icicibankpay on Twitter and Pockets by ICICI Bank on Facebook) have enabled a number of banking services such as fund transfers, account balance and transaction checking, and even recharging prepaid mobile phones.
Mobility: Banks in India are considering the mobile first approach for launching new application, as more than half of the total transactions that happened in 2014 were on mobile phones. Besides improved penetration of smartphones, the mobile first approach can be attributed to the development of user friendly application and increased awareness among consumers for using mobile applications due to the emergence of eCommerce.
Analytics: In early 2000, banks like HDFC and ICICI set up their data warehousing centers and invested in the technology to analyze the huge data available. With advancement in technology and reduction in cost of its application, man power, computing and analysis, banks are trying to integrate high end analytics tools to the existing big data warehouse and the bank’s core operations to gain valuable insights on customers. The insights generated would help banks to generate additional revenue and at the same time, lower the risk of being exposed to fraudulent activities.
Cloud: Banks in India are using public cloud to move applications such as lead management, email services, and human capital management which tend to fluctuate in volume. Though public cloud platforms provide the advantages of decreased total cost of ownership, increased flexibility and agility, relief from software licensing management, and reduced cost for hardware maintenance and IT talent, concerns of security, regulations and interoperability are preventing banks from adopting public cloud platforms for mission critical applications.
Security and privacy issues are the major barriers for digital technology adoption in banks. Banks fear insecure application program interface, confidential data leakage, and malicious attacks. The lack of proper mechanism that decides on issues of ownership, accountability, and risks is also acting as an inhibitor. Moreover, there is lack of regulatory standards such as compliance with laws and regulations and legal liability.
In the next five years, the adoption of digital technologies in the banking sector will be driven by improvement in regulations pertaining to data sharing and ownership, sector specific solutions that address issues related with security and privacy, and improvement in solutions and services to suit rapidly changing new age consumer preferences. Private and public sector banks should concentrate on improving their legacy infrastructure to make them compatible to new age tools. Rural banks and credit cooperatives need to leverage the advantages of mobility and analytics to facilitate financial inclusion.