In January this year, Standard & Poor (S&P) in its report ‘Tech Disruption in Retail Banking’ recognised that digital disruption in India poses a relatively low risk to the market position of its top-tier banks. The report added that, State Bank of India (SBI), among other Indian banks are well-placed to deal with tech disruptions, given their dominant market positions and continued investments in technology.
It is the latter part, i.e. sustained investment in technology that has ensured that traditional banks keep pace with the trend and stay relevant in new emerging banking landscape. What is perhaps implicit in the report is that digital disruption will chalk a different trajectory in a market where bank deposits and high level of savings in the form of savings accounts formed a bulk of source of funds. However, what the report explicitly indicates is that banks will remain banks in name but fintechs in substance and delivery.
The evolution of SBI describes this largely unnoticed phenomenon very aptly. The consolidation in PSBs will reinforce this trend as bigger entities will have the resources and bandwidth to offer superior technology led products and services to their clients.
‘FinTech’ in its broadest sense refers to the use of technology to deliver financial services. The technology transformation journey of Indian banks, spans over three decades from mid nineties. With the adoption of Core Banking Solutions (CBS), to deployment of ATMs and scaling of mobile app-based banking, the technology adoption in Indian banks has come a long way, in the process, making banks more fintechs in orientation. Even some of the NBFCs are now attempting this fintech journey with the technology engine being the key differentiator.
On the other hand, Tech Fins, are those who start with technology and data and add financial services to their value-chain. Many non-financial start-ups in India are also taking this route and addition of payments or wallets is the financial add-on in their business model.
What have banks like SBI achieved that has shaped their evolution into fintechs? A used-based classification of fintech will include deployment of technology in customer interface, data security and operations and risk management function of banks. In each of these areas, the SBI experience is one of using technology that is either developed in-house or in collaboration with technology partner. The purpose ranges from bringing efficiency in operations, to monitoring and finally to data driven decision making.
The fintech journey can be better described by looking at the digital footprints left by the technology deployed. At the customer interface level, SBI flagship YONO app has taken the lead position with market share just touching a quarter. The account opening functionality of the app has achieved 91% migration with around 22,000 accounts opened on an average daily. The impact of the app is also visible with branches seeing share of digital transaction approaching 80% with a whole bank average of around 67%.
In operations as well, the efforts are on to reduce the delivery time using technology. We are in the process of digitizing the end to end process of retail loans to improve the efficiencies in delivery including an integrated Retail Loan Management System (RLMS). The YONO app already has a pre-approved personal loan (PAPL) functionality, which presently generates 4500+ loans every day.
In the area of data driven decision making, we have taken a number of initiatives. Loan monitoring activity has been mostly digitalised with real time visibility of key areas including stressed assets, pending legal cases, business metrics, ATM outages etc. An in-house analytics team uses AI models for generating early warning indicators for various loan segments, fraud alerts and risk assessment.
With RBI encouraging more towards a less cash economy by encouraging innovation through sandboxes, the opportunity for banks to deepen the fintech-isation process only gains strength. Thus ABCD – AI, Blockchain, Cloud and Data will be the catalyst in transformation process. The advantage of traditional banks becoming fintech is that it reduces the probability of regulatory blind spot thus protecting financial stability.
The roll out of National Blockchain Policy, liberalisation of geospatial data and much needed legal framework on crypto currency and data protection will also go a long way in managing business and other risks more efficiently.
In short, no activity of the bank is untouched by technology. The front and back offices today interact through the bridge of technology creating greater synergies. Today all discussions, be it at the ground level or in the Board room, start and end with technology. What we strive for is bringing not just an impersonal technology platform but a platform as service. The true challenge lies in preserving the relational aspect of financial services while delivering value at efficiency through smart use of technology.
Views expressed above are the author’s own.
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