RBI asks HDFC Bank to halt anything new under Digital 2.0, but what is Digital 2.0?

HDFC Bank (Image: PTI)

In a stinging note, the Reserve Bank of India (RBI) has asked private-sector lender HDFC Bank to stop all “digital business generating activities planned under Digital 2.0”, in a bid to get the bank to first get its overall internet banking system in place.

What is Digital 2.0?

Started in 2018-19, it is part of the bank’s elaborate strategy to transform itself into a bank of the future. As per the bank’s annual report for last year, it wants to embark on the Digital 2.0 journey, standing on four main pillars: one, reimagine customer experience; two, use analytics to power customer interactions and develop new applications; three, empower virtual banking offerings, and, four, bring in innovation to shape up customer preferences.

The bank’s digital journey so far

HDFC Bank has been proactive on the digital front right from the onset. What started with net banking and ATMs has now moved into chatbots, video KYC and many others. As of 2019-20, the bank website received around 55 million visitors per month. Queries handled by the AI chatbot assistant have grown to 23 lakh, as per data shared by the bank.

The bank has onboarded 17 lakh merchants through QR codes, mobile PoS terminals and others. The bank has also helped the government in digitising large projects like the Pune Metro project and eNAM (electronic agriculture marketing).

Further, in terms of digital payments, HDFC Bank is one of the leading payment processors, along with SBI, Axis Bank and ICICI Bank. In terms of UPI transactions, the bank has processed 179 million transactions in October alone, just after SBI and Axis.

Video KYC and other changes

On its way forward, the bank had made elaborate plans to use technology in multiple aspects of banking to make the customer journey and the bank’s understanding of its customers better.

The bank has brought in a video KYC journey for its customers so that they can open and fund their accounts completely remotely. This has assumed significance at a time when the pandemic has driven people to the confines of their homes.

Further, the bank is also digitising its internal processes, so that applying for a loan from a branch and any online platform takes the same amount of time. The bank is also keen on doubling down on its analytics capabilities so that they can cross-sell to their customers better and process pre-approved loans faster.

The bank has also been strengthening its digital assets in order to serve its customers better. It has two products here, Smartbuy and PayZapp. Through Smartbuy, the bank encourages its customers to buy from online platforms which have partnered with the bank.

This helps HDFC Bank keep track of where its users are spending and what they are consuming.

Secondly, the bank is also on a journey to build up API integrations with third-party service providers to ensure that multiple banking activities, which might originate from those platforms will be settled through the bank itself.

Further, the bank has plans to offer real-time loans to ‘new to credit’ customers. These are customers who have never taken a loan from a formal channel previously.

As part of the overall customer journey, the bank is on the path of digitising the entire journey, right from video KYC for customer onboarding up to using virtual bots to service them as well.

RBI diktat

Now, the bank will have to halt all new product and innovation launches which were planned for this year as part of its Digital 2.0 initiative.

In a statement to customers, Sashidhar Jagdishan, chief executive officer of the bank, said that they are working with technology experts and the regulator to strengthen the systems and ensure such outages do not happen in the future.

Further, the bank has also been asked to stop onboarding new credit card customers, which means till things become normal, other credit card players like SBI Cards and others have headroom to grow aggressively during this period.

As per numbers shared by the bank, as of 2019-20, there are 1.45 crore credit cards issued by HDFC Bank. Overall, there are around 5.8 crore credit cards issued in the country.

Industry insiders also pointed out that going forward, the API journey for the bank could be under higher scrutiny, where partnerships will be well-thought-out before execution.

As the bank mentioned in its annual report how it is relying on partnerships to ensure that its products can be accessed and used outside the HDFC Bank environment, across popular e-commerce portals as well.

Now, going forward, the bank will have to first strengthen its internal systems before engaging with other platforms, industry sources said.