Over the past few years, the Indian banking spectrum has witnessed massive changes in its structure through extreme levels of disruption. However, before we get to where we have reached, it’s important to note the catalysts that have paved the way for how things are currently, and on how things to turn out for the future.
In a country, where inclusive banking was thrust into the banking market with the nationalization of banks in 1969 and again in 1980, financial inclusion was still a problem with majority of Indians remaining unbanked. It was only in the 2000s that banks started prioritizing financial inclusion as the primary business objective, following RBI’s recommendation.
Then again, a couple of years back, the government introduced the concept of Aadhaar – a unique biometric identity aimed at increasing inclusion of citizens in delivery of innovative financial services. In other words, it helped envision a completely digitized future for the Indian economy and it helped in a temporary soar in the financial inclusion index.
According to the Global Findex, in 2014, 53% of adults had accounts. By 2017, the number had jumped to 80 %. Moreover, households below the poverty line saw a 40 % increase in banking accounts.
However, why is the hurry amongst banks, to evolve?
When we take rural communities into account, financial exclusion is still a problem. Even post demonetization, banking in low income communities still takes place through cash. The only solution is to engage the customers in direct benefitting schemes and rolling out products and services designed for low-income populations, while at the same time, ensuring financial and loan responsibility among customers. With increase in the number of mobile phone users, and several Fintechs offering standalone rural banking products and services, banks are slowly behind on the 300 million customer opportunity.
When we take urban communities into account, banks have to consider the entrant of non-financial entities such as Google, Amazon, Facebook and Apple as the major cause. Other entrants such as PayTM, Freecharge, Simpl and LazyPay have also made some noise as Fintechs who have started baiting the customers, to move away from banks for financial services. While 96% of Indians acknowledge the fact, they will be a part of a financial activity in the next three years, and they’re not sure if traditional banks would be their preferred service partners.
Only 8% of Millennials care about the reputation of their financial partners - This is where some of the banks have taken the hint and made plans to move into customer intelligence.
The Road Ahead
Cognitive Sciences have been playing a part in the retail industry for quite some time now with advanced product recommendations and unique data handling. However, their role in the banking industry had been diminished until recently. Banks have started realizing that customers wouldn’t mind trading their information for advanced, personalized and customized services, and if banks weren’t ready to use that information, the customer would start looking for someone who would.
In India, the use of robotics and artificial intelligence (AI) has a lot of scope – both in rural and urban banking. For example, AI could help in building and understanding a respective customer’s credit history. AI could be used to collect and study Aadhaar linked data to understand the credit worthiness of a customer so as to provide the customer with smaller valued loans.
In the urban community, banks could learn 80% more about each customer, by studying the unused hidden data. AI and ML processes could help them get in touch with the major non-financial entities and Fintechs by providing top-notch services along with the name of a reputed brand. Robotics, on the other hand, could speed up manual and mundane processes that take forever like customer onboarding and loan processing.
Financial Inclusiveness in India is far from ideal. However, the statistics prove that the situation has largely improved through well thought-out objectives and schemes. Also, banks have realized that within the realms of rural banking, although transaction values are small, volumes could be really high. Through increased trust in their financial partner, the gap between the affluent class and the rest could slow down and would be a long term-gain for the bank.
Is the investment in rural and urban banking worth it, right now? – Well, I don’t think banks personally have much of a choice. We have worked with quite a few passionate banks, who have agreed on the fact that it’s the case of being digitally transformed or a slow death in the 2020s, amidst a massive growing opportunity.The author is Head of Banking and Financial Services, Aspire Systems.