The rise of fintechs, changing customer demands and new regulatory requirements are changing the definitions of banking.
The financial crisis of 2008 witnessed the fall of many financial giants worldwide and aftershocks were felt in India for long after that. Since then, the past decade has witnessed a huge change in the Indian BFSI landscape.
This has been due to the introduction of better processes, greater adoption of technology, better governance, risk analysis & protection measures, and newer ways to reach and serve a previously unbanked/underbanked segment of the population.
In fact, since demonetisation in November 2016, there has been a massive shift - not just in the psyche of individuals, but also the increasingly prominent role of fintech and use of new technology and enablers.
Rise of Open Banking
For long, banks have worked in silos, so much so that even departments within the same bank could not access customer data with another department. One of the biggest changes in recent times has been the willingness of banks to collaborate with other market intermediaries, providing access to their systems via APIs.
While this has also led to healthy competition with other fintech players who are leveraging that data to provide customized products, banks have taken up the challenge and have upped the ante by adding to their offerings and either partnering with these firms, acquiring them, or building this capability in-house.
Tighter control on NPAs and bad loans
The past year saw bad loans and NPAs (Non-Performing Assets) of Indian banks surging to unprecedented highs with public sector banks bearing the brunt. However, towards the second half, there were signs of improvement on this front.
In its Financial Stability Report in December 2018, the Reserve Bank of India said that under the baseline scenario, GNPA ratio may decline from 10.8 per cent in September 2018 to 10.3 per cent in March 2019.
This has happened primarily due to changes in reporting of loans, repayments and defaults as per the Insolvency and Bankruptcy Code (IBC), and now that the identification of these NPAs has been done, we should expect to see tighter control over NPAs in 2019.
Customer acquisition and retention: Personalization is the keyA frictionless customer experience is the holy grail all businesses aspire to.
Customers are now more discerning than before. Besides informal advice from family, inputs and reviews from social media platforms as well as their peer group (friends, colleagues) play an increasingly larger role in helping them sign up for a product or a service. They are also willing to share data and in-turn, they expect companies to leverage those insights to provide customised recommendations, offers and solutions.
Managing customer expectations and actually “listening” to customers will take even greater precedence in 2019 - whether a product/process issue or data or privacy related breach or concern - and resolving that in the given Turn Around Time before it blows out of proportion.
Managing Security and Privacy
“Data is the new oil” and organisations can’t seem to get enough of it - the more the merrier. Predictably, this carries concerns with regards to security of data as well as user privacy.
For the end user, it’s a tough choice - provide data and get personalised recommendations and the best offers and insights or provide limited information and possibly miss out. Either way, the safety of that data along with the privacy of the end-user remains a concern.
While we would expect RBI to announce clearer regulations around usage and storage of user credentials and data, this is a challenge industry players will continue to grapple with as they enter into third party partnerships via Open Banking - not just systems or processes, but even human handling of customer data.
To hire or outsource?
The rise of fintech companies and difference in approach to doing business has changed staffing dynamics. With the increase in app-based usage as well as reliance on data and AI, demand has grown for key roles in UX (User Experience) design, product, data science, operations, to name a few.
While the recent regulatory hurdles, liquidity issues and pressure on margins in the sector could see a temporary freeze on fresh hiring for key roles, the judgement on Aadhaar is likely to see addition of several entry level jobs with companies having to rely on physical KYC now for completion of applications. While larger players may prefer to manage this in-house, smaller NBFCs and fintechs would prefer to outsource.
Predictably, this has led to a mushrooming of companies that provide a bouquet of such services, so the question is - hire, train, mentor and manage employees in-house or outsource to external firms under strict NDAs.
A healthy mix and match of both these options would work - but to what extent - that is the challenge companies have to crack.
The Author is Chief Technology Officer at Capital Float, a digital finance company.