How financial services incumbents can keep up: 

How financial services incumbents can keep up: 

Context

• Disruption in India’s financial services business could follow a two-way path, gradually and suddenly.

What is the best example of such disruptions?

• Uber and Airbnb have disrupted the transportation and hotel industry; a union of factors is creating the opportunity to disrupt India’s financial services.

What are the main reasons?

Rising customer expectations –

• Consumers are getting used to product and service standards provided by modern internet companies in every aspect of daily life, and expect these experiences to extend to other business transactions.

Dripping cost of Wireless data –

• Falling costs of wireless data access and smartphones are unlocking access for millions of consumers every month.
• With over 200 million mobile data-subscribers in India, the smartphone is turning into a focal point for delivering a range of experiences while collecting granular information on user behaviour.

Public digital infrastructure –

• India’s new large-scale public digital infrastructure is another catalyst.
• Platforms like Aadhaar, DigiLocker, the Unified Payment Interface (UPI) and Bharat Interface for Money (BHIM) have allowed earlier paper-based cumbersome processes like account opening to become digital and remotely executable.
• Over 10 million Aadhaar identifications and four million eKYC verifications are being carried out daily. This sets the stage for the digital roll-out of more complex banking services like lending and wealth management.

New Regulations by Reserve Bank of India –

• Regulations have broadly included all types of branches and bank correspondent (BC) outlets, now open full-time or part-time.
• This can have wide-ranging implications; it is now possible for incumbents to deliver financial services by sharing the physical distribution networks of non-banking partners—helping spare full-scale investments in distribution infrastructure.

The blurring of boundaries between customer-facing businesses and network-driven ecosystems –

• In today’s networked era, customers can have a surplus of distinct services on a single platform, as part of a larger ecosystem.
• 12 retail and institutional ecosystems are emerging in India, which are likely to address revenue pools of over Rs1-2 trillion by 2022. This is far higher than traditional (standalone) banking revenue pools.

What are the challenges for India’s banking sector incumbents?

• The challenges get aggravated by their high-cost structures.
• Fixed costs are built into sales and distribution networks and legacy technology stacks and these make it difficult to introduce new products and features rapidly.
• The Fintech ecosystem, on the other hand, is evolving rapidly with over 400 start-ups in business. Some of these are attacking banking revenue streams in payments and unsecured lending.

What are the changes required?

• A change in calculated posture and business models to account for the impact of the new ecosystems and platforms could be a good starting point.
• Officials should assess how they can find the right ecosystems and push in their banking services, in order to acquire customers, and deliver relevant and convenient financial solutions seamlessly.
• Once established, ecosystems can serve as entry barriers for competition, and promote good financial behaviour among customers as defaulter’s risk being excluded from the ecosystem.
• Creating such ecosystems would require officials to stitch together partnerships with different players with complementary capabilities, customers or distribution networks.
• Digitization of banking journeys is acknowledged for enhancing customer satisfaction, generate back-office proficiencies and enhance reach and scale, especially in remote areas.
• Building capabilities on analytics, technology and delivery is another key dimension for incumbents.
• Taking on nimble attackers requires systems and processes that allow rapid experimentation and faster time-to-market for customer-facing services.
• This would need adoption of modern technology stacks and development practices.