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Article – Mastering the A.R.T. of Digital Banking

January, 2017

ART of Digital Banking and not just the underlying technology which can help banks navigate through the paradigm shift

ART of Digital Banking

Today, digital is pervasive in every domain of our social existence and economic activities. Banking is no exception to this New Normal. Rather banks have been pioneers in visualizing, strategizing and actualizing digital technologies to create value for their stakeholders. Leveraging on their 360 degree interaction with the economy, banks have traditionally been able to discern what the customer aspires. This has enabled them to adopt emerging technology trends and suitably incorporate them into their growth strategy.

Not any more – business has become more globally integrated, more complex, and predicated on a multitude of factors. Digital interventions are evolving at such a rapid pace that all involved have to continuously reorient themselves to stay ahead of the curve or risk losing out to competition due to obsolescence. Thus when it comes to going digital, banks can no longer rely solely on their vintage and pedigree. 

If one were to imagine about things digital, the instinctive and obvious reference would be to technology and its accompanying paraphernalia. And why not – ‘digital’ and technology are interlinked, and it is hard to think of one without the other. One would say it is a ‘Science’ and not an ‘Art’! ‘Art’ is the last thing that one conjures up when thinking about digital aspects. Conventional wisdom implies that it is best left to the connoisseurs of refined tastes and sensibilities.

However fortuitous it may sound, it is the ART of Digital Banking and not just the underlying technology which can help banks navigate through this paradigm shift. If digital promises to be the game changer for banks, then the ART of Digital Banking paves the way to fulfill that promise through:

A – Alliances

R – Relationships

T – Technology 

Alliances

If Motown has to compete with Japanese or German automakers for a share of the global automobile market, it also has to keenly follow the disruptive innovations in mobility that Silicon Valley is pursuing. As a result, auto giants are teaming up with next generation niche startups to innovate and build competitive advantage. This is to ensure effective transition into a future business scenario characterized by disruption.  

Banking in our contemporary period is also in the midst of a churn. Existing players in the ecosystem not only have to deal with strong competition, but also have to factor in novel ideas that can fundamentally disrupt the industry.

The most optimal way out of this conundrum is to collaborate and take the best of both worlds, the mature banking domain and the energetic startups. While Fintechs bring agility, vigor and new ideas to the table, banks can contribute with robustness, resilience and foresight. When an established financier with deep insights about how the economy will play out partners a startup with the passion for novelty, it makes for a winning combination.

It is no surprise that banks are more and more turning to Fintechs to capitalize on their disruptive potential and marry it with their own acumen to create synergy. Some of the hotspots of such symbiotic alliances are payment solutions and SME lending. NASSCOM’s estimates are a testimony to this trend – Indian Fintechs are involved in financial transactions worth USD 33 Indian in 2016 which is expected to grow to USD 73 billion by 2020.

BBVA stands as a classic example globally of how a bank is nurturing and partnering new ideas to the extent of acquiring some of them. One of the key factors for its success has been a dedicated business unit that scouts for and invests in new ventures. Closer home, YES BANK is in the process of launching YES Accelerator, the flagship incubation program for Fintechs and other startups which will endeavour to create significant value for the customers, business ecosystem and financial services in particular, and in the process, some ventures may become future Unicorns.

One has to admit that these are challenging yet exciting times ahead where both seasoned warhorses and young turks have a lot to contribute as also derive value from each other.  

Relationships

Banking services entail fiduciary responsibility. When millions keep their savings, financial or otherwise, they not only park their deposits but also their trust with the banks. Similarly the prime driver for lending is the implicit faith that banks repose on the bona fides of the borrowers.

This mutual trust is the bedrock for continuous and regular engagement between the banks and the customers. As a corollary, there are volumes of data on customers that have accreted with the banks over time. This can be a veritable goldmine of information if meaningfully exploited.

Customers today whether individual or institutional, are well informed, have set exacting standards of service, and yearn for customized services from the banks. Therefore, it has not only become important to satisfy their needs but also to create customer delight. This would facilitate deepening of mindshare and the bank becoming the customer’s preferred choice.

Analytics champions – industry leaders as well as startups, are increasingly collaborating with banks to make sense of customer data, anticipate what solutions the customer may want or require, and offer the same in a prescient manner. Advances in machine learning and deep learning in particular would fuel this trend. For banks, digital innovations can thus become effective decision support systems with the insights from relationship induced engagements.    

To that effect, NASSCOM projects data analytics in India to be at USD 2 billion in 2016 and grow to USD 16 billion in 2025 to meet the demand from sectors like banking and insurance.     

Technology

Digital transformation in financial services is a function of the impact of technology. Electronic payments solutions, internet banking and off late mobile app based banking services have become the norm rather than being privileges. Now banks have to also consider the futuristic technology innovations which can significantly influence their business.

The distributed ledger technology of Blockchain can revolutionize transaction processing. Enhanced security, reduced lead time and improved compliance through comprehensive audit trail are some of its purported benefits. Hence banks are seriously exploring this route for enterprise transactions. A global banking survey by IBM in 2016, shows that 65% of the banks plan to roll out blockchain solutions within the next three years. YES BANK has also executed the first transaction through Blockchain for supply chain finance.

Cloud is fast becoming popular with banks as a technology platform providing greater flexibility and agility. The asset light business model that cloud ensures also helps to rationalize costs. Banks can consider moving critical business operations to secured private clouds while hosting some of the external interfacing modules on public cloud platforms. The trend is gradually gaining traction as indicated by a CII survey in 2016. 57% of those surveyed in the BFSI space acknowledged having rolled out some sort of cloud based services. 

Internet of Things (IoT) is another step towards making digital technology more pervasive. It is projected that information collected through a multitude of touchpoints would provide new insights on business and help in making more informed investment or financing decisions by banks.

Way Forward

Some recent developments also warrant attention. The demonetization drive launched under the aegis of the Hon’ble Prime Minister has been a master stroke in the evolution of the Indian financial system. This year, the Reserve Bank of India (RBI) launched Vision-2018 – a roadmap to make India a less-cash economy. In parallel, National Payments Corporation of India (NPCI) has been progressively rolling out digitally enabled innovations to enable best in class payment and settlement systems to take root in India.

Combustion can only result when fuel and air come in contact with a spark. The ensuing illumination and dissipation of energy proves beneficial for human activity. In the same vein, one can surmise that while India has digital innovations and payments ecosystem, availability of internet and mobility, and changing consumer demographics, the spark that ignites the fire for concomitant benefits to follow suit was delivered by the monumental decision to flush out high-value currency notes. 

To conclude, these factors are anticipated to provide strong impetus to digital banking and in conjunction with the ART approach can result in successful digital strategy for banks.

Opinions expressed in this article are the author’s own.

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