Are large Indian banks really going digital?

Consider the below real life situations:

1. You’ve just moved to a new city (say Bangalore) and you want to update your new mobile number in the bank records at a large private sector bank.

To do this, you need to visit the nearest branch of that bank, sign a form and wait 7–10 working days while the form is sent to Chennai for approval. There is no reference number that you receive to track this request at a later stage.

2. You’re a loyal customer to a large private sector bank and you would like to open a locker with them.

To do this, you need to find branches which have available lockers, go to the nearest such branch and then submit a valid ID proof and a photo even though you’re already an account holder.

3. As a priority customer (the bank’s words, not yours), you’d like to enable more sections on your net banking account, say mutual fund transactions.

As they say, it’s time to check your privilege. Visit a bank branch and wait 7–10 working days.

What does going digital mean in the context of banks? Two simple goals come to mind — To leverage technology to make banking more convenient and easy for customers and to reduce the share of cash transactions and increase electronic transactions.

2015 was the year of wallets. Axis, SBI, HDFC and ICICI joined the already crowded mobile wallet market. A look at the Google Play Store download data for a few wallets tells a story though (It should be noted though that bank wallets have been in existence for a shorter time.). The data below does not include other players in this space such as Airtel Money, mRupee, etc.

App downloads on the Play Store

Mobile recharges and bill payments still constitute a major portion of transactions done through wallets. Banks already incentivize users to pay utility and mobile bills through net banking. Inexplicably, the same bank is trying to give you multiple mobile based solutions for the same use case, dedicating significant resources — monetary and people.

Building a mobile application is not just about having the right technological team. Mobile applications live and die by their usability and they need keen attention to detail and multiple iterations to get the experience just right. This is why wallet players have invested time and people to get the usability right. Interfaces to banks have always been confusing and counter intuitive and their wallets have not been as user friendly as those of the wallet players’.

It should also be noted that wallets cannot exist in a vacuum. They must tie up with banks expose electronic payment methods to top up their wallet. And since banks earn commissions on these transactions, growth of these wallets helps them.

Given that technology and user experience design is not a core capability yet for banks, should they really have prioritized wallets in 2015?

E-commerce became mainstream in 2015. Depending on who you ask, the market size was anywhere between 10 and 20 billion (in $). This is expected to grow to $38 bn in 2016 (Assocham), out of which approximately $19 bn is expected to come through prepaid payment modes (credit card, net banking, debit card, wallets, etc.).

How is this relevant to banks? Every prepaid transaction on e-commerce websites is powered by something called a payment gateway. Only a few banks have been authorized to have payment gateways in India. Banks receive a small % of the transaction value as commission for every successful transaction that goes through. Hence, it is in the best interests to ensure that users who attempt pre-paid transactions are successful in their endeavor.

A look at IRCTC’s Payment Gateway success statistics tells a different story though. A gateway can be in the Silver Category even if 30% of people who are attempting a transaction fail to do so. E-commerce industry experts would tell you that 20–25% of transactions fail every year. Every failed transaction only erodes trust in electronic payments for consumers. An erosion of market value to the tune of a billion dollars is happening every year because of this.

There are some mitigating circumstances. Firstly, banks are forced to have physical servers as infrastructure instead of operating on the cloud because the security restrictions in place for a banking transaction do not allow them to do so. Secondly, because of the way the ecosystem has been set up, a debit card transaction online would have to go through anywhere between 5–8 hops (a hop can be considered as an information exchange between one system and another). All of this is exacerbated by slow speeds over mobile networks and sometimes even on broadband.

The irony? The most successful form of electronic payment, the PoS(Point of Sales) machine in your nearby grocery store completes more successful transactions on a GPRS network (lower speed than 2G/Edge).

Why aren’t banks talking about innovating and improving the infrastructure around payment gateways?

What then should the larger banks be focusing on in 2016?

My take on what the priorities should be:

Self Service: Banks need to take a look at the top 10 reasons why customers need to visit their branches and identify if these can be easily done through net banking and eliminate the need for customers to visit them. For example, if a customer wants to change their mobile number, it should be possible for customers to access their net banking account (first layer of security) and request a change in phone number. An OTP (One time password) can be sent to authenticate the new number (second layer of security). This will significantly improve the throughput for branches.

Improving Electronic Payments: There is an urgent need to improve the reliability of our electronic payments infrastructure. Building consumer confidence in electronic payments is a key step in becoming a digital economy. Banks can scale their operations better at lower costs.

Building Customer Profiles: Yes, every bank has a customer profile. But information about the customer needs to be aggregated across different sales channels. Asking a customer to submit an ID proof for a locker while already possessing the same is not customer friendly. Sending an email about the benefits of applying for a credit card when the customer already has the credit card leads to wasted digital marketing cost. Customers must be incentivized to share identification documents through digital means.

It would be remiss not to mention banks that are innovating in the industry. Federal bank is making opening of savings accounts a pain free process by letting customers take a selfie and share their Aadhar number to open an account. DCB allows the opening of a fixed deposit without the need for a savings bank account. Both are innovative ways of getting impatient millennials on board and inculcate savings.

Large banks now face a challenge to remain relevant to a new generation of consumers and it will be interesting to see how they respond.