India will have 450 million digital banking customers by 2020 – a fourfold increase, say forecasters. Both public and private sector lenders are gearing up.
The digital market in India, while still at a nascent stage, is finally opening up. Analyst Gartner ranks India among the fastest growing e-commerce markets in the Asia-Pacific region and predicts its revenues will touch $6bn in 2015, a 70% jump over 2014 revenues.
According to the Internet and Mobile Association of India, the country’s internet user base, currently estimated at more than 250 million, could soon overtake the US to become the second largest in the world after China. Although internet penetration in India is still at a low 20%, it is important to note that a majority of internet subscribers today access the internet through their mobile devices. India has more than 900 million mobile phone connections, and with falling handset prices, rising smartphone penetration and growing availability of faster bandwidth, mobile internet access is set to increase further.
Taking note of this shift, banks in India are upping their digital efforts. Most banks in the country have in the past two years started offering mobile banking in addition to their existing internet banking services. The January 2015 mobile banking data from the Reserve Bank of India, the country's banking regulator, shows HDFC Bank leading the way with mobile transactions worth Rs49m ($770,000), followed by ICICI Bank with Rs22m, State Bank of India (SBI) with Rs15m and Axis Bank with Rs14m.
Customer expectations
Changing customer behaviour is driving the digital initiative at Axis Bank, according to Rajiv Anand, the lender's group executive and head of retail banking. “Customer expectations from banks have changed and are expected to change further as digital natives become more bankable. The main focus at Axis Bank is to deliver a distinctive digital experience,” he says.
Axis Bank’s mobile banking app, launched in September 2013, has seen a steady uptake and Mr Anand estimates that today mobile and internet banking account for 38% of the bank’s transactions. “The rate of growth on mobile will increase further. This is because of growing availability of smartphones. Also, the comfort level is higher and there is a greater trust on the mobile. It is probably the only device that is truly personal,” he says.
With some 80% to 85% of all financial transactions at Axis Bank carried out outside the branch – via the internet, mobiles, ATMs and call centres – the lender attaches great importance to providing customers with a seamless multichannel experience, according to Mr Anand, who adds that technology is the main enabler for digital banking. “Within the retail bank, we are a technology company in disguise," he says. "Given the size and scale of business, millions of transactions across multiple channels and form factors, our ability to manage customer experience and risks on loan books wouldn’t be possible without technology.”
Axis Bank is also evaluating the role of its branches. “As customers become more digital, banks have to rethink branches. The interaction at branches will change from service to advisory. Also, we might have to relocate branches to places where customers spend more time, such as multiplexes and malls,” says Mr Anand.
Targeting 'Gen Y'
The concept of digital branches is being embraced by India’s largest bank, state-owned SBI. State-backed lenders, popularly referred to as public sector banks, are often perceived as lethargic, inefficient and behind the curve when it comes to implementing technology. However, with its digital branches, launched in July last year, SBI aims to break this perception and is targeting what it calls the 'Gen Y' segment – mobile and tech-savvy new-age customers.
The focus is on customer acquisition according to Arundhati Bhattacharya, SBI's chairperson. “Today’s generation is different and needs to be treated differently. They are unlikely to come to a branch and line up for activities in the branch. So we need to be prepared for this,” he says.
SBI’s digital branches are located at shopping centres and office complexes. They feature a range of advanced digital banking capabilities, including instant account opening with personalised debit cards, instant loan approvals for cars and homes, and remote expert advisors available via video links. Management consultancy Accenture has helped SBI design branch layouts, implement digital processes and technology at the branches, and provide back-end integration, including employee training.
Piyush Singh, managing director of the financial services operating group at Accenture, says that digital inclination is very high in India, pointing out that the country has the largest Facebook and WhatsApp population outside of the US. “Even in public sector banks, customers want an interaction in the digital world because of convenience and to avoid the commute to a bank branch,” he says, adding that at SBI it is the senior management's vision that is driving the digital initiatives.
Ms Bhattacharya says that SBI is also focusing on digitisation efforts in its traditional banking set-up. Currently, about 45% of banking transactions go through alternative channels, she says, which the bank aims to increase to 75% in the next five years.
Traditional vs digital
At mid-sized private sector lender Kotak Mahindra Bank, where more than 90% of retail banking transactions take place through alternative delivery channels, the digital strategy is focused on customer acquisition. Deepak Sharma, the bank's executive vice-president of digital initiatives, says: “We don’t look at digital banking in isolation. Digital is part of our everyday life. We often ask, what problem are we solving and how are we delighting our customer? Digital for us is a horizontal – running across the bank.”
Apart from the usual internet and mobile banking solutions, Kotak has launched innovative banking products integrated with social networking platforms, such as Facebook and Twitter. Its funds transfer solution, for instance, enables Facebook users to send money to each other bypassing internet banking. This bank-agnostic solution is available to all Facebook users that bank with 28 leading banks in India that participate in the IMPS (immediate payment service), a real-time interbank electronic funds transfer facility provided by the country's umbrella body for retail payments, the National Payments Corporation of India.
Mr Sharma insists the appeal of such products is not restricted to the youth of the country, but cuts across all categories, to anyone who is “digitally savvy and socially active”. Digital, he says, is helping the bank provide innovative services, making Kotak the “bank of choice”.
Customer-centric approach
“Digital is the future,” says Nitin Chugh, head of digital banking at HDFC Bank, India’s second largest private sector lender. “At HDFC Bank, we are trying to convert the entire enterprise into digital. We are taking a customer-centric approach, simplifying the way customers interact with the bank, making channel communication into a transformational experience.” The bank is working to digitise the full banking enterprise, he adds – the front, middle and back office.
One of the main challenges to digital banking, says Mr Chugh, is that customer experience is driven by experiences outside banking. “The comparison is not with other banks but other industries. So our first priority is customer convenience,” he says.
Nearly 75% of HDFC Bank’s loan products are booked online. As such, the bank allows 175 different types of financial transactions to be carried out through its internet banking service and about 80 through mobile banking. Even at the branch, paper-based processes are being transformed as the move to take all processes online continues. Between HDFC's 2013 and 2014 financial years, internet and mobile transactions increased from 44% to 55%, ATM transactions reduced from 30% to 25%, and branch transactions decreased from 20% to 15%. Mr Chugh says that this demonstrates a clear shift towards digital channels.
Consultancy McKinsey predicts that India may have 450 million digital banking customers by 2020, a more than four-fold growth in eight years. “The pace of digital banking – including internet banking, smartphone banking and mobile banking – has accelerated in the past three years and will further accelerate in the next five years," says Joydeep Sengupta, director and head of McKinsey’s Asia banking practice. "Between 2011 and 2014, digital banking penetration in India doubled to about 15%. In the next five years, this penetration will touch 30% to 40%. Private sector banks are already at this level. Public sector banks will get there in the coming years.”
Mr Sharma at Kotak says: “What took the internet five to six years, is happening in the mobile space in 14 to 16 months.” At Kotak, 45% of the bank’s active customer base use internet banking, while more than 20% uses mobile banking. “We do not distinguish between mobile and internet customers. We refer to them as digitally active customers. They access banking services far more frequently and are far more sticky,” says Mr Sharma.
There is a strong correlation between e-commerce and online banking, says Mr Sengupta. E-commerce penetration is low in India but will grow and banking will follow. The only thing that can hold back digital banking, he says, is inadequate infrastructure, such as low bandwidth and poor internet speed. “We need to understand that in the digital world it is very easy for people to adopt any technology. But any bad experience can make them disenchanted very easily as well,” says Mr Sengupta.
