The banking sector has been one of the country’s most reliable and stable economic pillars. Banking constitutes a significant share of India’s financial services industry, and commercial banks account for over 64% of the entire country’s financial asset.
Despite its authority in this sector, it finds itself at a crossroads of change today. In the recent past and owing to the pandemic, Indian banking leaders have faced several disruptions that tested the resilience of banks and NBFCs. Top finance business leaders viewed these challenges as an opportunity, fast-tracking the pace of digital adoption and changing banking as we knew it.
The Indian Banking System New Phase
The Ideal Growth Environment
Like demonetization stimulated digital payments, the pandemic accelerated the digital transformation of the end-to-end customer experience. This encompassed every facet for the consumer, such as e-KYC, online payments, authentication processes, deposits, opening new accounts, withdrawals, and more.
In 2020, at the onset of the pandemic, India surpassed the combined online transaction of the U.K., U.S.A, and China with 25.5 billion digital transactions. This digital transformation is only expected to grow and constitute 71.7% of the total volume of payments by 2025
This shift to digital modes was not restricted to big corporations or metro cities alone. In 2020, 72% of the MSME payments were digital. Changing consumer demands also had to be met digitally.
These were catered to by NBFCs, who integrated hyper-automation tools across their lending processes.
Top finance business leader and Chairman and Managing Director of Bajaj Finserv, Sanjiv Bajaj, categorically stated that their entire business is expected to become digital in the coming times.
Like any other aspect of financial services, they, too, have jumped on the digitization bandwagon. Bajaj Finserv’s three-in-one app gives their customers frictionless access to multiple products and services, including their investment products.
What Customers Want
Customers want from their banks; what they want from any other service they receive. They are looking at a more value-driven and enhanced banking experience that is convenient, hassle-free, hyper-personalized, and easy to use with on-demand access. They want to have a meaningful and better engagement with their banks via relevant offers and products.
India has a diversified financial sector that is undergoing rapid expansion. Along with the unique policies and initiatives of the government, the banking system is well managed with appropriate credit availability to meet the needs of different sectors.
India has a diversified financial sector that is undergoing rapid expansion. Along with the unique policies and initiatives of the government, internationalization of domestic banks and financial markets, growth of NBFCs, and a large diversified domestic economy have resulted in an increased presence of foreign firms in India.
In addition, there is also an increasing demand from Indian companies for overseas investment by way of joint ventures or equity investments in foreign firms
Like Amazon shows recommended products, Netflix suggests shows based on viewing history, and Uber shows preferred routes based on the ride history; users want similar interactions with banks based on their past engagements.
Traditional banks may not be able to deliver this hyper-personalized service due to their data silos and legacy infrastructure. However, NBFCs and FinTechs are making substantial headway. With an 87 percent adoption rate, India is the third-largest fintech market in the world.
The Opportunities to be Explored
The banking sector, seated on a goldmine of opportunities, also has the Government’s support to further fuel the financial inclusion and digital transformation agenda. The Aadhar program and Pradhan Mantri Jan Dhan Yojana initiatives are a testament to that.
India’s young population is digitally savvy, and the increased penetration of the internet and smartphones will give impetus to this transformation even more.
Indian banks need to leverage technology to bring on-demand hyper-personalized services to the consumer’s fingertips and overcome the hurdles on the path to leadership retention.
The Technology-Powered Transformation
Banks have two significant privileges to their credit – unwavering customer trust and vast amounts of customer data. This data is a goldmine and should be leveraged to make the behavioral shift from a transactional one.
Data needs to be broken down to understand customer behavior and engage with them fruitfully. A powerful digital foundation is indispensable to deliver the hyper-personalization that the customers demand. Legacy systems lack the agility, analytical skills, and scalability to bring about this change.
It is imperative to modernize systems and implement a behavioral operational model to implement competencies like hyper-personalization and relationship-based banking. Synergies need to be found between FinTechs and banks to bring about this level of change.
A key group in the Indian financial service sector- the NBFCs are the forerunners in technology adoption of ground-breaking fintech products and services, thereby transforming banking in India.
They have adopted digital ways of providing financial services and carrying out credit intermediation. By virtue of their regulatory and structural design, they enjoy a greater risk-taking capacity to undertake a larger spectrum of banking activities using a digitized approach.
This is why they have been able to create a niche for themselves by providing customized services.
9,507 NBFCs were listed with the Reserve Bank of India since January 31, 2021, and are integral in endorsing financial inclusion. Customers have actively embraced their digital approach and digitized lending.
NBFCs have been resilient through the pandemic. Their agile digital adoption and integration of automation, AI, and technologically superior products have emerged as a quintessential financial solution for increasing the number of people accessing financial services while ensuring a seamless customer experience.
The business of banking is experiencing a momentous revolution. Indian banking leaders and finance business leaders that do not transform and revamp in accordance with the need of the hour, will cease to be relevant. The customer-centric digitized era of banking is here to stay!
The Indian banking sector is again at a turning point due to significant operational, transformational, and customer changes. Those players who do not revamp their operations and bureaucratic and complex business models to become more customer-centric and responsive will lose their market share and growth opportunities.
Finance business leaders who ensure that automation and digitization are fundamental to financial services delivery will emerge unharmed and victorious. The pandemic posed an opportunity for traditional players and legacy banks to reinvent their operations and business models.
This reinvention can be achieved using a digital technology-powered front-end that sustains a robust conventional banking core. Today, almost every Indian has a smartphone and can apply for a loan digitally, transfer money with a click of a button and complete e-KYC, open a bank account online, and has other essential services at their fingertips.
Most NBFCs and Fintechs have provided a seamless customer journey and have emerged as the eventual aspiration and guiding principle for other players in the industry.