Since the opening up of the Indian economy in 1991, the banking sector has witnessed various reforms to modernise the sector in line with global norms. Today, people with access to the internet and mobile banking don't have to stand in long queues at bank branches to perform every day bank transactions, such as cash withdrawals, passbook updates, cheque deposits or money transfers. What was once an accepted way of life, is now almost a forgotten past for many who have switched to the digital banking channels.
Today, India has the second-largest number of smartphones in the world – more than 330 million in circulation. According to the Reserve Bank of India's (RBI) annual report for 2017-18, the number of registered mobile banking customers rose 54 percent from 163 million in March 2017-end to 251 million in March 2018-end. The number of mobile banking transactions in September 2018 was 486 million with total value crossing Rs 2 trillion. Paytm Bank reported the largest number of mobile banking transactions while HDFC Bank beat all other banks in total value of mobile transactions.
However, despite significant advancements in banking and payments infrastructure, India is nowhere close to its vision of a less-cash economy. Cash backs, discounts and freebies coupled with sweeping government interventions such as demonetisation is not a sustainable way to lure a billion people into embracing digital banking. Banks need to do a lot more to improve customer experience of digital banking and provide compelling reasons for customers to fully embrace digital channels as they have willingly embraced social media.
So far, Indian banks have been too transactional in their customer engagement with little focus on providing value to their customers. It is no surprise that there is no global bank of Indian origin. Even today, many domestic banks have to resort to unsolicited cold calls to offer loans to people who have no need for loans. Hence, it is imperative for banks to get better at understanding and pre-empting customer needs. India’s vision of a less-cash economy will remain a fleeting dream unless banks can improve everyday banking experience for retail customers and ease of doing business for business customers.
With PSD2 and open banking, many countries in the European Union, including the UK, are witnessing a banking renaissance with new technology savvy challenger banks leading the way with innovative mobile banking applications (apps) that customers are falling in love with. Traditional banks are playing catchup, blatantly copying what these fintech banks are doing. One of the most successful fintech bank in the UK is the Monzo Bank, with its vision of “The bank of the future”. Their website proudly proclaims: “This isn’t banking as you know it”. Recently, in a comprehensive benchmark study of mobile banking applications in the UK, Monzo emerged as the winner with a score of 9.3 out of 10. The study was conducted by Optima Consultancy in partnership with Visa. The top three winners in the study were all challenger banks, including Monzo. Barclays was a distant fourth with a score of 6.8.
So what should mobile banking apps offer to improve customer engagement? Let us take a few examples from Monzo Bank’s mobile app. For debit card transactions, the app let's you view the merchant name, logo, as well as location in a map. It automatically categorises each transaction into groceries, bills, shopping, entertainment, and few other useful categories. I can add a custom note and scan the receipt from the store, view the total number of payments made to the merchant along with total and average spends. It also provides a link to allow the customer view a list of historical transactions for the merchant. If a transaction is unrecognisable, the customer can dispute it immediately from the app or chat with customer support within the app to resolve the issue.
When eating out with friends, the app allows the customer to easily split the bill with friends who have Monzo accounts. The summary view will show a breakup of all the expenses grouped under different categories. I can easily find out how much I have spent on groceries or any other transaction category. I can even set a budget per spending category. The app is also able to intelligently show me a projection of my committed spending for the month based on the historical data. Overall, the mobile banking app provides a seamless customer experience which turns customers into advocates for the bank. This has enabled Monzo to grow with word of mouth advertising. Every new customer also gets three golden tickets which can be used to invite friends and family to open a new Monzo account.
What value does the bank provide its customer if it merely records transactions and doesn't provide any insights into spending? Today’s banks need to think beyond merely acting as a ledger of financial transactions and processing payments. Banks need to play an advisory role, enabling customers to manage budgets, control spending and improve savings with innovative products and offerings. Advice should be data driven, insightful, timely and contextual for every individual account holder.
This is only possible if banks can get an intimate data-driven understanding of every customer, and at scale for millions of customers. In a future less-cash economy, banks will have limited opportunities for face-to-face customer interactions. Hence, the banks of the future must invest in infrastructure and technologies that will enable them to sense customer transactions in near-real-time and respond with meaningful contextual advice through digital channels. When done correctly, contextual “digital conversations” with millions of mobile banking customers would be the only way to drive customer engagement.
Banks can also improve ease of doing business for business customers by providing direct and deep integration with accounting software with open APIs (application program interfaces). A connected, banking ecosystem will enable businesses to effectively monitor their cash flows, manage their funds better and avail fast credit without any paperwork. This is an area where standardisation can make a huge difference. Regulators in EU and UK are working hard to stimulate competition and innovation in banking and to give control of banking data back to customers. People can easily switch bank accounts just as they can switch mobile operators or utility companies. Moreover, account holders can easily get an aggregated view of their entire bank and credit card transactions across all banking relationships through third party providers or TPPs. TPPs are mostly fintech startups and offer mobile apps with innovative features that traditional banks are unable to offer. With the rise of the TPPs, incumbent banks are at the risk of turning into backend utilities for their customers. In the long term, PSD2 in the EU and Open Banking in the UK can disrupt the monopoly of the big banks who have done very little for their customers.
With Europe leading the way, open banking is gradually becoming a global phenomenon. Monetary Authority of Singapore (MAS) has published a set of 121 APIs spanning six functional categories. This includes transactions (e.g. initiate funds transfer), servicing (e.g. report lost or stolen card), sales and marketing (e.g. enquire fixed deposit details), product (e.g. enquire product catalogue), regulatory, and others. Hong Kong Monetary Authority (HKMA) has also published an open API framework for Hong Kong. Japan and Australia have also made significant progress to establish their own version of open banking. Canadian government has also formed an advisory committee on open banking. Sadly enough, Indian regulators are yet to publish any guidance on open banking. Let us hope that they will do so soon enough.
Banking is changing globally. To stay ahead of the curve, many well-known global banks are reinventing themselves as technology companies and investing in technology and data architectures that can satisfy the speed, scale and 24x7 availability requirements of customer facing digital systems of engagement. These are essentially the same technologies that have enabled global tech giants such as Facebook, Amazon, Linkedin and Twitter to set the defining standards of user experience. Is the Indian banking sector ready for the change?
The author is Director of Technology at Publicis.Sapient.