Tag: BFSI Tech Tales

Chief Economic Advisor K V Subramanian, BFSI News, ET BFSI

Banking & Finance

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Exhorting the Indian BFSI sector to make a mark globally, Chief Economic Advisor K V Subramanian has said India should have at least six banks in the global top 100.

“It is a matter of mindset now, the mindset has to be one where we are not happy with just being lions at home and lambs abroad, we have to be lions globally as well, Krishnamurthy Subramanian said, delivering the keynote address at ETBFSI Summit.

Stating that India has to become a big player in the BFSI space in the next decade, he said the sector must seek inspiration from IT, pharma & sports.

BFSI sector needs to have that hunger which will also help the Indian economy, Subramanian said, adding, “Five Chinese banks are in the top 100 global, Swedish banks, American banks. There is no reason why our banks cannot be in the top 20 either.”

Ruing that India has only one bank in the global top 100 — SBI at 55th position, he said for the size of the economy, India should have at least six banks in the global top 100, some in the top 10 or the top 20.

Drawing an analogy with cricket, he said the Indian BFSI sector appears like the Indian cricket team of the 1990s which could boast a lot of victories at home but had nothing noteworthy outside the shores, globally.

The sector has to aspire to become like a cricket team under Sourav Ganguly, Mahindra Singh Dhoni or Virat Kohli where they’re achieving global recognition.

“The BFSI sector has to start mattering globally, their aspirations need to be scaled up. Aspiration has to be set, given the aspiration that India has set for the economy itself.”

Fixing problems

The CEA said India’s BFSI sector has a quality and quantity problem which needs to be fixed, especially when the Prime Minister has outlined Rs 100 lakh crore infrastructure building apart from the National Infrastructure Pipeline.

“Infrastructure will actually require the BFSI sector to be able to participate and thereby learn how to do high-quality lending without suffering the problem of non-performing assets, crony lending, evergreening of loans, gold plating of loans, all the kind of problems that we have witnessed in the Indian financial sector over the last decade,” he said.

He said the country has large corporates and large borrowers who end up borrowing but not repaying, and yet many times banks actually end up giving credit to the defaulters as well.

Observing that on the credit side India is far behind, he said, “The ratio of credit to private credit to GDP at about 58% is one-third of the global average of, close to 170 per cent.”

He said the BFSI sector should avoid the phenomenon of accelerating credit, and braking when bad loans mount, if credit expansion has to happen in a sustained manner to push economic growth.

“It is very important for credit expansion to happen at a consistent pace without the usual accelerator brake phenomenon that has been the characteristic of the Indian financial sector ever since liberalisation where, when the economy starts doing well, credit expands significantly oftentimes in the process. The credit underwriting norms are relaxed, and as a result, the seeds for a crisis are sown during good times,” he said.

Leveraging tech, data analytics

Underscoring the importance of technology and data analytics, Subramanian said banks and financial institutions which were very efficiently leveraging data and analytics had much lower bad loans, and their balance sheet expansion did not come under pressure. “Those banks were also able to grow consistently, and thereby contribute to the economy. That is the objective that the Indian BFSI sector must have,” he said.

The CEA said a lot of the private sector banks have used data and analytics for retail lending, but the usage of the same is very low for large ticket lending and SME lending. “The Indian BFSI sector should hire far more engineer MBAs to bring this technology driven in banking,” he said.

“In BFSI sector leaders need to be those that are technologically very well drained not only to be able to come up with models for retail lending, but also models for large-ticket corporate lending,” Subramanian said.



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what will separate the winners from also-rans?, BFSI News, ET BFSI

Banking & Finance

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Asia is emerging as the most dynamic market for Digital Challenger Banks. At last count, there were around 250 digital challenger banks globally. Of them 13 were profitable and 10 of those were in Asia. A digitally literate young population combined with the structural need to accelerate the penetration of financial services has fueled the growth.

Global historical perspective. Digital Banks are not new. Studying their history informs new entrants about the experiments that have been already carried out. First-generation of Digital Banks were the children of dot-com ear – often referred to as Internet Banks. Their central premise was that customers don’t need branches. The cost savings resulting from a branch-less bank can be shared between the customer and the bank. Some of these banks struggled with adverse selection. They attracted overly price-sensitive customers. Some examples are Egg, Wingspan. The second generation of Digital Banks were sub-brands of mainstream banks. They were essentially digital channels or digital products targeted towards a specific segment. There were two hypotheses. One: digitally savvy customers needed to be served through digital channels. Two: moving transactions out of branches to the internet and mobile banking would reduce operating expenses. Both these hypotheses have worked well so far.

Current insights. The latest iteration of Digital Bank is a completely new breed. There are three fundamental differences.

  • Finance-as-a-feature. Financial services are getting embedded into customer journeys. The argument being a customer wants to buy a car – not take a car loan.
  • Segment-of-one. Using digital footprint of a customer, it is possible to know the customer as an individual. Therefore, the banking experience can be customized to an individual’s needs leading to very high customer engagement. See Exhibit – A.
  • Exponential scale. Technology can scale exponentially thereby turbocharging penetration of financial services and market share shifts from incumbent financial institutions to modern players.

All these three arguments hold promise but as data has shown, it’s easier said than done.

The challenges. There are three.

  • What is the path to profitability?
  • How to reach critical mass?
  • Where to create and capture value – balance sheet and / or technology?

Path to profitability. At last count, 13 out of 250 digital challenger banks were profitable. See Exhibit B. Profitable digital banks do three things:

  1. Price the product for positive unit economics: core portfolio of products should generate economic value over hurdle rate; even hook products used to acquire customers should break-even; crucial to incorporate loss rates in lending business besides the opex
  2. Compress cost of acquisition: acquire customers through partnerships with players who have strategic synergies; be open to revenue and risk-sharing arrangements if it helps acquire higher-quality customers
  3. Focus on product per customer: focus on building an exceptional understanding of the customer and monetize that through higher products per customers – best in class number in India tends to be 3+ for NBFCs organizations; for banks its higher

Critical mass. If we treat 5% penetration of the addressable market as a threshold, very few Digital Challenger Banks have been able to clear it and go beyond niche. See Exhibit-C. Those who scale show three characteristics:

  1. Strong brand recognition: important to drive virality, referrals and most importantly trust
  2. Ecosystem advantage: crucial to drive network effects through a strong partner ecosystem so that a customer can engage with the platform throughout the lifecycle
  3. Strong in-house technology capabilities: control the technology destiny through captive tech stack leading to flexibility and reliability with scale

Role of balance sheet and technology. Whether to create and capture value on the balance sheet or in the technology stack or both is an important discussion. It’s not a binary choice. One needs to prioritize and understand the role of each as the business matures. Especially in the context of lending, the quality of the balance sheet is a strong indicator of the quality of data science and technology. Ability to originate, underwrite, and manage risk with high precision at low cost is invaluable. Over time, once the technology stack is proven on the parent balance sheet, it can be spun-off to unlock value.

India in relation to rest of SEA. Because of its large revenue pool (USD 100 Bn) and ready digital infrastructure (India Stack), India is extremely important for domestic and foreign players. The revenue pool is 6-10x larger than other South East Asian markets. Three types of plays are emerging in India. First, banks are launching their captive challenger entities. There aren’t yet any pure challenger banks with a full universal banking license. Second, are players who provide a completely modern customer experience in partnership with other banks. Third are existing digital ecosystem players with large customer base who focus on finance as an added feature. While the jury is out on who will win, the time is right for well-funded players with modern capabilities to capture this space.

The blog has been authored by Yashraj Erande, Managing Director and Partner, BCG and Aniket Kulkarni, Principal, BCG.

DISCLAIMER: The views expressed are solely of the author and ETBFSI.com does not necessarily subscribe to it. ETBFSI.com shall not be responsible for any damage caused to any person/organisation directly or indirectly.



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PNB plans single app and tailor-made products for customer engagements, BFSI News, ET BFSI

Banking & Finance

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Digital has become the synonym for the banking sector. While many banks have been trying their best to offer seamless and swift service to their customers, a few banks are also thinking of creating customised products for their customers. Sunil Soni, CGM-IT, CIO, explains how PNB is building seamless customer engagement and how they go for digital adoption considering the large presence of the banks.

Customised products

“There was a time when a bank would create a product, then go to the market and look for adoption. Given everything that has been going on in the industry, times have changed now. We need to prepare a tailor-made product and then relevantly place it in the market so that the adoption is effortless and does not create any kind of hindrance,” said Sunil Soni, CGM-IT, CIO, Punjab National Bank.

But it’s not easy, as Soni says, “A lot of market research and time goes into preparing a tailor-made product for the benefit of a segmented customer base, it is not the case of ‘one shoe- fits all’.

Discouraging customers from branch visit

As digital usage progresses, the bank would like to discourage customers from visiting banks.

“In today’s scenario, the PNB is following the type of work culture where we discourage footfall at the branches and encourage a do-it-yourself kind of an approach,”

He added that to achieve this goal they are focusing on emerging technologies.

“We are adopting technologies like machine learning, data analytics. AI and RPM, one by one. However, if you look at providing solutions, it is important to have an interplay of all these facilities,”

With a great customer base, comes great responsibility

PNB, being the second-largest PSU bank in the country, has around 11,000 branches across different geographies. Also, the bank’s wide customer base includes people from deep rural areas as well as those living in metropolitan cities. Serving such customers digitally is a big challenge.

“If we do it in the metropolitan cities, we would create a rich product like the ‘PNB one mobile banking App’. However, in a rural area internet or receiving good bandwidth could be a challenge, even availability of a branch could be a question, in such case we will have to prepare a business model that runs on a very thin network, like ‘PNB Lite’ that provides all the basic services that the people from that segment will require,” Soni said.

Banking on the millennial

Soni adds that customer engagement is the key.

“Customer engagement is the utmost priority. If banks create products and there is minimal adoption then the whole work and the capital goes to the drain and also loses an opportunity of the potential revenue,”

For PNB the millennials are the large customer base which is also the target base of customers for all the BFSI companies.

“Almost 60% of all the transactions at PNB are done by millennials. This segment doesn’t have time to walk back and look at our brick and mortar structure. We are focusing on developing a product that provides everything to our customers under one umbrella through our Mobile Banking App. Engaging with the service providers, merchants and sellers and even with companies like Swiggy will help millennials to make use of the app for almost all their day to day requirements, It will be an enriching marketing experience for us as well,” Soni explains.

PNB building modern banking

Soni says that the bank is using the topmost technologies. Currently, voice bots are being used for the PNB ONE app. Bots are encouraging collaborative banking where the availability of a customer service executive does not affect the banking experience of the customer and fastens the response time for a query. Some of our call centres or phone banking services are also being augmented with bots to provide utmost convenience and make banking faster. We are actively looking at the constant feedback from our customers on the websites and improving upon every suggestion. The complaints registered by the customers are resolved on a priority basis,”

Changes to the traditional IT model

“We have shifted from a conventional waterfall model to an agile model of programming. Earlier it would take us months to prepare a model and launch it, whereas today it hardly takes us a few weeks to bring about a small change or introduce a new product completely.” Soni explained

This article is based on the fireside discussion with Sunil Soni, CGM-IT, CIO, PNB at ETCIO BFSI Conclave.



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Global banks innovating in a borderless environment, BFSI News, ET BFSI

Banking & Finance

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Global banks are tapping local talent and FinTechs in India to strengthen their global innovation capability across their presence in different regions. A centralised innovation team with local presence is a common methodology found across different global banks.

In an exciting panel discussion hosted last week on ‘Innovation In A Borderless Environment’ we explore how global banks are placed in developing their innovation capabilities.

Ash Malik, MD & Head-Technology Centres India, Deutsche Bank, said, “Deutsche Bank is a universal bank offering services from corporate banking to asset management across the globe and we believe in localization which means building deep expertise of the local market and reg environment on ground itself. We’ve regional SMEs in local markets globally aligned so we can provide support round the clock. In the first 6 months of 2020, Deutsche Bank transacted a record of $15 billion dollars of local issue currency and FX for clients across normal Asian market hours and this kind of intense customer focus led to Deutsche Bank being awarded crisis response year award in September.”

Malik explained that they have a local management structure which works closely with desks and play a critical role in establishing relationships with local government and regulators. Last year, DB became the first European bank to receive approval from SAFE Shanghai and to join its pilot payments rail and the objective is to expand cross border trade and simplify the payment process. DB customers now no longer have to perform onerous processes and instead connect to FX payments in seconds.

Malik adds, “Additionally we are partnering with FinTech companies across the region. Overall we’ve a global network of innovation teams across major centres and identify the adoption of strategic emerging technologies. We essentially do it for three key channels, a demand driven model where we co-innovate and collaborate with customers on ground, second, we’ve a scouting team and this team monitors key technologies and capabilities which bank considers strategic like cryptocurrency/blockchain which is going to be key for cross-border transaction this knowledge is used internally to innovate further and finally what we have is internal incubation where all employees in DB are given a platform to innovate.”

Rathnaprabha Manickavachagam, MD & Head-Innovation & Digital Transformation, India & Romania, Societe Generale, Global Solution Centre is driving innovation and digital transformation from India. She said, “We’ve a centralized innovation team headquartered in Paris which specifically looks at mergers and acquisitions like open banking models, collaboration with GAFAs, looking at a variety of ways for cross-border interaction. As they discover models, they work with 27 arms of the bank. Being an outpost in Asia, we’re extremely execution focused where we get different business use cases from businesses and give hands on solutions working with FinTechs and internal teams on emerging technologies. Major work is also delivered on value chain and product transformation.”

She explained how they interact with 16 innovation centres set-up across by Soc Gen, with additional smaller outposts in Singapore and Hong Kong. The innovation ecosystem is quite inter-linked across Soc Gen while we are connected on the strategy, we have a very good connection with extended teams of businesses in Asia, India and Romania, we can also work for the rest of the group in different regions.

She added, “We worked with 8 start-ups in Africa for our bank in the African region, we’ve that kind of mandate interlinked with strategic focus where businesses need help to improve product or topline or customer experience or introduce something new. The innovation set-up is centralized and local as well as convenience and strategic connects on specific projects.”

Ellis Wang, Sr EVP, Group Head of Technology, Transformation and Information at Mashreq Bank has executed a digital inside-out and outside-in strategy. He said, “Digital services became mainstream and we moved our applications to cloud to deliver seamless service. Our digital team is working on internal and external processes, by internally how we can adopt more digital to increase efficiency and reduce operational cost with higher STPs, more automation, etc. When we moved to cloud, we also explored allowing more touch points for our clients. Our innovation team is called ‘One Digital’ we also designed digital inside-out where we leverage APIs to service our clients for their requirements and different ecosystem services from e-commerce to insurance.”

At Mashreq Bank for Ellis the idea is to drive engagement by providing end-to-end service. He adds, “We also look at digital outside-in where we leverage external digital channels to target customers through these channels. We are preparing for hybrid operations. The One Digital team thinks about leveraging emerging tech to service corporate and retail customer base by knowing the customer base and tech.”

At Wells Fargo, Bharat Raizada, Lead-Chief Technology Office for India & Philippines has embraced cross-border capabilities over more than a decade ago and explains how as a part of global organisation innovation is being driven from India and Philippines.

Bharat said, “For innovation, there’s an organisation called Strategy Digital Platforms & Innovation which reports up to the CEO and is focused on driving innovation across organisation and driving value for customers. This SDI organisation works closely with all lines of businesses and has a presence in India and Philippines as well and we continue to work actively from a technology point of view to understand new innovation requirements from short and long term investment perspective.”

“There is a big play from quantum computing on how we can rapidly calculate risk on financial transactions as well as how we think of cryptography. How do we do interplay of data not only big data but small data too. A lot of the work gets done in India and Philippines,” adds Bharat.



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This is how Federal Bank is empowering its first neo retail, SME & merchant platforms, BFSI News, ET BFSI

Banking & Finance

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Jithesh PV, Digital Head, Federal Bank

Private lender Federal Bank, headquartered in Kochi, is spearheading digital initiatives across the bank. The idea with digital strategy is to lower the cost and enhance revenues. The bank expects that in the next three years the digital channels will take care of around more than 50% of investments.

Jithesh PV, Head – Digital Banking at Federal Bank in an interaction with ETBFSI, shares his thoughts on the bank’s digital strategy, collaboration with FinTechs, their approach to open banking & how the digital initiatives are supported by a robust backend. Edited Excerpts:

1. What’s the digital banking strategy at Federal Bank? A P&L thought process behind it?
We have a multi-pronged strategy for digital in Federal Bank, aligned with the business mantra, Branch Light Distribution Heavy. We have built the best in class digital platforms for our customers and migrating these customers to digital platforms to enable our branches to focus more on customer acquisition and income generation by cross-selling and upsell. We have rebuilt our Mobile Banking into an all in one app with payments, UPI, Investments, Loans, lifestyle, and many other services that allow even non-customers to download and use the app. We have also created an omnichannel platform for Corporate clients, with full-fledged features like Account Services, Supply Chain Finance, Cash Management Services, Payable Management, Receivable Management, Trade Finance, etc.

We have enabled an end to end Open Banking platform that helps the bank to grow inorganically with the help of partnerships. We are now empowering the first neo retail platform, first neo-SME platform, first neo-merchant platform and we are also building our neo-education platform.

All the initiatives are expected to bring revenue to the bank. Today around 86% of our transactions are happening through digital channels and this has helped the bank to focus more on customer acquisition and cross-sell through brick and mortar channels.

We hope that in the next three years, digital channels will take care of around more than 50% of investments, especially MF and also insurance sales. The partnerships will help the bank to garner more low-cost funds. Partnerships are also helping us to manage more sales of PL and Debit Card EMI. The whole digital strategy is focused on reducing costs and enhancing revenue.

2. What goes at the backend in creating a robust digital banking set-up?
This is a continuous journey, and how best one can re-align the business and digital strategy in a fast-paced environment, holds the key.

In Financial services, there are multiple lines of businesses and P&L units. Today, Digital is the core of all of this, which cuts across multiple business lines and products.

We have created a separate centre of excellence for Digital to focus on innovation, R & D, enhancing the customer experience, etc while a 300 member IT team is supporting the entire technology platform and infrastructure. Dedicated teams for all critical services are available as a part of the IT infrastructure.

Support systems are also critical in this digital journey and we have a dedicated vertical for customer service-related aspects, a dedicated contact centre, and a back end operations team that manages all reconciliation and settlements. We have our own sophisticated contact centre and active Disaster Recovery sites in different geographical locations.

3. How’s the API Banking/Open Banking set-up evolving at Federal Bank?
Banking is getting invisible and embedded in the lifestyle journeys of the customer. A robust API Banking platform provides us the required flexibility in being able to reach new customers and extend our products into various interfaces in a Digital-First world.

At a strategic level, it presents a potent and low-cost distribution channel, whose scale and dynamics can be efficiently managed. The suite of use cases and partnerships supported by API Banking is altering fundamental notions associated with traditional Banking and Federal Bank is leading the pack in this game.

4. How’s the Federal Bank collaborating with FinTechs?
While we augment internal capabilities, we are also working very closely with the Fintech community in finding synergies that align with our business goals.

Technologically we have built a very flexible Open Banking Framework and processes that get continually fine-tuned.

This gives us the required agility to interface with partners, based on use-cases that are a strategic fit for us.

We are the preferred partner for Fintechs, which underlines our commitment to co-create and yet provide superior-tech capabilities and process abilities. We have co-created and scaled the largest Gold loan fintech in the country. We clock million+ daily merchant transactions via key partners that serve that segment. We are also working on some interesting NeoBank models, which are expected to take the market by storm.



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