Digital Banking: A Journey – From Nowhere to Everywhere

Covid-19 and multiple lock downs have accelerated Digital Shift in Indian Banking and Financial Ecosystem largely. We all have witnessed that Unified Payments Interface (UPI) has emerged as the king of all digital payments. It is interesting to note that more than 50% of UPI transactions are of smaller amount (less than ?200). Here are some important statistics which becomes very much relevant in the current scenario. India has about 1180 million mobile users (TRAI, February 2022) of which about 750 million users (Deloitte, February 2022) have smartphones. This indicates that nearly 37% mobile users in the country are not using smartphones, rather using feature phones. If we connect above two information, there is an enormous & untapped potential of increasing digital payments in India. Reserve Bank of India (RBI) sensed this opportunity and came with a path-breaking plan of allowing feature phones to access UPI platform. With this innovative step, every mobile phone user in India is now empowered to make payments, digitally.

These digital disruptions are taking me back to memory lane.?I still remember the days when I started my banking career as a Probationary Officer in 2003, with Andhra Bank (now Union Bank of India). Though my bank was computerized, Core Banking was far from reality. Huge customer base and long queue for basic banking transactions. I still remember the stream of customers waiting outside the branch to get the shutter opened during salary/ pension days.

We have come a long way. Banking has changed a lot. The digital banking transformation initiated with limited online banking services has now reached to the level of digital-only market.

Increased customer demand for digital banking services has given rise to numerous technological advancements within banks and financial institutions—with Data Analytics, Artificial Intelligence & Machine Learning at the core of these digital transformations.

Leading banks, in their annual report share the data of customers’ activities on different touch points across channels. There is now a discernible gap in the share of Customer Induced banking transactions on Digital Channel and on Branch Banking Channel. Share of former is gradually increasing.When, we are talking about digital-only banking, few banks, using all the enablers, have taken a significant lead whereas, many others are still in the process of building digital capabilities. We need to understand that Building digital capabilities alone is not sufficient. We have to build digital mind-sets.

Traditional banks offer a wide range of financial services, but are woefully unequipped for digitization. A firm belief that traditional banking can be migrated to digital channel and a constructive act to achieve the same would help those banks in repositioning themselves in this New Era of Banking.All that is needed is some critical planning. A systematic approach, proper customer segmentation and then the detailed analysis of segment movement to take appropriate step is the key to maximize digital adoption among customers. These customers can be divided in three segments based on their touch-point across channels.

1.????????????Branch Banking Channel only

2.????????????Both (Branch Banking & Digital Banking)

3.????????????Digital Only Channel

Objective of this segmentation and its analysis should be;

1.????????????Systematic migration of Customers from Branch channel to both the channels

2.????????????More use Digital banking by the customers using both the channels

3.????????????100% retention on Digital only channel.

Let us try to understand the same using a dummy scenario of any bank. We can take snap-shot of the transactions as on Previous month (M0). Exploratory Data Analysis (EDA) can give us the exact picture of transaction pattern for different micro-segment. There can be multiple micro-segment of customers; say “Age-group”, “Gender”, “Location by classification”, “Transaction volume category”, “Periodicity of transactions”, etc. for each customer touch point. Now we have to analyse segment and micro-segment wise movement for better insight and prompt action, using numerous analytics tools. For better micro-management and detailed analysis, banks can do this activity not only at state/district level but at branch level also. This can also be done for Metro/Urban/Semi-urban/Rural branches also.

As per general industry trends, customers in the age-group 21-35 are more digital savvy. Let us assume that the data is also reflecting the same. Also, assume that the data says that customers in metro branches/urban branches prefer digital channel over branch channel. Any customer in these categories not using digital banking channel, should be approached immediately. There can be many more such scenarios. Customers having higher propensity of digital adoption should be given special attention for migration to digital channel.

We have to analyse the percentage of customers doing only digital transactions. Say “X percentage” of customers are doing all their transactions through digital channel. Objective should be to increase this percentage from “X” to “X+ delta (?)” over a period and it has to be a continuous process.?

Dummy graphical representation of this cross-channel segment movement for 12 months is placed below.

Change in the share of customers using only branch banking channel and only digital channel is clearly visible. It may be a hypothetical situation, but is very much close to reality.

Now, the biggest question, what can we achieve with maximum utilization of digital channel? ?

COVID-19 has set the bar for digital banking trends extremely high. Lock-down, not only demonstrated the urgent need for digitization but exposed unpreparedness and inefficiency of many banks also. In a recent survey, 79% of US customers shown interest in brands that understand them and care about them, and 89% of the customers wanted to engage with only those brands that go above and beyond. New age Indian customers are also no different. The gap between customer expectations and services of banks exists at various levels. Fintech start-ups are accelerating to fill the gap. Leading private banks are adopting Fintech’s approach and the challenge from Neo banks are stimulating them to better their offerings. In this scenario, traditional banks must take a lesson from this. They must thrive to deliver a better experience to customers by expanding their digital offerings. Ministry of Electronics & Information Technology (MeitY ), which leads the initiative on “Promotion of Digital Transactions including Digital Payments” ranks banks (Public Sector Banks, Private Banks, Foreign Banks, Payments Banks, Small Finance Banks) on various parameters on the digital business. Possibility cannot be ruled out that in coming days, new generation customers would choose their banks based on MeitY score.

As mentioned above, building digital capabilities alone is not sufficient; we have to build digital mind-sets because a well-thought digital transformation can fail miserably if a customer-centric mind-set is not there at the company level.

Just to conclude, I can say that a couple of decades ago, when only a handful of banks operated, it was difficult for customers to switch banks. Presently, digitization has made it easy for customers to switch banks and opt for a bank that would suit their financial needs better. It is evolution of New Era in Banking and coincidentally, Survival of the Fittest was originated from evolution theory.