Imagine strolling into your local fast-food joint. When it’s time to pay, you won’t be riffling through your pockets for your cards or cash; the machine at the point of sale will detect an app on your phone and send it the bill. You pick up the tab through the app. And if you’re going Dutch, the app will split up the bill among your friends, alerting them to the transaction. And all this, before your food has arrived.
This is what HDFC Bank’s Chillr app—-built using a third party developer— is all about. A proximity sensor that detects a similar app in phones around, bluntly named, “Near Me,” can enable a complete cashless transaction.
HDFC Bank plans to extend the service to many more merchants across the country to make bill payments smoother. Unverified estimates put the downloads of the app at close to 2 lakh downloads since its inception. And it’s not just HDFC Bank, every bank is busy updating itself its digital offering. Axis Bank, for instance, had launched a feature called “24X7 Instant personal loan” which allows an existing loyal customers to get personal loans instantly credited to their accounts. A customer can opt for the loan amount out of the pre-approved quantum and the tenure; once he agrees to the terms and conditions, the money gets instantly credited to his account. HDFC Bank had also introduced an instant personal loan feature online but the feature can’t yet be accessed via the app. Axis Bank now also allows its customers to book lockers through an app at the nearest possible branch.
A closer look at the system would show you that much of digital banking already depends on analysing and predicting customer behaviour. And what banks are trying to do is to anticipate customer needs real-time. The buzzword for digital banking is Big Data.
And the HDFC Bank management’s mantra is simple: Use Big Data analysis, based on lifestyles, to offer the right product at the right time. The information— both demographic and financial—must be analysed to come up with consumers’ needs and aspirations. And to get a complete picture, there’s always Facebook, Twitter, WhatsApp and social media platforms, from which without breaching privacy laws, psychographic information can be gleaned.
A January 2014 McKinsey & Co report titled, “Digital Banking in Asia,” says that currently banks use only a limited amount of “internal structured” data available with them; a much bigger data universe opens up for banks that look at external data. “This can include information on property ownership and credit scores. As part of their data strategy, banks should also assess if it is worthwhile to partner with retailers and telecommunications companies to get access to information from sources such as loyalty programs. If data sharing is possible, this can help banks better identify customer life stages and assess true customer value,” the report says.
For example, when you buy a book on Amazon, it suggests what books you can buy next, all based on previous customer experience. HDFC Bank plans to use similar predictive tactics. Once a customer buys a dress in a store, a future version of the app will direct her to the nearest store that’s offering a sale of footwear, with possible suggestions. This type of predictive intelligence can be done if the bank harnesses customer-specific data such as socio-demographics, product portfolio, and transaction behaviour.
TIP OF THE ICEBERG
An April 2015 PWC report titled, “Logging into digital banking,” which explores Indian banks’ foray in technology says while the country is already the third largest market by internet users in the world, after the US and China, it is likely to overtake the US by 2015. More significantly, India bypassed the desktop based internet access, with mobile being the preferred point. With 74% of the population owning a mobile phone, that’s a massive market to tap. A Boston Consulting Group (BCG) report expects by 2020 the number of smartphone users to equal the number of active bank accounts in the country, and cover 70-80% of the eligible population. “As of FY14, there are only 40 million mobile banking customers, which underscores the need for banks to tap this digital mode,” the PWC report says.
Reserve Bank of India (RBI) mobile banking data for the month of May 2015 shows that the top five private sector banks have conducted transactions of close to Rs 1.4 lakh crore almost four times that of those conducted by the top five public sector banks, based on total value. In terms of volume, the state-owned banks are closer to their private counterparts with the former accounting for 8.37 million transactions compared with 9.59 for the private players.
“We are not looking at revenue mode. Going forward, digital is the way of banking and we have to simplify the experience of customers who are banking with us by giving them cutting edge innovation. It’s not important as of now that we should get more customers through this. It is not an acquisition strategy,” HDFC Bank’s Nitin Chugh, head of digital banking, explains.
State Bank of India’s deputy managing director Sunil Shrivastav, who handles corporate strategy and new business, believes digital banking is customer-centric servicing. “With more and more digital exposure, the customer has many more choices, he is better informed and, therefore, any service sector will have to keep pace with the customer’s requirements. We need to fulfill the expectation of our customers and we don’t want to be behind the curve. It is not a strategy aimed only at acquiring more customers, if we do get them it’s a plus but the offering is also for existing customers,” Shrivastav observes.
SBI is the only bank in India which has a digital product tailored for customers who do not own a smartphone. A “USSD interface” – simply put, a person in a village with a Rs 1,000 phone can use the interface to send messages to the SBI system, which will respond real-time, just like an app.
The bank will spend approximately Rs 3,000 crore annually on capex and operating expenditure to strengthen its digital presence; that’s 6% of SBI’s total income for fiscal 2015. “You will see a lot of digital banking products from SBI over the next six months. It is helping us move transaction banking from conventional channels to digital channels. It’s also helping us reduce the cost of carrying out the transaction on behalf of our customers,” Shrivastav said.
Shrivastav describes the bank’s foray into digital banking as unique. SBI has launched two types of branches “InTouch” and “In Touch Light”; the seven InTouch branches are staffed by just two people. A visitor to the branch can, through the use of machines, open an account in under 12 minutes. He will also be provided a personalised debit card with his name and photograph embossed on it.
In this fully-automated environment, the newly-minted customer can go to a “gamification” table to plan his investments and expenses, a “dream wall,” where he can look up options to finance his needs and an “remote expert,” where a bank official will advise him. InTouch Light would be a branch with just the account opening option.
“We may not be the first to introduce a product or a service but we have one of the fastest adoption rates. For example, our P2P funds transfer –interbank mobile payment service–saw 10,000 downloads in the first week,” Shrivastav said.
While there seems to be consensus that digital banking is crucial to the growth of banks, the ground reality today is somewhat sobering. According to a September 2014 report by Boston Consulting Group (BCG), only 50% of debit cards issued are used at ATMs and only 14% at points-of-sale (POS). Close to 80% of cash withdrawals in branches are less than Rs 25,000 in value. When it comes to mobile banking, the penetration is small: a miniscule one% of active savings bank customers in public sector banks and 10% in private sector banks use mobile banking. Only 4% of cash deposits are transacted through Cash Deposit Machines. Surprisingly a high number of business transactions are done through cheques. The BCG report points out that “46% of business transactions are through cheques, which really have no excuse to exist. A survey of 1,000 small businesses highlights that they are willing to move to digital but have not been educated enough by banks”.
The BCG report adds that by digitizing processes end-to- end, engaging customers on digital channels for transactions and sales, and collectively working towards eradicating cash, banks can achieve up to a 30% jump in sales productivity, reduce administrative staff by about 10-15% and improve back office staff productivity by 20%. “Digital transactions lead to higher CASA balances in accounts by as much as 20%, and use of information bureau and analytics based early warning systems can reduce the charge of bad debt substantially as shown by the continuously reducing NPA in retail,” the report notes.
Globally, banks have been able to reduce their cost-to-income ratio by over 10-15 basis points by aggressively digitising their operating models. Experts say the rewards from digital banking are enormous—double the relative market share of the target segment, half the operating cost (driven by heavy technology enablement) and almost twice the sales productivity—and significant gain in shareholder value.