Post-demonetisation, the banking industry is divided between those who have invested in digital payment mechanisms and those who have not. Banks which have lagged so far are acting quickly to ramp up their investment, said Shrihari Bhat, group managing director, Asia-Pacific, FIS. In an interview with Mithun Dasgupta, Bhat says the US-based banking and payment technology solutions company is bullish on all its businesses in India. Excerpts:
As digital banking and non-cash payment systems are set to increase manifold with the government looking to curtail the use of physical currency, how new technologies will transform the banking business?
We are at the cusp of a cashless revolution in India. While there have been demonetisation attempts earlier, the difference between then and now is existence of alternate e-payment and digital options. While one can use NEFT/RTGS for large transfers, it brings efficiency as the time needed is much less compared with cheque clearance. For small denominations, the usage of e-wallets, UPI and PoS, etc will get accelerated with reduced liquidity. In fact, the FIS Switch, where we manage debit card transactions, has witnessed a 300-400% increase in the number of transactions.
The government till date has created a fantastic foundation for digital. Jan Dhan accounts have been set up, Aadhar adoption is significant, mobile networks are stable, NPCI has technologies such as USSD where one can use a feature phone for payments.
Banks are expected to ramp up investment in digital payment technology, e-wallets, mobile apps and point-of-sale (PoS) terminals to keep ahead of competition. What kind of investment growth do you expect from the Indian banking sector for this digital battle?
Currently, the banking world is divided between those who have already invested in digital payment mechanisms and those who haven’t. Banks which have lagged so far are acting quickly to ramp up their investment.
Shortly, we will see about 18 new small finance and payment banks becoming active in the market. They have studied the financially-excluded market in depth and have strategies on how to include them. Since they are new banks, they cannot splurge on available capital and have to acquire customers quickly at lower costs. The only way this will be possible is through technology. We are enabling technologies for some of these banks and we know that there has been a lot of investment, both in terms of technology and efforts.
To what extent digital payments can grow from the current level? How much can this digital thrust reduce the banks’ operational costs?
India has largely been a cash-driven society. India is a 95%+ cash economy in terms of volume. This is the same situation with other BRICS economies – most of the other countries hovering around 90% in terms of cash transaction volume. The levels in the West are significantly better at around 50%. India will definitely improve from 95% to approximately 85% in the next few years.
Banks have no other option but to go digital. And it is a win-win situation for the bank and the customer as digital costs are a fraction of the costs of visiting bank branches.
FIS is a global leader in financial services technology. How does the company stand to gain from this digital transition in India?
In India, we have a few streams of businesses and we are very bullish on all of them. Our oldest business line is ATMs. We manage more than 12,000 ATMs in the country. While we have less than 20 ATMs per 100,000 people; other countries have a significantly higher ratio. I am sure that the ATM penetration will improve in next few years.
We also run the Switch, where we have more than 75 banks setup on this payments platform. The Switch routes transactions when a request for payment is made on a digital network. The opportunity around electronic payments is significant, especially with the regulatory and policy push to a payments system less dependent on cash.
Third is where we have our core banking systems and we are empowering new banks. While other core banking solutions have been built around branch banking, our’s has been built around enabling digital transactions.
What are the company’s business growth strategies? What will be the new revenue streams for it?
Last year we had acquired SunGard, a world leader in institutional and wholesale banking. After integration, it has given us access to world class technologies in various fields. The acquisition complements our current business streams of retail banking and payment technologies and we will be able to serve our customers with a wider set of technology solutions.
Along with organic growth is your company looking at acquisitions of fintech or start-up companies in India? And what is your hiring plan?
As part of FIS Financial Inclusion Lab in Bangalore, we co-create innovation in the fintech space working with start-ups and other partners in the ecosystem, which may not necessitate an acquisition to drive innovation and growth. We have a strong base of in excess of 13,000 employees in the country and we continue to grow at a good pace.