With millennials preferring ease of use, will banks in India be able to stand up to the challenge of being as tech-savvy as their retail banking customers?
By: Ajay Kelkar
Unloved, undifferentiated and incapable of innovation — that’s what today’s digitally savvy users, primarily high-school students, entry-level workers, and 30-something professionals believe about the banking industry, says a recent survey on millennials. And this segment is going to be huge in India. India’s millennials, 400 million and growing, are increasingly going to do their banking very differently.
Non-bank solutions for financial services are not just imminent, they are already here. Today’s digitally savvy retail banking customers are increasingly turning to alternate payment mechanisms including digital wallets. And they are looking forward to other technology giants entering the market such as PayPal, Apple, Amazon, Facebook and Google.
The power shift
Smartphone penetration, connectivity and the internet of things (IoT) are a few trends that will shape the way consumers transact in the future. Mobile-based payment solutions will drive merchant acquisition by developing low cost solutions. Research shows that this can drive merchant acceptance by 10 times by year 2020, resulting in over 10 million merchant establishments that will accept digital/mobile payments.
Banks may be sheltering under the assumption that banking cannot be ‘Amazoned’. Amazon Payments has seen middling success so far in its attempt towards transforming the payments ecosystem. Amazon processed $6 billion in 2016 compared to PayPal’s $336 billion, Goldman reports. The music CD is being unbundled as customers buy individual tracks online. The power has shifted to customers: it’s no longer about products that marketers want to sell but about content components that users want to consume and mash up together.
The new battlefield lies in the control of the user interface and the customer intelligence system that supports it. Companies that build highly equipped customer intelligence units will win in the coming days. And yet, banks often think of customer centricity as a ‘fluffy’ topic. But banking tops the list of industries at risk of disintermediation by digitally savvy customers, including millennials. And banks seem secure in the belief that this business is very hard to disrupt and too regulated to disrupt.
Key findings from the Millennial Disruption Index (MDI), a three-year study of industry disruption at the hands of teens to 30-somethings (millennials), found that 71% of millennials would welcome a new bank from Amazon, Google, Square, Apple or Paypal. Yet, there are contradictions: banks are probably amongst the few businesses that have an ‘extreme level of data’ about customers. Banking also was amongst the early adopters of analytics and also has the institutional capacity to understand customers better. Banks have invested heavily in technology that can enable customer centricity. And yet technology is transforming the way digitally savvy customers think about and manage their finances.
In India, there seems to be a mad race by private sector banks to show their digital superiority. Many apps are being launched. But at its core, the issue of being customer centric still eludes many banks. Banks need to be committed to having an innate knowledge of their customers and use that knowledge for the customer’s benefit. Today, most analytics teams in banks spend most of their efforts in doing analytics that will benefit the bank: reduce risk, increase cross sell and reduce cost. Maybe analytics should look harder at spotting customer behaviour changes that can help a bank customise its products and services.
Chris Skinner, chairman of the Financial Services Club and author of the book Digital Bank, said, “A digital bank is a bank built with a vision to reach out to customers through digital augmentation. It is built specifically to offer the customer the service of their choice through the access of their choice.” Product complexity is one of the main reasons why consumers don’t use digital instead of cash.
Bank marketing has typically been staid. No bank has tried to disrupt the way it is positioned and in fact, never risked re-positioning the category or industry. Some years ago, a group in the UK asked consumers what brands they would like to sit next to at the dinner table. Facebook, Apple, Nike and a few other brands were mentioned. No bank brands were at the table. Let’s face it — bank brands don’t really stir up any emotion in consumers.
With more than a billion mobile users and almost 450 million internet users, there is a dramatic change in consumer expectations. Consumers want banks to be as easy to use as an Uber or Ola. Increasingly, banks will need to win the battle against other banks and non-banks to convert those better-informed online shoppers into customers.
Paytm has launched a bank and recently Axis Bank has bought FreeCharge to give wings to its digital bank plans. Would these banks risk emerging as disruptors or would it be business as usual? Axis bank in one swoop gets over 50 million FreeCharge registered wallet users and over two lakh merchants. Will Axis bank treat this base of mobile-first customers very differently and create a whole new digital bank? Food for thought.
The author is COO and co-founder, Hansa Cequity