Part 1: The road ahead for banking sector

The Indian banking sector is witnessing a dramatic change and disruptive innovation beyond traditional banking as we know it today. This is a result of a mix of events, like the emergence of disruptive new fintech startups, new govt. schemes and policies for banking the unbanked, the RBI issuing differentiated licenses for payments banks, etc. All this has really changed the competitive landscape for incumbent banks like never before.

So the two biggest competitive advantages for incumbent banks that acted as entry barriers for the challengers have now become redundant. Just as Uber emerged as a global leader in ‘cab sharing’ (with zero-ownership of cabs), it is now possible for challenger “banks” to compete with incumbents without capital (like the P2P lending startups) or without physical presence (payment technologies companies).

The question now is whether the incumbents are ready to cash on the new opportunities, and what are the mediums and alternate channels available for banking today? Also, what sort of an impact will govt. policies, the JAM trinity, new business models, and technologies have on the banking sector?

Renowned names from the banking and technology world- Cyrus Daruwala, MD, IDC-Financial Insights, Mahendra Pratap, CTO, ROINet Solutions and Vikram K, Director-HPE Servers discussed all these aspects in detail in a panel discussion at the Pay-iT conclave, Shillim. The panel discussion, moderated by Pradeep Gupta, CMD, CyberMedia India Ltd, focused on four key elements related to these new opportunities—the environment/policy, business model, customers, and finally technology.

Here are the key takeaways:

Cyrus Daruwala—MD, IDC Financial Insights, Mahendra Pratap-CTO, RoINet Solutions, Vikram K-Director, HPE Servers, and Pradeep Gupta-MD, CyberMedia (From L to R)

What has been the impact of new Govt. policies for the banking sector?

With disruptive new fintech startups and new payments banks licenses, everyone is keen to know what sort of enabling policies will the govt. roll out for them. “When it comes to payments, I think we’re only 20% there,” said Cyrus Daruwala. He said that when it comes to digital/electronic payments, we’re only 20% there, due to a lot of gaps. One is that despite having so many modes of digital payment (like RuPay or other debit cards), there is always an encashment point. “Despite all regulations that have come out, there still remains this point where you top up a card, whether online, mobile, or physical, and there’s always a merchant who has to encash. So there has to be a way to redeem yourself of this encashment point,” he added.

Another issue raised during the discussion was that though new fintech companies like while wallet companies are trying to support digital India, the regulatory environment is not conducive to it, because it’s too complex. To this, Cyrus came to RBI’s defense and said that they don’t stop interoperability, but are only asking to zoom into the seven guiding principles of data sovereignty and security, which are a part of the data sovereignty act. “Each wallet/operator/NBFC is monitored according to that charter, so if you can prove that data sovereignty exists and that you can protect data, I don’t think they will object,” he added.

About 22.6 Crore accounts have been opened so far, all thanks to the PM’s Jan Dhan Yojana for financial inclusion. Unfortunately, only a small percentage of these accounts are active. When do we start seeing these accounts getting active, and what sort of growth they see here?

Mahendra Pratap of ROINet Solutions felt that most of the benefits are yet to come from this, but at least the first step of financial inclusion has been rolled out successfully. In fact, technology is really helping plug all the system leakages. Earlier, money by the govt. for unbanked masses was consumed before it reached them, either by banks to pay their debts, or by middlemen. This was because recipients had to travel long distances to the banks to transact. “With our smart card solutions, data can be stored offline, making the transactions secure and since the person doesn’t have to go anywhere, the govt. benefits reach the intended recipients,” he added.

So essentially, while the complete enabling environment has not been provided, at least the first steps have been taken in the right direction to ensure that the unbanked not only get their accounts, but are also able to operate them.

Vikram K of HPE felt that the entire JAM Trinity (Jandhan, Aadhar, and Mobile), are leading to a point where there’ll be higher adoption, with an increasing number of people wanting to bank with the banking system. “With Jan Dhan already enabling customer acquisition, and Aadhar becoming a single point of identity for every Indian, linking the two will generate a virtual payment address for every individual. The growth in banking will therefore be exponential,” he said.

Click here to read the Part 2 of this discussion