How Kotak Mahindra Bank is Surging Ahead on its Digital Journey

Kotak Mahindra Bank has been in the news for having successfully undertaken several noteworthy digital initiatives, ahead of competition. In a free-wheeling interview with Anil Chopra, Kotak Mahindra Bank’s CDO, Deepak Sharma talks about the bank’s digital transformation initiatives, opportunities, challenges, and much more.

Q> What’s the mandate for Kotak Mahindra bank for digital banking?

Digital isn’t something that stands out or stands away from banking, nor is it a vertical within a bank. The idea is to embed technology on existing business models to solve business problems, either to run existing processes more efficiently or to create new models.

Let’s take personal loans and digital for instance. The two have to be looked at as a single journey. We have to see how disbursement can be made faster by automating the decision making process with the help of decision APIs. If there are multiple aggregators bringing in customer footfalls, how can the bank quickly run a real time decision and disburse loans? Can the bank explore new lending models around the entire lending piece? Can pre-approved loans be offered basis a customer’s real-time shopping data or transaction behavior? It doesn’t matter where a customer is. If the customer needs credit, and we have the ability to understand customer’s behavior, get more insights about him, then we should be able to run a real time credit decision engine and show whether we can underwrite the loan or not.

So we’re doing pretty much everything-automating what we do, re-imagining the journey, creatinWe’re doing pretty much everything in digital banking-automating what we do, re-imagining the journey, creating newer opportunities, and at the same time, and making the eco-system work.g newer opportunities, and at the same time, and making the eco-system work.

Q> How would you judge the authenticity of customer data from a credit decision engine vs. traditional human involvement to underwrite loans?

So it’s a journey. In credit decisions, Kotak has very high standards in terms of credit quality and the way we underwrite. We started this journey by running both processes in parallel, because the whole idea is that we want to parameterize every single aspect which over a period of time you’ve learnt, built, and tested with human intelligence. Bringing all those insights into a credit scoring model was the first part. But even after doing that, we didn’t completely let go of the traditional model. Both were run in parallel, though we didn’t see any real gain as we were doing the same stuff twice. But over six months, we started to get comfortable around the accuracy and matching.

That’s how these things move in a bank vs. a new fintech venture. We have a large franchise and a large business, which we want to make efficient, and protect it at the same time as we don’t want to put it at risk just to create a new fancy thing that works faster.

Q> How do you incorporate digital into other businesses and processes of the bank?

We look at each of our businesses in a similar way. For digital to succeed, you need to have a sharper and better understanding of the business, problems, and opportunities.

It’s a combination of internal and external partnerships. Digital is a horizontal initiative, not vertical, as it underlies each and everything we do in the bank, both small and big. We are automating even small things like an address change for customers, wherein we let them do it online, and build in the right checks and balances. This leaves the bank branch to do more productive work instead of minor things like address change.

Digital is not about using some cool new technology like wearables, machine learning, etc. we’re seeing what problem does it solve after evaluating 100s of them, and then picking up what to do and more importantly, what not to do.

Q> How do you differentiate routine automation which banks have been doing for ages vs. digital banking? Is there a difference being created between IT and digital team?

You have to do certain things on an ongoing basis like system enhancements, upgrading of core systems, etc. Digital or no digital, these are a part of basic hygiene and enablers on which you build your business model. These are core IT functions, and therefore run directly by IT with their own waterfall and traditional methods.

Where we’ve started to embed digital is where there’s a business side to it. We’re taking business problems and bringing in technology to solve them. It’s all done outside and brought in for integration only when it’s ready. We have teams working on both incremental enhancements (like the address process change example) and on completely new projects where we re-imagine what we can do differently.

We’ve also setup an innovation lab in Bangalore recently to work on new trends and opportunities. We also partner with fin-techs, design firms, eco-system players like NASSCOM, to see how we can create a set of opportunities that banks will need to acquire or build going forward.

Q> How are the skill sets required for digital different from traditional IT?

It’s a very different set of skillsets. For one, we have very few bankers in the digital team. They come from non-banking and have many patents in their names. They’re the kind of people who’ve been thinking around solutions and designing around opportunities. There obviously the skill sets bring in the right set of people who understand technology, solution designing, the user experience design, and obviously, how to assimilate this entire thing from a project management point of view.

Q> Do you see fin-tech companies as a threat to traditional banks, considering they’ve introduced new ways of doing traditional banking processes, like P2P lending, wallets, payments bank license, etc.?

Fin-techs are not a threat, but a great opportunity for banks to partner, learn, deliver, and build a business model for scale. Not all Fin-techs have B2C ambitions. A large number of them work in the B2B space, which obviously means they work with banks to deliver solutions that can help banks become smarter. In the B2C space, there are a few like in payments, wallets, etc. but at some stage, they will get regulated, because finally they’re dealing with customer money, so it’s all about trust.

The real challenge for us is to be able to constantly innovate and deliver around our customers, because unlike a lot of fin-techs, we have real customers who’re doing real transactions. We have to live up to their expectations and experience, which have changed thanks to the likes of Ubers, AirBnBs, and Amazons of the world.

Q> What sort of technologies are you borrowing from other sectors?

When we launched a mobile app, we were among the very few first banks to get into a detailed in-app analytics software. we picked up the software that most e-com companies use to check their customers browsing, purchase habits, etc. called Localytics.

Most of our inspiration comes from partnering with different industries, like offering holidays in collaboration with Thomas Cook, Kotak rewards in partnership with e-com sites, or our partnership with Goibibo, which lets you buy flight tickets, book hotels and bus tickets, etc. right from our mobile banking app.

Q> What challenges are you facing in enabling a digital eco-system?

First is to take a call on what not to do, because there’s so much happening in the market and people get carried away with what others are doing. We have realized that it’s more important to look at our own objectives, customers and journey, instead of reacting to what’s happening outside.

The talent and resourcing is a big area of concern, because in this industry, the talent is not necessarily available in banks, nor is it easily available outside.

Q> By when do you think digital banking will become equal or bigger than traditional banking?

It will take time. This is just the first wave of digital that we’re seeing, where we’re witnessing higher digital adoption on mobile. The second wave is where adoption leads to transactions. Can you digitally open a bank account? Can you digitally take a loan? Can you use a digital signature instead of wet signature? A lot of these are going to take time because you also need to have related products that customers need, the mindset has to change, etc.

Branches and their role in acquiring customers and doing high value products like investments, mortgages, and business loans will continue in the foreseeable future.