Part 2: The road ahead for banking sector

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. have opened a floodgate of new opportunities for both the new and traditional players in the  banking sector.

In a panel discussion at the Pay-iT conclave, Shillim, Pradeep Gupta, CMD, CyberMedia India Ltd discussed some of the important aspects of it with Cyrus Daruwala, MD, IDC-Financial Insights, Mahendra Pratap, CTO, ROINet Solutions and Vikram K, Director-HPE Server.

In the Part 1 of this discussion, we brought you the panelists' views and opinions what sort of an impact will govt. policies, the JAM trinity, new business models, and technologies have on the banking sector?

Now in the Part 2, we will cover the impact of technology and innovation more in detail.

Here are the key takeaways:

What sort of new business models emerging due to disruption in the banking segment?

There’s also speculation over whether new business models would emerge due to disruption in the banking segment, like using the Aadhar card beyond its current purpose, like a credit card or a multi-utility card. To this, Mahendra said, “The biggest advantage of an Aadhar enabled payment system is that anyone, being a customer of any bank, can go to any counter and transact for any other bank.”

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

Just How disruptive would this new banking innovation be? Would it for instance, be even more disruptive than the last wave, which saw names like ICICI and HDFC emerge out of the blue and show all other banks the true power of IT for banking?

Cyrus was of the opinion that the new fintech companies like payments banks definitely have an advantage. They don’t have any legacy, they’re leap frogging technological innovation, and finding new ways to access customers. “And with JAM coming in at the right time at the right place, the big boys definitely have got their work cut out for them,” he said.

“I see an extraordinarily positive trend for the future and it’s exactly the same cusp, maybe a little more exponential than when ICICI and HDFC came,” added Vikram. He felt that we would see a lot of disruption, but at the same time, the existing players are also gearing up from an infrastructure and apps perspective and enabling banking at the edge of the network, with mobile banking, etc.

What sort of an impact would innovations in banking create for the urban population?

The new wave of banking innovations will impact everyone, existing and new customers alike. Vikram felt that the key impact on urban population is that they’ve found new ways to pay. “India has a very large young population of less than 25 years of age. They’re already comfortable using technology, so combine that with the rate of urbanization, and you’ll see a higher number of the urban population using the new disruptive banking models,” he added.

What about the unbanked/financial inclusion? What sort of new customers do we see coming in? And other financial instruments being sold on doors-mutual funds, insurance, etc.

Mahendra was of the opinion that the basic purpose behind financial inclusion, and the basic requirement is to at least have a bank account, so that was the first stage. He said there were two aspects to it—one transactional and the other transformational. “Mobile wallet, etc. is solving the transactional aspects, as we’re increasing the cashless strategy. Whereas through financial inclusion, we’re solving the problem of transformational,” he added.

Vikram was of the opinion that Specifically, the J and A parts of JAM, combined with a local device that’s economical, removing wet signatures and having digital lockers in place is going to get a much larger part of uneducated as well as tech challenged bunch of individuals into the banking system. “B and C class categories as well as rural, farmers, traders, who’re not quite into the banking system will come into the system in a big way,” he said. “You no longer need a brick and mortar bank; your mobile device is a bank in itself. That’s completely changing the established norms, with that, you’ll have complete rural population in the banking system,” he added.

What does the industry need to do in terms of educating this new customer? E.g. you had ads that talk about how a youngster gives money to somebody, you’ve had using an auto and paying through wallet, etc.

To this, Cyrus felt that there are already a lot of things that customers are simply gagging for, but banks are not able to provide. “Everyday there are multiple debit/credit transactions, and for the first time in banking history, there are no limits on the number of data transactions you can view. So why can’t customers be empowered to do more with their data, like be able to compare how much they spent on their summer vacation this year vs. the last one?” he said.

What are the 3-4 key pieces of technology that are going to be very important?

Here, Cyrus felt that one is to have an absolute fail-proof infrastructure, which is 100% reliable. Second is to correlate all that transactional history using Big Data, so that banks can give a lot more meaningful offers to customers. Lastly, tech around data sovereignty and security are crucial.

Mahendra Pratap felt that universality of the bank is important, where the person can transact using a card or the mobile.

Lastly, Vikram felt that we’ll see a lot more convergence between compute, storage, and network not just in context of VDI or virtualization, but across a few more workloads. With JAM being all mobility, largest pull through will be for companies who’re doing specific things around IoT, like Aruba, the virtual Internet access, which puts a bunch of IoT together for transacting, can be identified on the spot, they can do a clear pass through the data center and back. “When you’re doing mobile banking, the biggest thing to be worried about is security. So in JAM, mobility is important, but it can scale only when security aspects are taken care of,” he added. “For very large banks, there’s hybrid IT coming in. Plus, we’ll see adoption of application as a service growing,” he said.