Guest Column

Guest Column

Demonetization Impact

The dawn of digital currency

Those who are capable of reading the scenario correctly and having stomach for a change according to the necessity of time, strong talent and right technology prowess to innovate and deliver, can stay as a force to reckon with. When the market throws up new challenges banks will have to be ready with their tech-driven solution and galvanize their HR function to manage the changing contortion of the industry, says Mr Aneish Kumar, Managing Director, Bank of New York Mellon (BNY Mellon).

The regulator and the government will nudge the banks to create a digital environment and built an ideal architecture that is affordable, safe and desirable to the changing needs of market. He presents an insight of how the Indian banking industry is taking a new shape as the payment model is getting transformed from leather wallet to digital wallet and from paper currency to digital currency. Challenges and risks are aplenty, but there are solid solutions too, he elucidates.    

When India is changing fast, the Indian banking industry is changing faster. Now the banking has got into a virtual digital battleground, perhaps abruptly after the demonetization of Rs 1000 and Rs 500 notes late last year. As the process of remonetisation continues, the Government of India and the banking regulator are nudging people to resort to digital transaction not only for cost saving and convenience but also for accountability of transaction and transparency. That is ringing in an era, wherein cash will definitely become far less important in the future than it is today.

This ultimately necessitates faster development of all pervading digital architecture, newer processes , products , regulations , including deployment of new skills and re-skilling of the existing talents. Only a combination of these can help innovate, develop, deliver products and people oriented services. The next big challenge remains in insulation of transaction risks – especially against cyber attacks - which have become top strategic priority for most banks. This will only increase in importance and will require ever greater resources. All these are big challenges for banks. In such atmosphere only the fittest survives. Gradually, but surely we are moving towards cashless economy. Digital India is actually a foundation for transforming India into a digitally empowered knowledge economy.

That way, banking in India is set to enter a tech-intensive high-speed highway. Each player in the segment will have to fight a tough battle to be a winner in the cashless market and to prove their relevance and identity. But banks must be in a position to quickly adapt to the inevitable changes to ensure flawless delivery and payment services to prevent erosion of transaction volume. Other challenges include multiple disruptions following the entry of newer financial technologies, payment banks and non-conventional players who have cutting edge technology prowess.

Digital technology is playing a big role in nearly every aspect of our life. Our mobility should also be more comfortable accordingly. This naturally implies that whole gamut of banking services need to respond positively to this change and reinvent the way they do business.  No doubt, one with robust technology backbone can attract new generation customers, cut operational costs, develop new streams of products and business models and enhance customer value to its maximum. It would be an interesting shift of landscape. We must keep a watch on how these are likely to shape out.

Those who are capable of reading the scenario correctly and having stomach for a change according to the necessity of time, technology prowess to innovate and deliver and also talent within can stay as a force. They need to act quickly without waiting for other’s results.

When the market throws up new challenges banks will have to galvanize their HR function.The new digital life and workplace) will force banks to rethink HR from top to bottom: how they design programs, the tools, and how they acquire talent and also roll out and communicate solutions. The banks will also have to create an atmosphere where both employee expectations and business requirements meet. The organizational model may change along with skill-sets of employees. Big data and talent analytics and workplace analytics will become common. I foresee HR apps moving to mobile devices. These amazing new technology and functionality to market - will certainly help HR to be far more competitive.

Banks will have to re-skill themselves to address rising commercial challenges.  A new management competence has to be built across the organization. While banks can hire new talent from tech savvy sectors, that alone will not be enough to transform the bank since digitalization is only an operational process, but not the core business. While new talent will be in a position to provide enthusiasm and operational stimulus, there will be a compelling need of enhancing competence across all business verticals. As the process of digitalization gains speed, the template of the senior management in banks will have to change radically. Banks will start looking for different set of leadership quality. It will be all about one who knows the customer behaviors, one who understands technology, leads innovation and products. So anyone with 10 years of balance career, in banking, will have to undergo re-skilling. The employees who are capable of analyzing data, writing artificial intelligence program or simply thinking and acting digital will have an edge over their peers. Back-office operations will become automated. Many of the hitherto relevant experiences will soon become irrelevant. More and more career redesigning will happen as digitization touches greater aspects of banking operations. Conventional or traditional bankers will have to unlearn and relearn as their current job functions are set to change. Trainings will be more focused on disruptive thinking and impulses, l redefine and reconfiguring processes that can add value for clients.

I am sure, the regulator and the government will nudge the banks to create a digital environment and built an ideal architecture that is affordable, safe and desirable to the changing needs of market. Banks will have to look at it on a priority basis and make considerable investment for downright overhaul of the systems and processes to make the transformation beneficial and meaningful. Beyond building effective interface dealing, banks will have to move into an era that has made people more comfortable with transactions guided by smart phone technology as well as improved digital security and live with social media orientation. They will have to undergo multi - channel integration and analyze customer behavior through digital analytics. This will be the emerging contortion of India’s banking in the times to come.

In the next three- five  years, more than two-thirds of banking customers in our country are likely to be self-directed, moving away from conventional system of carrying money in their leather wallet and vanity bags. Smart phone is going to replace all physical wallet and bags that will prove to be more convenient and safe. Finger-tip will manage every transaction, be it grocery purchase or a utility payment or just a money transfer.  Recently launched UPI (Unified payment interface) is a good example. UPI goes a step forward by eliminating the need for maintaining a mobile wallet. I expected  UPIto bring about a significant shift in the way mobile banking transactions are conducted and consider this as a significant step towards moving into a cashless economy .

The new generation would be better adapted to the online world since more and more players like telecom firms, payment solution providers, retail chains, wallet firms and e- biz chains, besides banks, are set to jump on the innovative payment bandwagon. Already a significant chunk of new generation is finding the advantage of digital technologies for online buying of flight tickets, rail tickets, transport bus tickets taxis, holiday packages, books and entertainment solutions. The base of online buying has widened further into buying groceries and cloths and enumerable other consumer products, including white goods.

The post demonetization days have seen lots small value payments moving out of banks into wallets like PAYTM and MOBIKWIK.Emergence of independent online aggregators and fintechs providing access to best productsare posing threat to retail banking.They are exploiting  the structural vulnerability of the retail banking business model and disrupting  the business If you look at E-Retailers and mobile operators in particular., they  have made significant strides in changing their business models to take advantage of these emerging opportunities.This will boost volume of internet and digital  banking. So the banks should take cues from the successful value added business model of these sectors to ensure that similar high value propositions are created within for the benefit of their customers and for themselves...

I find that current generation customers are less likely than their parents to show loyalty to one particular bank forever.  That would force every bank to transform, innovate and upgrade constantly. Every credible digital-banking proposition with safety and convenience would be readily acceptable for customers. Digital laggards can spoil trusts and loyalties.  Most Indian banks already have strong technology backbone that would make them capable of meeting the needs of new generation. The banks only need to leverage them better and invest further in these in a focused manner. This year and next will be the more crucial phase.

The transformation in banking transaction model has opened considerable space for new-age business tools like block chains, bitcoins and data analytics. Already banks have started focusing on customer differentiation by analytics to bring down costs and improve distribution. This will take the customer experience and expectation to new levels. Target marketing based on behavioral analytics will lead to contextual marketing.  I find block chain, the technology predicated on a shared database that underpins the crypto-currency, bitcoin is being adapted for banking. Bitcoin is a phenomenon that is threatening to disrupt the way transactions take place over the internet. But people are still struggling to understand the whole concept of bitcoin and governments are struggling to control and regulate it.As opposed to this, block chain is gaining credibility and speed. It has a vast potential in India.  It can be applied to almost any form of record-keeping, agreement, contract or register, etc.  This means block chain can also create e-smart contracts like syndicated lending and settlement of different financial instruments.

One clear benefit of block chain is in international payments. Clients feel once block chain comes into being there will be significant savings for both banks and the end-users as it by passes through existing international payment network.  A few banks have already tested payments and trade on a bilateral basis. This could speed up settlements and bolster security.

Many banks in India are now exploring how they can utilize block chain applications within their business to make payments faster, cheaper and more transparent, while large IT vendors like Infosys are helping them create real use cases.  It is also seen, growing ecosystems of startups are pushing the technology that will have also uses outside the financial transaction.

Last year, ICICI   settled an export transaction in minutes through a custom-made block chain network with Emirates NBD as against the usual three days. This was the first block chain-based trade payment in India. Recently, Yes Bank has implemented a multi-node block chain to digitize and automate vendor financing solutions for one of their clients.

Whatever be the talks of technology re-orientation that is taking place in the banking industry, the cutting-edge digitalization process cannot fully insulate risks. With each innovation, newer risks (data leakage, intellectual property theft, exposure of personal identifiable information)and  threats will emerge  at a furious pace which will force banks to adopt a proactive stance, pre-empting change and capitalizing on, rather than capitulating to, digital disruption. Some banks have already invested heavily to mitigate some of these risks including cyber risks. All these are important aspects.

Since future banking will all be about  connecting people to their money more quickly, accurately and efficiently than ever before banks begin to place the focus more firmly on what customers want from mobile and digitalization.have the best of the algorithms to do predictive modelling to offer the consumers what they could be looking to buy . Banks should acquire the best of the algorithms to do predictive modelling to offer the consumers what they could be looking to buy.There will a lot more co-creation, banks will we need to work with other partners like merchants, IT vendors or from other industries, to co-create innovations that will evolve a very different business model from what is being seen today. Early birds will pick up most of the grains.

(The views expressed here are solely those of the author and do not necessarily represent or reflect the views of the organization that he works for).