Digital Transformation has seen various avatars through the years. Digital transformation’s ability to change operations, end-user experience and even the very business model of a company is nowhere as evident as it is in the banking sector. Within a matter of years, visiting a bank to withdraw money, make transfers, seek an overdraft, have all become a thing of the past for most of us. With the advent of e-banking, customers have now become digital-savvy and banks have the task of catching up with the way the market in changing. For instance, recently, DBS unveiled Digibank, India’s first mobile-only bankthat plans to introduce several of the banking technologies mentioned above such as AI, biometrics, etcetera to the Indian banking landscape.
With branchless banking in India being a nascent initiative, this article explores the development of branchless banking as a global phenomenon and analyses the factors that are shaping its course. This analysis will help us understand branchless banking’s enablers and draw conclusions on whether the same forces will be influential in India as well.
What is Branchless Banking?
There are banks that are either purely online or digital banks, meaning supporting both online and mobile banking. These may or may not have any branches or have fewer of them. Their primary reliance is on providing services through channels and not through branches; this is the very core of what branchless banking means.
What enables Branchless Banking?
Customer profile: There are three broad trends emerging - firstly, the influence of millennials is strong across the world, including in China, US, India, UK and Germany; the size of working millennials, their composition in the overall working population and in the levels of their influence in banking. Secondly, the telecom penetration through Internet and mobile connectivity have made even older people comfortable with digital banking, especially in countries such as US, UK, India and China. Thirdly, the touch points needed for consumers with banks have come down.
Technology environment: Firstly, telecom penetration is high among large economies, developed countries and also in key pockets of developing economies in Africa, Central and Eastern Europe and Latin America. The number of mobile connections and users has surpassed or is likely to surpass fixed line connections in most of these regions. Remote and physically inaccessible areas have mobile and Internet availability. As far as India is concerned, the Internet in India 2015 Report by the IAMAI and IMRB International predicted that mobile Internet users in India are likely to increase by 20% within 6 months – from an estimated 306 million in December 2015 to 371 million by June 2016.
Second, there are many strong technology players venturing into banking, in order to provide value added services to their platform. Telecom companies that launched mobile wallets are now outstripped by players such as Apple, Alphabet or Samsung in providing contactless payment solutions to consumers. The enterprise segment is partly taken over by Fintechs; Transferwise, Paytm and Zopa, to name a few on the payments side.
Third, a set of tools are maturing rapidly finding acceptance in technology and Fintech, enabling better customer experience as well as cut costs, such as the amalgam of tools in cloud, AI, biometric and block-chain.
Regulatory environment: Prominent governments such as the USA, the UK, Singapore, Norway and Hong Kong have taken up disruption of the financial system in order to enable inclusion of marginal groups, improve customer efficiency, reduce costs and break monolithic structures that cause stress on governments post meltdown. In India, small banks and payment banks are taking baby steps, but there is no great digital thrust.
What banks may have to do
First, banks need to extend their peer group analyses to include Fintech and Technology companies, while deciding on best strategies and practices to meet their standards.
Second, Banks need to focus on segmenting their services. Under transaction, by moving towards digital channels with minimal or no human contact, the extent and pace of adoption of new technology can make them competitive and help them retain leadership. In their advisory services, they have to figure out how they would shift their customers to digital and still retain the human touch.
Third, they need to align to their customer profile and consider reach as a critical criterion. If in each country a substantial size consists of national customers and not regional or global ones, focus should be to change that composition.
Branchless Banking : Just a bubble or the future?
There are two components in a banking service--advisory and transaction. The latter would increasingly move towards digital channels with minimal or no human contact. The advisory component would still have the human interface as it would deal with major decisions of customers, such as buying a house or managing investment or consolidating the cross border assets or revenue. At this time, this is best dealt with human interface.
Digital-only might be the way to go as it reduces a number of costs, reduces waste, improves operational efficiencies and enables banks to concentrate purely on customer experience, the concept that has always been put on the back-burner in India and is gaining value only in recent years.
To conclude, branchless banking is here to stay.
The author is Co-founder and Director-Product Division at Maveric Systems