Banking in a Transforming Economy

Banking in a transforming economyIDRBT Foundation DayNovember 6, 2012

AgendaTechnology & disruptive change in bankingA transforming IndiaThe future of Indian banking

Improve operational efficiencyMinimise costsEnable high-speed processingAllow data capture and data miningBanking sector early adopters of technologyImprove customer experience with enhanced internal efficiencyDisruption in banking

Developments post the year 2000Advent of retail bankingGrowing presence of foreign banksEmergence of a universal banking modelBanks and non banks competing to serve similar customer needsTechnology driven innovation in products and access to servicesFocus shifting to inclusive banking

Technology impact on banking post 2000InfrastructureRTGS (2004)1NEFT (2005)2Interbank Mobile Payments System (2010)ATM installed base of over 100,000 (over 27% compounded growth from 2006 to 2012)POS terminals over 700,0001. Real time gross settlement system2. National electronic funds transfer

The disruptive power of technologyICICI BankInternet ATMsBranchesCall centreShare of transactions in 201235%41%12%2%Mobile2%POS7%Share of transactions in 20012%3%94%1%--

Technology is in a continuing state of fluxHigher capacity and processing capabilitySoftware to run the devicesAbility to connect through broadband and wirelessMobility, new platforms and the ecosystems in handheld devicesFrom mainframe to minicomputer to desktop PCAnd now, mainframe in a pocketNew platforms such as for payments are now challenging the traditional bank channels

The next wave: being connected2.25 bn (32%) of world population is online today, and 1.10 bn users are on 3G Mobile internet is ramping up dramatically57 mn 3G users in China, y-o-y growth of 115%39 mn 3G users in India, y-o-y growth of 840%Mobile internet now makes up 50% of internet traffic in IndiaOut of 1.80 bn mobile users in China and IndiaOne billion will go online in two yearsSource: KPCB

Connectivity in India ..100 mn internet users, 800 mn mobile subscribersBroadband connectivity a catalystConsumers are becoming part of the cloud seamlessly without consciously realising itDevice costs will continue to dropMore and more capabilities would be available at lower costs.. would have a significant impact on bankingThird largest internet user baseSecond largest mobile subscriber base

Indias current positioning(E) - estimateNote: GDP is on nominal basisSource:IMFIndia in 2010 was at the juncture where China was in 2003

India(USD)2003200520102012 (E)GDP (bn)5908081,5981,779Per capita GDP5497291,3421,455Population (bn)1.071.111.191.22

Rapid urbanisationSource: MckinseyGDP USD bnIndias metros in 2030 will be as large as some countries were in 2005Indias large metros in 2030: by GDPAssuming an annual GDP growth of 8.0% between 2009-2018 and 7.0% between 2018-2030

Resurgent rural IndiaOver 700 mn people across 600,000 villagesRural growth supported by:Changing characteristic of rural economy with reduced dependency on agricultureRising wealth creation with estimate of 40 mn middle & high income households by 2010

Looking ahead: impact of per capita GDP growth

Per capita GDP < US$ 500

Per capita GDP at US$ 500 -1,500

Per capita GDP at US$ 1,500 -2,500

Demand for better living environment

Limited aspirationsLow affordabilityIncreased affordabilityAspirations of a better lifestyle

Per capita GDP at US$ 2,500-4,000

Accelerating consumption cycleEarly 20002002-20112012-20172018-2021

Technology for the massesOnly 10% have life insurance< 1% have general insuranceOnly 2% have a credit card59% of Indias households avail of banking servicesOnly 13% have an ATM + Debit cardThe challenge is in banking 700 million people in 600,000 villages in close to 600 districts

Channel innovationDriving scale and profitabilityOpening and operating savings accountsEasy KYCSmart cardsPOS machinesLow cost ATMsMobile phonesLow cost branchUsed by branchless banking channelsResource efficient branchesTo bridge distance and ease transactionsFor all banking operationsSteadily gaining traction

Smart cards have simplified data captureBiometric Transaction CardBiometric smart card for secure validationOvercome distance by setting up service points close to customersMost effective for the poor and uneducated

Branch in a boxPOS based solution offering banking transactions like balance enquiry, cash withdrawal, depositCheque payment (with capability to display signatures for verification)RTGS1/ NEFT2Can support transactions like pass book printing, opening of fixed deposits and bill paymentLow bandwidth GPRS connectivity1. Real time gross settlement system2. National electronic funds transfer

Unique identity numberPreliminary KYC and wider acceptanceInstant identity verificationBasis for Know Your CustomerBuild credit historyImprove service delivery to the poorCustomer management to avoid issues of over-leveraging

Financial services for allDirect payment of benefits such as NREGA, Social Security Pension schemes Subsidy transferPayment ecosystemCreditCashless payments through mobile walletsAccount history from electronic transactions for data driven lending

Customer engagement Customer acquisition and on-boardingBranchesATMsOnline channelsProducts that address needs of diverse customer segmentsStrong distribution backing products Development of new channels by leveraging technologyConsistency in experience across channels

Customer engagementServicing customers through the life cycleAnalyticsConsistency of customer experience across channels of distributionAnalytics to understand and address customer needs across diverse segmentsDevelopment of banking history for underbanked and unbanked customers for cost effective credit

In summaryTechnology has transformed banking globally and in IndiaTechnology adoption by Indian consumers is proceeding at dramatic paceIndia itself has transformed and will transform even more in the years aheadTechnological innovation in India will lead the way for innovation in bankingBanks will use technology to attract and serve customers across the pyramid

Thank you

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Banking in a Transforming Economy

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