Mumbai: In the first week of May, all employees of ICICI Bank Ltd received an email from the human resources (HR) unit.
What caught the attention of many was that the note, among other things, spoke about the creation of an entirely new senior executive role in the bank, as part of an annual reorganization.
The position mentioned in the email was unique—not only to the banking industry but also for any industry. It was creation of a post of a chief technology and digital officer (CTDO).
“This person (CTDO) will report directly to me and be in charge of a newly created team called the Technology and Digital Group (TDG) that will work solely on improving the bank’s digital reach and the technology it offers to its customers and employees,” Chanda Kochhar, managing director and chief executive officer of ICICI Bank, said in an interview on 25 May.
ICICI Bank, India’s largest private bank, is gearing up for a digital future with Artificial Intelligence-infused chat bots to act as quasi-bankers, software bots that can even do remittances and help with making loan choices, and blockchain technology to make banking more robust and secure.
The TDG group and creation of the CTDO post are aimed at helping the bank develop this digital agenda across the bank’s retail, wholesale, commercial banking, small and medium enterprises (SMEs), and treasury businesses.
In order to ensure smooth functioning of all departments, the bank’s chief information officer, chief technology officer and chief digital officer will report to the CTDO, who will work closely with the various business units to come up with digital solutions for customer-specific issues, said Kochhar.
How it evolved
Digital natives will find this narrative archaic but when ICICI Bank began catering to retail customers in 1994, customers would queue up at its branches with their passbooks and get transactions printed on these booklets to update their account balance.
Moving with the times, ICICI Bank, among the earliest in the country to start online banking, now allows its customers to bank on any device—desktop, laptop, tablet, smartphone or even a smartwatch. Customers can not only use channels like the ATM, internet banking, mobile banking and smartwatches to reduce transaction costs, but also perform real-time banking and money transfers on social networking sites such as Facebook and Twitter.
About three years ago, ICICI Bank stepped up with tablet banking, or Tab Banking.
Under Tab Banking, a bank officer visits the customer at home or office, takes pictures of all necessary Know Your Customer (KYC) documents, sends it across to the back end of the bank, and helps open a bank account within a day without the hassle of paperwork.
“When we were investing in the (tab banking) technology, we asked ourselves what we were investing this for. The answer we came up with was that this would enhance the customer experience. You cannot put a number on that. But actually, once we implemented it, we realized it improved the productivity of our sales people who could then do more transactions and open more bank accounts per day. Even at the back end, the process of opening a bank account and activating it became so simple and straight through that the returns were quantifiable,” Kochhar said.
Once tab banking picked up and helped in fulfilling the KYC requirements, ICICI Bank expanded its service offerings, improving the customer end and digitizing the back end.
It is not just about telling customers they can access the bank on cellphones and computer screens, said Kochhar. “It is also about rethinking the whole journey right from the time the person opens an account till the point that he is trying to switch accounts.”
Typically, any transaction at the branch level would require a bank official to open at least five different windows on the computer. This means more time to complete each transaction, resulting in branch employees clearing fewer transactions in any given period. The process was simplified by digitizing the core banking system so that the entire transaction takes place on a single window.
Listening to customers
About three years ago, ICICI Bank gathered inputs from employees and third-party service providers to simplify its processes for quicker resolution of customer problems. The bank called this campaign “Youthization” aimed at gaining insights into the real problems involved in completing customer requests.
“This was a one-year kind of exercise to look at everything we had, to go more digital and more mobile. It is not just a top-down, but also a bottoms-up approach where every one who interacts with the customers—the vendors or the employees of the bank—will think and come up with ideas of how it can be done better using digital tools. All these thoughts were then discussed and prioritized before a decision is taken on them,” said Kochhar.
Information technology (IT), she pointed out, should not be sitting in the ivory towers of the bank’s headquarters and creating technology that people can’t use on the ground. This is why ICICI Bank’s senior executives visit branches to check the network bandwidth, systems and user experience. “Only if the employee is happy, is he going to give the user a good experience,” Kochhar emphasised.
Looking inwards too
ICICI Bank’s digital strategy also involves improving technology used by the employees for administrative purposes. This means employees can now apply for leave, complete any pending tasks, and list important numbers and personal information, which can be used in emergency situations, on the go rather than loggingin on the office computer.
ICICI Bank plans to employ a mixed approach—considering partnerships in some areas but simultaneously building its own services in other segments.
“While these specific and niche players (referring to fin-tech and mobile wallet companies) exist, banks can actually do all of this within the bank itself, provided they keep abreast in terms of technology and offer advanced solutions for the same,” Kochhar said, talking about the future of banking in a digitally driven world.
“You will see models where people will cooperate with each other, and there will be models where people will compete with each other. In some cases, we would like to be ahead of them and directly compete with them,” she said.
This is because sometimes, the customer has spent a lot of time with the bank and passing them on to a third-party service provider, “wouldn’t feel right”. For instance, in the case of mobile wallets, ICICI Bank has been able to provide services in-house. But in other cases, like e-commerce, the bank cooperates with technology companies, allowing customers to use the digital and mobile experience to purchase something online and then use the bank’s part of the digital experience to pay for it.
The bank is now focusing on using blockchain systems to make banking more robust for its customers. Blockchain, as Kochhar explained, acts as an open ledger and reduces the duplication of access to data or checking of data, which various parts of the ecosystem will need to do. The other benefits are scalability and lower cost.
“For example, it is not just limited to the banking part, if you look at trade or exports and imports. Can we start linking right from the point where exports are made and the export certificates are received and then against that the banks give a confirmation and another set of banks give funding? The ports give the confirmation of the physical goods having moved. Having that whole thing sit on an open ledger helps make things that much more transparent and therefore reduces fraud; it reduces mistakes of data entry and two banks giving different information,” Kochhar said.
She has a valid point. Blockchain holds the potential for all participants in a business network to share a system of record. This replicated, shared ledger will provide consensus, provenance, immutability and finality around the transfer of assets within business networks—reducing costs, complexity and time, underpinning shared, trusted processes, enabling trusted record-keeping and improving discoverability, according to a January Finextra whitepaper by International Business Machines Corp. (IBM).
So, what happens to the bank branches in this highly digitized world?
Kochhar believes that branches are still a very potent part of the bank’s presence and the growth of its franchise. However, the way branches function is definitely up for change.
“When we started retail banking, 90% of our transactions were happening at the branches. Today, 90% transactions are happening outside the branch. But the branches are there because they create a presence and a franchise. The branches are also there because as we grow and banking services reach out to customers deeper and deeper in the country, some amount of its presence is required,” she said.
Going ahead, the bank branches would focus purely on value-added services for the bank’s customers rather than employees standing behind a counter and counting cash, she added.
Do analysts concur?
According to Alok Shende, the founder-director and principal analyst of Ascentius Consulting, “As the two worlds—traditional banking and the digital world— increasingly intersect, the interregnum between the fading away of the past version of banking and the new world is not expected to be either linear or smooth.”
The financial industry, Shende added, is all set to compete with smaller, nimbler players that are adept at the ways of the digital world.
According to Ascentius Consulting estimates, “only 10%-15% of the digital data is being analysed for new insights. As the volume of new data rises exponentially, banks are falling behind in their capability to gain from this new asset”.
There are other challenges too. A 22 April note by brokerage Centrum Broking Ltd underscores that traditional modes of banking seem to be facing a serious threat from new-age, technology-driven financial transactions.
The Unified Payments Interface (UPI), for instance, could even make mobile wallets, such as State Bank of India’s Buddy, ICICI Bank Ltd’s Pockets, HDFC Bank Ltd’s Chillr and Paytm redundant.
UPI does not require a specific bank account, unlike existing players which offer the product to only those who have an account with them. That significantly increases the pool of customers UPI could tap into, compared to banks which have a limited universe of customers, the Centrum note points out.
As of July 2015, India had a population of more than 1.2 billion people. According to a World Bank report, about 53% of Indians (nearly 636 million people) have bank accounts while 80% of Indians (more than 900 million) have access to mobile phones. If used to its full potential, UPI can penetrate far more homes than all mobile wallets put together, according to Sweta Chawla and Siddhartha Khemka, researchers who wrote the Centrum Wealth Research note.
In a paper titled Retail Banking 2020: Evolution or Revolution?, consulting firm PwC notes that banks are in the middle of a multi-wave trend where digital is first focused on optimizing current products and services. The second wave, where enhanced data capture and analysis drives more targeted customer offerings and improved services, is underway.
Mobile banking, the PwC note says, will increasingly disrupt distribution models (for example, instant video conferences with product experts) and the payments industry (for example, peer-to-peer mobile payments). Advances in security and verification will enable all aspects of sales, service and delivery to be conducted online.
Technology is making it easier for customers to switch banks, making relationships much less sticky. This will drive a third wave, where banks and their partners develop sophisticated profiles on each of their customers, the PwC paper said.