The Indian banking system is quickly going digital, but in the rush to adopt technology and usher in a cashless society, is the system overlooking key opportunities and challenges? This was a topic of discussion at the 10th Mint Annual Banking Conclave, which was held in Mumbai on 23 January.
The panel discussing the issue included V. Vaidyanathan, founder and executive chairman, Capital First Ltd; Anup Purohit, chief information officer, Yes Bank Ltd; Naresh Makhijani, partner and head-financial services, KPMG; Vijay Mukhi, cybersecurity expert; and Venkatesh Hariharan, director (fintech), ISPIRT.
According to Vaidyanathan, the Indian banking system is currently going through one of its toughest changes. “With the current change coming in, a number of existing players could find themselves flat-footed and a number of new players such as payments banks, mobile wallet companies could be coming in. To innovate, this one is going to be a more difficult churn," he said.
Purohit, the only banker on the panel, claimed Yes Bank had managed to improve digital payment options for its customers by taking the whole payments infrastructure outside the bank’s internal systems.
“We focused on API (application programming interface) banking where we said that our customers will not use Yes Bank systems. Our customers will directly use it on their own systems as we have implemented our API on their corporate ERP (enterprise resource planning)," Purohit said.
Hariharan—whose iSPIRT, a think tank that also produces digital solutions for the Indian banking sector to target customers with an annual income of Rs2-5 lakh— said that a few large public sector banks have already started implementing digital solutions to adapt to newer technologies and are trying to open up a large base of customers. He pointed out that working with banks had not been an easy ride.
The problem, he said, was that the banks were unwilling to employ something new quickly and integrate it into their processes.
“For example, we have been talking about e-KYC (electronic know-your-customer) for years. The thing is that if you take paper-based KYC, the cost of acquiring a customer is about Rs1,000, but with e-KYC this cost is at about Rs60, which can further be brought down to Rs5," Hariharan said.
The best way to move forward with digitization would be to embrace cryptocurrencies and blockchain technology, said Mukhi.
According to Mukhi, this would easily weed out any security concerns at banks and ensure that hackers do not get access to people’s money.
“We will solve our cybersecurity problem if we use cryptocurrencies in our banking systems," Mukhi said.
Going ahead, banks would be looking at alliances with specialists to take digitization forward, predicted Makhijani of KPMG.
“It is difficult for a bank CIO to take a decision since there are so many types of technology available. It would largely depend on vagaries of their businesses and they may not want to do everything alone," Makhijani said.
A challenge that the banking system faced was that with so many developments happening in the financial technology space, many of the innovations might be getting bypassed, said Vaidyanathan. Focusing on certain things such as scanning of multiple documents through fiber optic technology might not even be necessary, since most application and complaint processes had now been automated.
Vaidyanathan also urged bankers to make more efforts to popularise the unified payments interface (UPI).
The panel also discussed the banking sector’s handling of demonetisation, where large queues were seen outside branches for many days.
According to the panellists, while banks handled the situation well, issues were also caused due to the mindset of the average customer who doesn’t fully trust digital payment options.