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(From left) Naveen Surya, MD of ItzCash, H. Srikrishnan, CEO designate at RIL payments bank, Tamal Bandyopadhyay, consulting editor at Mint, H.R. Khan, deputy governor of RBI, Rishi Gupta, MD and CEO of FINO PayTech, and G.V. Rao, MD and CEO of NSDL. Photo: Aniruddha Chowdhury/Mint
(From left) Naveen Surya, MD of ItzCash, H. Srikrishnan, CEO designate at RIL payments bank, Tamal Bandyopadhyay, consulting editor at Mint, H.R. Khan, deputy governor of RBI, Rishi Gupta, MD and CEO of FINO PayTech, and G.V. Rao, MD and CEO of NSDL. Photo: Aniruddha Chowdhury/Mint

Tech-enabled banking with a human face

Industry executives and experts discuss the challenges of banking in the digital age, both for firms and for regulators

Are digital banking enterprises ensuring that new-age products are available, accessible, affordable and spreading awareness? Are regulators and digital bankers ensuring the standardization of documents, digital security and connectivity issues?

These issues were discussed at length at Mint’s 9th Annual Banking Conclave by executives at public sector and private sector banks as well as regulators. The discussion was moderated by Tamal Bandyopadhyay, consulting editor of Mint and an adviser at Bandhan Bank. Edited excerpts:

On connectivity issues

G.V. Rao, chairman, managing director and chief executive at National Securities Depository Ltd: If you look at some of the disruptive trends across the world, not just India, but in most parts of the world, there are I think two trends—first is the usage of mobile as a payment device and second is the banking becoming a utility or banking as a platform. This whole issue of money transfer can be enabled on a mobile platform device and how the kind of problems you talked about how they can be addressed using technology will necessarily need to involve a mobile device.

There are nearly 1 billion mobile connections; if you can have a voice call on the device, it would be possible to provide a remittance service as well. The key is to be able to move away from cash and to be able to use the mobile money as a payment mechanism for most of your needs. It is not something opposed to that potentially can happen in a short time. This is a change in consumer behaviour more than a technological challenge. I think, over the coming decade or more, this would take root, but as far as the technology challenge you talked about, to my mind, today technology exists which allows a mobile device for payment if it has even a voice connection. You can use Internet, it is of course easier and faster, but you can also use non-Internet service based communication.

Naveen Surya, managing director, ItzCash: There are two things—one is we keep cribbing about what exists and should we wait till it improves. And second is how do we make use of what is available to evolve a business model? We always look at digital banking as a part of digital money process. Unless you have money in digital, how would you do digital banking? This is where we always have believed in a technology enabled but human face kind of infrastructure. Today, we are proud that not just we as an individual or a company have done it, but today there are three players; the top three using IMPS (immediate payment service). It is not an urban phenomena or an elite phenomena for money transfer; there are at least more than 100 million customers being serviced by PPIs (prepaid payment instruments) and probably about 10 to 20 million are created by us alone. If you see the transaction done by them, irrespective of mobile phone, Internet, no Internet, they could walk into the outlet at the nearest place, get the money digitized and in real time the money reaches into a bank account, and that process is also way cheaper; on an average, the cost is about 1.5%.

It is a question of perception of what the media would want to sell to the audience and what would they like to hear. Firstly, I believe more than 40% of IMPS transactions, which has happened in a matter of 24 months, are driven by non-banks and most of that is money transfer.

Rishi Gupta, managing director and chief executive officer, FINO PayTech Ltd: There is a big challenge on the connectivity bit. In the metros too, there is a big gap in the data and the voice connectivity; as you go into the interiors, we have seen that the data connectivity is even worse. Voice connectivity is still there, but the data connectivity is not that good. When will that connectivity come and when will we look at all the payment and small finance banks all of us are looking at an online technology kind of a solution? And in that scenario, data connectivity is a big issue. The second issue is the digital assets. People who are in this business of providing digital technology, the plain manpower, is very expensive and the payment bank model does not allow us to offer that kind of salaries and bring that kind of people to our force.

Connectivity from the overall perspective and building up a technology capability internally for which you need the digital assets and for which the people build up are very scarce as of now. The biggest challenge is to scale 10 times and bring down the costs 10 times; as a payments bank, if you are able to do that, that would be the answer.

H. Srikrishnan, chief executive, proposed payments bank, Reliance Industries Ltd: I think there are two fundamental issues—one is that there is not a revolution that has happened unlike other countries on smartphones. We are very often confusing ourselves with mobile connectivity and not data. This game is all about data. That is a very fundamental issue that we need to resolve, and I think the resolution of the handset access, which is the last-mile coverage and through data is the fundamental solution that is one part.

The second is we should change our mindset on upgrading the current banking system to a digital method. We should look at how does one get into digital transactions while the banking happens at the background. Banking should be invisible as far as users are concerned.

Everyone today has a mobile phone, the problem we need to solve is how do we ride on the data part through financial apps and for transactions, we should make this absolutely simple, accessible and the last mile and the cost from the customer point of view—at the end of it, the cost is also an issue. The service providers and the kind of access is expensive. The combination of a big telecom company and a bank together has not been done I think anywhere in the world; there are very few examples and not comparable to the India scenario.

On standardization of documents

Surya: We need to decide which transactions require documents. There are transactions that are allowed up to a value without any document. Just because those transactions are flowing into a digital and a regulated system, we start telling customers who are using physical currency to give me something.

For us, the biggest competition is the physical cash. It is imbibed in the system as people are finding so convenient. And here, there are people moving them into a digital system, which anyways is leaving a digital trail better than the physical currency. Firstly, we need to find out which kind of transaction needs what kind of documentation. Secondly, if you have the information about a person, where he is staying, do you still need a document? Third part is that how do you identify within the framework which are the more risky transaction? So, I think a new framework we have to develop at the macro level.

Srikrishnan: It’s a journey. There is no one answer to this. But I would actually classify it into two parts. One is the onboarding part, which is opening and KYC (know your customer) related to that. The second is about the transactional limit. There is not so much correlation between transaction limit imposed by the service provider themselves compared to what regulations demand.

The next one is two-factor authentication, which is a risk mitigant. The limit is not commensurate with what is allowed in physical world. The two have to converge somewhere in the middle path. We believe that middle path will happen sooner or later. And if that happens, driving the usage of digital transactions will happen.

Gupta: We have to go paperless. We will have to look from a scale point of view. And the other thing is cost. The cost of transaction has to come down. You have to remove paper in the system. The biggest that has happened in India for last three to five years is creation and adoption of Aadhaar platform in the banking system. The entire eKYC journey that we are trying to get into is that biometric eKYC is allowed. On OTP, eKYC is not allowed. If a regulator point of view, if you want to make it a paperless onboarding, if you can make OTP is allowed in eKYC, that will be a great saviour.

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