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Digital Is Not An Option, It Is An Exigency

Today, the scope and scale of digital-driven change has grown immensely a nd organisations of all types have spent significant money and efforts to keep up

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India is at the cusp of a digital revolution with a 240-million plus JAM trinity, 450 million Internet users, 800 million digital transactions and an over $125 billion e-commerce. The financial services mart has recognised this with investments in fintech at $1.7 billion last year. Fintechs have begun nibbling at specific parts of the banking value chain, though successful scaled-up models are far and few between outside of the payment area. Yet they have exposed inherent inefficiencies in the banking business flow through disintermediation, low-cost delivery, alternative credit and more.

Banks have reacted to this change in three primary ways, a) digitise existing processes b) invest in digital portal/app to add new acquisition channels and migrate existing services and transactions to lower costs c) partner with fintechs to create new point solutions within current models to augment value for the customer. As a result, the digital domain has largely been positioned with either marketing/customer experience heads or technology heads who primarily look at digital strategy from a functional or channel perspective and the KPIs are measured in terms of channel migration saves, new apps launched or acquisitions growth through digital channels – with limited impact; for example, a majority of new banking apps launched over the last two years have less than 10 per cent adoption rate.

Banks need to get more imaginative to prepare for the new digital frontier. Rather than have a piecemeal approach to digital, they need to think hard about creating new separate digital business verticals in their own right – a separate end-to-end agile business that thinks about the evolving micro-customer segments, increasingly distant from physical channels, create new simpler digital-only products and take a comprehensive outside-in customer-centric view rather than an inside-out functional perspective.

There  are several instances when Indian banks could not launch a full-fledged digital business model due to fear of cannibalisation of existing distribution channels, brand perceptions, legacy issues posed by technology and process infrastructure or even regulatory hurdles. Some of the digital-only banks, such as mBank in Poland and HelloBank by BNP Paribas, have shown that banks can build digital business at substantially lower capex and opex per customer than their traditional counterparts.

Similarly, there are large “fincongs” (financial conglomerates) without banking licences, but with  multiple subsidiaries serving various product needs, yet their customers have no coherent, single picture of their relationship with these institutions, forget a good insight into their finances. These “fincongs” depend heavily on intermediary driven channels, who in turn do not have adequate infrastructure for efficient operations, lack deep understanding of products and are focused on their commissions rather than the end-customer. This not only results in fragile customer relationships and lower lifetime earning potential, but also increases risk for the financial institutions.

Today, the scope and scale of digital-driven change has grown immensely and organisations of all types have spent significant money and efforts to keep up. CEOs have embraced digital as part of their mandate. Banks and “fincongs” have been working hard to close the gap between the IT and business sides of the house. Yet despite these notable advances, in some ways they are no better equipped to handle the changes coming their way than they were a decade back. In fact, PwC D igital IQ - measurement of any organisation’s abilities to harness and profit from digital, indicates that in 2016, 52 per cent are rated strong against 66 per cent in 2014.

Designing a digital-only business model requires deep understanding of customer behaviours, application of design thinking principles and demystification of financial services. Some of the key areas, such as a digital-only business model would focus on:  

l Customer Value Proposition: Highly customer centric with outside-in perspective. Think end-to-end proposition and experience across all aspects, be it marketing, onboarding, servicing, engagement or retention.

l Structure and Operating Model: The structure should allow financial institutions to integrate themselves in the customer’s day-to-day life seamlessly, irrespective of products or functions.

l Products & Services: Digital-only businesses should strive for simplicity in all aspects – marketing, product advisory and fitment, onboarding and transactions. They should provide simple “digital-only products” and services.

 l Leverage emerging technologies: Emerging technologies like robotics, natural language processing, artificial intelligence, machine learning and cloud can be leveraged to make finance simple and reduce cost of operations in a digital environment.

l People & Culture: Digital business will need to invest in creating a culture of innovation and adoption, testing and reinventing solutions, thinking customer-first in agile.

A constant digital thrust from the government since demonetisation has resulted in widespread banking and digital adoption in India. Technologies are driving the need for all players to dial up their game by creating comprehensive and dynamic environments to sustain digital businesses. Digital is not an option anymore, it’s an imperative.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.

Hemant Jhajhria

The author is partner, Financial Services, PwC (India)

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Yash Gupta

The aurhor is associate director - Financial Services at PwC (India)

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