Based on the speech by Rahul Shukla, MD and Head- Corporate Banking, Citi India at Gnosis ’16, XLRI’s 7th Annual Finance Symposium:
The eCommerce landscape in China is close to a trillion dollars, half of that contributed by Alibaba alone. Alibaba is one such amazing entity whose GMV is twice the size of Amazon. Alibaba tried to bring the Supply chain of China to the world through its platform and along the way also stumbled upon the payment system. It brought into the world Alipay, which today is the world’s largest mobile payment company, its size is 3 times as that of PayPal. Reports say Alipay has made its parent company Ant Financial’s valuation greater than one of the most recognizable financial firms, Goldman Sachs.
However skeptics say that this scenario does not apply to India whose eCommerce market is comparatively still in the nascent stage. In the US market too, there are a lot of start-ups already which are providing similar services as traditional banks. like savings accounts, investments. Fin Tech comes in and unbundles the banks piece by piece such that costs of acquiring customers are drastically reduced. Such a revolution is happening not only in the US but even in India.
It is an industry which grows exponentially with increase in customers. A key indicator of this growth is the Aadhar card. It has a penetration of 85%. Aadhar was an idea poised to succeed because it was based on a relatively simple concept- matching a thumbprint to a name, address, age and gender. It has become a kind of hourglass with the Aadhar number in the middle, applications and software service providers in the portion above and devices below. Aadhar channels apps and software providers to devices through that one number. This is a core strength which if fully utilised can demolish the banking system as we know today.
In PM Modi’s ambitious scheme- Jan Dhan Yojana, 61% bank accounts opened were in rural areas. Today 53% of bank accounts are linked to an Aadhar card. RBI and finance ministry through cooperation of UIDAI started linking Aadhar cards to bank accounts so that benefits could start flowing. The government claims that subsidies have been reducing through such efforts. The demands that people have for public services won’t be satisfactorily fulfilled by the government through existing mechanisms. Hence, it is necessary to have a tap of open architecture and create APIs (Application Processing Interface) to make services.
The benefits of such a system can be explained through four layers:
- Presence less- customers of bank do not have to be physically present anymore. They can send in bio-metrics which checks against established database to identify person. It is more secure than OTP (One Time Password) system followed currently. Eastern UP and Bihar micro finance companies are already using such systems in issuing loans to complete the KYC process within minutes
- Paperless- Aadhar card can be made available even on a device or email address. Thus, customers only need to send it in soft-copy format to fulfill various transactions. It again help in eKYC. The introduction of e-signature for agreements will help reduce delays in the process and increase pace of economy. It will also enable the storing of all information in a digital locker
- Cashless layer- The revolution which started off with IMPS, has now moved to UPI. There is no longer even a need to save account numbers. Mere mobile number or email address is enough. Payment systems are a huge money spender for banks. But it is a system and a change whose time has come and has to be adopted come what may.
- Can send – It will enable the preparation and distribution of information through reports. History of cash and payment records are maintained. This can help an individual get cheaper rates on peer to peer lending platform compared to a moneylender
Different layers have already been created in India. It is in now in the hands of government to move it along. UPI has at this time, resulted in banks becoming merely a platform, like a utility or a distribution company. It has led to a fundamental disruption in the payments system.
There are about 650 known start-ups working in the Fin Tech space. The robust move towards Fin Tech. is not limited to mobile wallets only as this would lead to portfolio management. It has been extended to other financial services areas also and just like the US, bit by bit has expanded the market.
Consumer finance can take different forms- savings, investment, borrowing, expense tracking, payments and transfer. Many different credible players are already out there providing each of these function. Hence banks need to spruce up to keep up and face the challenge.
IMPS is a revolutionary system. UPI is completely regulatory driven and the regulator too has been proactive. It was understood that the government machinery cannot provide all the services that the population needs. Hence the regulator became an enabler such services. This will push the Indian economy one step out of the cash economy and into cash less and modern economy.
Earlier some banks came to the spotlight for a variety of reasons- maybe they were better marketers, had better operations, fast growth and good profits. But now in the Fin Tech environment, new banking licenses are being given. It is a time when banks such as IDFC could win such a competitive war and grow faster than average. Even in incipient stage, every transaction will have a footprint. It is time that traditional banks too, invest in big data and collate and make decisions accordingly. Earlier there were categories such as wealthy, non- wealthy, ultra HNI, emerging affluent created to understand customer base. But now it is a million different categories customer base as every person with a mobile number or Aadhar card is a potential customer with different behavior. Though banks could still club them in categories to make decisions, it is wiser to use big data techniques to target customers as an individual and provide personalised services. It will force banks to become more customer oriented than in past. Banks have a wealth of data already. Standard practices don’t work anymore. It ultimately is all a question of efficient utilisation of resources.