At the FinTech Festival India 2021, industry leaders discussed the past, present, and future of digital in the Indian banking sector. According to them, banks’ market share may suffer if they continue to cling to outdated systems, as several large banks have begun to resemble start-ups.
Here are the highlights of the panel discussion “Digital Infrastructure in Banking” between S. Anand, Chief Executive Officer, PaySprint, Sabyasachi Goswami, Chief Business Officer, Perfios, and Wriju Ray, Chief Business Officer, IDfy which was moderated by Lalit Mehta, CEO & Co-Founder, Decimal Technologies.
1. Is the investment in digital sustainable enough?
While the digital banking fundamentals such as JanDhan accounts, Aadhaar cards, smartphones, etc. already existed, internet banking grew by 60% during the COVID era, said S. Anand.
“In the banking industry, certain areas have gained more traction than others, while the others have lagged. Banks have been quick to digitise areas where they deal with themselves (processes contained within banks). There has been progress in other areas where the ecosystem itself existed for digitisation. Certain areas are completely fragmented since the ecosystem doesn’t exist and they’re reliant on third-party players. For example, legal verification, technical verification, and the legal process in the lending space”, said Sabyasachi Goswami at the FFI event.
2. What steps should be taken to ensure that the entire system is digital?
“The seeds of digital disruption were sown 5/6 years ago when payment companies shoved their way into it, and now we see the fruits of it with UPI. You can exit an auto and pay by scanning a QR code.
To dispel the myth that ‘the last mile doesn’t understand technology’, the initiators regarded user experience. They demonstrated that there is no need for middlemen everywhere and that even if there is, technology can assist them.
Banks are feeling left out as digital lenders and payment players acquire users at such a rapid pace. Banks believe that if they continue to cling to existing systems, they might lose ground in mind share, market share, and users, as several large banks have begun to resemble start-ups,” said Wriju Ray.
“Macroeconomics will take care of itself,” he continues. “People who rely on ‘papers’ will soon discover that they are unsustainable.”
“The customer mindset has accepted and grown accustomed to digital, which essentially means they have a bank account behind them. Digital transactions have advanced beyond the trustworthiness of cash transactions”, said Anand.
Banks have realised that FinTechs are safe. A massive amount of KYC is taking place online. Banks are willing to invest money in digital to associate with the current generation. They presume that the return from them will be faster because adoption will be quicker.
3. Investment overlap by the government and private sector causes confusion of choice. How do we solve this?
Goswami believes that “the government and private sector are emphasizing true digitalisation over mere digitisation. Digitalisation occurs only when everything is digital from start to finish. Each of the ecosystems for which the government is stepping in and building infrastructure will fill buckets on the end-to-end journey. It will eventually converge and form an end-to-end line.”
4. “Decision cannot exist in the absence of regulation.” How are regulations fostering innovations in the Indian FinTech market?
Wriju Ray said, “India is doing well in regards to regulation and infrastructure. The RBI, SEBI, and IRDAI have streamlined things. However, we must consider several factors. Here are a few:
Aspects of inclusion and scale:
A major part of India is engaged in agriculture or lives in tier-2,3 cities, and may not have the same set of documents/provisions as the rest of the country. A problem statement is the process of addressing and integrating them into the ecosystem. We must recognise that there are unaddressed pockets so large that the tide is about to turn. The amount of investment flowing is a sign that people are realising there is a huge market out there. To serve the underserved market, financial inclusion requires intervention and some simplification.
Flip-side of the ecosystem:
The outcome of the preceding point is that fraud is very often a byproduct of oversimplification. There will inevitably be fraud if you create something that is over-simplified and over-agile. People are being duped while making payments, but this isn’t discouraging them from making payments online; instead, they’re learning from their mistakes.
With the rate of digitization and the influx of FinTechs, viewing it through the lens of regulation and playing it from the standpoint of philosophy/principles may be too narrow. It is now time to be more prescriptive.
It is critical to enter into transactions and insist on having systems in place to examine them. If we have guardrails in place to look at transactional frauds, the economy will speed up because reducing fraud increases adoption.
5. Which investments contribute to digital infrastructure as a whole?
The panelists concluded that we have to consider a variety of factors to reduce the cost-to-serve. Technology all by itself cannot justify it. To digitise end-to-end, we must consider all 360 degrees.
We haven’t been investing in manpower in any institution because we want to keep and justify the legacy system. A severe shortage of skills as a result of past underinvestment is a great impediment to advancing technology systems to the digital level.
The lego-blocks that built the working of financial institutions must be foregone. We need to take a fresh look at the same old problem by investing in research, process, and people.
IDfy provides Digital KYC solutions that enable compliance and drive efficiencies. For business enquiries, please write to shivani@idfy.com.