Banks, fintechs' competition must lead to collaboration: Accenture exec

Regulated Central Bank Digital Currency is a 'promising solution for an increasingly digital world', says Sonali Kulkarni.

Technology has in helped the banking industry deal with the coronavirus pandemic, but it has also seen the rise of newer players challenging the older ways of working. In an email interview, Sonali Kulkarni, Lead - Financial Services, Accenture in India, talks about the way forward for banks and the way digital technology can help them further.

Will customers go back to the pre-pandemic levels of physical banking channels (branch banking)?

Banks in India responded to the pandemic with extraordinary agility--right from encouraging the adoption of contactless payments to hastening the shift from branches to other channels,deploying video KYC (know your customer), and leveraging video collaboration tools, new chat and messaging functionalities to facilitate virtual interactions with customers. The convenience of anytime, anywhere banking and self-service channels has altered consumer behaviours permanently. As more customers access the internet and get used to the convenience of digital banking, they are less likely to visit a bank branch for routine transactions and would rather do so for more personalised services.

That said, a significant number of customers – be it those from smaller centers, older generations and the digitally underserved will continue to visit bank branches for routine banking transactions. In order to serve these customers in a digitally native business model, banks would need to pivot to a new digital paradigm that uses voice and video interfaces, and content in local languages to drive adoption.

How can banks ensure the same level of superior customer experience as these digital players while retaining and growing their customer base?

In order to compete, banks need to go beyond mere process digitalization and build business models that leverage customer-first digital native journeys and the scale and compute power of the cloud. Secondly, banks need to increasingly adopt a human+machine operating model to design for zero operations banking using the power of AI. Lastly, cultivating a workplace culture of data-driven insights and superior customer experience would be crucial to driving this change.

Eventually, the competition between banks and fintechs needs to make way for collaboration to foster innovation in areas such as payments, credit scoring, digital lending, and drive greater financial inclusion.

How can banks successfully transition to digital native business models?

Transitioning to a digitally native model requires changes across three levers - people, processes and technology. Banks need to build a digital mindset among their employees and build future skills for a digital environment. Banking experiences need to be digital first experiences- irrespective of whether they are DIY or assisted experiences- that leverage the power of data, analytics and AI to unlock value for the customer in terms of speed, agility, cost -to-serve and innovation. Lastly, banks need to re-architect for the future. This includes decoupling data and intelligence from their monolithic architecture and create a layered and nimble technology architecture.

Banks may follow two approaches to pivot to digital native business models. They can either opt for Front-to-back transformation of the existing bank, or set up an independent digital banking entity (bank within a bank), which would eventually become the future bank.

Technology transformation and business model innovation is increasingly driven by cloud adoption. Where do Banks in India stand today in their journey to the cloud and how can they accelerate this journey?

Cloud adoption is a critical component of a wider technology transformation program to bring in speed, agility and scalability. Hitherto, cloud adoption at banks in India was slow mainly due to concerns around security and a lack of clarity around cloud related costs, maintenance and regulatory direction. In terms of cloud adoption, banks in India are about 3-4 years behind their global banking peers.

However, the COVID-19 pandemic turbo charged adoption due to a surge in customer demand for digital banking solutions, and banks’ need to enable secure work-from-home systems for their employees. Payments infrastructure and loan origination systems have already begun to move to the cloud along with certain enterprise applications. We expect this journey to the cloud will continue, and ultimately foster cloud-native business models.

In order to accelerate their cloud journey, banks need to draw up a tailored cloud strategy roadmap, prioritize security and regulatory compliance management, scale the use of cloud throughout their organisation, rearchitect and build for the cloud, and cultivate cloud and data skills in their workforce.

How can blockchain powered digital currencies foster innovation in the economy? What are the governance structures that need to be put in place?

A regulated Central Bank Digital Currency (CBDC) is a promising solution for an increasingly digital world. Unlike electronic money, every unit of CBDC is uniquely identifiable and traceable.

It could be made programmable i.e., there is potential to add multiple dimensions like prescribed end uses, time limit and transferability. Finally, CBDC is recorded on blockchain-powered distributed ledgers which allows all participants / banks to record the transactions and balances. With its three characteristics of identifiability, programmability and distributed ledger, the launch of a CBDC could usher in more trust, resilience, efficiency and better governance in the digital payments ecosystem.

The much-anticipated upcoming Cryptocurrency and Regulation of Official Digital Currency Bill is expected to provide clarity on India’s stance on CBDC, and crypto currency as an asset class in India. A governance structure may continue to evolve between the RBI, Government and banks over the next few years given that the concept is currently at a nascent stage.

In your view, what are the guardrails that need to be put in place in BNPL schemes?

With the pandemic tightening consumer wallets and boosting e-commerce adoption, there is growing demand for a line of credit that doesn’t require elaborate credit checks and doesn’t increase basket costs. As a result, driven mainly by fintechs, BNPL has gathered steam and is set to surge in India. However, globally, BNPL as a product is under the regulatory lens.

Even as it boosts consumption, BNPL is ultimately a credit product and needs to be carefully managed to avoid creating an unmanageable debt trap for millennials and subprime customers. There is a need to formalize licensing norms required to operate a BNPL scheme and how they use customer data – this can check the growth of BNPL operators who may have been using unscrupulous ways of customer acquisition and collection. In addition, a stringent adherence to credit bureau reporting will ensure that customers are aware of the implications in case of a non- payment.

There is a need to formalize licensing norms required to operate a BNPL scheme and how they use customer data – this can check the growth of BNPL operators who may have been using unscrupulous ways of customer acquisition and collection. In addition, a stringent adherence to credit bureau reporting will ensure that customers are aware of the implications in case of a non- payment.