BS Banking Annual 2017: '40% of all loans will be digital in two years'

Edited excerpts from a discussion at the Business Standard Banking Technology Round Table held in Mumbai

What are the new fintech trends we can expect in 2018?
 
B Madhivanan: 2017 was very interesting, it came in the wake of demonetisation and goods and services tax (GST) was introduced in July. Post-demonetisation, a new segment of customers has come to the digital world. The bigger benefit is the role that data has started playing, in monitoring, underwriting, marketing or customer engagement in a more cost-effective way. The year 2018 will see much more action on the front-end part — the confluence of mobile technology, data and consumer journeys. I think this marriage will happen and it will bring out unique user journeys.

 
Naveen Surya: There will be major technology trends that will completely change the entire value chain of the banking, financial services and insurance sector. With the combination of artificial intelligence (AI), machine learning and virtual reality, we will gradually move towards a device-less future.
 

We are already seeing heavy digitisation of processes. Similarly, there are challenges where 70-80 per cent of the market is not penetrated for services like insurance, payments and investments. One big issue is physical communication and education. Adding virtual reality to all these elements — the ability to put a humanoid that can interact using data and analytics in the language and image that you want — would be a game-changer for reaching out to deeper and massive markets.

 
Praveen Bhatt: From a consumer’s perspective, things are going to get faster and more personalised. There are three reasons for digitisation—customisation, personalised content and doing things in a timely manner. Ten years back, digitisation was to reduce cost. We forgot our customers’ names and started addressing them by account numbers. But the whole wave is turning back and we are now addressing them by names again.
 
Banks are the only entities in the world that know the financial well-being of a customer. But we are not doing a good job of trying to understand that. The gap between banks and customers will shift and banks will become coaches in 2018.

 
Ramas Venkatachalam: While demonetisation achieved the targets of digitisation and electronification, consumer experience with banks is still fragmented. Even from a technology provider’s perspective, the demand we see from banks is to push towards more narrow services. It’s not like every bank tries to do everything for the consumer. They focus only on certain areas.
 
There is a lot of transaction data available which shows you what is happening, but the question is are you looking? There are a lot of technology tools, but as long as it doesn’t solve a business problem especially in the case of banks, it will be left on the wayside, as people will look more sharply for results.

 
Rajesh Mirjankar: As you increase the number of channels and desire high velocity in transactions, the more the risk of fraud, and that is where the focus will be.
 
Banks will look to bring adaptive security architecture on-board and have it common for all the channels which will enable digital identification of the customer.
 
There is no use of an anti-fraud desk taking up a case after the fraud has taken place. You will need to have a common anti-fraud framework for all the channels while the transaction is taking place.
 
Customers over the age of 45 have money but prefer conventional banking and are also concerned about security. Have tech players kept pace on this aspect?

 
Bhatt: Older people prefer the white space of the desktop to transfer funds as it gives them comfort.
 
India is quite good in terms of security of transactions. A lot of the frauds taking place are friendly frauds. These frauds occur because the customer has not been careful with passwords or card details.
 
There are two aspects of security — prevention and resolution. From a prevention aspect, there are a lot of regulations. When you swipe a card in Europe, you are scared because you swipe and the amount goes away. All of us have got used to swiping our card and quickly looking at the mobile for OTP (one-time password). When you go abroad you miss that kind of comfort.

 
In resolution, we need to play an important role addressing customers’ concerns as to what will happen to their money and not knowing what to do about it. It’s this part that we need to focus on: How do I expose all of my channels and address the 45-year-old, because he needs human interface and a little bit of hand holding?
 
Mirjankar: Organisations that have a legacy way of doing things will have a problem; technology needs to be adaptable.
 
The Unified Payments Interface, in just one year has had three versions. There has never been this speed of change in the banking industry. Banks used to come to tech companies asking for solutions but now fintech companies are going to banks, saying that these are our solutions and technologies and this is what you could use.

 
Fraud is not just something technologies need to deal with. Most frauds we have dealt with have largely been at the registration process. Customers need enlightenment on data security and not just technologies.
 
Venkatachalam: Risk, information security and compliance all go hand in hand. Today, the physical security at data centres is pretty sophisticated. What is not understood today is flow and velocity of information and its consequences. No one can say that they are completely protected. 
 
We need to look at the techno-legal framework as the number of products being launched by multiple parties is rising. Every party may not have the same regulator or place the same emphasis on their role. We also need to have an appropriate dispute resolution mechanism.

 
Where do you draw the line with data and how do privacy laws come into play?
 
Madhivanan: We will never do anything without the permission of the consumer. When banks are reading transaction data of other banks, explicit consent needs to be taken. We operate within the guidelines and even beyond them. We are waiting for the guidelines to evolve as well, to influence customers.
 
Drawing the line between privacy and a service is the same as drawing a line between security and simplicity. They are the two ends of a pole. If you make it very simple, you compromise on security. You make it very informal and try to be there at all stages, you compromise on privacy. This conundrum will always exist.

 
Bhatt: Security and privacy mean different things to different sets of audiences. The younger generation, whose need for the product is much more, is ready to give security and privacy a miss. But the older generation, whose need for certain products is less, is concerned about security and privacy. When you go upwards in terms of age, you see that privacy and security cannot be compromised. You have to play this as the audience wants it.
 
Surya: The fundamental challenge is that the entire system is driven, either by entity or product. The bank in your hand is basically cross- selling services. Fundamentally, what you are selling and is of value is the brand, consumer relations and certain processes you are good at. Ultimately, you will be leveraging these factors on a common platform and cross-selling everything else.

 
As a customer of a bank, I have to do KYC for bank account, mutual fund and insurance separately and undergo different processes,  as each regulator has its pace of thinking and norms. But I, as a consumer, get multiple duplication of processes, which is a cost for the bank and is complicated. This complication needs to go away, our regulatory boards need to talk. We need principle-based regulation, instead of differentiating between banking and non-banking entities.
 
While ‘bank in my hand’ is constantly talked about, only 10 per cent of all loans are done digitally. Can this go to 40 per cent? 

 
Madhivanan: The question is not if, but when. I would say 18 to 24 months. People leave behind a digital exhaust about the transaction, as well as where and when it was done. If we use that particular data along with publicly available data such as credit bureaus and social data, it will dramatically help in greater access to credit.
 
The conventional loans such as home, auto and car loans are something banks do very well and in huge amounts, which will continue. But for millennials, loans are very contextual and will never be possible through the traditional branch model that banks follow.  It could be a Rs 500 loan for a movie ticket, Rs 10,000 for a flight ticket or Rs 5 million for a car.