BS Banking Technology RT 2017: '40% of all loans will be digital in 2 yrs'

Financial technology experts say note ban and GST roll-out have broadened the banking network and increased pace of digitization

The formalisation of the economy because of demonetisation and the goods and services tax has broadened the network of the banking sector and led to greater digitisation, said banking technology experts at the Business Standard Banking Technology Round Table 2017.
 
B Madhivanan, chief technology and digital officer, ICICI Bank, said 40 per cent of all loans would be digital in 18-24 months. “Classic loans such as car, personal or home will continue for the older generation. However, for the millennials, loans will be contextual and immediate, which will just not be possible with the branch model.”
 
“Digital penetration of personal loans is already upwards of 30 per cent on a pre-approved basis,” said Praveen Bhatt, digital banking head, Axis Bank. This was because banks already have a huge set of pre-approved customers. “What will push it further is lending to customers without credit or payment history.”

 

The experts also said collaborations were crucial for the future of banking but stressed there was a need for convergence in regulations.
 
The Reserve Bank of India's (RBI's) recent regulation of merchant discount rates (MDR) was discussed in detail and there were suggestions to ensure equitable distribution of the MDR fees.
 
“While we have regulated MDR which is the end price,  you have left out how much needs to be distributed between the acquirer and the issuer, be it bank or non-bank,” said Naveen Surya, chairman, Payments Council of India, highlighting the need for regulations on distribution of revenue and responsibility for multiple party products. The credit card issuer gets the lion's share while the point-of-sale terminal at the merchant, the acquirer, gets a smaller share.

 
He also said regulators such as the RBI, the Securities and Exchange Board of India and the Insurance Regulatory and Development Authority have their own rules and pace of thinking which results in duplication for the customer. It is also a major cost for banks and leads to inefficiency in cross-selling of financial products. He stressed that the fundamental challenge of how the banking, financial services and insurance sector is driven either by the regulator or the product deters the convergence of the separate regulators.
 
“We need to look at the techno-legal framework as the number of products being launched by multiple parties is rising, especially since these parties might have different regulators,” said Ramas Venkatachalam, managing director-India/South Asia at FIS, a global financial software major. He further added that a dispute mechanism needed to be put in place, similar to that of legacy payments like debit cards.

 
Surya said: “We need principle-based regulation, instead of differentiating between banking and non-banking entities. As long as you can match the risk criteria and norms, you should be able to deliver those services and products and not stick to labels.”
 
Technology experts agreed that the growth of digital payments would result in higher risk and a rise in frauds. They also stressed on the importance of anti-fraud measures and the role that technology has to play to prevent frauds. However, human error appears to be the most common cause of frauds.
 
“India is quite secure in term of transactions. A lot of frauds we see are 'friendly' frauds, as in where people have not been careful about their cards or passwords,” said Axis Bank's Bhatt.

 
Fintech company InfraSoftTech has seen most frauds in banks during the registration process. “The customer's own enlightenment on data security should be the focus and not just technologies,” said Rajesh Mirjankar, MD & CEO, InfraSoftTech.
 
Digitisation
 
“Banks are the only entities in the world that know the entire financial well-being of the customer but this knowledge is not being utilised. Also, the experience with banks is fragmented and demand from banks to financial technology providers is for narrower services,” said Venkatchalam. “Mass personalisation was an area where we would see a lot of traction in 2018.”
 

ICICI Bank's Madhivanan added: “Year 2018 will see much more action on the front-end as we will see the confluence of mobile technology, data and customer journey.”