 "Runway for payments banks")
The list of 11 new entities, which received an in-principle approval from the Reserve Bank of India last August to set up a new category of banks called payments banks, includes both corporate and non-corporate names. While the non-corporate entitities include the National Securities Depository Limited and the Department of Posts, most of the other players are corporate heavyweights such as Reliance, Airtel and Aditya Birla Nuvo and leaders in the payments space like Paytm and Vodafone m-Pesa.
Payments banks will be able to offer a subset of services that universal banks can offer. They would be able to accept deposits, provide payment and remittance services, issue ATM and debit cards as well as provide mobile/internet banking services. They would be able to distribute third-party financial products such as mutual funds and insurance products. However, they would not be able to provide loans or issue credit cards.
The primary purpose for granting of the new payments bank licences is financial inclusion and outreach to the rural areas of India. However, the new banks are also likely to aggressively go after the urban customers to make the rural operations viable. Most of the players can tap into their existing customers since they are large corporates or telecom providers with a large consumer base. In doing so, they are likely to disrupt the Indian banking landscape by eating into the market share of the traditional universal banks.
Payments banks have a real opportunity to cause disruption by riding the FinTech (financial technology) wave. Since they have no baggage of traditional IT systems, they can choose to adopt technology in order to increase business agility, provide a millennial customer experience and optimise their operating costs.
These new category of banks can "do it right the first time". For this, they should invest in creating a technology framework that is lightweight yet scalable to meet future business needs as and when they get approvals to expand their scope of banking services.
Payments banks need to think digital and adopt the new technology trends that are shaping the financial services industry. The following are some of the technology areas they can look at incorporating in their implementation road map to ensure they are building for the future":
Omni-channel client interface: Payments banks must invest in creating a consistent omni-channel experience for its clients by deploying best of breed mobile and internet capabilities. They should also consider implementing a BPM (business process management) system to ensure a straight process across the bank's internal systems and interfaces to third-party services providers.
Advanced analytics: The new players can get ahead by deploying big data and predictive analytics for better customer segmentation and transaction analysis in order to provide targeted solutions to clients. These can include digital marketing of real-time targeted offers. Another scenario where advanced analytics can be deployed is to build robust fraud and risk management systems by looking at transaction patterns.
Blockchain and distributed ledger: Blockchain and distributed ledger technology is what powers Bitcoin. Bitcoin did not become mainstream because of concerns around regulatory approvals and transparency. However, many financial institutions globally are beginning to evaluate how this technology can be used for payments (including cross-border payments), bank-to-bank settlement and also account-to-account settlement. Deployment of blockchain can substantially reduce cycle times for the end customer and become a substantial competitive differentiator for the early movers.
Tokenisation: Payments banks will greatly benefit from the increase in mobile payments. Some of the new players like Paytm and m-Pesa are already market leaders. However, security continues to remain a concern for all mobile-based payment solutions. Payments banks can look at deploying tokenisation technology to address this concern. As an example, tokenisation is implemented within Apple Pay. Payments banks can become Token Service Providers as the technology becomes more mainstream.
Internet of Things: IoT is another area that is expected to disrupt the financial services industry and payments banks must look at that. The number of connected devices is expected to cross 50 billion over the next five years. A significant portion of these will be commerce-enabled and the ability to make payments via these connected devices is a huge opportunity. The mobile phone will no longer be the only device that has payment capabilities; in the not so distant future, you will be able to make contactless payments using wearables like watches, bands and rings. You will also be able to pay bills on a smart TV or pay for groceries you shop through a smart refrigerator. Today, PayPal already has an app for wearables. Payments banks that innovate early in this area can take the pole position when this trend hits the Indian shores.
In summary, the payments banks that deploy some of these emerging technologies in their business and IT road maps will have a significant competitive advantage - not only as they compete with other payments banks but also with traditional banks who, too, are investing in large digital transformation programmes to stay relevant. Whether or not they take the leap remains to be seen.
Payments banks will be able to offer a subset of services that universal banks can offer. They would be able to accept deposits, provide payment and remittance services, issue ATM and debit cards as well as provide mobile/internet banking services. They would be able to distribute third-party financial products such as mutual funds and insurance products. However, they would not be able to provide loans or issue credit cards.
The primary purpose for granting of the new payments bank licences is financial inclusion and outreach to the rural areas of India. However, the new banks are also likely to aggressively go after the urban customers to make the rural operations viable. Most of the players can tap into their existing customers since they are large corporates or telecom providers with a large consumer base. In doing so, they are likely to disrupt the Indian banking landscape by eating into the market share of the traditional universal banks.
Payments banks have a real opportunity to cause disruption by riding the FinTech (financial technology) wave. Since they have no baggage of traditional IT systems, they can choose to adopt technology in order to increase business agility, provide a millennial customer experience and optimise their operating costs.
These new category of banks can "do it right the first time". For this, they should invest in creating a technology framework that is lightweight yet scalable to meet future business needs as and when they get approvals to expand their scope of banking services.
Payments banks need to think digital and adopt the new technology trends that are shaping the financial services industry. The following are some of the technology areas they can look at incorporating in their implementation road map to ensure they are building for the future":
Omni-channel client interface: Payments banks must invest in creating a consistent omni-channel experience for its clients by deploying best of breed mobile and internet capabilities. They should also consider implementing a BPM (business process management) system to ensure a straight process across the bank's internal systems and interfaces to third-party services providers.
Advanced analytics: The new players can get ahead by deploying big data and predictive analytics for better customer segmentation and transaction analysis in order to provide targeted solutions to clients. These can include digital marketing of real-time targeted offers. Another scenario where advanced analytics can be deployed is to build robust fraud and risk management systems by looking at transaction patterns.
Blockchain and distributed ledger: Blockchain and distributed ledger technology is what powers Bitcoin. Bitcoin did not become mainstream because of concerns around regulatory approvals and transparency. However, many financial institutions globally are beginning to evaluate how this technology can be used for payments (including cross-border payments), bank-to-bank settlement and also account-to-account settlement. Deployment of blockchain can substantially reduce cycle times for the end customer and become a substantial competitive differentiator for the early movers.
Tokenisation: Payments banks will greatly benefit from the increase in mobile payments. Some of the new players like Paytm and m-Pesa are already market leaders. However, security continues to remain a concern for all mobile-based payment solutions. Payments banks can look at deploying tokenisation technology to address this concern. As an example, tokenisation is implemented within Apple Pay. Payments banks can become Token Service Providers as the technology becomes more mainstream.
Internet of Things: IoT is another area that is expected to disrupt the financial services industry and payments banks must look at that. The number of connected devices is expected to cross 50 billion over the next five years. A significant portion of these will be commerce-enabled and the ability to make payments via these connected devices is a huge opportunity. The mobile phone will no longer be the only device that has payment capabilities; in the not so distant future, you will be able to make contactless payments using wearables like watches, bands and rings. You will also be able to pay bills on a smart TV or pay for groceries you shop through a smart refrigerator. Today, PayPal already has an app for wearables. Payments banks that innovate early in this area can take the pole position when this trend hits the Indian shores.
In summary, the payments banks that deploy some of these emerging technologies in their business and IT road maps will have a significant competitive advantage - not only as they compete with other payments banks but also with traditional banks who, too, are investing in large digital transformation programmes to stay relevant. Whether or not they take the leap remains to be seen.
Deepak Kinger, VP and head of APAC banking and financial services, Virtusa