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As digitisation gains ground, there is a possibility of 30-40% of cash in circulation being replaced by digital transactions, says a report by Boston Consulting Group (BCG)
"Paper money, which has dominated transactions for centuries, could be on its way out. We see the warning to cash. There is a clear possibility of 30-40% substitution of cash in circulation in India with digital," the report says.
Banks have been working on making branches and backend more digital-friendly. According to the report, experts believe that this will not only boost productivity but also that the proper use of technology can be an important factor in “trimming the increasing bad loans that the banking sector has been battling with”.
"By digitising processes end to end, engaging customers on digital channel for sales and transactions, and collectively working towards eradication of cash, banks can achieve up to 30% jump in sales productivity, reduce administrative staff by 10-15% and improve back office staff productivity by 20% per cent," it says.
BCG believes that banks that have a strong control over the payments system in the industry will be more successful in the process of digitisation. This is because, going ahead, most of the payments growth is likely to be on digital channels such as internet, mobile, POS, and ECS. These channels are expected to serve specialised purposes and the global consulting firm sees it as a "tectonic paradigm shift”.
With private sector lenders leading the way in digitisation and providing better customer services, public sector banks (PSBs) also need to step up the effort by providing better customer experience. The report points out that the competitiveness of PSBs could decline further if they do not address issues like talent constraints and overarching control in terms of decision making. In fact, BCG believes that smaller public sector banks are at a greater risk of falling behind.
"The smaller public sector banks are at a particular risk of rapid decline given their poor investment in transformation,” the report warns. “They lag significantly on virtually every dimension of digital preparedness. In our view, this should be a primary consideration in the blue print for consolidation of public sector banks in India.”
