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Banking in a transforming economy IDRBT Foundation Day November 6, 2012 Agenda Technology & disruptive change in banking A transforming India The future of Indian banking 2 Agenda Technology & disruptive change in banking A transforming India The future of Indian banking 3 Disruption in banking Banking sector early adopters of technology Improve operational efficiency Minimise costs Enable high-speed processing Allow data capture and data mining Improve customer experience with enhanced internal efficiency 4 Developments post the year 2000 5 Advent of retail banking Growing presence of foreign banks Emergence of a universal banking model Banks and non banks competing to serve similar customer needs Technology driven innovation in products and access to services Focus shifting to inclusive banking Technology impact on banking post 2000 Infrastructur e RTGS (2004)1 NEFT (2005)2 Interbank Mobile Payments System (2010) ATM installed base of over 100,000 (over 27% compounded growth from 2006 to 2012) POS terminals over 700,000 1. Real time gross settlement system 2. National electronic funds transfer 6 The disruptive power of technology 7 ICICI Bank Share of transactions in 2001 Share of transactions in 2012 Branches 94% 12% ATMs 3% 41% Internet 2% 35% POS - 7% Call centre 1% 2% Mobile - 2% Technology is in a continuing state of flux From mainframe to minicomputer to desktop PC And now, mainframe in a pocket Higher capacity and processing capability Software to run the devices Ability to connect through broadband and wireless Mobility, new platforms and the ecosystems in handheld devices 8 New platforms such as for payments are now challenging the traditional bank channels The next wave: being connected 2.25 bn (32%) of world population is online today, and 1.10 bn users are on 3G Mobile internet is ramping up dramatically 57 mn 3G users in China, y-o-y growth of 115% 39 mn 3G users in India, y-o-y growth of 840% Mobile internet now makes up 50% of internet traffic in India Source: KPCB Out of 1.80 bn mobile users in China and India 9 One billion will go online in two years Connectivity in India .. Third largest internet user base 10 Second largest mobile subscriber base 100 mn internet users, 800 mn mobile subscribers Broadband connectivity a catalyst Consumers are becoming part of the cloud seamlessly without consciously realising it Device costs will continue to drop More and more capabilities would be available at lower costs .. would have a significant impact on banking Agenda Technology & disruptive change in banking A transforming India The future of Indian banking 11 India’s current positioning China (USD) 2003 2010 2012 (E) GDP (bn) 1,641 2,257 5,930 7,992 Per capita GDP 1,270 1,726 3,738 5,899 Population (bn) 1.29 1.31 1.34 1.35 India (USD) 2003 2005 2010 2012 (E) GDP (bn) 590 808 1,598 1,779 Per capita GDP 549 729 1,342 1,455 Population (bn) 1.07 1.11 1.19 1.22 India in 2010 was at the juncture where China was in 2003 (E) - estimate Note: GDP is on nominal basis Source:IMF 12 2005 Rapid urbanisation GDP USD bn India’s large metros in 2030: by GDP 249 Belgium M umbai 174 Denmark 171 157 Thailand 146 Delhi 117 Portugal 115 Kolkata 68 Czech 64 Bangalore Ukraine 45 Chennai 44 Hyderabad 13 India’s metros in 2030 will be as large as some countries were in 2005 35 Assuming an annual GDP growth of 8.0% between 2009-2018 and 7.0% between 2018-2030 Source: Mckinsey Resurgent rural India Over 700 mn people across 600,000 villages Rural growth supported by: Changing characteristic of rural economy with reduced dependency on agriculture Rising wealth creation with estimate of 40 mn middle & high income households by 2010 (% ) S h ar e in r u r al N DP Ag r icu ltu r e In d u str y S er vices 100 37. 5 28. 6 80 42. 4 Services 20. 0 60 24. 1 25. 8 40 51. 4 20 Ag riculture 38. 3 31. 8 0 1999-00 14 2004-05 Ind ustry 2008-09 Looking ahead: impact of per capita Per capita GDP growth GDP at US$ 2,500-4,000 Per capita GDP at US$ 1,500 -2,500 Per capita GDP at US$ 500 -1,500 Per capita GDP < US$ 500 • Limited aspirations • Low affordability Early 2000 15 • Increased affordability • Aspirations of a better lifestyle 2002-2011 Demand for better living environment 2012-2017 Accelerating consumption cycle 2018-2021 Agenda Technology & disruptive change in banking A transforming India The future of Indian banking 16 Technology for the masses 59% of India’s households avail of banking services Only 10% have life insurance < 1% have general insurance Only 2% have a credit card Only 13% have an ATM + Debit card The challenge is in banking 700 million people in 600,000 villages in close to 600 districts 17 Channel innovation Driving scale and profitability Opening and operating savings accounts Easy KYC POS machines Used by branchless banking channels Low cost branch Resource efficient branches Low cost ATMs To bridge distance and ease transactions For all banking operations Steadily gaining traction Smart cards Mobile phones 18 Smart cards have simplified data capture Biometric Transaction Card 19 Biometric smart card for secure validation Overcome distance by setting up service points close to customers Most effective for the poor and uneducated Branch in a box POS based solution offering banking transactions like balance enquiry, cash withdrawal, deposit Cheque payment (with capability to display signatures for verification) RTGS1/ NEFT2 Can support transactions like pass book printing, opening of fixed deposits and bill payment Low bandwidth GPRS connectivity 1. Real time gross settlement system 2. National electronic funds transfer 20 Unique identity number Preliminary KYC and wider acceptance Instant identity verification Basis for Know Your Customer Build credit history Improve service delivery to the poor Customer management to avoid issues of overleveraging 21 Financial services for all Subsidy transfer Payment ecosystem Credit 22 Direct payment of benefits such as NREGA, Social Security Pension schemes Cashless payments through mobile wallets Account history from electronic transactions for data driven lending Customer engagement Customer acquisition and on-boarding Branches ATMs Online channels 23 Products that address needs of diverse customer segments Strong distribution backing products Development of new channels by leveraging technology Consistency in experience across channels Customer engagement Servicing customers through the life cycle Analytics 24 Consistency of customer experience across channels of distribution Analytics to understand and address customer needs across diverse segments Development of banking history for underbanked and unbanked customers for cost effective credit In summary 25 Technology has transformed banking globally and in India Technology adoption by Indian consumers is proceeding at dramatic pace India itself has transformed and will transform even more in the years ahead Technological innovation in India will lead the way for innovation in banking Banks will use technology to attract and serve customers across the pyramid Thank you 26