Download Banking and technology

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
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
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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

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
Infrastructur
e

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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

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One billion will go online in two years
Connectivity in India ..
Third largest
internet user base

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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
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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
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Smart cards have simplified data capture
Biometric Transaction Card
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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
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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
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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
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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
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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
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