23 May 2017
While technology firms are venturing into the payments and financial services industry, banks today are constantly upscaling and adopting technologies to reach out to untapped masses. This is blurring the lines between FinTech companies and traditional banks.
1. Rural segment
Banks across the domestic and international segment are aggressively investing in technology to cater to a larger audience. One major area is the development of apps for rural customers to enable easy access to banking. The rural population predominantly uses banks for agricultural/farm related loans/services as well as traditional banking services. However, investment in financial products through banking channels is very limited. Some of the issues may be the lack of easy access to bank branches due to location in remote areas and unavailability of banking services in their native language. Another value-added service which would be beneficial to them is the provision of agriculture-related information like crop-wise prices, accurate weather/soil information, and guidance on how to plan their sowing and harvesting activities. Catering to these requirements using technology would allow banks to effectively reach out to the rural population.
2. Semi-urban segment
Apart from the rural population, another segment that needs to be tapped is customers in Tier 2 and 3 towns and senior citizens. The number of bank branches/facilities available in a smaller developed towns is lower than that in metro cities. Hence, customers including senior citizens in Tier 2/3 towns often face challenges in availing loans. Technology solutions that reduce the turnaround time, improve convenience and allow easy accessibility to banking services need to be looked into. Some banks in India have taken initiatives in these areas.
A major Indian bank has introduced products that will allow customers to avail of a loan against securities by linking their demat account. Customers can pledge shares and securities available in the linked demat account to avail of a loan/OD facility in a matter of minutes.
Such a service would enable first-time borrowers without a credit history and senior citizens to obtain loans easily. People can also use this service when they need money urgently—for example, a medical emergency.
3. Aadhaar-based payments
Another huge opportunity for tapping customers is presented by the Aadhaar card. Since its introduction, there have been 113 crore enrolments till date. This means that if a bank/ financial service provider links its services to Aadhaar, it has the potential to cater to 100 crore plus customers. This is one of the simplest ways to perform transactions, as it does not require a customer to swipe debit cards, remember passwords or account numbers, have a USSD code to transfer money, or download an app. Importantly, there are no transaction fees for both merchants and customers. Thus, using Aadhaar, cashless purchases can be facilitated for customers in a cost effective and scalable way and the government’s initiatives towards boosting cashless transactions can be supported. The biggest benefit is that it enables citizens in the deepest corners of the country to participate in India’s digital movement— even those who do not own a phone but want to pay digitally. People only need to have a bank account and their Aadhaar linked to it. We increasingly see the use of Aadhaar—be it to buy a new mobile connection, or to register an agreement. This can be extended to cashless payments as well—with only a person’s fingerprint being used for authentication.
4. Harnessing the existing infrastructure
The banking fraternity is constantly endeavouring to extend banking facilities to the remotest areas of the nation. While the banks’ approach would be to simplify banking and bring services to every doorstep, there are logistical issues in terms of opening up a large number of branches. A simple and efficient means to reach out is the use of existing networks which span the length and breadth of the country. So, while banks are leveraging technology to reach out to the neglected masses, organisations in the communications business have acted as game changers. India Post is a government service available across India, and since it is now offering banking services, it would be in position to provide access to basic banking services to every Indian.
5. Drone-based technology
Lastly, a potential technology which can help banks reach out to users in a faster way is the drone. This technology will impact how a user transacts with their FI in the future. Potential scenarios include:
• Delivering cash or replacing a payment card or smartphone
• Delivering paper documents, such as signed documents for mortgages
• Monitoring agriculture set-ups in order to enable quicker sanction of crop loans/agriculture loans
• Documenting accidents supplemented by the sensor data captured by cars (auto insurance companies)
• Assessing property for loans and insurance claims
The use of drones can involve two scenarios—one where a customer has his/her own drone or one where a bank/FI can offer drone services to its customers. Personalised drones can enable individuals to interact with their FI wherever they happen to be by delivering items and transacting on behalf of their user. In addition to delivering paper documents and other physical items, drones would also be able to provide additional services such as taking photos and performing a notary type function.
Further, drones may also be used to streamline and improve back-office operations of banks by further automating the delivery and handling of physical items. Usage of drones for emergency communication and services would lead to increased resiliency. For example, drones may be used to quickly deploy the infrastructure of an emergency communications network by both delivering the needed system parts and serving as communication relays to fill gaps in coverage.
In conclusion, the advantages of drones include improved speed and timeliness and accessibility to unreachable areas. The issues/concerns associated with using drones, however, are the usual cyber security threats like hacking/impersonation and security attacks.
From a FinTech firm’s point of view, while start-ups are currently only focusing on providing cashless payments, their audience in this case is limited to customers who want cashless transactions. In the long term, for reaching out to a larger population, it is expected that the FinTech firms would either collaborate with traditional banks or expand to an extent where they can provide complete end-to-end banking services.
There is no doubt that tech giants will enter and disrupt the financial services landscape. Social media giants have a massive reach of over billions of users and are expected to compete with all other services to be at the centre of customers’ digital lives. Since finance plays an important role in our lives, the business planes of these tech giants will inevitably intersect with the FinTech landscape.
Source: CII Banking Tech Summit Report 2017