Indian Digital Banking Ecosystem October 2023
Digital Banking goes beyond being just a collection of elements; it involves a comprehensive integration of technology components aimed at achieving optimal business efficiency and delivering desired business outcomes. This integration encompasses the use of digital channels such as mobile banking, internet banking, and various digital platforms for delivering banking products and services and conducting banking operations. This shift in banking practices has profoundly changed the dynamics of interactions between customers and banks. The emergence of digital banking has not only enabled customers to perform a wide range of banking transactions but also to conveniently and securely access and consume banking products, all from the comfort of their own location. This transformative approach to banking has not only improved accessibility but has also significantly increased operational efficiency within the financial sector.
Banks – Driving Digital Strategy as Business Strategy
Banks are driving their operating model on a DIY approach especially for retail to enable customers to open accounts, manage accounts and do more banking beyond banking hours.
Banks play a central and multifaceted role in the digital banking ecosystem, serving as the custodians of customer funds and financial transactions. They provide the foundational infrastructure for secure digital transactions and act as intermediaries between customers, businesses, and various digital financial service providers.
Banks offer a range of digital banking services, including online and mobile banking platforms, payment processing, lending, and investment solutions. Moreover, they must ensure the integrity and security of digital transactions, manage regulatory compliance, and continuously innovate to meet the evolving needs of their customers in the rapidly changing digital landscape. Banks have also been focused to not just build mobile banking as alternate channel for delivery of services, but build fully functional Digital Banking Platform as customer acquisition and onboarding engine, customer engagement throughout his/her life cycle along with delivery of all customer services.
In the near future, banks are poised to expand their offerings within their digital banking platforms, recognizing them as pivotal tools for customer acquisition. Banks will likely take cues from neo banks in their approach to segmenting and personalizing digital banking services, encompassing categories such as Retail, SME, Corporate, and Teens, among others.
Core Banking Systems –Core to Digital Transformation
Core Banking Systems (CBS) play a critical role in supporting fundamental banking operations, including customer account creation, secure data storage, and real-time fraud prevention measures. To enhance their digital capabilities, banks are increasingly turning to dual-core platforms designed to efficiently handle digital workloads while tailoring products to specific market needs.
Many cooperative banks are grappling with outdated and safety-deficient technology stacks, making integration a daunting challenge. However, in response to growing digital adoption by customers and government initiatives to digitize cooperatives, significant transformations are expected in the near future. Modern CBS providers are now offering modular stacks that have evolved from traditional in-house monolithic architectures to more agile, microservices-based solutions would accelerate growth and revenue.
LOS/LMS – Redefining Lending Technology
Loan Origination Systems (LOS) and Loan Management Systems (LMS) play a vital role in the landscape of digital banking. LOS is dedicated to enhancing the customer experience by simplifying the loan application process, while LMS takes charge of overseeing the borrower’s entire journey from initiation to loan fulfilment. These systems are pivotal in ensuring operational efficiency by reducing errors, preventing payment delays, and automating repetitive tasks for financial institutions.
Moreover, new age LOS and LMS platforms are designed to support scalable cloud deployment, offering both product-specific and agnostic configurations. They boast high modularity, allowing for seamless integration with various components within a financial institution’s technology stack. This integration encompasses both downstream and upstream systems, encompassing Core Banking Systems (CBS), accounting software, and consumer-facing applications. As digital banking continues to evolve, LOS and LMS will remain indispensable tools for optimizing loan processes and delivering superior customer experiences.
Omnichannel Banking Platform – Build right customer interface
Omni-channel banking platform providers play a pivotal role in digital banking by enabling seamless customer experiences across multiple channels and devices. They integrate various banking channels, such as mobile banking, online banking, ATMs, and branches, to provide customers with consistent access to their accounts and services.
With the increasing demand for personalized and convenient banking experiences, the future of omni-channel banking platforms lies in leveraging emerging technologies like artificial intelligence, machine learning, and data analytics to deliver hyper-personalized services, predictive insights, and real-time engagement. These platforms will continue to evolve, offering enhanced security measures, expanded customization options, and deeper integration with emerging fintech solutions, ultimately shaping the future of digital banking.
CRM – Integrated customer life cycle management
In the contemporary digital landscape, Customer Relationship Management (CRM) has assumed a pivotal role. CRM tools serve as a critical component, providing a comprehensive 360-degree view of customer profiles, thus enabling banks to access a comprehensive overview of all the products and services utilized by their customers. These tools empower support teams by centralizing customer data, streamlining assistance to be efficient and personalized. Moreover, CRM tools prove invaluable in capitalizing on cross-selling and upselling opportunities for banking products.
However, it is noteworthy that currently, approximately 90% of banks either lack CRM solutions or have limited functionality in this regard. CRM providers are yet to make significant inroads into this segment. The demand for plug-and-play CRM solutions is steadily rising, driven by banks and financial institutions seeking to bolster their digital acquisitions. Additionally, banks are exploring the integration of Artificial Intelligence and Machine Learning (AI/ML) into CRM software to enhance customer interactions and deliver seamlessly personalized services.
API Management – Gateway to Digitization & Open Banking
API management platforms, including Enterprise Service Bus & API Gateway, has been instrumental in driving digital banking and fostering innovation in India’s financial landscape. With banks embracing an API-centric approach and opening up their services to partners, customers, and novel business models.
API gateways serve as crucial infrastructure for secure and scalable API management. They facilitate open banking, enhance customer experiences through features like account aggregation and personal finance tools, enable embedded banking in collaboration with fintech and non-bank entities, and create new avenues for distribution. By centralizing API management through gateways, banks can ensure control, security, and robust monitoring and analytics, especially as digital adoption continues to rise. In essence, API gateways will expedite the integration of APIs into banking, enabling fresh partnerships and experiences, thereby establishing themselves as the cornerstone of India’s digital banking evolution in the forthcoming years. Additionally, these platforms will leverage cutting-edge technologies such as artificial intelligence and machine learning to deliver intelligent API management, real-time data analytics, and personalized offerings, further augmenting the value proposition of digital banking in India.
Business Process Management – Drive Automation
Business Process Management (BPM) entails optimizing operational processes by automating tasks, reducing errors, and improving efficiency to enhance customer experiences and achieve cost savings. It leverages technology and may include AI and automation to streamline workflows and ensure regulatory compliance.
These platforms will be pivotal in automating and optimizing key banking processes, such as account opening, loan processing, and customer onboarding, as banks seek to enhance customer experiences and operational efficiency. They will digitize manual tasks, reduce paperwork, minimize errors, and expedite decision-making, resulting in faster and more streamlined banking experiences for customers. Moreover, the integration of advanced technologies like artificial intelligence, machine learning, and robotic process automation will further bolster data analytics, risk management, fraud detection, and compliance within the digital banking ecosystem.
Analytics –Making Good use of Data
The analytics stack has become central to the overarching digital banking strategy for banks in India. From onboarding to underwriting, a multitude of use cases are being propelled by Artificial Intelligence and Machine Learning (AI/ML) technologies. Analytics tools encompassing speech, text, optical character recognition, and facial expressions are being widely employed within the Banking, Financial Services, and Insurance (BFSI) sector. Furthermore, BFSI is embracing data streaming and real-time analytics, facilitating real-time data ingestion and cloud integration.
Robotic Process Automation – Plugging Automation Gap
Robotic Process Automation (RPA) plays a pivotal role in the digital banking landscape in India by primarily automating routine and repetitive manual tasks and processes. This technology aids banks in diminishing the hours and resources dedicated to such tasks, subsequently enhancing employee productivity.
Some of the key use cases encompass customer onboarding, where it validates entered customer data and information, as well as downloading Mutual Funds Net Asset Value (NAV) feeds from the Association of Mutual Funds in India (AMFI). Moreover, RPA is instrumental in automating the uploading and downloading of regular reports, facilitating seamless sharing and reminders, further streamlining banking operations.
India Stack – Role of Public Digital Infrastructure
The India Stack plays a defining role in transformation of digital banking in India. Indiastack, combination of Open APIs through Government infrastructure, enabled digital identity, payment, and consent based banking data access that revolutionizes access & delivery of financial services. The India Stack has widened financial inclusion by providing a digital ID card, which significantly lowers the cost of confirming people’s identities. This has made it easier for individuals in both the formal and informal economy to access financial services.
One of the key components of the India Stack is Aadhaar, a biometric digital ID system launched in 2010. Aadhaar allows individuals to link their digital ID to their bank account, enabling instant verification of identity through biometric checks. This has greatly facilitated the opening of bank accounts, with millions of people in India accessing banking services through the program.
Furthermore, the India Stack promotes the use of open-access software standards for digital payments. This allows seamless transactions between banks, fintech firms, and digital wallets. By providing easy and secure payment solutions, the India Stack has encouraged the adoption of digital payments in a country where retail transactions were traditionally cash-based. India Stack has played a significant role in expanding access to financial services in India, boosting economic development, stabilizing incomes in rural areas, and supporting the growth of businesses in the informal sector.
KYC/Bureaus – Simplifying KYC & Data Access
KYC/Bureaus play a crucial role in the landscape of digital banking in India, serving as a vital layer to enable Open Banking by offering a comprehensive set of APIs for a wide range of banking use cases. These APIs are seamlessly integrated into customer journeys during the onboarding processes, providing real-time validation of data and information. Additionally, bureaus act as repositories for storing credit behavior and data pertaining to individuals and corporates, generating credit scores that are instrumental for financial institutions in their credit assessments. Furthermore, KYC/Bureaus streamline customer onboarding and management by facilitating various checks, including KYC verification, fraud detection, credit assessments, anti-money laundering (AML) checks, and regulatory reporting, ultimately enhancing the efficiency and security of digital banking operations.
Account Aggregators – Empowering Banking Data Access
They facilitate the consolidation and real-time sharing of users’ financial data, with their explicit consent, to authorized financial institutions. Acting as intermediaries between financial information providers (FIPs) such as banks, mutual funds, insurance repositories, and wealth supervisors, and financial information users (FIUs), AAs collect data from FIPs and share it with FIUs. This process empowers lenders and other financial institutions with comprehensive insights into borrowers and customers. Furthermore, AAs significantly enhance the customer experience by simplifying the loan application process, offering a single-window system for accessing financial data, and eliminating the need for extensive manual documentation. This streamlined approach enhances customer convenience and expedites loan approvals. Moreover, AAs hold the potential to democratize credit by providing easier access to loans for individuals and small businesses, particularly those with limited financial backgrounds or collateral. Leveraging digital footprints and secure access to financial information, borrowers can demonstrate their creditworthiness and unlock valuable financial opportunities.
Trade Finance/Treasury Management
Both the trade finance and treasury management segments in digital banking in India are presently characterized by the dominance of incumbent players, with substantial transformation yet to occur. The adoption of treasury platforms has been on the rise, driven by the advantages of enhanced liquidity management and the ability to optimize capital availability. Furthermore, the burgeoning demand for improved forex management and the utilization of APIs-based services will prompt a transformation in treasury solutions, leading to the adoption of cloud-based microservices architecture. Additionally, as trade flows continue to grow, there will be a heightened demand for digital trade finance solutions. In response, many banks are poised to upgrade their trade platforms, transitioning from legacy, cost-intensive IT solutions to more agile digital alternatives. For example, Kotak has partnered with Finastra to implement integrated corporate banking solutions, emblematic of this industry-wide shift toward digitalization.
In conclusion, the digital banking landscape in India has experienced a substantial shift, Going forward, advanced technologies will shape digital banking solutions. Real-time payments, AI-driven predictive services, interactive UI/UX are some areas banks are exploring. Strategic bank-fintech partnerships will lead to co-creation of innovative products, Data analytics capabilities will personalize offerings. Focus on security and privacy will increase trust in digital banking.