Presents 2018D & tigital ransformation irections ...

DDT2018 Executive Digest 1

2018:Digital Directions & transformation

A N E X E C U T I V E D I G E S T

Presents

2018:Digital Directions & transformation

KNOWLEDGE PARTNER

© Glocal Infomart Pvt Ltd

2 DDT2018 Executive Digest

There are two important trends facing both producers and consumers of information. For the consumers (the BFSI community) they are (i) rapidly rising quantity of

information, and (ii) declining quality of information in terms of accuracy, completeness, timeliness, non-bias and excessive duplication. Many people we spoke with said that the increase in quantity does not compensate for the reduction in quality. For the producers of information (Banking Frontiers and other media houses) the two important trends are (i) increasing cost of producing content, and (ii) declining opportunity to monetize the content.

Studying both these trends on both the sides, we at Banking Frontiers had no difficulty in concluding that our future lies in having greater emphasis on quality of content. Accordingly, we have started a research effort and our first offering is the report Digital Directions & Transformation 2018. We sought views and insights from CEOs and CXOs from banks and insurance companies, and from that study we present the main trends and exceptional points. This is an Executive Summary and the main report will be released towards the end of May.

It has been a rewarding journey for the editorial team at Banking Frontiers to undertake this research. We certainly learnt a lot, and we also feel delighted to have personally met with numerous stalwarts of the BFSI community. It was indeed incredible to see how open they all were to participate for the advancement of the entire community.

Altogether, we had a subjective interaction with 25 banks and insurance companies and a few more for an online survey. We are grateful to each participant who supported this research. We also selected relevant material from the interviews and articles that have been published in Banking Frontiers in the recent past.

This could have been an exhaustive research, but we chose to give greater emphasis on providing fresh information. Consequently, there is less than desired coverage on topics like payments, crypto currency, sandboxes, analytics, cloud, and a few others. Had this been an academic oriented report, we would have given great weightage to comprehensiveness over freshness. In fact, we are happy to partner with academia to extend this into a comprehensive research report.

Going forward, we shall dig deeper into some of the key topics of deep interest to the BFSI community, and would like your suggestions to help us zero in on relevant topics. We also look forward to your feedback on this report so that we can do better next time.

Lastly, there may be some discrepancies in what we have interpreted while listening to the research participants. Our apologies for this and also a request to point out the discrepancies so that we can fix it in the final report.

Best wishes…..

Manoj AgrawalGroup Editor

[email protected]

In India, the Financial Services Industry is transforming at an incredible pace. Many factors are contributing to this change – regulations, the rise of millennials, growing

consumer expectations and of course, the rapid adoption of digital & technology models, are defining our consumption of these services. Today, it is all the more important that the accelerating pace of disruptive technological change is tempered by innovation, in order to enhance the customers’ experience in the financial services ecosystem.

This uncertain and complex economic situation provides the Financial Services ecosystem with the challenge to retain competitiveness by adopting innovative business models that would enable them to know and service their customers better, and at the same time manage their risks. Organizations will need to view this disruption as an opportunity to redefine their priorities and transform their business models as they put the customer at the center of their strategy.

This opportunity to operate “In the New” will transform the industry and spawn products and services which will be beneficial for all of us. At Accenture, we recognize the importance and the need to manage this change and are partnering with our clients to help them “Transform to the New”. Financial Services organizations are investing in this transformation, but the business case of this investment is not the same for all. Organizations need to take an “Outside-In” view to direct their investments and at the same time stay agile and flexible.

For this report, Banking Frontiers has engaged some of the leading Financial Services organizations in India in order to understand their changing priorities, digital approaches, and the outcomes they are expecting. The report discusses various insights and some leading market trends that Financial Services companies in India should embrace, as they prepare to lead the charge in the NEW economy.

Rishi AuroraManaging Director Financial Services

– Accenture In India

Foreword


Chapter 1 Macro-level Insights

A SCIENTIFIC PERSPECTIVE ON DIGITALThere are 2 types of industries – bit dominated and atom dominated. Bit delivery has enhanced a million-fold, while the atom industry has changed moderately, typically by 20-30%. So, bit dominated industries have faced / unleashed greater disruption - media, entertainment, BFSI, etc. New operating models and new players have emerged from these industries.

DIGITAL DRIVES DISRUPTIONThe term Disruption is often misused. Disruption is not same as incremental. Disruption is unkind to incumbents. It impacts the experienced people in the company and also the incumbent companies, because when things improve million-fold, things that were not possible suddenly become possible. Card issuers did not benefit from demonetization as the POS did not scale up. The beneficiary was Paytm which did scale up. Successful disrupters are those that aim to disrupt themselves.

INDUSTRIAL VS DIGITAL ECONOMICS1. The constant economic goal is to reduce the cost of the product

and thereby attract more customers. Interestingly this has been done in two opposite ways. The industrial revolution transformed production from customized to standardized, which lowered the cost of production and thereby increased the number of customers for each standardized product. The digital revolution is doing the reverse. It is enabling the seller to offer a high degree of customization of product/service to the buyer, thereby attracting more customers. What is common to both the revolutions is increasing the customer base, but what is opposite is the way it is achieved.

2. While digital has improved the top-line and bottom-line for financial service providers, the biggest gain to society has been the inclusion of a large number of have-nots into the formal financial ecosystem.

3. Digital has enabled micro-transactions and micro-innovations. It is similar to the sachet revolution unleashed by CavinKare that ramped up the consumption of FMCG products like shampoos among the masses.

EMERGING DIGITAL STRATEGIES1. In the industrial era, specialization was a key basis of

competition. Companies put enormous resources to develop unique competencies. Thus was born the concept of Unique Selling Proposition – USP. In the digital era, customers are more interested in customization rather than USP. In order to provide customization, most companies have changed their business model from narrow development to wide development, ie from line fishing to net fishing. By engaging with start-ups and organizing hackathons, organizations are able to develop customized solutions more economically. USP is getting replaced by MCP, viz Most Customized Proposition.

2. A shift in strategy is taking place from companies building a database for approaching customers directly to tapping database of others via partnership.

3. Customer segmentation is being replaced by customized offerings.

4. Once process becomes digital, companies are creating additional value from the digital assets.

5. The offline world is going to stay. Hence the focus is on omni-channel.

6. Typical 3 step transformation journey - Run, Transform, Innovate.

COMPETITION BETWEEN INCUMBENTS & INSURGENTS1. Insurgents have innovation but not distribution. 2. Incumbents have distribution but not innovation. 3. Each strives for the missing piece.



Chapter 2 Impactful Technologies

BLOCKCHAIN1. Technology is in a nascent stage.2. Viability for transactional business process is yet to be

ascertained.3. Blockchain can help minimize fraud.4. Many organizations are also evaluating non-financial use

cases.5. Awaiting views of regulators.6. More cost effective to run on cloud.7. Use cases – Remittances, NPA, Stressed Assets, Bank

Guarantees, Trade Finance, etc.8. Bankchain – a consortium of banks from India and abroad,

that are collaborating to create and share community IP and prioritize use cases. It also aligns with Indian government’s mission for digital. Technology partners include Primechain Technologies, Intel and Microsoft.

CHATBOTS1. Chatbots deliver greater convenience to the customer.2. Chatbots, when paired with Machine Learning, help develop

a better understanding of the customer.3. Chatbots enable a more personalized connection with the

customer in terms of language, relevant products, etc4. 24x7 operations is a major advantage for both customers and

BFSI companies.5. The Natural Language Processing algorithms (NPL) can

also be applied to emails where there is a lot of unstructured content.

6. Best language to be with is English because it is the preferred language for those customers that are early adopters and also because it offers the familiarity of understanding the errors.

7. Some providers in the market tightly couple chabots with their own NLP engine, which presents a risk.

AI & ML1. They are getting embedded into everything, including

marketing, cross-selling, recruitment, underwriting, fraud control, etc.

2. They allow the organization to focus on the exceptional or complex cases which require human intervention.

3. Risk management will be the core application.4. Cognition APIs are being tested and used.5. Companies are open to trying out 2-3 different providers -

one could be based on deep learning, and another on various models of machine learning.

6. Banks have a real-time mechanism in most of their operations but that’s not the case with insurance. In banks AI will tend to be embedded while in insurance AI can be more holistic.

7. Large tech companies like Google and Amazon completely rebuild their AI engine every 6 months. Hence it is very important to have flexibility in AI plans.

8. AI & ML are shifting the frontier of competitive advantage away from data and towards neural net models.

9. Globally, investment banking is leading the effective deployment of AI.

API1. It is the preferred method for connecting with distribution

partners.2. For hospitals and diagnostic labs, direct web interface is

preferred and is working effectively.3. Middleware is beginning to emerge in the API space. 4. ML helps understand the normal and abnormal use of APIs.5. Even dark web companies are offering APIs for access to

private data.6. API breaches will get worse before they get better.7. Service virtualization of APIs increases security by reducing

exposure to firewalls and sandboxes.8. UK and Europe have the most API start-ups.

ROBOTIC PROCESS AUTOMATION (RPA)RPA has been adopted by several organizations with very positive results. Challenge is how it will work with Indian languages - for both text and voice.



Chapter 3 Emerging Business Trends

EMERGING MOBILE BANKING TRENDS1. Different forms of authentication take advantage of devices

such as face and fingerprint authentication.2. Messaging and chatbots are coming, more from within

mobile apps rather than outside.3. Voice is getting more popular.4. Globally, banks are not overloading functionality on the

mobile app. They are doing specific functionality and pointing customers to website for other stuff.

MARKETING1. A huge portion of the marketing has shifted from branding

based to performance based.2. RoI has been somewhat static in short term (last 3 months)

but has been falling slightly in long term (2 years).3. ROI rises during marketing blitzkrieg around festivals, end

of financial year, etc.4. Substantial budget for hoardings for marketing in rural

areas.5. Use of mass media for communicating logo change from

MFI to Bank.6. Nudge customer on one platform and do closure/fulfilment

on another platform.7. Insurance companies are looking at offering concierge

services via partners for targeting NRI customers.

E-COMMERCE1. One big challenge for the banks is that now they are

competing with Flipkart, Paytm, etc. One way to compete is to offer similar services.

2. SBI launched YONO which has been widely publicized. South Indian Bank (SIB) tied up with a Fintech to launch Sibermart – a compare and shop portal. Customers can do online comparisons on this site and can proceed to the relevant portal for purchase. The bank gets to know what the customer has purchased and this also generates referral income, a portion of which is passed back of the customer. Later on, SIB plans to extend Sibermart to non-customers. SIB is still debating whether to create an app for this.

OUTSOURCING REVERSAL1. Before the digital revolution, IT was driving to transform

and automate the back office. Large systems were deployed for core banking, treasury, MIS, etc. Simultaneously, customer facing activities were increasingly outsourced to organizations classified as DSAs, TPA, BPOs, etc.

2. The digital revolution has reversed this trend and many organizations are reversing such outsourcing decisions and developing internal capabilities. Many financial organizations found that the party to which the activity was outsourced could not deliver the desired level of customer interaction, which impacted the brand.

3. Insurance company: “We moved out of TPAs 5 years back. There is a strong philosophy in the organization that we own all service touch points. We wanted to outsource the call center but we found them below our own capabilities.”

BRANCH STRATEGIES1. Breakeven is easy in large cities like Jaipur, Bhopal,

Ahmedabad, Hyderabad, etc.2. Easy to get deposits.3. Easy to get MSME and housing loans.4. Digital technologies are being extended into the branches.5. Most banks have stopped or slowed down branch expansion

in favour of digital expansion.

INNOVATION IN PAYMENTS – AN EXAMPLEIndian Overseas Bank created a customized Mobile PoS collections for collecting maintenance fees for housing societies. Customized collection Android app with personalized fields & mPOS card swiping machine were given to housing societies and the security men used this system to collect the monthly subscription amounts from all flats. The average time required for collections crashed dramatically from 20 days to 3 days.



Chapter 4 Fintech Highlights

FINTECH SCENARIO IN INDIA1. 1650 fintech start-ups based on data collected by

various banks.2. Of these, 1100 have shut down in 2017.3. Many of them were replicas of existing fintechs.4. Some of them are truly innovative, but do not have the ability

/ understanding to commercialize their innovation.5. There is actually an international market for many of these

failed innovations, viz some who can commercialize.

BANKS VS FINTECHSBanks many not have the same spirit of innovation that Fintechs have. But they have big budgets, the ability to have a 360-degree customer approach, and the ability to partner with multiple important players such as retailers, e-commerce giants, airlines, hotels, govt, etc. This is nearly impossible for Fintechs to match.

PARTNERSHIP WITH START-UP FINTECHS1. Start-up Fintechs may not offer scale and performance,

which is crucial to commercialize the innovation.2. Start-ups need to prepare for enterprise grade solutions.3. Selecting Fintechs is completely merit based. No pre-

governed model.4. Discontinue working on ideas which don’t scale up.5. Any huge success creates a new challenge, as it is difficult to

scale up and integrate with the entire organization.6. Advantage of working with big IT companies is that they

have money and will invest in an idea. They are a safer bet and have a lot of resources.

7. Partnership with Fintechs raises the technical vitality of the staff and increase their happiness as it gives them a chance to be at the forefront.

8. API is the emerging mode of collaboration with Fintechs.9. Co-developing the code helps reduce complete dependency

on the Fintech.10. Potential weakness is that as you scale, cost increases and

changes may not be practically possible.11. Counterview from an insurance company: “Fintech

companies are yet to establish credibility and feasibility in the insurance domain. At present we do not have any association with fintech companies, however in future, based of feasibility we may associate with them.”


Chapter 5 Customer Insights

CUSTOMER ENGAGEMENT1. Massive shift of focus from product to customer experience.2. User interface (UI) is a rising element of customer experience

(CX) in the digital ecosystem.3. For insurance companies, digital has come as a boon as it

enables the company to have an ongoing engagement with the customer after they come aboard. Earlier, engagement was very limited and mostly restricted to the time of sale.

4. Customer education using digital channels like email, Facebook, Linkedin, etc.

5. Use of voice and video as tools for customer outreach.6. Mobile app as a channel has evolved as the most promising

channel.

CUSTOMER SATISFACTIONInsurance company viewpoint: “Customer pain point – we have moved away from complaints and grievances. We consider every call a complaint, with some exceptions like customer asking for duplicate copy of policy, change of address, filing a claim, etc. We consider all such as Voice of Customer. For example, a customer considers deductible as a compliant, but insurance policy considers it as product feature. So every expression by customer, whether right or wrong, we don’t want him to say same thing again in the future. That expression has to come down drastically in the future. Take for example, policy is cancelled but cheque is not received. So, the solution is to replace the cheque with online transfer. When we sell telephonically, calls are recorded. If customer wants to cancel, we don’t ask for unnecessary details….we just validate the customer using OTP. So cancellation is also digital.”

CUSTOMER PREFERENCES1. Armed with the latest digital technology solutions, the new

online consumer’s expectation gravitates towards digital services that are real-time, personalized and convenient.

2. Lot of interactions on mobile, but actual closure is on website.

3. Sat-Sun online sales are lowest. 4. An iPhone is simple to buy can be purchased anywhere

anytime. When it comes to insurance, buyers discuss with family members or friends, creating a high level of conversation.

5. Working men are not free on weekends…so they do the research in office or while commuting.

6. Some segments feel much more secure with their corporate network and machine to execute a financial transaction. So the number of transactions during office hours is huge.

NPA PREVENTIONTruck loan default is highest in the first 6 months. IndusInd Bank changed customer retention process from life-long to 6 months. If customer starts defaulting, the bank contacts the parents, who can help the borrower continue installments.


Chapter 6 Insurance Insights

PURCHASING INSURANCE ONLINE1. Focus is on keeping things very simple and ask for minimum

details from the customer.2. For a customer who wants to buy, it is shrunk from weeks to

a 120-150 second process. 3. Agents do not wish to lose their customers to the insurance

company. To enable that, insurance companies are building separate portals.

4. Online web aggregator channel is rapidly overtaking other channels.

5. Premium growth in digital channels is higher than in traditional channels.

INSURANCE DISTRIBUTION STRATEGIES1. Aim to become the most efficient distributor in the industry.2. To expand distribution, seek partnerships.3. There is a need for deeper partnership between banks and

insurers.4. Bancassurance is emerging as a bigger channel than agents.5. Brokers, NBFC/MFI and corporates are emerging as

important channels for insurance sales.

INSURANCE CLAIMS PROCESSING1. Mobile is the chief enabler of transforming claims processing.

Most insurance companies are building apps that enable the data to come in via the mobile phone of the customer.

2. The second level of transformation is automation of the data processing, especially for low value claims, using big data analytics & AI.

3. Less induction of technology in death claims processing.

INSURANCE PROFITABILITY1. Unlike banking, in insurance, profit cannot be determined

at the point of sale. 2. Data science is the key to successful insurance company.

In selling same policy to two different people – one can be profitable and the other can be loss making.

3. When selling a policy, the insurer can forecast what the loss will be based on the data it has.


Chapter 7 Technology Insights

TECHNOLOGY SELECTION1. Preference for opex over capex.2. Focus is on quick ROI. 3. Technologies that provide faster ROI are mobility, AI/ML,

chatbots, and API based microservices.4. Technologies for which a quick ROI is not expected include

IOT, Virtual Reality, Augmented Reality, etc.

CUSTOMIZATION1. While the traditional platform like OTP is available, the

customization is required to minute extent, based on complexities of partner and customer demand.

2. Insurance company: “We have continued to own these skills.”


Chapter 8 Digital Drive into Rural India

Several forces are driving the digital push into the hinterlands.1. Tepid infrastructure as well as lack of knowledge are

key barriers.2. Use of tech in smaller towns and rural areas diminishes

substantially.3. At block and taluka level, the awareness of tech is not there.4. Focus on innovation that takes technology to the last mile.5. Common Service Centers (CSC) are emerging as a

key channel.6. Aadhaar is key enabler of customer onboarding.7. Tablets will be a big differentiator for small ticket loans.8. Multi-lingual apps work better with rural customers.9. Important to have the ability to work in absence of data

connection (using SMS).10. Iris recognition should be an extension of fingerprint

recognition.11. ATMs should be biometric enabled.12. Move towards cashless disbursements and collections.13. Social media has emerged as an economical and effective

means of communicating with rural customers.14. Software solutions being created exclusively for

crop insurance.

15. Dairy farming, crop warehousing and warehouse receipt financing are emerging opportunities in rural India.

16. Using tablets, bank staff can do rating agency check on the spot and give a feedback whether the loan can be sanctioned or not.

17. Chatbots may not make sense for rural customers.18. Some BFSI companies are planning to open branches in

unbanked areas.19. Bank: “We can match the digital lenders in terms of speed

and give a loan in 2 days.”


Chapter 9 People Scenario

NEW SKILLS TO BE INDUCTED IN 20181. IoT based banking applications2. Robotic Process Automation3. Chat based banking4. AI with Machine Learning5. Data science6. Blockchain7. API8. People with experience outside the sector – eg telecom,

airlines, etc.

JOB SCENARIO1. As AI threatens to take over human jobs, human work is

transforming from laborer to contractor to architect. 2. Cost of architect is increasing dramatically, compared to

contractor and laborer. 3. Talent gap, ie the gap between demand and supply, is

getting worse. 4. Talent wants to join an organization where they can learn

and grow, and their contribution is seen and recognized


Chapter 10 Conclusions

1. The ABC of digital financial innovation: A = Artificial Intelligence & API B = Blockchain C = Chatbots2. Fintechs: Giving more, getting less.3. Small tests, small failures, quick learning. All these enable

testing of smaller assumptions and thereby avoid Titanic failures.

4. Huge potential for digital transformation in rural segment.5. Technology is transforming from a strategic driver to a

commodity driver. 6. Customizing technology has become the strategic driver.


Acknowledgements

Some individuals have supported this research in a personal capacity, ie off the record, and hence cannot be named. Some retired bankers and consultants too have contributed to this research. Banking Frontiers expresses its heartfelt thanks to all individuals and organizations that have supported this research:

BANKSAU Small Finance BankDCB Bank Fino Payment Bank HDFC Bank IDFC BankIndian Overseas Bank Kotak Mahindra BankRBL BankSouth Indian Bank State Bank of India Ujjivan Small Finance BankUtkarsh Small Finance Bank

INSURANCE COMPANIESApollo Munich Health Insurance Bajaj Allianz General Insurance Cigna TTK Health InsuranceExide Life Insurance HDFC ERGO General Insurance HDFC Life InsuranceICICI Lombard General InsuranceLiberty General Insurance Religare Health InsuranceSBI General InsuranceSBI Life Insurance Star Union Dai-ichi Life InsuranceUniversal Sompo General Insurance


About Us

Banking Frontiers is a monthly B2B publication from Glocal Infomart Pvt Ltd. It covers almost the entire financial sector including banks, insurance companies, NBFCs, MFIs, exchanges, regulators and the technology providers to the BFSI sector. The editorial covers a wide variety of topics including business, technology, risk, compliance, marketing, HR, innovation, transformation, etc. Banking Frontiers regularly organizes conferences, unconferences, seminars, roundtables and workshops.

www.bankingfrontiers.comwww.finbizness.commanoj@bankingfrontiers.com

Accenture is a leading globalprofessional services company,providing a broad range of servicesand solutions in strategy, consulting,digital, technology and operations.Combining unmatched experienceand specialized skills across morethan 40 industries and all businessfunctions – underpinned by theworld’s largest delivery network –Accenture works at the intersection ofbusiness and technology to helpclients improve their performanceand create sustainable value for theirstakeholders. With more than401,000 people serving clients inmore than 120 countries, Accenturedrives innovation to improve the waythe world works and lives.

[email protected]@accenture.com

Disclaimer:

This “2018: Digital Directions & Transformation” An Executive Digest has been published for information purposes only and is not intended to serve

as advice of any nature whatsoever. The information contained and the references made in this report is in good faith and neither Accenture nor any

its directors, agents or employees give any warranty of accuracy (whether expressed or implied), nor accepts any liability as a result of reliance upon

the content including (but not limited) information, advice, statement or opinion contained in this. Accenture does not warrant or solicit any kind of

act or omission based on this report.

The “2018: Digital Directions & Transformation” An Executive Digest is the joint property of Accenture and Banking Frontiers. No part of this

digest may be reproduced in any manner without the written permission.

Copyright © 2018 Accenture All rights reserved.

Accenture, its logo, and High Performance Delivered

are trademarks of Accenture.

Presents 2018D & tigital ransformation irections ...

Documents

Transcript of Presents 2018D & tigital ransformation irections ...