Mr. Jasal Shah is the spokesperson and the CEO, Managing Director of Markelytics and Velocity MR.
India’s banking and financial services sector is in the middle of a digital revolution. Just look at the number of digital payment apps available for download on your smartphone. From newspaper vendors to your milkman, many service providers are open to receiving payments via apps. Money transfer is smooth and efficient, and banking is more consumer-centric than ever before. Banks and financial institutions can no longer dictate to customers or act standoffish; today it is about offering a personalized experience to customers when they want and how they want it. This means, banks and institutions need to transform their back-end operations as well, and no longer function in silos. They can’t afford to miss out on the digital channels even though they could have traditional banking methods.
Looking back, Indian financial service institutions and banks have come a long way within the span of a decade. In 2009, the concept of a wallet meant the leather one you had which came with credit or debit cards apart from cash. Ten years back, there was no concept of a unified payments interface or UPI for instant fund transfer between two bank accounts via mobile. Also, speaking about internet banking, in 2010-11, according to a McKinsey Study, 7 percent of bank account holders were using the Internet for transactions. This was a seven-time jump from 2007 when it was a mere 1 percent!
Over the last ten years, the Indian consumer has been slowly exposed to the smartphone, where he or she can buy anything at the touch of a button. The rise of the digital natives, those who are comfortable in the digital landscape, and are comfortable engaging with brands and businesses online has also ushered in a new way of life. Personalization, service at the doorstep and a sense of immediacy — consumers are used to these when they order a meal or book a show. They have begun to expect similar experiences on the banking front as well.
There’s been a huge digital thrust in Indian banks and financial institutions, and online banking users are predicted to touch the 150-million number by next year, according to a report titled ‘Encashing on Digital: Financial services in 2020’, brought out by The Boston Consulting Group (BCG) and Facebook.
Also, consumers now choose to bank on their mobile phones or make transfers via payment apps. Mobile banking and online banking are slowly coming to mean the same thing. Government policies and vision seem to have played a role in giving cashless transactions a huge fillip. For instance, the unified payments interface or UPI is seeing huge growth, with many local and global players entering the scene. A 2018 Credit Suisse report forecasts that the digital payment market in the country will touch US$ 1 trillion, come 2023. RBI data, released by National Payments Corporation of India shows that UPI transactions exceeded the Rs 1-trillion mark in December 2018.
RBI data also shows that credit and debit card transactions fell by 4 percent from October to November 2018. Even payments using RTGS or real-time gross settlement have gone down by 7.6 percent in November 2018 compared to the earlier month. This is telling — UPI and app-based money transfers are indeed gaining momentum.
Thrust from the central bank and government
Demonetization of certain denominations in 2016 by the government led to a shift from cash to cashless, adding to the digital transformation move among financial institutions. From time to time, the central bank has also released certain guidelines aimed at boosting digital transactions in the country. Recently, the RBI has announced that there would be inter-operability among m-wallets in the near future, to boost ease of carrying out digital transactions. Also, the central bank mandates that any global payment company will have to store transaction data of its Indian customer base at local servers to ensure privacy and safety. While it’s too early to comment on the success or the six progress of payments bank envisaged by the RBI, the government-backed India Post Payments Bank is slowly gaining traction. The future will see collaborations between banks and finch companies for greater financial inclusion.
We must not lose sight of the fact providing enhanced customer experience is at the heart of any digital transformation. Understanding customers’ pain points and concerns can help banks and financial institutions achieve that. Indian banks are taking to the omnichannel approach to providing a seamless customer experience. They are also employing self-serve, 24×7 available chatbots and intelligent assistants to help with queries on banking. Machine learning and AI have been gaining widespread acceptance among Indian banks and financial institutions so as to offer tailor-made solutions and personalized recommendations on a certain product/service to customers. Customers also share user experiences via online reviews, ratings and social media, which can be tapped into by banks to enhance user experience and even develop better products.
The employment of digital technologies would mean a win-win not just for banks and their customers, but also for market research firms. Researchers will now have a wealth of data to analyze and provide sharpened real-time insights to financial brands and banks.
With the amalgamation of technology and market research, we have reached a point where we have data at our fingertips to dispose of. Real-time insights, do not just give you an edge over time but also give quality insights that will help banks and other financial institutes craft better service solutions for their customers. Even the ever-evolving market research tools act as a beacon of knowledge that every organization is constantly on a lookout.
‘MOVE FAST BUT DON’T BREAK THINGS’ – WHY FINTECHS WILL COME TO LOVE REGULATION
Alex Johnson, Director of Portfolio Marketing, FICO
The guiding ethos of fintech is move fast and break things. It’s the fundamental advantage that disruptors have over the incumbents they’re disrupting — the ability to move quickly and make mistakes, learn from them and deliver innovative services to customers. Generally, this ethos is presented as a virtue. Banking is ‘broken’ so any investments in improving it are both notable and noble – even if there are bumps along the way.
Conversely, anything that stands in the way of this ‘march of progress’ is generally cast as a villain.
The most prominent villain for fintech companies is regulation. From their perspective, it’s a competitive moat, based on rules written for a different century, that protects banks’ ability to make money without needing to innovate and offer more or improved services to their customers.
So, it’s easy to see why a fintech company — believing fully in the virtue of its mission and faced with a litany of illogical and intractable regulations — might just say ‘we’re doing it anyway.’ That’s what Robinhood co-founder Baiju Bhatt reportedly did when his company tried to roll out a checking and savings product that it claimed was insured without confirming that with regulators first.
The problem is that while we may mythologise the ‘move fast and break things’ ethos in the abstract, consumers don’t love it when their stuff breaks in the real world.
And when fintechs and challenger banks aren’t constrained by regulation (as they mostly are in the U.S and Europe) the harm caused by this ‘move fast and break things’ approach can be much more severe than a service outage or a false claim of deposit insurance.
Stories from overseas
In China, online P2P lending exploded in popularity, with the number of P2P lenders growing from 50 in 2011 to 3,500 in 2015. Then the whole industry imploded when it was revealed that 40% of P2P lending platforms were Ponzi schemes.
In India, online lending companies raised a record $909 million in venture capital last year (the third-biggest market behind the U.S. and China). And those lenders are now using personal data from borrowers’ mobile phones to make lending decisions – which although illegal, is reportedly ignored by Indian regulators.
In the Philippines (another emerging market where venture capital dollars for online lending are pouring in), the National Privacy Commission is investigating hundreds of complaints from consumers about lending apps leveraging their personal data to shame them into making their payments.
A prediction for the decade to come
In the 2020s, I believe fintech companies will come to love – or at least quietly appreciate – regulation for two primary reasons:
Fintechs and challenger banks understand that brand recognition and affinity is key to their long-term success. Building their brands will be a challenge. A recent survey of 2,000 Brits found 40% don’t trust challenger banks at all and 67% said they are more likely to do business with banks that have branches on the high street. As Zach Bruhnke, co-founder and CEO of U.S. challenger bank HMBradley recently said, ‘We’re going to have to grow by word-of-mouth and doing the right things for our customers.’
Fintechs and challenger banks focused on the long-term task of building brand affinity and trust will, over the next decade, come to despise bad actors that skirt the rules and dress up get-rich-quick schemes in the same language they use to describe their own firms. Regulations that constrain and/or shut down these bad actors will be increasingly appreciated by legitimate market participants.
In the 2010s, we saw the beginning of a trend that will strengthen in the 2020s — regulations designed to foster competition between incumbents and new market entrants. To date, such regulatory action has run the gamut, from vague (innovation sandboxes and special-use charters) to hyper-specific (U.S. regulators’ cautiously approving the use of alternative data, or the Bank of England considering giving non-banks access to its 500-billion-pound balance sheet). Perhaps, most promising, has been the work done by the Competition and Markets Authority (CMA), which has been proactively driving the adoption of rules and standards around Open Banking for past couple of years. O
ver the next decade, through careful management of public perception and increased investment in lobbying, fintechs and challenger banks will further reshape the regulatory environment from a competitive moat to a more level playing field.
Reaching fintech maturity
’As a licensed broker-dealer, we’re highly regulated and take clear communication very seriously. We plan to work closely with regulators as we prepare to launch our cash management program’.
This was the statement issued by the chastened co-founders of Robinhood shortly after they backed away from their plan to launch a checking and savings product without government insurance. And here’s the crazy part — that’s exactly what happened! Less than a year later the company announced a new deposit product, this time insured by the Federal Deposit Insurance Corporation (FDIC).
As fintech companies mature in the 2020s and the focus of their strategic objectives shifts from growth to profitability, regulation will play a vital role in transforming the ethos of those companies into something a bit more sustainable. Call it ‘Move fast, but don’t break things’.
HOW TO MERGE YOUR FINANCES AS A COUPLE?
By Nelisiwe Ndlovu, Certified Financial Planner at Alexander Forbes
There is never a good time to discuss finances with your partner, married or unmarried, and one key issue that needs to be discussed is whether you should merge your finances.
Joining all your money matters can seem overwhelming at first, so you don’t have to combine every bank account and credit card from the get-go.
Start by having an honest discussion with regards to your individual money management and financial commitments before deciding to merge or co-manage your household finances while deciding if you want to fully merge all your finances. Detail all individual income, expenses, and all your financial commitments. The best way to achieve this would be to first take your individual budgets and combine them. This will tell you what you can and cannot afford as a couple. If one partner does not usually budget, this is a chance to start doing so as this will ensure that your household finances are under control.
Before you think about merging your finances, be open and honest about:
- How much you earn – what is the income that you will bring home? What is the frequency of your income? Are you permanently employed or a contractor?
- What are your current individual expenses and financial commitments? List your assets and your current debt.
- Your individual financial goals and money management techniques – don’t worry if you might have not figured this out at the time of merging your finances – the important thing to do is to be open and honest so that you both build a stronger money foundation
- Disclose your financial obligations, this becomes very tricky if left until too late and may cause unnecessary tension in the relationship
- What are your goals as a couple – what is the purpose for merging your finances?
Married couples can formally or informally merge their finances as detailed above where household expenses are split between the couple (the split could be 50/50 or any fair split agreed upon by the couple, which could be based percentage-wise depending on one’s income). Some couples tackle finances by adopting the ‘pick a bill’ approach, where one couple pays the water and electricity while the other covers the food.
Being married does not mean necessarily that you need to have one joint account. You may also just want to open one joint account where you each deposit money to pay just your monthly household expenses.
The top five things to remember when merging finances as a couple:
- Have the ability to manage your own finances before expecting another person to merge their finances with you.
- Be mindful of your potential spouse/life partner’s money management behaviour and skills so that there are certain things you can address together before considering merging your finances
- Always keep an open line of communication – honesty is the best policy
- Set a money limit which you can each spend without having to consult each other
- Don’t forget to change your wills and beneficiaries on pension or provident funds as required.
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