Manoj Agrawal: The year 2016 was a tough year for the financial sector. But that does not stop the sector from growing. How are you preparing for this growth keeping in mind the obstacles that may come?
Parag Joglekar: In earlier times, expansion was about increasing your footprint across geographies and having more number of people, so as to expand your topline. Now, expansion has various angles, including geographical footprint, digitization and tie-ups with various platforms. The new kid on the block is robot banks or robot offices that can run 24x7.
Trivikram Kamat: You need to have one team in the organization whose focus is to look at what can be done differently and what new can be done. We need to figure out what fintech startups are dong and see at what point of time we can incorporate some of their technologies into our business.
Sameer Kamath: Startups may or may not make money, but they disrupt the way current businesses are happening. One of the critical things for any large established organization is to focus on what is its core and what is it right for its customers. Secondly, they should build as much client intelligence as possible. Today, data has become the biggest asset for any financial sector organization. It is not AI but it is the user of the AI who is going to be the disruptor. Even in digital, there is a lot of non-value-added work.
Shantanu Syam: The current ecosystem is pushing BFSI companies to become fintech companies. One key requirement is to have a very agile team which is fully aware of the changes in the environment. Things like Aadhaar are life
Banking Frontiers organized a conference on ‘Agile Expansion & Transformation’ in Mumbai. SAP Ariba was the knowledge partner:
changing. Companies now don’t need to go and reinvent things. The opportunities are more than the obstacles.
Manoj: Aggregation has become a very good growth mantra for the top line. A bank is an aggregator of money, technology, security, trust, risk management, etc. How can banks be better aggregators?
Prashant Mohta: We are completely aggregators. We don’t manufacture broking stock market transactions. We just analyze the transaction for insurance, mutual funds, wealth, property, etc. Collaboration will work; what is important is how you deal with customer safety, security and information.
Parag Joglekar: In this digital world, the customer is not coming to you only because you are collaborating and giving him everything at one instance. He is coming to you because it is convenient and it is cheaper as well. Today, the switching costs for the customers is very low. It is not just your value addition in terms of putting everything together but also giving you at a price.
Raghavendra Joshi: There are very large organizations which have developed certain competencies. There are some smaller organizations which have certain niche strengths or niche domains. Aggregators have been able to provide value to the customers in terms of cheaper cost, cheaper services and utilize the capacity of the spare inventory. They have been able to bring up scale and they have been able to mass customize. We are actively seeking out partners such as insurance companies, investment companies and of course the regular banks. What we are trying to do is bring banking to the mass consumers.
Manoj: Any examples of organizations that are actually aggregating different kinds of things successfully?
Ravindra Sharma: JPMORGAN started its operations long back but digital has changed the way it operates today completely. They came up with the complete transformation on supplier collaboration, covering the complete gamut right from identification to risk strategy.
Jitendra Agrawal: In our organization, we pondered over time how to de-risk ourselves from a single channel. We observed in BFSI and beyond, where customers exist. We identified among the NBFCs, MFI, Small blanks in BFSI space, rather trying to create a brick & mortar system of reach, there is an opportunity to use scalable digital mechanism of reach to their customers and deepen our relationship! We now have many partners and the future is to leverage their ecosystem, build our digital platforms through analytics, artificial intelligence and digital relationship offerings to the customers as a win-win to all.
Manoj: When it comes to partnership, different parts of the organization like HR, marketing, admin, etc, will do some partnership arrangement with various parties. But the learnings from these partnerships remain in silos.
Parag Joglekar: Technology can make best practices happen. Today, most best practices existed in silos. There was no mechanism and typically there were good practices, but they were stuck in Excel sheets or in the minds of some people. Today, technology workflows have made it possible to create one architecture of compliance. It is not left in silos.
Manoj: What kind of trends do you see in Know Your Partner (KYP)?
Ravindra Sharma: In certain industries like pharma and airlines, KYP is a must as it is a regulatory environment. When you choose a partner, you do a lot of validation and certification. But, no partnership is for life. In a few months, it is obsolete. It is mandatory as a compliance custodian to make sure that all the partners and all their capabilities and security points are current. When you select a partner, how do you get continuous alerts and alarms and right information? The second aspect of the compliance is invoicing – which is linked to cost. There are a lot of invoices for which we don’t have a purchase order. How do you verify? Even on the invoicing side, if you look at the exception management, you get a lot of invoices and typically in any company, 40-45% are found to have some exceptions. Liberty Mutual went down to 4%, which is drastic and no other organization has been able to do. That is another aspect of compliance which means a lot of money. There is a lot of compliance in operations on partners’ side which can be strengthened and many global companies have already done it.
Manoj: Do risk managers come into the picture early on when you are negotiating a partnership? What are the kind of concerns they raise?
Prashant: When you do the due diligence, they are part a part of the routine. They have to go across, they have to check it out, they have to meet the board. Then you come to know that the company is stable or not.
Shantanu: A lot of time, the regulator is going to slow you down and the current risks in the system are not addressed by
the regulatory compliance and checks and controls. I think that is where the regulators and the business partners and all of us need to get together and we reframe what are the potential risks in the system that are not being addressed right now. We are growing and growing at a furious pace but the related risks are not being looked into the way it should be.
Manoj: If you are doing a partnership in a startup fintech, you will in no way be able to get a proper report from them. Even if you go and visit them periodically, you will see a different picture each time. How do you put compliance and governance and due diligence for these set ups?
Tohin Singhal: If you have a new fintech partner, when you have smaller organizations, you have to hand hold with them and have a stricter or regular interaction with them to understand the compliance with them.
Manoj: How is GST going to affect the operations, KYP, or dealings with them or how will you speed up your internal process because of GST? Do you propose to bring in any changes in the contracts? What is your roadmap for GST?
Sameer Kamath: One of the things I have heard is that wherever GST was implemented, they have kept financial services out of its purview because of the complexities. Service tax will be centralized because it is one collection authority. What has happened is in GST the jurisdiction of the collection is the jurisdiction of the client. In financial services, the operations span across India and it means each branch becomes touch point for service tax assessment. Each company has multiple registrations and each branch has to be individually assessed as a GST assesse, which means I will have to register in each of the states where I have branches. Each branch requires to have its own books of accounts. Each branch requires transfer price to PNL. Just think about the nightmare a company which runs pan India operations. It is operationally quite a nightmare and somewhere industry representation is required on that. The intent has to be different - I think some learning from best practices will have to be considered here. How do you align yourself internally because in the age of centralization lot of people have centralized lot of their things? But these regulations are quite counterintuitive on that. I think some of these challenges have to be grappled with in terms of how to operationalize some of these things. I think those are bigger challenges from that perspective because the cost of compliance is going to go up tremendously if things have to happen in the current avatar.
Ravindra Sharma: There are two aspects of GST that CXOs are worried about. One is the whole complexity of the GST taxation regulation, and the second is the highly distributed nature when there are branches. We are worried about the second part. Interestingly, many people are worried about the time window. When you have to claim GST credit, there will be a limited window of 90 days for the time being in which everything has to be matched, reconciled and approved. Traditionally, in India you get an invoice with 47-line items. I was with a pharma company. We found that we could approve just 28% of invoices within 30 days, 54% in 60 days 78% in 90 days. Imagine a situation where all the invoices from your suppliers are landing and the need is to clear all of them in 5 days. When I say it gets approved in 5 days flat, it is not at a header aggregate level, but it is at a line item level. And how do we make sure that a lot of suppliers in India are comfortable and are at ease and can do this business with you which can benefit suppliers also because they get the invoice approved.
Deutsche Bank had shared services and the cost of shared services came down to almost 35%. The CFO said a lot of invoices are available in 5 days. How do we capitalize on it? They started a working on a capital collaboration program with their suppliers generating a lot of risk free income.
We spoke about GST and so on. The fact is today tons of invoices come to the company and 40% or more are identified with at least one exception - that is global benchmark - and the entire account pay is created predominantly to manage exceptions. In India, the whole BPO industry was born with this process. The first processes to land in India were the account payable processes. Deutsche Bank brought down the exception percentage to less than 5%. There are companies like Disney or Caterpillar which are operating at 2% exceptions.
The third thing is the cycle time, which at present is typically 30-35 days and this will get crushed to 4-5 days.
The last part is that a lot of companies are actually capitalizing on the newer window available. If I have approved an invoice which is not yet due, how do I facilitate some of my suppliers.
Suppliers love this transparent system. Imagine I am a supplier and I send an invoice to you. I don’t know what happened. It is a frustration. After 14 days, I get a call saying that the invoice you sent which you thought is perfect has an error. So, start the work afresh. It is very frustrating. In the tech enabled system, the invoice is completely correct because all errors are rectified while they are creating the invoice. Ultimately, what you deliver to the customer has to be assembled through the partner and run through partner. Day to day customer experiences are fully dependent on how your partner behave.
Head - Operations, Technology & Human Resources, DCB Bank
Amandeep Singh CFO, Agora Microfinance
Trivikram Kamat CFO, Kotak Securities
Head - Innovations, DCB Bank
Prashant Mohta CFO, ICICI Securities
Group CFO, Motilal Oswal Securities
CFO, Birla Sunlife AMC
Shantanu Syam COO, Angel Broking
Head, Business Process Solutions Delivery, IndusInd Bank
Raghavendra Joshi CIO, Jio Payments Bank
Head – Business & Service Excellence, HDFC Life Insurance
SAP Ariba Asia Pacific Business Development, Japan
Tohin Singhal SAP Ariba
Manoj Agrawal Group Editor, Banking Frontiers (Moderator)
Participants listen to a point being made
Panelists in attentive mode
Another group of panelists