PSBs must catch up with fin­tech play­ers

Pub­lic sec­tor banks have a lot of catch­ing up to do to en­gage with fin­tech play­ers.

Business Today - - MANAGEMENT - By Anand Ad­hikari Il­lus­tra­tion by Raj Verma

TWO YEARS AGO, Bank of Bar­oda (BoB) an­nounced over halfa-dozen tie-ups with fi­nan­cial tech­nol­ogy com­pa­nies or fin­techs. Start-ups like Cred­itMantri, Fund­sTiger, Probe42, Pow­er2SME, In­di­aLends, KredX and Fis­dom came on board, bring­ing ex­per­tise in ar­eas like SME lend­ing, al­go­rith­mic lend­ing, bill dis­count­ing, re­tail lend­ing and wealth man­age­ment. Such wide-rang­ing part­ner­ships with pri­vate sec­tor tech­nol­ogy play­ers are rare in the pub­lic sec­tor bank, or PSB, space. Apart from BoB, State Bank of In­dia (SBI) is the only other PSB which is se­ri­ously digi­tis­ing its pro­cesses and work­ing with fin­tech play­ers to bring ef­fi­ciency in var­i­ous parts of the value chain. The PSBs – which to­gether con­trol more than two-thirds of the bank­ing sys­tem in terms of de­posits and ad­vances – are in gen­eral way be­hind their coun­ter­parts in the pri­vate sec­tor in use of tech­nol­ogy. Fin­tech play­ers of­ten com­plain that they find it dif­fi­cult to get an au­di­ence from top bosses of many PSBs. These in­clude many value-added ser­vices, or VAS, providers, which of­fer ser­vices such as credit scor­ing, read­ing un­struc­tured bank state­ments, anal­y­sis/in­ter­pre­ta­tion of a trans­ac­tion in real time, data an­a­lyt­ics and fraud de­tec­tion. Are PSB’ legacy IT sys­tems com­ing in the way? Or are PSBs too wor­ried, even para­noid, about pri­vacy and se­cu­rity is­sues? Or is it just lack of strate­gic di­rec­tion?

THE MISS­ING VI­SION

“We don’t see a sense of ur­gency as they are busy with other press­ing is­sues such as as­set qual­ity and consolidation. I am sure PSBs will wake up to the re­al­i­sa­tion sooner than later,” says Ajay Adise­shann, Founder & Manag­ing Direc­tor of PayMate In­dia, a fin­tech player that works with SBI as one of the part­ners for B2B pay­ment au­to­ma­tion in en­ter­prises and SMEs. “The vi­sion­ary lead­er­ship is miss­ing. They are not able to see the fast chang­ing fu­ture of bank­ing glob­ally,” says an ex­pert.

The role of the top deck is the key here. For in­stance, when Arund­hati Bhat­tacharya was the chair­per­son of SBI, the bank took sev­eral tech­nol­ogy ini­tia­tives such as launch­ing fully dig­i­tal branches and wal­let buddy, apart from other dig­i­tal of­fer­ings. Sim­i­larly, the credit for fin­tech en­gage­ment at BoB goes to its MD & CEO, P.S. Jayaku­mar, who was part of a group of out­side pro­fes­sion­als hired by some PSBs. He had co-founded a com­pany in the hous­ing sec­tor, was with Citibank in In­dia and Sin­ga­pore for over two decades and has worked ex­ten­sively in the re­tail bank­ing space. It is such lead­er­ship that the PSB pack is miss­ing.

Apart from this, for many PSB CEOs, the last three-four years have been an ex­tremely chal­leng­ing pe­riod, as they have been fire-fight­ing the prob­lem of de­te­ri­o­rat­ing as­set qual­ity that is threat­en­ing their very ex­is­tence. “The last three-four years have been dif­fi­cult due to Jan Dhan Yo­jana, Mu­dra loan tar­gets, de­mon­eti­sa­tion, and fall­ing as­set qual­ity and credit growth,” says a se­nior PSB ex­ec­u­tive. There have also been too many changes at the lead­er­ship level.

There is also the is­sue of at­tract­ing fresh tal­ent in the dig­i­tal space. Most se­nior man­age­ment peo­ple in PSBs are as­so­ci­ated with the legacy side of things. “There is a dearth of tal­ent when it comes to fu­ture tech­nolo­gies,” says Adise­shann of Paymate In­dia. “The un­der­stand­ing to nav­i­gate the shift to newer tech­nolo­gies through part­ner­ships is also not there,” says the CEO of an­other fin­tech com­pany.

Some say the big­gest is­sue is the will. “Mas­sive in­vest­ments have al­ready gone into the core bank­ing plat­form. De­vel­op­ing API (ap­pli­ca­tion pro­gramme in­ter­face) lay­ers to en­gage with fin­techs does not re­quire ma­jor in­vest­ments,” says a tech­nol­ogy player. Fear of cy­ber se­cu­rity threats also pre­vents PSBs from tak­ing a call on en­gag­ing with ex­ter­nal fin­tech play­ers or de­vel­op­ers. “From the se­cu­rity stand­point, many PSBs are not ready with API lay­ers. They have this mind­set of host­ing ev­ery­thing in-house and run­ning ev­ery­thing in their data cen­tre. This won’t work. Ev­ery­thing is con­nected and cloud-based to­day,” says Adise­shann.

THE DIGI­TI­SA­TION PREPA­RA­TION

The PSBs should fol­low their pri­vate sec­tor coun­ter­parts or SBI. There are quite a few large pri­vate sec­tor banks that have been quite ag­gres­sive in or­gan­is­ing Ap­pathon, Hackathon and fin­tech ac­cel­er­a­tor pro­grammes. Axis Bank, for in­stance, has set up an in-house in­cu­ba­tor where a dozen bank em­ploy­ees work on cre­at­ing pro­to­type solutions. SBI, too, is set­ting up a 15,000 sq. ft. cen­tre

THERE IS ALSO THE IS­SUE OF AT­TRACT­ING FRESH TAL­ENT IN THE DIG­I­TAL SPACE

at Be­la­pur to house fin­tech start-ups as well as regtechs, which spe­cialise in reg­u­la­tory is­sues aris­ing from the emer­gence of new tech­nolo­gies like blockchain. Many says there is a lot of work that fin­techs – VAS providers such as Per­fios, Cred­itvidya and Hap­pay – are do­ing with pri­vate sec­tor banks that the PSBs can repli­cate.

Banks also need a tech­nol­ogy cleanup. API, which in­volves fin­techs plug­ging into banks’ sys­tems, is al­ready tak­ing off in a big way. APIs are like pipes where banks' core bank­ing sys­tems get con­nected with fin­techs.

The PSBs also need to use big data. This will fa­cil­i­tate faster pro­cess­ing of a large vol­ume of struc­tured/un­struc­tured data and ad­vanced an­a­lyt­ics to gain in­sights for busi­ness de­ci­sion mak­ing and de­vel­op­ment of new prod­ucts. Fi­nally, the PSBs should also ex­plore ty­ing up with ag­gre­ga­tors and use them as the front end. Un­der this model, banks will have to pro­vide a plug-in (through APIs) to ag­gre­ga­tors such as Bankbazaar, which is al­ready help­ing many banks get new clients. Many PSBs have al­ready ex­per­i­ment­ing with by sell­ing credit cards and un­se­cured loans such as per­sonal loans through these ag­gre­ga­tors. “That’s one way they could pos­si­bly sur­vive,” says Adise­shann.

Shyam Sundar Banik, Gen­eral Man­ager (Al­ter­nate De­liv­ery Chan­nel), Bank of In­dia, how­ever, says PSBs are catch­ing up fast. Be­fore de­mon­eti­sa­tion, ev­ery PSB was work­ing on its own. This has changed due to gov­ern­ment push. “The en­tire digi­ti­sa­tion progress is now be­ing supervised di­rectly by the gov­ern­ment. There is weekly eval­u­a­tion by the depart­ment of fi­nan­cial ser­vices. We also have the In­dian Banks As­so­ci­a­tion for dis­cussing is­sues and knowl­edge shar­ing,” says Banik of Bank of In­dia.

THE COST OF NOT

DO­ING ANY­THING

The cost of not do­ing any­thing will be huge for PSBs. First and fore­most, they will lose new tech­nol­ogy-savvy cus­tomers in the dig­i­tal era, where cus­tomers are mov­ing to mo­bile, tablet and kiosk in­ter­faces. What is prob­a­bly sav­ing them is cus­tomers who are older and those liv­ing in ru­ral and semi-ur­ban ar­eas where peo­ple still pre­fer branch bank­ing.

The op­por­tu­nity cost would be even big­ger as big data and an­a­lyt­ics can be used to im­prove op­er­a­tional ef­fi­cien­cies. The use of ar­ti­fi­cial in­tel­li­gence, or AI, ma­chine learn­ing and soft­ware ro­bot­ics is al­ready help­ing banks in faster de­ci­sion mak­ing. ICICI Bank and a few oth­ers are al­ready us­ing soft­ware ro­bot­ics for im­prov­ing op­er­a­tional ef­fi­cien­cies. SBI, too, is us­ing risk an­a­lyt­ics for ap­praisal of fresh ap­pli­ca­tions and mon­i­tor­ing the loan port­fo­lio. “An­a­lyt­ics-driven, pre-qual­i­fied lend­ing pro­grammes launched in 2016 have gen­er­ated sig­nif­i­cant busi­ness while re­duc­ing the cost of ac­qui­si­tion,” says an SBI re­port.

The chal­lenge is not from digi­ti­sa­tion alone but also from newer tech­nol­ogy in­fra­struc­ture like blockchain, the next rev­o­lu­tion­ary wave, which is al­ready be­ing adopted in the fi­nan­cial ser­vices space.

Still, many see PSBs los­ing cus­tomers and mar­ket share grad­u­ally. “PSBs are very strong in terms of re­la­tion­ship with cus­tomers. But when­ever the shift hap­pens, it will hap­pen quickly,” says a bank­ing in­dus­try con­sul­tant. If the gov­ern­ment has to take the econ­omy to­wards cash­less, it has no op­tion but to nudge the PSBs to go hi-tech.

WE DON’T SEE A SENSE OF UR­GENCY AS THEY ARE BUSY WITH OTHER IS­SUES SUCH AS AS­SET QUAL­ITY AND CONSOLIDATION

AJAY ADISE­SHANN Founder & MD, PayMate In­dia THE EN­TIRE DIGI­TI­SA­TION PROGRESS IS NOW BE­ING SUPERVISED DI­RECTLY BY THE GOV­ERN­MENT. THERE IS WEEKLY EVAL­U­A­TION

SHYAM SUNDAR BANIK GM, Bank of In­dia

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