I challengerS’ strategies 2019 WHO, WHAT & HOW
CEOs of the 15 new BFSI organizations (Challengers) opened their hearts and minds for our cover story on the road ahead:
n the last few years, the number of BFSI organizations in India has mushroomed. With RBI giving out new banking licenses and several new digital-DNA driven NBFCs emerging, Banking Frontiers interviewed CEOs of 15 organizations comprising payments banks, small finance banks, insurance companies as well as NBFCs.
This study probed 4 key aspects that are deeply relevant in today’s scenario - opportunities, challenges, competition and transformation. Since technology has become the pillar of all activities, it was an area of special focus. We approach 40 new BFSI organizations and are thankful to the 15 that responded.
DIGITIZATION – DIFFereNT STrOkeS
Digitization has become an important element of the BFSI industry. Many things today are done through digital channels and all the traditional banks are using digital internet banking and mobile banking. The challengers are creating complete paperless models. Digitization is also rising in rural areas thanks to smart phone penetration.
India is a cash dominated economy. Due to digitization, there is a shift from cash to non-cash and it will continue in 2019. In 2019, most of the lending banks in India will be digitized in the way they source and service their customers for many of the products and payments solutions. Rajeev Yadav, MD & CEO at Fincare Small Finance Bank shares the details of digitization strategy adopted by his bank: “Fincare Bank has focused on digital banking from the first day of its launch. Opening of accounts in 15 minutes and paperless lending are popular among our micro-finance customers as well as liabilities customers.”
ART Housing Finance is working towards making the home loan a fully digital product riding on technology. The company is creating digitization of documents, processes and decision making, combined with the use of smart technology and innovative credit methodology to cover the new-to-credit segment. It aims to provide customers with a seamless and hassle-free experience.
Its MD & CEO Arvind Hali said: “With a clear focus on digitization, use of traditional and non-traditional credit scoring analytics, rapid distribution expansion and prompt service, ART Housing Finance is all set to create significant impact in the housing finance market in 2019.”
Digital lending company Flexiloans.com believes in providing MSME loans in 48 hours. Co-Founder Manish Lunia shares: “We will continue to expand our offerings in terms of products, geographical reach, so customer feel easy in applying the business loans at a click of a button.”
Digit Insurance provides smartphone-enabled self-inspection service to its customers. As nowadays everyone is comfortable using a smartphone and with the help of the simple camera feature, the inspection time can be brought down from a week to 11 minutes. CEO Vijay Kumar commented on modernization of products due to digitization: “We focus on modularization, rehauling of processes and digitalization in making of our products. For example, in our Travel Delay product, 100% of the claims are automated because we can track the delay of a customer’s flight, automatically, without any need for the customer to file a claim.”
AI, ML & BLOCkCHAIN
In the last few years, the BFSI sector has witness a technology revolution unlike ever earlier. Artificial intelligence, machine
learning, blockchain, analytics, RPA, API, data science, etc, are racing into the ecosystem.
Cigna TTK Health insurance uses AI and analytics for understanding the customers’ needs and to customize its products. Coverfox will use machine learning in 2019 to help customers conversion and cost cutting. The insuretech sees a big opportunity for blockchain in the coming years but has a concern that it needs to be adopted across the insurance industry for it to work. The company also started using a chatbot that helps customers in choosing the right policy suiting his needs.
Toffee insurance sees a big opportunity for AI and data science. CEO Rohan Kumar says: “We will see AI and data science play a bigger role in insurance. It will help in underwriting and pricing products for customers, analyzing the capacity of claims and process thereby making solutions more efficient. Fraud mitigation will leverage both these technologies where smart algorithms will dictate payouts based on past and predicted consumer behavior.”
He further adds: “Another development to watch is the emergence of blockchain technology and how various industries across sectors are adopting it. The same has been slowly penetrating the insurance sector, removing third-party intervention, eliminating paperwork and bureaucracy.”
Utkarsh Small Finance Bank sees a big scope in RPA. Fincare Small Finance Bank uses AI for banking solutions. Rajeev Yadav commented on blockchain: “Blockchain is very crucial technology - many banks are now doing projects on it, but it is will take s years for the any significant application of based on the technology in India.”
Both Rubique and Flexiloans see good opportunities in the technologies like artificial intelligence and machine learning. Manav Jeet speaks on importance of data science in understanding behaviour of the customers: “Data science plays a very crucial role. Blend of conventual and alternate data like shopping pattern and travelling data helps in understanding behavior pattern of the customers. This technology helps in bringing predictability in our business.”
Flexiloans is planning to create sharper data science models and invest into research to double the number of proprietary models. “We have a DELTA research lab in our company which focusses on new technology, to improve the speed and accuracy of customer onboarding, customer file processing and customer servicing and projects. We will work on multiple virtual reality and AI technologies that help in customer documentation in a very fast manner,” says Manish Lunia.
CASHe’s proprietary credit evaluation framework, the Social Loan Quotient (SLQ), uses a combination of big data analytics and proprietary artificial intelligence-based algorithms to evaluate tradition inputs and the user’s digital footprint to measure their credit worthiness. The SLQ determines both the loan amount and the interest rate to be charged, says CEO Ketan Patel.
Amit Saxena, MD & CEO, Unimoni says: “Our emphasis and investment on building data analytics while advancing customer assessment tools provide our customers an easy access to our multiproduct and multi-service platforms.”
Arvind Hali explains the use of latest technologies in the operations of ART Housing Finance: “Technology is critical for our growth and our vision is to be the new age housing finance company using technology to deliver a great customer experience. There is a tremendous scope for the technologies like AI, ML and blockchain. Machine learning has come to play an integral role in many phases of the financial ecosystem, from approving loans to managing assets, to assessing risks. While previous financial fraud detection systems depended heavily on complex and robust sets of rules, modern fraud detection goes beyond following a checklist of risk factors – it actively learns and calibrates to new potential (or real) security threats.”
NeW PrODUCTS & SerVICeS
BFSI challengers see opportunities in introducing new products and services for their customers in 2019. They foresee rise in demand for products like business loans, personal loans, secured loans, loans against property, loans against gold, 2-wheeler loans, affordable housing loans, MSME EMI card, wealth management and insurance.
Fincare Small Finance Bank has 85% of microfinance loan products in its portfolio. The bank will focus on alternate assets such as loans against property, loans against gold, 2-wheeler loans and affordable housing finance in 2019. Ujjivan Small Finance Bank will be introducing personal loans and will be active in vehicle finance in 2019.
R. Baskar Babu dwelt on the focus products for Suryoday in 2019: “At a strategic level, our focus is on scaling up the small shopkeeper loan segment, and on the current business operations. MSME business loans and secured loans continue to be amongst the fastest growing portfolio for us.”
The start-up fintech company CASHe is targeting young salaried millennials, and planning to double its business by 2019. It will be introducing other products like EMI card, wealth management and insurance products for its customers in 2019.
The other fintech company FlexiLoans.com has special focus
on underwriting the business loans. Manish Lunia reveals further details: “We will achieve high degree of automation in underwriting of business loan in 2019. Automation and adding surrogates in credit underwriting will be the biggest transformation for us.”
The newly established BFSI companies have made special strategies to target last mile customers and unserved customers in India. The Pradhan Mantri Jan Dhan Yojana and mobile penetration has brought many changes in the financial sector of India. Rishi Gupta, MD & CEO at Fino Payments Bank, sees an opportunity in providing accessibility to the Jan Dhan account holder and to the last mile customer: “Accessibility is something we are focusing on, which will include micro ATM, APS, domestic money transfer, etc. Largely we are seeing opportunities opening in rural India as well as for low middle group.” He sees digitization is growing in the unpenetrated and under-penetrated markets.
India Post Payment Bank is working on a sharp plan to leverage India Post’s entire network of 155,000 points, to provide banking service to the customer at their doorstep. It is focusing on creating sustainable last mile delivery model, focused on paperless customer onboarding. The bank is building a model that is highly digital in nature and has provided biometric devices and smart phones to its staff.
Suresh Sethi, MD & CEO at India Post Payments Bank, reveals the company’s core mission: “2019 is very watershed year for us to take banking to last mile customer. Our core mission is to promote financial literacy in India, both for the service providers and for the consumers. By the end of this year we will be training around 2 lakh people about banking. Consumer literacy will help them in understanding the financial needs of the customer - it is a critical objective for us.” IPP Bank offers a variety of transactions including Bharat Bill Payment System, NEFT, RTGS, IMPS, etc.
Ujjivan Small Finance Bank faced 2 main issues, transformation in to bank and impact of demonetization in its first year. The first 2 quarters were good for the bank and the company registered significant growth in particularly in micro-finance segment.
Samit Ghosh, CEO, Ujjivan Small Finance Bank, shares the banks strategy to target non-English speaking population of India: “We have developed our entire banking system on Aadhar based KYC, UPI payment system, paperless account opening and mobility devices so that we transact at customer workplace. We are among the few institutions that has mobile banking app in 5 languages. We want to reach out non-English speaking population of India, which is 90% of overall population and get them mobile banking actively especially in rural and semi urban areas of India.”
Rohan Kumar, CEO at Toffee Insurance, reveals his strategy to target unserved markets: “The insurance sector is reshaping with the entrance of new players in the market, by merging product thinking, data and technology with the existing structure of the industry. The new, lean players that have the ability to innovate are taking this as an opportunity to target underserved markets and provide them with simplified and tailored insurance policies.” In the last few years, many disruptions have happened in the market, such as affordable data plans launched by telcos and Pradhan Mantri Ayushman Bharat Yojana launched by the government. These have increased the awareness and accessibility about insurance.
Coverfox has a philosophy of building a platform of technology and product – which is very useful for offline agents. India has 2.6 million registered insurance agents. It helps the agents by providing them comparison metrics and other details about the insurance companies.
Premanshu Singh, CEO at Coverfox, predicts the transformation of insurance distribution in 2019: “The traditional insurance distribution, that we called insurance 1.0, is not going to scale. Going forward, a lot of distribution is going to be digital. Due to digitization in the banking industry and since the introduction of net banking and wallet services, the number of customers visiting banks has reduced considerably. As only a small number of people from urban India visit banks today, lesser number of insurance policies are sold through banks.”
Premanshu assets that in 2019, insurance companies will create products for digital distribution that can be sold only online and not by any other distribution channel. That means sachet insurance will be available at `1 and `2. Niche insurance products too will be introduced, continuing the existing innovations such as dengue and heart insurance. Low ticket insurance will pre-dominate in 2019.
IDDAI is opening new distribution channels, digital route and PoS are the path breaking innovations by regulators that has helped the insurance companies to be more relevant to the customers. Prasun Sikdar, MD & CEO at Cigna TTK Health Insurance chipped in: “Insurance is still a push product, so this industry requires both distribution reach and technology.”
ATTrACTING TALeNT, GeNY, GeNZ
Employees retention and hiring has emerged as a crucial challenge for most BFSI companies. They face problems in finding the right talent that matches the job profile. The biggest problem is getting experts for the IT department for openings related to data science, analytics and AI. The companies also taking time in recruiting a person as the process goes through multiple discussions with
Start-up companies provide monetary benefits to the employees to retain them. They also maintain an informal culture in their office to make the employees feel relaxed. Manish Lunia dwells on this issue: “Attracting talent is always a challenge and Mumbai has limited pool of tech and data science talent and we keep working to attract best talent to join us. We are the only fintech company to have received ‘Great Places to Work’ recognition in 2018.”
India Post Payments Bank faces peculiar HR challenges: “We see some challenges in employee retention as we are a public sector organization. We face difficulties in attracting cutting edge talent from the private sector. Cutting edge talent is critical for us, because technology is the important determent for establishing the low cost digital model. Hence, we are very keen on hiring people having right skillset. We are trying to come out with solutions for this challenge, so key skilled people from private banks can work for us,” Suresh explained.
R. Baskar Babu talks about GenY and GenZ employees: “In our organization there is a thinking gap between GenY and GenZ employees. What we need is a combination of new and experienced employees for effective working of the organization.”
BFSI organizations face a variety of regulatory challenges in the course of their operations. The regulatory restrictions affect not only the operations, but also funding, mergers and expansion.
Ujjivan Small Finance Bank faced regulatory challenges in a reverse merger with Equitas Small Finance Bank. Samit Ghosh explained: “As per the RBI, for bank merger both banks need to be listed. As we both are newly established banks, we are still not a listed as banks. However, our holding company is listed. RBI wants both the banks to be listed separately as banks not as holding companies. This is the challenge for us and we are working on finding a solution.”
NBFCs in India are facing the challenges of shortage of capital. Rishi Gupta would like regulators to solve NBFC problems in the coming days: “We service SMEs, MSMEs and lower income groups. If the NBFC credit to the SME and MSME is squeezed, it impacts the lower income groups as its disposable income and saving potential will come down significantly. We are waiting for the regulator to come out with some direction in this matter.”
FDI in insurance distribution is one of the biggest changes expected by many insurers. Premanshu Singh commented: “I am expecting a big change from the regulatory perspective. Currently 51% holding has to be with an Indian entity and 49% can be a foreign entity. But IRDA is likely to allow 100% FDI in the coming months. That will attract foreign capital investment and also venture capital to grow the ecosystem.”
AADHAR & E-KYC?
Aadhaar played a critical role in providing banking access to millions as new age banks built digital eKYC process centred around it. However, the recent Supreme Court guidelines regarding usage of Aadhaar eKYC for banking – not allowed, not mandatory – is a challenge for most of the newly established financial companies. Aadhar based eKYC was reliable and easy method to get the customer information and to open bank account.
Samit Ghosh shares some details: “The Supreme Court decision on Aadhar based KYC has impacted in our business; it doesn’t affect our micro-finance customers as they benefit from direct benefit transfer. But it had impacted our other customers. We will be handling devices but as eKYC is not eligible now, some paperwork will be required.”
Ketan Patel, CEO, CASHe reveals the details about the solutions for solving Aadhar based eKYC problem: “Many changes in eKYC and Aadhar regulations have impacted businesses and viability for fintech loans in some segments. There are alternate solutions to Aadhar based KYC and banks must come up with such alternative to solve the problem. It is a problem but not an issue which cannot be solved.”
GEOGRAPHY AIDS GROWTH
The tier 2,3 & 4 cities of India have grown significantly. Many SME and MSME have started their operations in these cities, creating opportunity for banks and insurance companies. Along with these cities, the rural markets offer a good potential.
Fino Payment Bank used to do transactions worth `0.5 billion a day, now they are doing `2.5 billion worth of transactions a day – a 5X increase. Its bancassurance platform for life and non-life has also grown over 4X since the start of the bank. It has close to a million CASA customers with 50% debit card penetration. Domestic remittance has grown by 5X since July 2017. How was all this achieved? “We expanded our merchant network. We started the bank with 25,000 merchants points, now we have over 60,000 and plan to have a network of 1 lakh by 2019,” explained Rishi.
IPP Bank focuses on reaching the last mile customers: “Indian Post Payment Bank want to leverage with the entire post network. We have 170 million India Post account holders, who have saving account with us, and we will transform those India Post customers to our customers and will provide them other banking services as well – that is our mission.”
Ujjivan Small Finance Bank has 25% of its branches in the rural areas of India. Samit Ghosh reveals the geo-expansion plans: “By