For 67-year-old Bengaluru pensioner Philip Mathew, a trip to the bank usually meant setting aside half a day, waiting in long queues and shuttling from one counter to the other. Born in 1946, the year before India’s independence, his experience encapsulates what most Indians felt of banking services in the country for the better part of the past 50 years.
Today, it’s hard to imagine a similar scenario as millions of Indians, having never written a cheque in their lifetime, get ready to conduct financial transactions on their phones. Over the next five years, more young Indians will use mobile apps to go Dutch on a night out or tap their phones to pay for cups of coffee.
Driving change
Anticipating a tectonic shift in the banking sector, all major lenders in the country are rolling out online, mobile and social banking extensions to keep pace with the rapidly changing marketplace. “Digital in India has the potential to transform the banking landscape the same way mobile phones changed the face of telecom connectivity in the past decade,” says Hemant Jhajhria, Partner for Strategy and Operations — Financial Services at consultancy PricewaterhouseCoopers in Mumbai.
Driving the disruption in India’s financial sector is the rising number of millennials such as Shuvam Ghosal, a 23-year-old student pursuing postgraduate studies at Bengaluru-based media school Commits. Ghosal, who conducts online transactions more than once a week, says he prefers digital banking over visiting a branch to avoid the long queues. “The ease and comfort of 24X7 online banking enables me to check my account balance, remit funds, and even do simple things like topping up my phone credit.”
Today, there are more than 340 million Indians like Ghosal between the ages of 15 and 29 — almost one-third of India’s population of 1.2 billion. As the largest demographic of its kind in the country’s history, these millennials pack a significant punch, and banks are taking notice.
“India’s unique demographic and changing consumer lifestyle, seeking convenience, choice, better price and greater flexibility are growth drivers [for digital banking],” says S. Ramakrishnan, Head — Retail Banking and Wealth Management, HSBC India. “In order to live up to the expectations of customers, banks will have to change the way they operate [and] respond to the digital revolution to make a meaningful difference.”
Huge potential
In a research report in June, US lender Citibank highlighted two factors that bode well for digital banking in the country: the government’s financial inclusion push and the ubiquity of mobile devices, especially smartphones.
India’s government under Narendra Modi intends to universalise access to banking with an account for every household in the country. Under Jan Dhan Yojana scheme launched last year, more than 150 million low-cost bank accounts have already been opened, holding overmore than Rs160 billion (about Dh9.1 billion) in deposits. It is also rolling out the Aadhaar biometric identity card — the largest national identity programme in the country’s history. The digital database covers about 70 per cent of India’s population and eventually 800 million Indians will get government subsidies as direct bank transfers. This has huge implications for the banking sector, as the bulk of these people will need new bank accounts.
“Digital banking will accelerate the integration of the unbanked segments in India,” says Jhajhria. “Its attributes such as low cost, ease of use, scalability and ubiquity will help achieve financial inclusion.”
India’s mobile revolution has the potential to make a big difference in changing people’s financial behaviour, he explains. About 45 per cent of India’s population still have no formal bank accounts, but the country had nearly 970 million mobile phone subscribers in May, according to the Telecom Regulatory Authority of India. The number of mobile subscriptions is expected to increase to 1.4 billion by 2020, driven by the rise in affordable devices and services, according to a June report by telecom company Ericsson.
Nitin Chugh, Head of Digital Banking, HDFC Bank in India, expects mobile to be the most important banking channel for rural India, with Aadhaar providing the verification platform to open new bank accounts. “The penetration of mobile phones in rural India far outnumbers the penetration of bank branches and even the average unbanked person is comfortable using basic SMS technology on their mobile for transactions,” he says.
While overall internet penetration in the country is still low at 18 per cent, a large proportion of users (more than 90 per cent) use mobile phones to access the internet. “India is moving in leaps and bounds in terms of internet adoption, and new users are accessing the web on their phones,” says Chugh. “Digital devices will empower India’s unbanked population and introduce them to the benefits of the financial ecosystem.”
According to technology firm Cisco, India will have 651 million smartphone users by 2019 and mobile data traffic is expected to grow thirteen-fold between 2014 and 2019. The government is investing nearly Rs1.3 billion in the Digital India project aiming to provide universal mobile phones and rural broadband coverage in 250,000 villages, Wi-Fi hotspots in every city with a population of one million plus and smartphones in every hand by 2020. “By putting in place a digital infrastructure road map, the government has taken a step forward in the direction of enabling digital access to financial services,” says Ramakrishnan.
While digital banking is crucial to the growth of banks, the ground reality is more sobering. India is still a heavily cash-dominated economy. The use of plastic is low, with credit-card penetration at just under 2 per cent and debit cards at about 40 per cent, according to the Citibank report.
Digital breaks barriers
Given the ubiquity of smartphones and the rising number of millennials in India, one area that has seen explosive growth in recent months is mobile payments.
Start ups such Paytm, MobiKwik, Oxigen and Citrus are the leading mobile wallet service providers in India already challenging the status quo of traditional banks. Paytm claims to have 50 million users and plans to add 100 million by the end of this year. MobiKwik says its user base has grown by close to 300 per cent and has reached more than 15 million over the past year.
“Digital has substantially reduced entry barriers in the financial services industry in India, making it easier for players from other sectors to enter specific segments of the banking value chain,” says Jhajhria. “Traditional banks are being forced to alter their strategy and focus on innovation in the digital space to remain relevant and competitive.”
Leading private banks such as HDFC, ICICI and Axis Bank have also launched payment solutions, seeking to tap millennials within their customer bases. “Going forward, digital is the way of banking and our job is to simplify the experience for customers who bank with us,” says HDFC’s Chugh.
The country’s largest lender, State Bank of India, has committed to spending nearly Rs30 billion a year to expand its digital presence, business newspaper Financial Express reported in June.
