INNOVATI
ON OR INNOVATION
Introduction
The headquarters of Professional’ Professional ’s Bank of India (PBoI), situated in the heart of Mum bai’s innovation district exuded the quiet confidence that was customary with one of India’s youngest banks. In its relatively short eleven year journey, PBoI had emerged as one of the country’s top 5 banks. Amid st turbulent global markets and slowing domestic growth, PBoI had carved out a niche as one of the fastest growing banks in the country and a global trust mark. In a relatively commoditized and highly competitive market, PBoI has created a unique differentiated positioning through Knowledge banking driven relationship oriented strategy, focusing on the emerging sectors of economy. As a full service Commercial bank, PBoI combines the strengths of its Relationship teams, Knowledge Bankers and Product experts to provide customized financial solutions solutions to its clients. Another differentiator for the institution was the concerted focus it had placed on Innovation and Digital Banking. Blending frugal innovations and some pioneering initiatives the bank had created a distinct positioning in the technology led innovations space. One of its recent initiatives to provide frugal technology solutions to the unbanked and under-banked segment had received plaudits within and beyond the industry, as also within the media. Naturally, the quarterly presentation of the Innovation and Digital Banking team to the management of the Bank was one of the most awaited presentations. Not only was it a welcome break from the usual rigmarole of risk assessment and growth projection charts, but also an opportunity to get a sneak preview of the exciting innovations lined up by the Bank. Digital Banking Presentation
The digital banking team wanted to showcase the rapidly changing landscape of banking to the management and make a case for implementation of the Digital Banking Innovation Roadmap. His team’s presentation today would would present an in depth analysis of the effects of Page 1 of 14
this rapidly evolving scenario. The implementation of the digital banking innovation roadmap would be critical in maintaining PBoI’s pre -eminent position as a pioneer in Digital Banking. PROFESSIONAL’S BANK OF INDIA (PBoI) - BACKGROUND & PATH FORWARD
PBoI has shown impressive growth in the last eleven years. It has scaled greater heights and now strongly positions itself amongst the top five private banks in the country. The dynamics in the Indian Financial Services sector have been undergoing a change in the past few years. Timely regulatory reforms in the sector have introduced new challenges as well opportunities for the existing and new banks. According to a report by the Internet and Mobile Association of India (IAMAI), digital payments are expected to grow by 40% on the back of rising transactions in e-commerce, utility bill payments and other online transactions. Statistics show that nearly 50% of e-tailing is still cash on delivery and as that shifts towards pay on delivery or pay on order, the numbers will only rise. The Bank has been successful in creating a unique differentiated positioning through knowledge banking and relationship oriented strategy. PBoI is now on the anvil to chart a Digital Strategy for the Bank to respond to market needs and also remain above competition. Strategic Discussions
The Head of Digital Banking leads the deliberations along with other Senior Management personnel including Business Innovation & Strategy, Marketing & Communications, Finance and Technology Operations. The deliberations revolve around current digital projects of the Bank being executed and the roadmap for future, ways to implement it and the dilemma about which route to take for introducing disruptive innovation in the digital space. It is interesting to see that the scope for product innovation in banks has increased multi-fold but at the same time the competition has increased as well with banks not only facing competition from the banking sector but also from the non-banking sector. The retail consumer segment is being catered to especially in the payments space by the non-banking sector providing avenues to the sector for sophisticated customer engagement. 3-D Effect of Digitization: Demographic, Disruptive Technologies & De-Regulation 1. Rapidly Changing Demographics: Global Increase in Digitization
In the past 3-4 years, consumers have rapidly adopted digital technologies, with the adoption rate of some devices like smart phones being particularly high in the Asian markets. As per a Finacle Connect report globally 90 percent use at least one digital channel – and globally 70 percent use 3 digital channels on an average.
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With the proliferation of e-marketplaces the consumer decision journey is beginning to move completely online from the pattern of online research and offline purchase. Digital ads and social media are being used to build product awareness online, interest is expressed through peer discussion on various existing social platforms as well as up and coming ones like Snapchat. Even the buying decision is influenced by online peer discussions and price comparison websites. However, the biggest shift has come with the eye-catching online offers and wide variety of choices on e-market places – the purchase itself has gone digital. The trend will only accelerate as the young and digitally savvy generation matures as consumers. Three major shifts in consumer behavior which banks and financial institutions need to be cognizant of are:
Increasing usage of digital media across Asia and in particular India – including higher penetration of mobile, internet and smartphones across markets
Channel Preference Shift – Channel preference has shifted among younger and wealthier segments toward non-branch channels. 40 percent of Asian mass-affluent customers now prefer online or mobile banking; among those under 40 years of age this preference rises to 50 percent1
Multichannel consumer decision journey – path towards purchase from awareness to research, subscription and maintenance has become a multichannel journey. Banks will be able to boost flagging customer loyalty and increase share of wallet by offering an integrated and seamless customer experience across channels
Emerging Consumer Segments basis Trends
Given this paradigm shift, banks will now need to quickly adapt their offerings and propositions to the digiphilic consumer. Some research reports have identified some key emerging consumer segments who would be key influencers in the digital banking and multichannel banking sphere: Figure 1: Emerging Consumer Segments with greater Digitization The Techfluent Digitally Savvy Extremely prosperous Well Educated Next gen/Second Gen entrepreneur or Top/Senior Management of organizations
Digital Change Makers
Gen Z
Young go-getter Mass-Affluent Significant Disposable Income Fast rising to leadership roles
15-25 year old Financially dependent/first job Form crux of consumer base
1
2014 Digital Banking in Asia: Winning Approaches in a New Generation of Financial Services - McKinsey
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While each segment has its unique facets, across these segments the common thread is the expectation of their complete banking needs to be addressed through digital channels. 2. Disruptive Technologies: Evolving Strategic Outlook of Banks the World Over
Banks, the world over, have taken or rather been jolted to action to embrace the digital revolution. There have been significant investments in technology migration and updation of web and mobile technologies, as well as definitive increase in innovation budgets. According to research, spend on digital channels in a Bank will account for USD 10 billion in 2018. Banks around the world have added one new channel in the past five years. Mobile friendly banking tops the list of digital channels being implemented. 2 In Asia alone, more than 700 million consumers use digital banking with a significant number of those consumers being in India and China. Financial Institutions on the other hand are quickly adapting to tech savvy consumer segment as banks find such consumers to be more attractive as they are more educated, have higher account balances and are very active in online shopping.3 The questions for Banks and How they have Responded
This rapid proliferation in e-commerce and non-bank companies entering in the digital payments sphere poses a significant question to traditional banking models. PBoI has classified the five common strategic responses of Banks using the following Strategy matrix.
Fig 2: Strategy Matrix of Response of Banks to Growing Non-Banking Competition
2
Finacle Connect: Connecting the Banking World: Banking on Digital Channels. Infosys Limited, 2014, Vol. 8, Issue 29. 3 McKinsey & Company: Digital Banking in Asia: What do Consumers really Want , 2015
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Co-Creating Disruption
Direct Competition
Incorporating digital advancements into banking model
Collaborate with the competitor and co-creating a game-changing offering
Balanced Approach
Collaboratingto improve some functionalities while maintaining rivalry in others Dogged Defense
Sticking to core strengths and improving them to attract consumers
Traditional Collaboration
Collaborating to improve traditional banking models
Level of Digitization(y) vs Level of Collaboration with Non Banking Competitors (x)
The following examples further highlight the significance that banks and financial institutions have been placing on digitization and social media banking a. Barclays B pay band: Bpay the Barclays wallet now has a wearable payments solution. It is a wristband that enables customers to make transactions in shops, bars, cafes as well as public transport. This device allows customers a simpler way to pay for goods and services by just tapping their wristband. b. Turkcell Wallet: This is a digital wallet product that offers consumers the payment option for both online and POS transactions based on the NFC technology. It supports NFC with a secured layer that is built within the SIM card itself. It also allows the user to store credit, debit cards, tickets as well as digital ID. Also allows p2p money transfers. c. Jibun Bank : Jibun Bank which launched its App as early in 2010 now offers customers the benefit of e-KYC and e-ID as well. The App which now has NFC payment features has helped the bank increase deposits by 62% in FY 2013-14. d. Banco Sabadell: Banco Sabadell of Spain this year launched an app on Google Glass. The bank’s Google Glass app will allow users to connect to the internet and carry out all kinds of operations via voice commands. Other features being built in is looking at a cheque and depositing it with voice commands.
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e. Commonwealth Bank of Australia offers a mobile app that uses “augmented reality” technology to help with home-buying. House hunters simply point their smartphone camera at a residence to bring up extensive property detail, alongside monthly payment estimates on mortgages and insurance. The entry of Non- Banks: Challenge or Opportunity? In addition, banks increasingly realize that to succeed with digital, they must adopt the habits and culture of digitally native companies who have also fast established themselves as strong competitors in the sphere. Some technologies which present a significant threat as well an opportunity for banks are:
a. Alipay: Alipay.com is a third party online payment site, which does not have any transaction fees. Launched in 2004 in China, Alipay today has the biggest market share in payments in China with 300 million users and controls almost half of China’s online payment market. b. Moven: Moven is the world's first real-time mobile money tool. It's a revolutionary service that lets you spend money from your mobile device and provides instant feedback on your transactions and spending patterns. They also help in budgeting and linking all banking accounts, as also a track of nearby stores and geo-location. c. Square: Square changed the game in the micro-merchant segment (merchants with electronic sales volume below USD 250 million) through innovative “self-service” distribution and seamless wireless connectivity. d. Mswipe: M-Swipe has given an alternative solution to POS machines given by banks, thus increasing the reach of digital payment to traditionally cash-only transaction-based services (such as barber shops, kirana stores, etc.) 3. Deregulation in India: Entry of Non –Banks Payment Banks: Growing Challenge or New Opportunities: In August 2015, the Reserve Bank of India made good of its promise to give out payment banking licenses. From telecom players like Airtel to wallets like PayTM – the central bank gave the nod to 11 applicants. While the primary objective of these banks will be to increase financial inclusion by providing small savings accounts, payment/remittance services by enabling high volume-low value transactions in deposits and payments/remittance services in a secured technology-driven environment, they will be a significant player in the evolving financial ecosystem. Digital Innovations by PBoI
Banking today is fast moving from the traditional model of brick and mortar to digital devices. An interesting combination of human and technology support is creating waves in how we engage with our clients. In light of the changing consumer demographics, there is an urgent Page 6 of 14
need to modify the banking channels. PBoI has cautiously responded to consumers’ needs and demands from time to time and successfully have improved customer satisfaction. All digital initiatives of PBoI are built on the partnership model- based on its philosophy of “co creation and co-operation”. The partnership model reflects the Bank’s core ethos of relationship banking coupled with knowledge driven banking. 1. E-Comm Smart helps e-commerce companies to build in efficiencies in the COD transactions by making available a smart box at strategic locations that are accessible 24/7. Through this product companies can also accept payments trough cards using PBoI merchant acquiring solutions embedded within the smart box. 2. Get Smart: technology of SIM sleeve is used to enable P2P payments across smart and feature phones whereby users are prompted for inputs to conduct the transactions through an app which is triggered by the sleeve. The Bank has focused on digital inclusion of non-smart phone users through this unique technology. 3.
Bank Statement Analyzer: Relationship managers can analyze all the bank statements provided by the customers to avail SME products and arrive at key ratios/parameters to build a credit score card. Technology deployment through this tool has improvised the Bank’s operational efficiency.
4. Partnerships: Several strategic partnerships with e-commerce companies have been executed to issue co-branded prepaid cards to their wallet users. The partnerships have been undertaken to maximize spend campaigns to increase usage of digital channels of the Bank.
Way forward & Strategic Outlook
The Bank has gained significant momentum in introducing various digital channels. However, with proliferation of social media and competition from non-banks in the payments space, the Bank needs to introduce disruptive innovation in customer acquisition and engagement category. As more and more digitization will take place, customer engagement will be paramount for the Bank to stay ahead of the competition curve. The Strategy team of the bank had laid out the framework with the Innovations team for evaluation and implementation of the new digital banking roadmap.
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Figure 3: Digital Banking and Innovation Roadmap – Strategic Framework Business Outcome Heightened Customer Engagement
Quantum leap in Customer Acquisition
Brand Buzz
Payments Innovation n o i t a v o n n I f o e r e h p S
Comprehensive M-banking
Social Media Banking Data Analytics and Predictive Models
Several ideas have been tossed around in the meeting. One of the teams voiced its opinion that the innovation roadmap should be structured around the core competencies of the bank as a digital banking leader, while another felt that market attractiveness in terms of size, profitability and the existing competition should define the roadmap.
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Expectations from You
As the Chief Innovation Officer of the bank and the leader of the Digital Banking and Innovation team, you will have to guide the team by: 1. Conducting a comprehensive research with your team on:
a. Breakthrough innovations in banks and non banks globally and in India b. Force-rank these innovations basis their business success c. Benchmarking of Indian and top foreign banks strategy in digital banking space for customer engagement d. Possible challenges or opportunities for PBoI in the digital banking segment from banks and non-banks 2. Basis your research and the framework shared by the Strategy team create the innovation roadmap for PBoI. Your may choose to concentrate on any one or all of the spheres of innovation with any or all of the target business outcomes. Naturally you will have to support your strategic route/s with business justifications (size of target market, strategic fit with competencies) as well as broad budget allocations. Note: Answers
should be within 1000 words in Book Antiqua font size 12. For details please check submission guidelines. Also enclose a 200 word Executive Summary (exclusive of the above). Your submission should not exceed 10 pages.
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Exhibits
Exhibit 1 Opportunity for Banks: Growing number of smartphone users Number of smartphone users
388
389
162
224
FY 14
FY 15
364
304 FY 16
Number of non-smartphone users
332
386
FY 17
Source: Digital Banking: BCG Analysis
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291
467
FY 18
243
195
550
625
FY 19
FY 20
Exhibit 2 Consumers’ experience with non-bank digital companies increasing expectations from banking sector
Uber Amazon
Ebay
Source: Digital Banking, BCG Analysis
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Google
Apple
Exhibit 3 Composition of transactions in Indian Economy Cash and cheque transactions
Electronic transactions
< 10%
>90%
Source: RBI, Ministry of Finance, Government of India, Planning Commission, PwC analysis
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Exhibit 4 Consumer shift in Emerging Asia: Use of Digital Channels 2011
2014
54%
21% 60% 33% 12% Branch/Telephone
ATMs
3%
5%
Smartphone
Internet Banking
Source: Digital Banking in Asia, What Consumers Really Want; March 2015
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12%
Exhibit 5 Account opening process at Jibun Bank using smart phone
Take photo of the driver’s license with smart phone camera
Also take photo of backside of the driver’s license with smart phone camera
With OCR function on dedicated application, information on license can be captured
Enter additional information and send to Jibun Bank
After sending the necessary information, ATM card is sent within several days
Source: Finnacle Connect: Banking on Digital Channels
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