The headline (and sub-title) ‘This evolving digitization scenario brings us to wonder if the commercial banks shall vaporize completely in the decades to follow.’ in this comparatively long article, posted in BW Business World, asks a provocative but legitimate question about the future state of commercial banking. The term ‘commercial banking’ has several interpretations, but if one thinks of all banking services not falling into specialties like Thrifts (Savings), Credit card banks, Credit Unions and ILCs, then the rest kind of fall into the broad commercial banking space, serving consumers, small and larger businesses. In this article, the author’s perspective is India, which is now in the top ten world economies at roughly $3 trillion GDP, and in the midst of broad digital capabilities adoption across financial services. The focus is mostly on retail and small business banking, which is where the impact of latest gen tech is being most realized, at least for now.
‘Digital influence in the Indian banking sector has been growing faster due to the rising digital footprint. In India, verifiable information and documents captured through initiatives like the Digilocker, GSTN and Aadhaar data stack are globally unprecedented as an enabler to ‘presence-less and paperless’ banking. Digital banking penetration has doubled, and the frequency of digital channel usage has increased fourfold in the last three years. India’s digital lending stood at US$ 75 billion in FY18 which means 85% of all Indian banking customers use digital banking services in their personal lives. In such scenario if someone has to choose between commuting all the way to the bank to spend hours waiting in a long queue or rather getting the same task done with a few clicks of mouse, the answer is pretty obvious.’
The author goes on to point out many of the technology-driven banking changes underway now, most of which are not really new but being more widely distributed and utilized by India’s population, which has been almost exclusively cash dependent in the past. These include mobile, ATMs, and so forth. The real gist of the piece is the list of ten other emerging technologies (such as BCT, APIs, AI, e-Payments, etc) and how banks may or may not play a visible role in years to come. These have a more near-term (less than 10 years) potential impact on traditional retail banking versus corporate, which has more complicated things to unpack, but remains a strategic planning imperative.
‘Banking in India is at the crossroads now. New competitors are constantly emerging. Players in new categories like small finance banks and payments banks are challenging traditional banks to think beyond merely acting as a ledger of financial transactions and processing payments. They need to play an advisory role, enabling customers to manage budgets, control spending and improve savings with innovative products and offerings. Advice should be data driven, insightful, timely and contextual for every individual account holder….Adapting to this new world of digitization and automation requires a lot more in terms of machines and technology. This new level of dependence introduces new risks particularly in the cyber world. The architecture of the bank’s IT systems will need to strengthen the confidence in the payment systems, monitor the types of frauds and maintain a balance between ease-of-use, ease-of-access, and the level of security.’
A good read to gain some perspective on an interesting market.
Overview by Steve Murphy, Director, Commercial and Enterprise Payments Advisory Service at Mercator Advisory Group