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Digital Banking

Opportunity for Extraordinary Gains
in Reach, Service, and Productivity
in the Next 5 Years
September 15, 2014

Digital Opportunity Engage customers on digital channels for higher engagement / sales • Not just lower cost Digitize various processes to improve efficiency • Sales • Back office • Credit collections / monitoring • Administrative functions Create propositions to attract the digitally savvy – fast growing segment Work together to create systemic efficiency (eg. Eradicate cash) Digital vs digitization-15sept14.pptx 1 .

transactions per account across banks (FY 14) Balance / active account 100.CASA growth = Transaction growth Savings balance vs.000 0 0 10 20 30 40 50 60 Total transactions / active account Digital vs digitization-15sept14.000 R2 = 92% 60.pptx 2 .000 40.000 80.000 20.

pptx FY 20 (I) FY 20 (II) 3 .Digital transactions will dominate in 5 years Transaction profile of Indian Banks Growth CAGR Digital 18% 40% 53% 40-50 % ATM/CDM 20-30% Traditional 3% FY 14 Digital vs digitization-15sept14.

Emerging paradigms Current Paradigm Emerging Paradigm Deposits business … offer payments for free Payments service … deposit follows Source: BCG analysis.pptx 4 . Digital vs digitization-15sept14.

Digital activation is very rewarding Example: Cross sell in Current Accounts Customers Number of products from primary bank 8 6 4 2 0 0 1 2 MSME Digital vs digitization-15sept14.pptx 3 4 5 + No. of channels used by customer Shopkeeper 5 .

1% Mobile 1.Customer activation is low Accounts active on SA CA POS 5.7% 1.0% 9.pptx 6 .6% – Internet 3.6% Digital vs digitization-15sept14.

Small business claim banks are disinterested # of digital channels used 5 19 % 4 11 % 3 70 % 2 1 0 Never / Don't remember Once Many times # of times digital channel was explained Digital vs digitization-15sept14.pptx 7 .

pptx 8 .Why is digital adoption low? Too busy opening accounts Cumbersome on-boarding process Organizational ownership of digital channels not prominent Digital channel designed for transactions – not for engagement / sales Disproportionate attention on retail (SB) at the cost of SME (CA) Digital vs digitization-15sept14.

594 1.pptx 756 Private (Old) 1.052 933 PSU (Large) 860 897 796 PSU (Medium) FY 12-13 Digital vs digitization-15sept14.Customer acquisition productivity is stagnant Number of savings bank accounts opened per metro and urban branch 1.468 Private (New) FY 13-14 9 .

5x 10 .5x Digital vs digitization-15sept14.Digitization of sales is huge opportunity BCG Experience Impact Productivity 1.35x +35% x TAT First Time Right (FTR) 1.pptx Travel time x -55% 0.33x x x +33% -50% 0.

4 1.3 9.2 2.4 3.3 PSU (Medium) PSU (Large ) Private (Old) 4.5 2.Could public sector leap frog to a digital back end? Back office FTE as percentage of total FTE (FY 14) 13.9 4.0 5.3 Operational Digital vs digitization-15sept14.8 1.0 3.7 1.pptx 10 Global benchmark Private (New) Credit 11 .

3 Global median (10%) Digital tools for efficiency Ultra transparent performance management Optimum resource allocation s PSU (Medium) PSU (Large ) Digital vs digitization-15sept14.1 11.7 13.pptx Private (Old) Private (New) Industry Re-engineer administrative / functional processes 12 .5 11.10-20% over staffing in administrative functions Admin staff / Total bank FTE (FY 14) % of total bank FTE 14.2 10.

Technology spend in India Spend on technology as % total revenue 5.7% 4.6% 3.3% 2.9% 5.8% Private (New) PSU (Large ) Average in FY 12 Digital vs digitization-15sept14.1% 3.pptx Average in FY 13 Average in FY 14 13 .

New approach to technology Human Centered Design What is the real "need"? Iterative.pptx 14 . short sprints What solutions are "feasible"? Minimum "viable" option? Digital vs digitization-15sept14.

pptx IT Change capacity Value leakage between design and execution Vendor Capabilities Compete with BAU 15 .Seven hurdles in digitization Non .Human Centric Design Risk perception Multi stake holder alignment Digital vs digitization-15sept14.

digital channels are alternate Digital channels at the core Digital vs digitization-15sept14.pptx 16 ."Bank in a Bank" for creative destruction Incumbent Bank Digital Attacker Bank Typically universal Target The Digitally Savvy Customers Digitise the legacy Processes designed from scratch Branch at the core.

...At first people refuse to believe that a strange new thing can be done.then it's done and all the world wonders why it was not done before.and then they hope it can be done. – F H Burnett Digital vs digitization-15sept14.pptx 17 .then they see it can be done.. .... .