Bank Management

PGDM
IIMC
2020
Praloy Majumder
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Session Four

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Fintech

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 Fintech transition

Pay Tech Credit Tech Wealth Tech Insurance Tech

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 Level 3 of pay tech firm
• Social media to payment process :
– Start with social medium
– Increasing loyalty
– Understanding customer behaviour
– Payment services
• Venmo , What’s app pay
– Targeted for young millennials

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 Level 3 of pay tech firm

Contactless payment QR Code Iris based payment

Physical transaction with social distancing

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 Credit tech firm
• Pay tech firms are gathering data of the
customer
• Pay tech firms can get more insight
about customers behaviour
• Pay tech firms can create better credit
underwriting models and then can lend
• Thus the formation of Credit tech firm

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 Credit tech firm
MSME lending

E commerce firm Kirana shop

Pay tech firm

Customer
data
Structured and unstructured data
Customer Financial
AI and ML Data
Based
AA
Retail lending algorithm

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Open banking : AA model
RBI SEBI IRDA PFRDA

Banks DP
SB Equities Insurance Pension funds
Payments Securities Policies Portfolio

PC
R AA Customer

CIB Personal
Robo
Credit Finance
Advisory
Management
IIU

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Financial Information User
 Global evolution

E commerce Pay tech Credit tech

Social media to payment

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 Indian scenario

Pay tech Credit tech , wealth tech ,

E commerce
Insurance tech

Payment bank

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 Indian scenario

Telecom Physical presence E commerce

Digital wallet Payment bank Kirana linkages

Reliance Account
NBFC Aggregator 12
Lessons from Ant Financials –
suspended IPO

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Pandemic and digitalisation
impact – trend observed

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 Digital shift ….
Govt in 31 Visa and
countries raised Master :
limits of Transactions
contactless have increased
payment by 40% in Q120

33% ( Up by
Payments
50%) of 18000
processed by
street vendors
Venmo
of Singapore
increased by
moved to QR in
50% in Q22020
2 months

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Digital shift- Santander’s digital
transaction increase in H1
50% in
Mexico

30% in
South
America

20% in
Europe

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 Coexistence :
Fintech and bank
collaboration

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 Four stages

• Stage I : Tech firms would rely on

crumbling structure of existing
incumbents banks. Banks would run the
payment infrastructure but payments
and non core activities would be
opened up to new incumbents .

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 Four stages

• Stage II : Payments would routinely cut

out the existing players :
– European Fintech can initiate transfers but
they still move money between bank
accounts
– In Sweden Fintech originates 60% of
consumer loans

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 Four stages

• Stage III : Era of “ super-apps”

– WeChat’s users can also use more than 500,000
mini-apps on its platform
– Tata group is planning to launch “ super-apps”

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 Four stages

• Stage IV : Fintech involves in

production and distribution of financial
services – may not ever come

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Possible collaborative
structures

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Digital lending

Banks NBFC

Borrowers Platform
Digital Lending

NBFC/Bank Fintech

FLDG

Borrower
Digital Lending

NBFC/Bank Fintech

FLDG

Platform

Borrower
Digital Lending

Mobile manufacturer Fintech /NBFC/Bank

Borrower
Digital Lending

Bank / NBFC
Payment Bank

Rule
Engine Borrower
Digital Lending

Bank / NBFC
DSA

Rule
Engine Borrower
Digital Lending

Borrowers Online Portal

In principle
approval

Online Portal
Digital lending

Lender P 2 P Platform

Borrower
 P2P Lending
• act as an intermediary providing an online
marketplace or platform to the participants involved
in Peer to Peer lending;
• not raise deposits as defined by or under Section
45I(bb) of the Act or the Companies Act, 2013;
• not lend on its own;
• not provide or arrange any credit enhancement or
credit guarantee;
• not facilitate or permit any secured lending linked to
its platform; i.e. only clean loans will be permitted;

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 P2P Lending
• not hold, on its own balance sheet, funds received
from lenders for lending, or funds received from
borrowers for servicing loans; or such funds as
stipulated ;
• not cross sell any product except for loan specific
insurance products;
• not permit international flow of funds;
• ensure adherence to legal requirements applicable to
the participants as prescribed under relevant laws.
• store and process all data relating to its activities and
participants on hardware located within India.

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 P2P Lending
• undertake due diligence on the participants;
• undertake credit assessment and risk profiling of the borrowers
and disclose the same to their prospective lenders;
• require prior and explicit consent of the participant to access its
credit information;
• undertake documentation of loan agreements and other related
documents;
• provide assistance in disbursement and repayments of loan
amount;
• render services for recovery of loans originated on the platform.

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 P2P Lending
• NBFC-P2P shall maintain a Leverage Ratio not exceeding
2.
• The aggregate exposure of a lender to all borrowers at
any point of time, across all P2Ps, shall be subject to a cap
of ₹ 50,00,000/-.
• The aggregate loans taken by a borrower at any point of
time, across all P2Ps, shall be subject to a cap of ₹
50,00,000/-.
• The maturity of the loans shall not exceed 36 months.
• (6) P2Ps shall obtain a certificate from the borrower or
lender, as applicable, that the limits prescribed above are
being adhered to.
Implementation strategy of
changing banking through
Fintech Collaboration

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 Income statement ..…
• Bank’s source of revenue :
– Interest Income ( II)
– Non Interest Income ( OI)
– Securities Gain ( SG)
• Bank’s expenses include :
– Interest Expenses ( IE)
– Non Interest Expenses ( OE)
– Provision for Loan Losses ( PLL)
– Security Losses ( -SG)
– Taxes ( T)

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Bank Transaction , bank
profitability and fin tech

Increase in income Decrease in Expenses

How fintech can help banks to achieve the above ?

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 Increasing profitability of the
bank

Interest Income : Non Interest Securities Gain :

Underwriting Income : More treasury
Increase
good loans Generating fees Income
of Income

Provision for
Interest Expenses Other Expenses :
Decrease Loan Loss :
: Mobilising Reducing
of Good
CASA Operating Cost
Expenses underwriting

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Bank’s four new revenue
generating areas

Wealth Management Retail Lending

Digital and
Analytics Capability

Transaction Banking SME Lending

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 Bank’s sources of fund

Sources of
fund

Deposit and
Capital
Borrowing

Tier I Tier II Deposit Borrowing

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 Deposits
• This is one of the largest sources of fund for
bank.
• Deposits are of 2 types namely :
– Demand Deposits :
• No maturity at the time of opening the deposits and
• No Interest is earned on it :Deposit balance in Current
Account and Balance for selected period of SB Account.
– Time Deposits :
• Maturity at the time of opening the deposits
• It earns interest ( from investors point of view) .
• It can be categorized into the :
– Fixed Income : Interest paid to investors at regular
intervals;
– Reinvestment : Interest are not paid and reinvested
further.
http://bit.ly/praloy 41
 Current Account
Vendor
Payment

Salary
Payment
Business
Entity
Statutory
Payment

Digital
receipt
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 Current Account
• No interest
• Business requires it
• Improvement of payment systems
means lower current account balance
• Innovation strategy is required to open
the current account

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 Current Account

New Old
Gen Gen

Digital Digital Branch Payment

MPS BC
Bank initiative initiative bank
Auto sweep Auto sweep
Tax payment Tax payment Tax payment
Vendor paymentVendor payment Vendor payment Banking habit creation
Salary payment Salary payment Credit facility Mudra Loan
Digital sales Digital sales CGTMSE Loan 44
SCF/ TBF SCF/ TBF
 Mobilising CASA
• Current Account :
– Business
– No interest
– Used for transaction
– Used for statutory payment

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 Mobilising CASA and Fintech
Collaboration Financial of
Line of
Name & Constitution the account
Business
Address holder

Personal
information of Personal
the promoter financial
information

Information
Existing
Sourcing of available from
Accounts
new accounts outside Banks

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 Mobilising CASA through
collaboration with Fintech
Recommendat
Existing CA
Fintech ion for new
holder
account

Transaction Amount ( Average Cheque

Tran Date Value Date Particulars Chq No INR) DR/CR Balance ( INR) Balance transaction
Opening Balance 1525645

By deposit of
Salary Credit
4.4.2019 4.4.2019 Cheque 345236 145245 CR 1670890
payment to from other
4.4.2019 4.4.2019 By deposit of Cash 215000 CR 1885890
other bank bank
5.4.2019 5.4.2019 To Payment 245347 545245 DR 1340645

To Salary Payment : Average

Mr X : GST transaction
7.4.2019 7.4.2019 AXIC181213062570 35450 DR 1305195
Payment amount
NEFT/KKBKP19101
12.4.2019 12.4.2019 678254/X Traders 154750 CR 1459945

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 Mobilising CASA through
collaboration with Fintech
Transaction Amount (
Tran Date Value Date Particulars Chq No INR) DR/CR Balance ( INR) Average Balance : Rs 14 lacs . Link this
Opening Balance 1525645 with sales . If it is more than 15 days of
cost , you can offer other liquid product
By deposit of
4.4.2019 4.4.2019 Cheque 345236 145245 CR 1670890
4.4.2019 4.4.2019 By deposit of Cash 215000 CR 1885890
5.4.2019 5.4.2019 To Payment 245347 545245 DR 1340645
Algorithm creation :
Sales : From GST Return
To Salary Payment : Type of Business : Account opening
Mr X :
7.4.2019 7.4.2019 AXIC181213062570 35450 DR 1305195
form ;
Profit margin: From external data
NEFT/KKBKP19101
12.4.2019 12.4.2019 678254/X Traders 154750 CR 1459945
Formula for annual cost : Sale * ( 1-
profit margin )
Formula for 15 days cost :[ Annual
cost /365 ]*15
Algorithm : If average balance > 15
days cost find out the excess amount
and recommend FD/MMMF

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 Mobilising CASA through
collaboration with Fintech
Transaction Amount (
Tran Date Value Date Particulars Chq No INR) DR/CR Balance ( INR)
Cheque transaction & cash transaction : 3
Opening Balance 1525645
60% of the overall transaction
By deposit of
4.4.2019 4.4.2019 Cheque 345236 145245 CR 1670890
4.4.2019 4.4.2019 By deposit of Cash 215000 CR 1885890
5.4.2019 5.4.2019 To Payment 245347 545245 DR 1340645
Algorithm creation :
To Salary Payment : Transaction cost in branches is
Mr X :
7.4.2019 7.4.2019 AXIC181213062570 35450 DR 1305195
between Rs 40/- to Rs 50/- -.
Transaction cost in internet
NEFT/KKBKP19101
12.4.2019 12.4.2019 678254/X Traders 154750 CR 1459945
banking/mobile banking is about Rs
15/- to Rs 20/- .
Logic : If cheque transaction and cash
transaction is more than 30% of the
total transaction initiate focussed
initiative to shift the customer to
alternate channel

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 Mobilising CASA through
collaboration with Fintech
Transaction Amount ( Salary payment to other banks :
Tran Date Value Date Particulars Chq No INR) DR/CR Balance ( INR)
To Salary Payment : Mr X :
Opening Balance 1525645
AXIC181213062570
By deposit of
4.4.2019 4.4.2019 Cheque 345236 145245 CR 1670890
4.4.2019 4.4.2019 By deposit of Cash 215000 CR 1885890
5.4.2019 5.4.2019 To Payment 245347 545245 DR 1340645

To Salary Payment : Algorithm creation :

Mr X :
7.4.2019 7.4.2019 AXIC181213062570 35450 DR 1305195
Read the section “ Transaction
particulars “ and it can be found out
NEFT/KKBKP19101
12.4.2019 12.4.2019 678254/X Traders 154750 CR 1459945
that “ Salary payment word followed
by Name and NEFT origination
number is present “
Output : Pass on the lead through
CRM of the RM of CA and also RM of
SB account .

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 Mobilising CASA through
collaboration with Fintech
Recommendat
Existing CA
Fintech ion for new
holder
account

Transaction Amount (
Credit from other bank :
Tran Date Value Date Particulars Chq No INR) DR/CR Balance ( INR) Sourcing of new customer
Opening Balance 1525645

By deposit of
4.4.2019 4.4.2019 Cheque 345236 145245 CR 1670890 NEFT number : KKBK – Bank Name ;
4.4.2019 4.4.2019 By deposit of Cash 215000 CR 1885890 P – Transaction origination interface :
5.4.2019 5.4.2019 To Payment 245347 545245 DR 1340645 19 : Year : 101 number of days in Julian
calendar year : 678254 : Serial Number
To Salary Payment :
Mr X : ;
7.4.2019 7.4.2019 AXIC181213062570 35450 DR 1305195 Algorithm :
NEFT/KKBKP19101 If credit is happening through NEFT
12.4.2019 12.4.2019 678254/X Traders 154750 CR 1459945 or RTGS from other bank , target the
customer of other bank to open CA

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 Use of GST Payment statistics
from CA • Account is one of the leading private sector
banks
• Partnership firm
Date of Payment GST Amount paid through Bank Average Balance
• Account vintage is more than 6 years
18.4.2019 597626 625350 • The average product sold to the firm and
its partners :
19.1.2019 486620 735250
• One current account
19.9.2018 193602 1354250 • One saving account of partner
19.5.2018 84980 1745280 • Information available with the bank in the
account opening form :
• Partnership deed
Current challenges with the bank : • Name of partners
Increasing SME Loan • Nature of business : Training and
Increasing CASA balance consulting
Increasing Fee Income • Some of the payment is also coming
from the same bank
• Promoter is educated with MBA from
How fintech can solve this problem of this one of the top three IIM.
bank ? • Deed is more than 10 years old

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 CA mobilisation
• Lists of new companies formed :
www.mca.gov.in
• Lists of company registered in STPI
• Lists of members of trade bodies
• Lists of members of associations : FIEO ,
EEPC etc
• Lists of name of parties generated from
NEFT /RTGS credit
• Lists of payments made from the bank
through NEFT /RTGS 53