Banking Industry

Banking industry is one of the fastest growing industries in the world. After a period of consistency,
followed by a huge dip due to the pandemic, a new era in banking lies ahead of us.

Wherein around the world some banks have gone bankrupt due to the external forces the banking
sector is still showing positive signs of growth in the future and especially in India, the banking sector
has undergone a massive rehaul and is growing at a rapid rate helping boost the economy as well.

The Indian banking system consists of 12 public sector, 22 private sector, 46 foreign, 43 regional
rural, 1485 urban cooperative and 96,000 rural cooperative banks alongside non-banking
corporations and cooperative credit institutions

In 2022-23, the assets of public sector banks accounted for 59.24% of the total banking assets in the
country (that includes public, private sector and foreign banks).

According to RBI, deposits of all scheduled banks collectively increased by Rs.1.98 lakh crore as of
May 5, 2023, at a growth rate of 10.2%.

According to a BCG Report of 9M FY23, credit growth is expected to hit 18.1% in 2022-23 which will
be a double-digit growth in eight years. As of November 4, 2022 bank credit stood at Rs. 129.26 lakh
crore.

Post Pandemic:
Covid 19 pandemic paved a way for a banking revolution in India. The banking industry has been one
of the fastest growing sectors in the country with digitalization taking centre stage helping India on
its road towards becoming a cashless company.

In India, the banking industry has come up with various new and creative ways of banking, such as
payment banks and small finance banks. They've also been working on making banking facilities
available to more people through programs like the Pradhan Mantri Jan Dhan Yojana and Post
payment banks. These efforts, along with improvements in digital payments, new types of banks, the
growth of Indian non-bank financial companies (NBFCs), and financial technology (fintech)
companies, have made it easier for more people to access financial services and borrow money in
India.

In India, the fintech industry is expected to be worth around $150 billion by 2025, making it one of
the biggest fintech markets in the world. There are more than 2,000 recognized fintech businesses in
India, and this number is growing quickly.

India has also made big advancements in digital payments. In fact, India's Immediate Payment
Service (IMPS) is considered one of the best in the world, and India's Unified Payments Interface
(UPI) has made real-time payments much easier and is trying to expand its reach globally.
Some Key trends observed:

 Digitization of banks: Covid 19 was a catalyst for the digital age and banks also adopted to
the required scenario. All the major banks in India currently have their fully function
websites and mobile apps which allow them to access their accounts from the comfort of
their homes and perform functions like fund transfer, invest, manage bill payments etc.

 Rise of Fintech: Fintech industry has been on the rise with the shift towards a digital world.
Fintech companies have facilitated easier payments, investments, fund transfers, bookings
and other facilities for the users and with contactless payments gaining popularity during the
pandemic, these industries saw huge rise in users.

 Focus on Sustainable Finance and ESG: With people putting more focus on climate and
environment, sustainable finance is a term that has been the talk of the town in recent
times. It includes financing projects involving financing climate-friendly power plants,
facilitating social investments in hospitals and schools, and providing preferential pricing to
companies achieving sustainable targets, banks are increasing investments in ESG solutions.
While the global populace combats climate change, banks too are playing their part in
financing the transition to net-zero. Large Banks like JP Morgan and Bank of America have
recently invested trillions of dollars aimed at achieving ESG and sustainable goals.
Case Study: Starling Bank

This case focuses on Starling Bank, a UK-based digital bank founded in 2014 by Anne Boden, a former
banking executive. Starling gained significant investments and obtained a full UK banking license
before launching in 2017. Initially, it targeted retail clients with current accounts and debit cards, and
in 2018, it expanded into business banking.

As of January 2021, Starling Bank had over 2 million accounts, £5.4 billion in deposits, and £145
million in annualized revenue. It has raised nearly £700 million in total funding from investors,
including Goldman Sachs, Fidelity, Qatar Investment Authority, RPMI Railpen, and Millennium
Management. The bank's valuation reached £1.1 billion.

What makes Starling Bank particularly interesting is that it became one of the first retail-focused
digital banks in Europe to generate positive operating profits in October 2020 and has maintained
profitability since then. This case study aims to explore how Starling achieved financial success
during the COVID-19 pandemic, especially when many of its peers, despite being larger or older in
the market, are still struggling to break even. The study aims to uncover the factors contributing to
Starling's success and assess the role of the pandemic in its financial performance.

We see the impact of Covid-19 on key profitability factors, with a focus on Starling Bank.

1. Customer Number Growth Induced by Covid-19:

 Starling Bank experienced significant customer growth in both retail and business user bases
during 2020.
 Lockdowns and the pandemic forced customers to use digital channels for banking,
contributing to this growth.
 Research shows increased demand for finance mobile apps and fintech apps, indicating a
shift toward digital banking services.
 Current account switches to challenger banks were increasing even before the pandemic but
accelerated during it, with Starling Bank leading in customer switches.

2. Customer Behavior Changes Induced by Covid-19:

 The pandemic led to an increase in the number of customers considering digital banks as
their primary bank accounts.
 Average deposits held by customers at Starling Bank increased substantially, reflecting
changes in savings patterns.
 Changes in spending patterns, especially international spending, impacted interchange
revenue.

3. Covid-19 Impacts on Different Product Archetypes:

 Starling Bank's revenue in 2020 was primarily driven by net interest income, mainly due to
government-backed business lending programs.
  Digital lenders not offering government loans faced losses due to defaults and late
repayments.

4. Covid-19 Impact on Digital Bank Fundraising:

 The number of funding deals in fintech dropped, but the total amount raised increased due
to larger funding rounds.
 Starling Bank successfully raised funds during the pandemic, allowing it to continue
operations and expand.
 Monzo had to cut its valuation to secure funding, indicating the negative impact of the
pandemic.
 Other examples, such as Atom Bank and Xinja, also demonstrated how the pandemic
affected fundraising in the digital banking sector.

Overall, we see how Covid-19 influenced customer behavior, product archetypes, and fundraising
within the digital banking industry, with a focus on Starling Bank as a case study.

Conclusion
From the above we can conclude that after the Covid 19 pandemic, there has been a drastic change
in the banking industry and how it works. Some of the key areas where there has been a change in
the banking workplace include:
 Digitization of various process involving fund transfer, creation of accounts, bill payments,
card payments etc. This also led to the finding of a new buy now pay later feature on various
e-commerce sites where you could buy the products and pay the sum at your own
convenience
 Change in the customer savings & spending pattern wherein the customers have become
more vary of where and how they are spending their money
 Ease of communication and availability of information: With the introduction of online
payments like UPI etc, it has become easier for users to keep a track of their transactions
and gather any information related to their accounts readily.