How COVID-19 is accelerating digitalisation for the banking and payments industry

Even as the COVID-19 pandemic exacts a bitter toll on the economy, it is catalyzing digital transformation across business models, channels and touchpoints. Underlying this shift is the need for greater organizational agility as well as closer ties with customers in a changing world order. The process of digital transformation, however, is complex and long-drawn-out for businesses as well as consumers.

Banking and payments, critical pillars of the economy, are among the core areas that have seen a major uptick in digital offerings and adoption. While going digital is not new to the industry, the pandemic has significantly accelerated the adoption of digital technologies, with far-reaching implications for the future of not only the banking sector, but also the larger financial ecosystem.

National Payments Corporation of India (NPCI), has been pivotal to the emergence of the digital payment ecosystem in India, launching innovative and successful initiatives such as UPI, IMPS, Bharat Bill Pay, and ETC (electronic toll collection) through FASTags. In addition, Indian FinTechs and digital payments companies have made significant progress, and now offer a wide range of integrated and user-friendly solutions that leverage advanced technologies and deploy innovative business models. Growing internet and mobile penetration, availability of low-cost data plans, and the shift from offline to online shopping channels are also giving a fillip to the adoption of digital technologies.

The virus outbreak is spurring the adoption of contactless digital payments; and there has been a surge in digital payment volumes across online grocery stores, small retail outlets, online pharmacies, vegetable and fruit vendors, recharges, bill payments as well as OTT (telecom and media) and EdTech players. In these difficult times, the digital ecosystem built up over the years has proven crucial in fulfilling business transactions, peer-to-peer transfers as well as government direct benefit transfers. Contactless payments, through QR codes, wallets, UPI, or contactless cards, are gaining popularity as they offer convenience, safety, and security while allowing the consumers to maintain physical distancing.

At the same time, there is an urgent need for rugged and low-cost payment platforms that enable faster fault/error resolution. Robust platforms of this nature can help instill greater trust and confidence in end-users, especially in rural areas or those who are at the bottom of the pyramid. India’s poor have been among the worst affected, re-emphasizing the need to serve people currently outside the ambit of a formal financial system. Financial inclusion is the need of the hour for the millions of unbanked or underbanked people across the country.

There is also a pressing need for an integrated approach between FinTech players, banks, payment system operators, regulators, and even telcos for advancing financial inclusion programmes. This collaborative approach can prove crucial in bringing more of the banked and unbanked sections into the digital banking fold.

To enhance the digital banking and payment products/services ecosystem, banks will need to focus on developing and adopting cutting-edge technologies such as Artificial Intelligence (AI), Machine Learning (ML), Cloud, Internet of Things (IoT), Human-Computer Interface (HCI), blockchain among others. The disruption has underscored the crucial role of digital, as the mid-office and back-office are relying on technology to serve customers and perform day to day operations. Going forward, it will be critical for banks to move away from branch banking and have a well-established digital infrastructure in place across all channels to deliver enhanced speed and convenience across all customer segments, as well as across urban and rural markets.

In conclusion, the COVID-19 crisis is likely to significantly accelerate the shift to digital and fundamentally redefine the overall business landscape. Customer behaviour and preferred interactions are dramatically changing, and while they are likely to continue to evolve, the digital transformation we’re witnessing will continue apace. It is not only about digitizing, this shift also requires revisiting the entire value chain which comprises not just the customer’s journey, but also other participants, especially merchants. A collaborative ecosystem of stakeholders committed to digital transformation is set to be the game-changer, opening up access to banking and payment products for the masses.