As we all know from first-hand experience — COVID-19 has a way of changing standard operating procedures. There’s no question that these are unusual times, with the impacts of the global healthcare crisis on the banking and payments industry still playing out, and its ultimate effects yet to become clear.
However, if we look at India pre-pandemic (and this trend does not seem to be impacted by the current conditions) India is well on its way to becoming a digitally advanced country. India’s fintech adoption rate ranks only behind China globally. However, this has been fueled by the Telcom sector- not FS! The best example of this are the massive investments pouring into Reliance Jio from Microsoft, Facebook, Vista etc and the broad swathe of partnerships it has inked, are making the FI’s having to rethink how they engage customers today.
Propelled by the falling cost and rising availability of smartphones and high-speed connectivity, India is already home to one of the world’s largest and fastest-growing bases of digital consumers and is digitizing faster than many mature and emerging economies.
Ranking number 1 and 2 across many key digital dimensions such as mobile phone subscribers, internet subscribers, and digital identity programs the digital savvy consumers are primed to take advantage of the next wave of digital solutions that will come from the financial services sector.
At the moment, many banks are struggling with balancing between the short- and long-term goals of driving innovation. By this I mean balancing their short-term responses to navigate through this pandemic, with longer-term and more strategic actions to sustain the forward momentum of initiatives that will best serve them post-pandemic, once we return to some form of ‘new normal’. For example, how do you increase your market share by going after the unbanked but make this a medium to long term profitable revenue stream?
Financial inclusion has resulted in around 350 million more people being able to open bank accounts, but the real value is in enabling them to access region specific localized products and services that no single FI can offer to a market place of this size. Hence the need to drive very localized innovation – on a global scale. In terms of the longer-term aspect it’s vital for banks to pay more attention to driving shareholder and customer value – which in turn means that working on modernization and strategic initiatives concurrently with tackling immediate pandemic-related issues is paramount. More specifically, banks will need to focus on realizing operational efficiencies to drive down costs while finding new roads to revenue generation.
One of the key ways in which the financial sector in India is supporting this is through its drive for open collaboration between banks and Fintechs. Once thought of as a threat to traditional banking, banks are now opening their doors to Fintech partnerships to foster a new wave of digital disruption. Strongly supported by ‘regulatory sandboxes’ that allow testers to pilot the testing of new technologies in a controlled environment. We are now beginning to see some of the first examples in ‘retail payments’, and proof that this approach can help fast track new ideas.
Pre-UPI, IMPS took six years to reach 30 million transactions a month; in the two-and-a-half-years post-UPI launch, IMPS and UPI together have clocked 990 million transactions—80 percent of which came from the 70 million users on UPI alone**. The world after COVID-19 is sure to bring changes. We cannot precisely forecast these changes, but we can, in the meantime, make smart decisions to set our companies up for a better future after the pandemic. Forward-thinking founders and business owners are studying open data and markets and taking data-driven steps to serve their customers now and in the COVID-19 aftermath. To keep up, you must determine what strategy is best for your company at this time:
- Sit in survival mode
- Iterate and make adjustments to your offerings
- Accelerate production to satisfy increasing demand in your sector
Regardless of what strategy you adopt, it is essential to upgrade your business capabilities, especially regarding digital security, payments and reach.
For banks across the globe faced with these impacts, the immediate challenge is to strike the right balance between two imperatives. The first is to navigate the bank in the short term through the pandemic in a way that supports customers while maintaining smooth operations.
The second is to stay focused on the longer term and sustain the forward momentum on payments initiatives that will best serve the bank post-pandemic, once we return to the much-talked about “new normal”. Zeroing in on the longer-term side of this balance, there’s a clear need to devote greater attention to driving shareholder and customer value. This means it’s paramount to work on modernization and strategic initiatives in parallel to efforts to address the here-and-now issues arising from the pandemic. More specifically, banks will need to focus on operational efficiencies to drive down costs, while simultaneously finding new roads to revenue generation.
As banks strive to balance these two conflicting priorities, what impact has the pandemic had on their innovation programs? Then answer is that it’s given them a major boost, by dramatically accelerating the uptake and usage of new remote and digital ways of paying and receiving money. This electrifying effect is evident across all customer segments, from private individuals via SMEs all the way up to multinational corporations.
The payments industry will have a key role to play in revamping the economy. Opportunities will include:
- Replacing cash and checks with digital payments systems
- Building infrastructure to support more merchants working remotely
- Adopting digital currencies into universal payments solutions
- Embracing cloud-based infrastructure, automation and analytics to scale to the needs of the massive Indian market place
As the COVID situation continues we will see its impact on the behavior of customers and appetite for more ‘digital’ technology as their expectations have been fast forwarded by what they are experiencing in the other areas of their lives from other service providers and financial institutions will have no choice but to keep up and satisfy these new needs. To aid the recovery and lead the emergence into this new normal, it is imperative for the digital payments ecosystem to evolve rapidly and help shape the post-COVID era.
But to do this they must embrace the new technologies such as open banking, APIs, as well as new models of working with fintechs, and bigtechs. A reliance on outdated legacy systems can only lead to roadblocks to payments innovation and as such put the brakes on any potential economic growth.
**MIT Tech review May 2019