Digital Banking

Digital BankingOpportunity for Extraordinary Gains in Reach, Service, and Productivity in the Next 5 Years

September 15, 2014September 15, 2014

Digital vs digitization-15sept14.pptx 1

Digital OpportunityDigital 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)

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)


CASA growth = Transaction growthCASA growth = Transaction growth

0

20,000

40,000

60,000

80,000

100,000

0 10 20 30 40 50 60

Balance / active account

Total transactions / active account

Savings balance vs. transactions per account across banks (FY 14)Savings balance vs. transactions per account across banks (FY 14)

R2 = 92%


Digital transactions will dominate in 5 yearsDigital transactions will dominate in 5 years

Growth CAGR

40%

FY 14

Digital

Traditional

FY 20 (II)

53%

FY 20 (I)

18%

40-50 %

20-30%

3%

ATM/CDM

Transaction profile of Indian BanksTransaction profile of Indian Banks


Emerging paradigmsEmerging paradigms

Deposits business … offer payments for free

Payments service … deposit follows

Current Paradigm Current Paradigm Emerging ParadigmEmerging Paradigm

Source: BCG analysis.Source: BCG analysis.


Digital activation is very rewardingExample: Cross sell in Current Accounts CustomersDigital activation is very rewardingExample: Cross sell in Current Accounts Customers

0

2

4

6

8

4 5+

3210

Number of products from primary bank

ShopkeeperMSME

No. of channels used by customer


Customer activation is lowCustomer activation is low

POS 5.6% –

Accounts active onAccounts active on SASA CACA

Internet 3.0% 9.1%

Mobile 1.7% 1.6%


0

1

2

3

4

5

Many timesOnceNever / Don't remember

# of digital channels used

11 %

# of times digital channel was explained

Small business claim banks are disinterestedSmall business claim banks are disinterested

19 %

70 %


Why is digital adoption low?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)

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)


Customer acquisition productivity is stagnantCustomer acquisition productivity is stagnant

1,594

796897933

FY 13-14FY 12-13

PSU(Medium)

Private (Old)PSU(Large)

Private(New)

1,052 860756 1,468

Number of savings bank accounts opened per metro and urban branch

Number of savings bank accounts opened per metro and urban branch


Digitization of sales is huge opportunityDigitization of sales is huge opportunity

x+35%

1.35x x

-50%

0.5x

x +33%

1.33x

0.5x

-55%

x

Productivity TAT First Time Right(FTR)

Traveltime

BCG Experience

ImpactImpact


Could public sector leap frog to a digital back end?Could public sector leap frog to a digital back end?Back office FTE as percentage of total FTE (FY 14)Back office FTE as percentage of total FTE (FY 14)

1.84.32.5 2.4 3.7

9.0

1.31.4

PSU(Medium)

3.9

Private (Old)

5.0

PSU(Large

)

4.2

10

13.3

Private (New)

Global benchmark

CreditOperational


10-20% over staffing in administrative functions 10-20% over staffing in administrative functions

Admin staff / Total bank FTE (FY 14)Admin staff / Total bank FTE (FY 14)Digital toolsfor efficiencyDigital toolsfor efficiency

11.513.1

14.7

11.210.3

PSU(Large

)

PSU(Medium)

IndustryPrivate(New)

Private(Old)

Ultra transparent performance management

Optimum resource allocation s

Re-engineer administrative /

functional processes

% of total bank FTE

Global median (10%)


Technology spend in IndiaTechnology spend in IndiaSpend on technology as % total revenue Spend on technology as % total revenue

Private (New)

4.6%

5.7%5.9%

PSU (Large

)

2.8%3.1% 3.3%

Average in FY 14Average in FY 13Average in FY 12


New approach to technologyNew approach to technology

Human Centered Design Human Centered Design Iterative, short sprintsIterative, short sprints

What is the real "need"?

What solutions are "feasible"?

Minimum "viable" option?


Seven hurdles in digitizationSeven hurdles in digitization

Non - Human Centric Design

Risk perception

IT Change capacity

Vendor Capabilities

Compete with BAU

Multi stake holder alignment

Value leakage between design and execution


"Bank in a Bank" for creative destruction"Bank in a Bank" for creative destructionIncumbent BankIncumbent Bank Digital Attacker BankDigital Attacker Bank

Typically universal

Digitise the legacy

Target The Digitally Savvy Customers

Processes designed from scratch

Branch at the core; digital channels are

alternate

Digital channels at the core


At first people refuse to believe that a strange new thing can be done,

...and then they hope it can be done,

...then they see it can be done,

...then it's done and all the world wonders why it was not done before.

– F H Burnett

At first people refuse to believe that a strange new thing can be done,

...and then they hope it can be done,

...then they see it can be done,

...then it's done and all the world wonders why it was not done before.

– F H Burnett

Documents

Digital Banking