The pandemic has been highly instrumental to accelerated digital transformation across industries. As the deadly virus kept multiplying, people started receding to their homes. Eventually, the world shut down for a brief period till it could figure out a way to continue business from the safety of their homes. Highly secure and confidential, the banking industry too had to come up with ways to help its customers stay safe. Even though the retail branches did not completely shut down, there was a significant reduction in the number of customers physically visiting banks.
Since the 2000s we have been witnessing a major overhaul in the larger financial industry. From dealing with cash to scanning of cheques through online apps, we have come a long way. To top it all, the pandemic has significantly accelerated the adoption of digital technologies, with far-reaching implications for the future. The critical pillars of the financial services industry, banking, and payments, were the core areas which got transformed through digital offerings and adoption.
The one factor that we can observe is how any transformation strategy revolves around the consumer. As the industry observed the need to elevate its offerings for the customers trapped in their homes, especially the senior citizens, it devised ways to automate business processes as well as reduce costs. By modernizing their applications with artificial intelligence, cloud technology, and automation, banks have rapidly developed omnichannel products, services, and functionality. This certainly helped improve the user experience and deepened trust and loyalty. Since the lockdown of 2020, there has been a 72% rise in the use of fintech apps in Europe.
As customers switched to online and mobile banking, a huge surge was noted. These became the channels of communication with their banks. Fidelity National Information Services (FIS), an organization that works with 50 of the world’s largest banks, observed a 200% increase in new mobile banking registrations in early April 2020, and an 85% hike in mobile banking traffic. According to an international survey by Accenture, 50% of consumers interacted with their bank through a mobile app or website at least once a week in 2020, compared to about just 32% in 2018. The trend continued even when lockdowns ended as many customers avoided using their local branches. Additionally, a large percentage of today’s banking customers are using online and mobile banking apps for a range of tasks apart from monitoring their finances. 47% of consumers surveyed by Accenture stated a preference for using a mobile application to open a new bank account while 37% preferred using a desktop or laptop. The pandemic is also having a strong effect on the way people are making purchases, the use of contactless payments has jumped 40% worldwide. Since 2020, more than 50% of people living in the United States began using mobile wallets like Google Pay or Apple Pay. In France, 42% of consumers are using contactless payments.
Traditional brick-and-mortar retail banks are investing in artificial intelligence especially ones with over 100 million in assets. Banks have launched virtual assistants and chatbots to assist customers with urgent issues that cannot be resolved using online or mobile banking. 90% of the retail banks are also using chat or email services to connect with consumers. As mobile wallets and payments continue to accelerate, developing these technologies to support the needs of their customers is essential. By 2024, digital wallet payments are expected to account for more than 33% of all in-store purchases worldwide. Neobanks have developed their ability to offer customers virtual credit or debit cards that can be stored in their mobile wallets and used to make purchases until they receive their physical card.
Closer home, the National Payments Corporation of India (NPCI) has been instrumental to the emergence of the digital payment ecosystem in India. Over the years, we have seen several innovative and successful initiatives such as Unified Payment Interface (UPI), Immediate Payment Service (IMPS), Bharat Bill Pay as well as electronic toll collection (ETC) through FASTags. In the last couple of years, fintechs in the Indian space have upped their game to cater to several customer segments with varied needs. A wide range of integrated and customer-centric solutions built on advanced technologies have been deployed to align to innovative business models. Enablers like increasing internet and mobile penetration, availability of low-cost data plans and shift from offline to online shopping channels have helped the industry at large.
The coronavirus pandemic has been instrumental to the fast adoption of contactless digital payments. In our daily lives, we can observe the surge in digital payment volumes across online grocery stores, small retail outlets, online pharmacies, vegetable and fruit vendors, recharges, bill payments as well as telecommunication & media and EdTech players. the digital ecosystem built up over the years has proven crucial in fulfilling business transactions, peer-to-peer transfers as well as direct benefit transfers from the government. Contactless payments, through QR Code, wallets, UPI or contactless cards, are gaining popularity as they are convenient, safe and secure while allowing the consumers to maintain physical distancing.
In 2021, Union Bank of India launched a “Digital Vertical” to drive development of various Digital Banking Products, Fintech Partnerships and Digital Marketing creating smooth and hassle-free digital journey and superior customer experience. It will include research & innovation apart from establishing partnerships, development, exploring UI/UX avenues to ease customer conveniences and implementation of futuristic digital platforms. Following the trend, HDFC Bank is setting up a Digital Factory and an Enterprise Factory to roll-out new digital products and services in the future and augment its IT Infrastructure. The dual approach is part of the bank’s technology transformation agenda to run as well as transform the bank. The bank is also developing future-ready IP technologies and moving to a native cloud architecture in collaboration with niche technology companies, fintech and large IT companies. Another player, SBI, has enabled its customers to make digital collections through SBI Pay (a mobile based payment solution) and State Bank Buddy, which can be integrated with any corporate’s payment interface. Private sector lender ICICI Bank has started providing digital banking solutions to corporates and their partners, dealers, promoters, and employees through "ICICI Stack". The bank aims to become the preferred banking partner for companies and their entire ecosystem.
Even though there has been a significant transformation, it has not been all-encompassing. A vast majority of the population is still underbanked and unbanked till today. India’s poor have been among the worst affected, re-emphasizing the need to serve people excluded from the formal financial system. There is an urgent need for low-cost, scalable, and diversified payment platforms that enable faster fault and error resolution. Robust platforms can help instill greater trust and confidence in end-users, especially in rural areas. An integrated and collaborative approach between FinTech players, banks, payment system operators, regulators, and even telecommunication companies can advance financial inclusion and increase the reach of the digital banking economy.