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Indian Banks are Gearing Up to Stay Relevant in the Digital Era

The Indian banking industry plays a vital role in the country’s economic development. Over the past several decades, this industry has witnessed several changes, including technological advancements and diversification of financial products and services.

The Indian banking system has only been improving since 1991 when the government encouraged foreign investments that opened our economy, leading to the introduction of internet banking, ATMs, mobile banking, and more (1).

However, today, in the fast-paced digital economy, most traditional banks are yet to catch up with the latest trends. Consequently, they fail to offer seamless and frictionless customer services and experience (2).

Read Also: Evolution of Fintech, Traditional Banking, and Their Collective Impact

The Importance of Customer Satisfaction

Most of our readers are entrepreneurs themselves, so they understand the importance of customer satisfaction. However, we are still including this section to ensure that no one underestimates the importance of customer satisfaction, yes banks too (Suggested Reading: Big Impact on Banks with Fintech Players Entering the AMC Space).

Imagine one day, you wake up and realize that half of your customers have left you for your competition? Consider the drop in revenue, acquisition costs, and all your KPIs going downhill. Most businesses risk these when they don’t offer good customer service.

As per a report published by Gartner, more than 81% of marketers look at customer satisfaction as a competitive edge in their respective industries (3). Likewise, PwC also highlighted in its survey that about 59% of customers would leave your company if they encountered several bad experiences and over 17% after only a single bad customer experience (4).

And it is also true for banks. After all, they are also a part of the service industry, and a lot rely on efficient and prompt customer service.

Here’s why customer service has become more important than ever for banks:

  • Changing Customer Expectations: Today’s customers are more sophisticated and demanding than they were two decades back.
  • Increased Competition: With changing customer needs and expectations, newer companies (fintech and neobanks) are looking at these factors as a competitive weapon to differentiate their products and services.

Consistency, quality, and durability at an affordable price is the final expectation of today’s customers, and only those financial institutes that work according to their dictates will flourish in this new economy.

Below are the key areas we believe Indian banks should focus on the most in terms of customer services:

  • Handling customer queries and complaints
  • Client Onboarding
  • Financing Options
  • Ease and transparency of services
  • Tech and digital capabilities

Read Also: Financial Inclusion, Government of India, and Fintech Companies

“Banks Should be More Customer-Friendly,” said Indian FM

Nirmala Sitharam, the finance minister of India, asked Indian banks to be more customer-friendly earlier this year post-budget (5).

FM said that the Indian government is looking for a sustained economic recovery. The budgetary proposals for infrastructure development attempt to build a multiplier effect and proper growth.

During her interaction with large taxpayers, industry stakeholders, and professionals, she said that banks need to focus more on being customer-friendly so that the process of availing credit is easy. However, she added that it doesn’t mean banks should take adverse risks (Her statement reminds us of the ABG Shipyard scam).

“We have tried balancing the focus on sustained recovery and growth, continuing with the story of investing in constructing public infrastructure. The budget has selected spending on infrastructure as the more profitable way to ensure enhanced multiplier effect, which could also lead to asset creation which can last for many years,” said Sitharaman.

“Banks will have to be more customer-friendly. They don’t need to go to the extent of taking adverse risks; however, you need to be more friendly to your customers,” responded our FM on a query of a startup founder who suggested hassle-free credit availability (6).

Read Also: Fintech is On Fire; Here are Eight Trends to Look Out For in 2022

SBI Ramping Up for the Digital Banking Era

Reports emerged last week that SBI, the State Bank of India, is revamping its Yono to better prepare itself for the digital banking era (7).

SBI is working on its Yono mobile app to turn it into a purely digital bank. The “Only Yono” platform will have cloud capabilities to handle high volumes and offer a better customer experience.

It is the second major bank, after HDFC Bank, to start strategic planning for a possible future application for a digital bank license.

While announcing the development, the state-owned financial institute also noted Niti Ayog’s November 2021 draft discussion paper about digital banking licensing and formal regulatory guidelines to establish digital banks in India (8).

“We are envisioning Only Yono as the next generation of Yono to make SBI ready to launch a completely digital bank with a more lean and modular architecture to offer more streamlined customer journey and personalized customer-centric design that captures value from ecosystems,” said SBI.

In addition, the moneylender has also invited bids from consultants to offer technical guidance for the design and architecture of the digital platform. It is also worth highlighting that SBI recently welcomed Nitin Chugh on board, who previously led the digital banking division at HDFC Bank (9).

The move comes as no surprise since banks have faced intense pressure from new players in the financial services industry over the past few years. After all, legacy banks have an edge for resources that they can use to launch their own digital products.

Read Also: Understanding the Indian Union Budget, For Beginners

Indian Banks are Looking to Disrupt the Disruptors

The competitive landscape in the Indian banking and financial services industry is becoming more fierce as digital technology lowers entry barriers.

Fintech companies are attracting millions of new customers, and now incumbents need blond actions to stay relevant.

And according to Mckinsey, one possible way for banks to do it is by disrupting the disruptors (10).

Its recent survey highlighted that 65% of financial services businesses that made building their business top-five priority witnessed a higher revenue growth (11). Also, organizations are more than twice as likely to see 5x more return if they launch four or more businesses over seven years than organizations that launched three or fewer businesses.

In other words, we will see more banks making large-scale mergers and acquisitions, digital transformation of their core businesses, and launching new business buildings in the upcoming days.

These strategies also give an edge to traditional banks over new entrants considering their considerable talent and funding poor, greater market insights, IP, data, and other assets.

Banks must get the pricing and offering right, build a unique value proposition, monetize rapidly, focus on customer acquisition, optimize resources, and apply the proper talent and operating methods to get off to a promising start.

Besides those fundamentals, the ability to harness the qualities of incumbents in a startup setting is a key distinction between new enterprises that succeed and those that fail.

Even though balancing incumbency and innovation may not appear to be difficult, more organizations fail than succeed because of factors like common culture, talent, and resources.

Read Also: ESG Goals, Social Innovation, and Startup Trends That are Here to Stay!

There’s a Sense of Urgency

Digital business models were gaining traction even before the pandemic, with banks and their digital adversaries developing innovative client interfaces, simplifying customer journeys, and upgrading middle and back offices. Indeed, banks resemble their tech counterparts in many areas, making their waves in financial services, notably in Asia.

As per a recent survey, half of all financial-services organizations now consider business development a top-three priority, up 18 percentage points from a comparable survey two years ago (12).

Read Also: Payment Methods: What Lies in the Future?

The Way Forward

Banks should seek to enhance their core offerings and build a one-of-a-kind combination of products and services that will disrupt the market. A strong sense of mission and direction and a road map to profitability are required for successful new launches (Suggested Reading: How did Razorpay Become India’s Most Valued Fintech Startup?).

Although the banking system has been gradually digitizing for some time, few banks have yet to turn digitalization into a competitive advantage successfully.

We believe it can be sped up by starting a new digital business from scratch. On the other hand, banks must thrive on numerous fronts to do it correctly, combining the skills of an incumbent with the dynamism of a startup. They will also require a unique concept, an excellent staff, and a clear route to profitability.

Of course, this is not going to be easy. Banks that pass the test, on the other hand, are more likely to improve overall performance and, possibly, produce a future star.