Vol. 18 No. 9 January 2020 `75 Pages 40
The spread of pension Last mile financial inclusion Customer centricity @ Shriram Life Market Research www.bankingfrontiers.com
BLOCKCHAIN -Reinventing Banking
BF Cover Jan 20.indd 1 14/01/2020 7:23:19 AM Editor’s Blog Manoj Agrawal Mobile : 98673 66111 Email : [email protected]
January 2020 - Vol. 18 No. 9
Group Publisher : Babu Nair Group Editor : Manoj Agrawal Understanding 2020 Editor : N. Mohan anuary is the season for forecasting. Technologies like AI, ML, API, RPA & blockchain will undoubtedly continue to Editorial Jmake a growing impact, as will the growing Mehul Dani, Ravi Lalwani, V. Raghuraman technology inroads into houses and automobiles, Research Editors and further within our bodies. Besides that, Prof Venugopal Iyengar, V. Babu, regulators are actively shaping the direction of Ratnakar Deole, W.A. Wijewardena, transformation of financial services. Sanchit Gogia, K.C. Shashidhar, I see further intensification of two major Dr L.S. Subramanian, Ajay Kumar global forces that we are already experiencing – authoritarianism and rebellion. Both are Advisor-Alliances co-related. Ateeq Siddique Authoritarianism is the counter reaction to Marketing the explosive growth of social media and rapid Kailash Purohit, Reshma Mandal globalization. It represents the increasing desire among people to reverse the level of unpredictability in their lives. Globalization has led to a huge job losses. Alongside, Events & Operations social media has created an outlet for people to liberally share their views, which has Gautam Magare, Shirish Joshi, led to differences coming out in the open in areas like government policies, economic Stalin Saldhana, Pramod Jadhav, policies, cultural norms, etc. Amit Gupta, Shweta Kadam, In response to both these sufferings, citizens are prefering and voting for Ashish Verma, Wilhelm Singh, Sneha Agrawal authoritarian leaders who promise to control these forces and revert back to the status quo. That explains the rise of conservative rightist leaders like Narendra Modi, Donald Design Trump, Boris Johnson, Vladimir Putin, Rodrigo Duterte, Jair Bolsonaro and many others. Somnath Roy Choudhury This tide is likely to continue during 2020 and beyond. Published By As regards rebellion, it is the result of rising anger among the masses, which is Glocal Strategies & Services happening across India, Hong Kong, Bolivia, Venezuela, Lebanon, Egypt, France, D-312, Twin Arcade, Military Road, Marol, Russia, Iraq, Algeria and many other countries. A mix of economics and politics is fueling Andheri (E), Mumbai 400059, India. this anger. In case you are wondering whether political and economic oppression has Tel: +91-22-29250166 / 29255569 suddenly increased, then that is not the case. What is happening is people have rising Fax: +91-22-29207563 expectations about improvements in economics and politics, and the rulers are not able to deliver the same. Job losses are rising, and fraud and corruption are becoming more tangible. Anger is the symptom of this increasing gap between expectations Printed & Published by Babu Nair on and reality. behalf of Glocal Strategies & Services and I expect this anger to continue rising resulting in more such rebellions during 2020 Printed at Indigo Presss (India) Pvt Ltd., and beyond. Global wars have declined, but anger is rising and becoming a destructive Plot No. 1C/716, Off Dadoji Konddeo Cross tsunami. I am not aware of any macro approach to reduce or contain this anger. Road, Between Sussex and Retiwala Indl. Both these mega-trends will have big impacts on the financial sector. Authoritarianism Estate, Byculla (E), Mumbai 400027. will impact from the top and rebellion will impact from the bottom. Both will heighten the risks and prudent banks should factor that in their business plans. Authoritarian Editor: N. Mohan (Responsible for selection leaders around the world are likely to expect more support from financial organizations of news under PRB Act) for their economic plans, while rebellions are likely to adversely impact both savings and loans. It is also seen that rebellion is more of an urban phenomenon, which means that greater opportunities will lie in the semi-urban and rural markets.
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Edit Jan 20.indd 3 13-01-2020 11:22:33 N E W S Regulator Andrew Bailey to be governor of Bank of England Bank of Korea plans Andrew Bailey, who heads the UK Financial Conduct Authority, has CBDC been named as the next governor The Bank of Korea has set up a taskforce of the Bank of England. Sajid to build on top of the existing research Javid, chancellor of the exchequer, on central bank digital currency in South announced that Bailey will take over Korea. The bank’s Monetary Policy for from Mark Carney, who will exit the 2020 include research into innovations job after more than 6 years at the like distributed ledger technology, helm of the central bank. Bailey’s cryptocurrency assets and CBDCs. The appointment is seen as the top job at special task force will have the sole purpose Bank of England passing on to safe of providing a better understanding of how hands as he has extensive experience digital assets operate. The central bank has as a former deputy governor at the Bank. Carney, who was due to leave the Bank at the made its intentions clear about launching a end of January, will now step down on 15 March to ensure an orderly transition. Among digital currency of its own. Bailey’s priorities will be to steer the UK economy and financial system through the Brexit process and trade talks with Brussels in 2021. He is also expected to scrutinize internal controls at the bank. Prof Lakshman is governor of Central Bank of Sri Lanka The Central Bank of Sri Lanka has a new governor. President Gotabaya Rajapaksa has appointed renowned academic Prof W D Lakshman as the 15th governor of the central bank. Prof Lakshman will also function as the chairman of the Monetary Board of the Central Bank of Sri Lanka. He is a well-known economist who served as the vice Google recommends chancellor of the University of Colombo from 1994 to 1999. In 2005, he was awarded the UPI to US Fed ‘Deshamanya’ title for his contributions to the academic field. Following his retirement in 2007 from the university system after 43 years of service, he was appointed an advisor to the ministry of finance in 2008 and as the chairman of the Institute of Policy Studies in 2010. In 2009, he was appointed the chairman of the Presidential Commission on Taxation in Sri Lanka.
China’s digital currency not a cryptocurrency There is a recommendation to the US Federal The digital yuan the People’s Bank of China is planning to launch will be fundamentally Reserve from Google - adopt the salient different from Bitcoin or similar cryptocurrencies, the regulator’s digital currency aspects of India’s Unified Payments Interface research institute deputy director Mu Changchun has said. It will also be different from (UPI) for the proposed FedNow, the new stablecoins, which are digital assets pegged one-to-one with major fiat currencies such interbank gross settlement service. Google as the US dollar or the British pound. He has said that the virtual renminbi would be said in a letter to Fed’s Board of Governors a digital form of the nation’s currency. The central bank has said digital yuan holders that UPI was thoughtfully planned, and would not be able to speculate on its value, and that it would not be backed by a basket critical aspects of its designs led to its of fiat currencies (like Facebook’s Libra). Mu said the e-yuan is not for speculation. It is success. It said, ‘UPI is an interbank transfer different from bitcoin or stable tokens, which can be used for speculation or require the system, it is a real time system and is ‘open’ support of a basket of currencies. He revealed that the digital e-yuan will exist in a two-tier - meaning technology companies can build system, with the PBoC managing its circulation, and local commercial banks operating applications that help users directly manage at the second tier of the centralized electronic currency system. transfers into and out of their accounts held at banks’. The approach in India attained Malaysia plans to issue licenses for digital banks amazing results for banks, consumers, other Bank Negara Malaysia plans to issue up to 5 licenses to set up digital banks in the country players within the payments ecosystem and to either conventional or Islamic banking businesses in the country. The central bank India’s central bank, Google said, adding has issued the Exposure Draft on Licensing Framework for Digital Banks that forms that the approach in India attained amazing part of the series of measures adopted by the bank to enable innovative application of results for banks, consumers, other players technology in the financial sector. The draft outlines the proposed framework for the within the payments ecosystem and India’s licensing of digital banks to offer banking products and services to address market gaps central bank. Fed has said the proposed in the underserved and unserved segments. The bank has fixed an asset threshold of FedNow would offer round the clock real not more than RM2 billion in the initial 3 to 5 years of operations. This functions as a time payment services 365 days a year. It is ‘foundational phase’ for the licensees to demonstrate their viability and sound operations, expected to be operational by 2023 or 2024 and for the bank to observe performance and attendant risks. and would allow transactions up to $25,000.
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News Regulator Jan 20.indd 5 13-01-2020 11:21:55 Project Pipeline SBI setting up DevOps platform CBI to start merchant State Bank of India has announced that it is acquiring biz embarking on a DevOps Central Bank of India proposing to set up journey and wishes to set up a system for merchant acquiring business a scalable platform (mostly through PoS and other associated acquiring based on Open Source channels on a revenue sharing model. tools) for automation of It has sought proposals from service Continuous Integration/ providers to set up and manage an end- Continuous Development/ to-end business ranging from merchant Continuous Testing (CI/ sourcing, documentation, onboarding of CD/ CT) activities as a centralized DevOps implementation. The bank is looking merchants, capital investment, deployment for a service provider to provide a platform to implement bank-wide centralized of the machines, merchant training and DevOps framework which would be able to provide orchestration layer for the end- education and maintenance of the PoS to-end DevOps pipeline using primarily the open-source tool sets identified by the terminals along with the operating system. bank. It should have self-service capability for end users. The service provider should The bank intends to share the net revenue also be involved in consulting and advising various IT departments in switching/ generated from the acquiring business migrating and onboarding/adoption of existing/ new applications on to the core with the selected service provider on a DevOps platform. The bank wants a platform that should be able to support activities determined ratio. of development of software applications using Agile as well as Waterfall project management methodology. BoB to set up IA NPCI to implement UEBA solution Center of Excellence NPCI is preparing to implement User and Entity Behavior Analysis (UEBA). It feels that although it has implemented state-of-the-art cybersecurity solutions to efficiently protect confidential and sensitive data, it feels with the dramatic increase in complexity and volumes of cyber threats imposed on financial institutions, the amount of information that needs to be handled to mitigate these threats is overwhelming. In the changing threat landscape where most of the attacks have had incubation period of over years of being undetected, it feels it is important to keep track of user- based activities which provide intelligent information to exfiltration attempts that happen. Hence it is thinking of implementing UEBA, which helps build a profile of such anomalies and provide early indication of exfiltration. Bank of Baroda is proposing to set up an Intelligent Automation (IA) Center PNB plans to build HCI of Excellence with the key goal to build Punjab National Bank is building a hyper-converged infrastructure (HCI) in order to process and operations efficiency across manage the various initiatives of the bank like the Security Operation Centre (SOC) various banking value chains and functions and integrated the HCI Solutions / devices for log analysis and monitoring of HCI through new age cognitive and automation Solutions / devices installed across the bank network. The bank has also implemented technologies. This will be in addition to the Enterprise Data Warehouse Project to provide better access to information, to foster 2 Centers of Excellence the bank already better and more informed decision-making, besides providing statutory reporting and has - one is around IT, and the other is MIS for the bank. The bank has invited proposals from service providers to supply, around analytics which are continuously install, configure, commission and maintain servers and add on components of hyper- helping bank to achieve objectives of digital converged technology to build am HCI at the bank’s data center, and if required at transformation program. The bank is the DR site. The bank wants the HCI solution must support virtualized application looking for a service provider to set up environments and should maximize the benefits of virtualization. the IA Center of Excellence. The selected service provider will build end to end IA use NABARD to have portal to monitor projects cases and design and implement artificial NABARD is proposing to develop a web portal and mobile app for monitoring projects intelligence use cases across the entire bank financed by its Business Initiatives Department. The main objective is to enable the value chain. In addition, the service provider bank to compete effectively in India and globally. The web portal and mobile app is expected to build the underlying technology will have a dashboard and facilities for report generation. In addition, it will capture platform with cognitive and automation data at various stages right from sanction of the project, monitor the progress of capabilities like NLP/NLG, Robotics Process the project. The monitoring software will have a field monitoring module and desk Automation, Machine Learning, Deep monitoring module. Learning, Computer Vision and Speech Recognition etc to enable IA use cases.
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Project Pipeline Jan 20.indd 6 13-01-2020 11:21:09 Pension Funds PFRDA targets 35 mn customers by March 2020 PFRDA has recommended a systematic withdrawal plan (SWP) for members of NPS alongside annuity plans:
he Pension Fund Regulatory & 2019. “The primary reason for the uptick in Development Authority (PFRDA) is enrollment is achievement of targets allocated Tthe statutory authority to regulate and to banks for opening of new APY accounts. promote the National Pension System (NPS) More than 3.6 million APY accounts have and other pension schemes in India. NPS has been added till 31 October 2019 indicating a posted 35% subscriber growth so far during growth of 33% in comparison to 26% growth 2019-20. Supratim Bandyopadhyay, whole during the corresponding period, last fiscal,” time member (Finance) at PFRDA, says says Bandyopadhyay. while the Authority is overwhelmed to see Of 3.6 million additions, 2.75 million such growth in the number of subscribers have been sourced by public sector banks, under NPS, there is a long way to go as 550,000 accounts by regional rural banks currently 96% people are not under any other and around 300,000 accounts by private social security scheme. “We have envisioned sector and payment banks. expanding the subscriber base by targeting 35 million people by March 2020, compared a PSU BANKS DOMINATE 32.2 million now,” says he. Among public sector banks, State Bank of India contributed nearly 1.15 million TOP 10 STATES additions in APY accounts followed by Uttar Pradesh leads the top 10 states Supratim Bandyopadhyay Canara Bank and Bank of India. In terms of under NPS subscription, with 93,214 new points out that the increase average account per branch, SBI sourced the subscribers added in the state in the current in enrollment under APY is highest number of APY accounts followed FY as on 30 November 2019, followed by an achievement of targets by Indian Bank and Bank of India. Among Maharashtra, Rajasthan, Haryana and RRBs, Baroda Uttar Pradesh Gramin Bank, Karnataka. The other leading states are allocated to banks for opening Dakshin Bihar Gramin Bank and Andhra Gujarat, Kerala, Orissa, Bihar and MP. of new APY accounts Pradesh Grameena Vikas Bank sourced maximum APY accounts, whereas, in terms of GOVT EMPLOYEES MULTIPLE FUNDS average accounts per branch Tripura Gramin PFRDA is regulating NPS, subscribed Today, there is Employees’ Provident Fund Bank, Maharashtra Gramin Bank and Baroda by employees of government of India, Organization. EPFO, is taken as a retirement Uttar Pradesh Gramin Bank topped the list. state governments and by employees of corpus. There are also superannuation Airtel Payments Bank has garnered 180,000 private institutions/organizations and the funds managed by insurance companies. APY accounts in 2019-20, against the annual unorganized sectors. It has a corpus of MFs also collect retirement corpus. target of 50,000. Karnataka Bank leads in over `3 trillion and `3.92 trillion as AUM. “The EPFO, superannuation funds and average account per branch. Bandyopadhyay says as per overall status of the NPS Trust collectively manage capital NPS as on 14 December 2019, as many as of ` 25 trillion. Within this, the NPS Trust SUGGESTIONS TO GOVT 2,059,943 central government subscribers handles `4 trillion of pension money. EPFO PFRDA has suggested to the government accounted for a corpus of `936.15 billion, handles a corpus of more than `14 trillion. a systematic withdrawal plan (SWP) to be with AUM of `1.31 trillion and 4,624,865 The total AUM of schemes of the NPS made available alongside the annuity plan. employees of various state governments for crossed `4 trillion on 27 December 2019,” The SWP will allow withdrawal over a `1.53 trillion, having `1.97 trillion as AUM. says Bandyopadhyay. period at much higher rates. The regulator There are 904,966 corporate subscribers, estimates that the returns under this could who have accumulated corpus of `300.59 BANKS ELEVATE APY be as high at 10% over the 6.25% available billion, with AUM of `390.01 billion. The Atal Pension Yojana (APY), a flagship under annuity plans. “The government is PFRDA has introduced NPS- pension scheme for workers in the considering doubling tax benefits currently Swavalamban in April 2010. Says unorganized sector like house maids, drivers, available under the National Pension Bandyopadhyay: “Under NPS- Swavalamban, gardeners etc, was launched in June 2015 by Scheme (NPS) to `100,000 under Section there are total 4,335,664 subscribers, with the government. This scheme has crossed 19 80CCD (1b) and making the annuity income corpus of `26.50 billion and `36.99 billion million subscriber mark, with corpus of `87.41 tax-free,” says Bandyopadhyay. as AUM.” billion and `95.53 as AUM, as of October [email protected]
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PFRDA Jan 20.indd 7 13-01-2020 11:20:24 Cover Story
BLOCKCHAIN -Reinventing Banking
Indian banks are readying to adopt blockchain, which in its matured format, is expected to change the face of banking:
ne of the most discussed topics infrastructure - a truly global infrastructure products and services that can generate in the financial services industry - and a rugged network. More than this, new revenue streams. The biggest key to Otoday is blockchain. When it there is the vital requirement for all the turning blockchain’s potential into reality is becomes a fully mature technology, it is stakeholders to define and establish rules a collaborative effort among banks to create expected that banks will be able to process of engagement. the network necessary to support global payments almost real time, absolutely “One of the most talked-about topics payments. Banks need to look at the bigger accurately and reduce transaction in the financial services industry today picture and work together and with non- processing costs. It has been found that the is blockchain banking and when fully banks to help define the backbone that can technology can keep track of transactions, adopted, it will enable banks to process underpin a universally accepted, ubiquitous track ownership, become a reliable and payments more quickly and more accurately global payment system that can transform tamper-proof source of information about while reducing transaction processing how banks execute transactions. In other almost any type of property, create smart costs,” says Sunita Handa, Chief General words, ‘The technology will only work if contracts and when combined with open Manager (IT - Channels & Operations), everyone adopts it. It has to be all or nothing’.” banking, lead to faster, automated lending State Bank of India. “However, to capitalize decisions in a marketplace, promote and on this potential, banks need to build the COST REDUCTION facilitate financial inclusion in a more infrastructure required to create and Blockchain technology will have a direct efficient manner and control and eliminate operate a truly global network using impact on reducing operational costs and frauds. However, what we today know solutions based on this transformative improving efficiencies by reducing manual about blockchain is very limited compared technology,” she adds. processes and friction in day-to-day trade to the scope it has, especially in areas other She elaborates: “It is believed that as real finance, digital identities and cross- than banking, like in regulation, privacy, time, open source and trusted platforms that border payments, emphasizes Monish data protection etc. securely transmit data and value, blockchain Shah, partner, Deloitte Touche Tohmatsu For banks to be making use of its true can help banks not only reduce the cost of India. It also enables a move away potential, there is need to build a right processing transactions, but also create new from paper-based to blockchain-stored
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Cover Story Jan 20.indd 8 13-01-2020 11:19:19 transaction records, which can facilitate blockchain technology with the bank expansion to underserved markets such acting as an issuing and paying agent for as small and medium enterprises while Vedanta, a natural resource conglomerate. transforming online and international He says market interest or penetration of payments processes, he points out adding: the technology can be evaluated basis the “Its distributed ledger technology, smart interest among regulators, participants in contracts, security, built-in governance the ecosystem and the value this technology and control capabilities give institutions brings in from an end customer experience. real-time access to trade finance data Oberoi lists the advantages banks will and information. This helps mitigate have while using blockchain: risk, eliminate wait time and increase Reduced Turn-around-Time for transparency. For example, the main transactions: Traditionally, financial pain point in trade finance is ensuring transactions involved intermediaries like authenticity of documents like letters of payment gateways, stock exchanges or credit. By using blockchain, the process not clearing houses for completion and settlement. only goes digital, but cross border payments The involvement of multiple stakeholders also have a lower probability of getting increases the timeframe required for the halted due to authenticity issues.” Sunita Handa points out that transaction. Blockchain reduces the time He is of the view that Indian Banks in blockchain environment, taken to process a transaction. should consider making the switch to Transparency: Blockchain shared blockchain to remain competitive and keep there may not be need of ledger will enable parties involved to trace future ready. “With an increasing number correspondent banks and hence the transaction and its audit trails on a real- of fintechs entering this space, it is more the communication will be faster time basis. Non-repudiation and end to end important than ever for banks to continue traceability are key attributes that acts as to innovate and adopt new technologies. per every bank’s internal requirement. enablers for banks to implement solutions Banks can also alternatively look at This ensures that irrespective of the size on blockchain technology. partnering with established blockchain and nature of the bank, there is a way to Reduced operational cost as well as fintechs to collaborate through a win-win implement blockchain based services that increased productivity: Blockchain has partnership,” says he. require minimal effort and investments. the potential to reduce the involvement of Shah is confident that blockchain These changes in operating models and intermediaries, bring in effective risk controls will also lead to digitization of banking infrastructure deployments greatly reduces and reduce paperwork. These will further pull processes, automated reconciliation the operating cost for the bank, which may down the operational cost of the banks. and near real-time processing, instead be better utilized for further enhancing Enhanced end client service experience: of current batch-level processing. The business and increasing efficiencies, he says. Clients reap the benefit through improved technology also ensures authenticity “Even in the case of CP issuance over TAT in end to end business processes with through hash encryptions and mining, blockchain, we have observed that the their bankers, since banking activities for which significantly reduces risks and solution provided a seamless workflow for the client are taken care through automated increases process controls. the users at the client’s end by automating and digital workflows on blockchain. Asit Oberoi, senior group president & their day to day manual operations carried Oberoi points out to the launch of global head, Transaction Banking Group out over email and phone to raise and track Vajra, NPCI’s blockchain-based platform at Yes Bank, points out that a significant CP issuances. Apart from this, by having a for interbank reconciliation and settlement, portion of a bank’s costs is utilized in robust system, we as an IPA have moved and firmly believes such initiatives from building the risk control infrastructure, to a paperless flow eliminating the need the regulators also provide a boost to the which requires validation and verification for the issuer to go to a bank branch and banks to explore more possible use cases. of records, record keeping, non-repudiation submit the documents for processing. “It is only a matter of time when blockchain and traceability. “With the adoption of Instead of the earlier 2-3 days process, now will translate into a norm compelling every blockchain, bank’s dependency for risk the experience has been reduced to near one of the banks to come onboard. To be in control on physical infrastructure and real time for the customer. Therefore, there line with this expected norm, banks need manual intervention will reduce,” says he. is considerable increase in productivity and to start investing now to ensure they do not revenue optimization at both the bank’s miss out on the next wave, which is around COMPLETE AUTOMATION and the client’s ends,” he adds. the corner,” advises. He explains that blockchain being one of Asit Oberoi recounts how Yes Bank the most advanced technologies, offers for the first time in Asia facilitated digital ENHANCED EFFICIENCY complete automation of workflows as issue of commercial paper (CP) using Sunita Handa says operational costs,
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Cover Story Jan 20.indd 9 13-01-2020 11:19:20 Cover Story
efficiency and security of a transaction are could be able to share a common digital inversely proportional to the number of representation of asset holdings and to intermediaries or hops a transaction goes keep track of the execution, clearing and through. “Since blockchain technology settlement of securities transactions outside is meant for dis-intermediation and their legacy databases, without needing direct visibility for the stake-holders, its the involvement of a central database appropriate use will definitely enhance management system, he says. efficiency and security and reduce the operational costs. Blockchain is a digital 4 REASONS FOR SWITCH distributed ledger which has all the Lohar lists 4 reasons for Indian banks to information related to the transaction. All switch to blockchain: this information is time-stamped and hence 1. The current day banking systems are is easily trackable. Moreover, all the data is highly reliable on paper and outworn encrypted, and thus, it becomes difficult process. The need of the hour is to for anyone to alter or delete it. Since this have an upgraded system embedded information is distributed to all the nodes with reliable and trust-able technology in the system, it becomes unalterable and that could withstand frauds, scalability immutable. The blockchain potential in Monish Shah emphasizes that and security issues. The blockchain financial services, therefore, needs to be use of blockchain will lead to technology and its decentralized nature exploited,” she adds. digitization of banking processes, can give the banking systems the much- She also maintains that banks will needed edge they are on the lookout for. have the possibility to reduce the need automated reconciliation and near 2. Banks cannot be termed as independently for manual intervention in aggregating, real-time processing, instead of operating self-sufficient entities as any amending and sharing data. Regulatory current batch-level processing transactions made through them still reporting and audit documentations could involve intermediaries. Moreover, the become easier, requiring less manual rate at which money is transferred on processing. As a result, employees could with better security and better authenticity an international scale can still take up focus exclusively on value-added activities. of files”. to 5 days along with entailing risks. With “Reconciliation and settlement involved He says, as blockchain fosters trust a blockchain system in place, banks in various kinds of payments are clear among all stakeholders and minimize would be able to make transfers really examples of time-consuming and expensive operational and manual overheads, it quick without even having to take the processes that financial institutions can automatically eliminates the need for third burden of risks as the system would be completely redesign by adopting blockchain parties and middlemen. It can prove a self-sufficient to resolve it all on its own. technology. Financial firms may be able to significant cost-saver. Also, as everyone 3. The world is going digital and with this keep track of the execution, clearing and gets to view a single immutable version progress, even small transactions and settlement of transactions outside their of the ledger, cost and effort spent on payments are happening digitally. The legacy proprietary databases, without documentation get reduced. economic activity rate is increasing and requiring the involvement of a central “Each bank will look for optimizing its there is no doubt in assuming that the database management system,” she says operations and in a cheaper way, with a far rate will keep picking up in the coming further. lower error rate, with less resulting risks days. Blockchain technology will make She, however, cautions that it is still and lower capital requirement. They can small transfers feasible and fast along an emerging technology, and there are reduce the need for manual intervention with the aid of lower fee and scalability outstanding open points related to security, in aggregating, amending and sharing of transactions. regulation and scalability that need to be data, and regulatory reporting and audit 4. Financial services other than banks addressed. It may take couple of years documents could become easier, requiring are constantly evolving their systems to reach the maturity stage and become less manual processing. As a result, with the aid of the latest technology mainstream, she adds. employees could focus exclusively on value- in order to secure the markets by Prasanna Lohar, head - Digital, added activities rather time consuming and providing economically available Innovation and Architecture at DCB error prone activities,” says Lohar. services at cheaper rates. Banking and Bank, describes blockchain as a unique He adds that reconciliation and other financial institutions should opportunity for banks to change their lives settlement are clear examples of time- look forward to the adoption of new in profound ways and unleash a set of consuming and expensive processes blockchain technology too in order to new capabilities to transform the way “we that banks could completely redesign by secure their place in the ecosystem. interact and collaborate in our activities adopting blockchain technology. Banks Sony A, joint general manager and
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Cover Story Jan 20.indd 10 13-01-2020 11:19:21 head - Digital Banking Dept, South Indian challenge faced especially in transborder Bank, believes that in the light of increasing transactions, which no government has instances of frauds in the banking industry been able to address so far. and the resultant overhaul that compliance “The consolidation or integration of these exercise is undergoing, new technologies regional consortiums would be essential in like blockchain can help reduce manpower making blockchain a truly global technology and efficiently manage reconciliation for banking and thereby enhancing Indian efforts in the case of financial transactions. banks’ reach to a global network of member “Operational costs with regard to banks as well as customers.” compliance and various legal adherences could also be reduced, thereby taking care CROSS-BORDER PAYMENTS of reputational and legal risks associated Sunita Handa believes blockchain with the financial transactions,” says he. technology in cross-border payments can He, however, does not advise a sudden enable faster and more secure transfers switch for Indian banks. “The whole between bank ledgers and this can help financial ecosystem might need to undergo India’s financial institutions develop world- a major behavioral shift to make blockchain class payment platforms. Besides, the and related technologies feasible. This is the Asit Oberoi highlights how with technology can enable banks to improve reason why many banks have come together the adoption of blockchain, and future-proof their cross-border to launch business solutions in blockchain. banks’ dependency on physical payments services. South Indian Bank, along with other major She adds: “At present Indian banks banks, is part of one such consortium, with infrasructure and manual intevention communicate with banks in rest of the plans to provide solutions in the areas of for risk control will reduce world through their correspondents, which trade finance and remittances,” he says. takes time. In blockchain environment, we could impart trust programmatically there may not be need of correspondent INFO ACCESS TO ALL with automation. Blockchain is the only banks and hence the communication will Jithesh P V, deputy vice president & head known technology which is capable of be faster. Information will be available - Digital, Federal Bank, says the beauty imparting distributed programable trust. simultaneously with all the participants.” of blockchain- based platforms is that the I hope this will bring down the cost of According to Asit Oberoi, the primary necessary information with respect to an business significantly since cost of trust contribution of the technology to the approved use case is visible to all partners is an important cost of business and this banking sector as far as trans-border in the network based on the consensus cost could be translated to end consumer transactions are concerned will be in created in the ecosystem. Hence, real time benefits,” he explains further. establishing and strengthening trust, settlements are possible thereby improving He feels it is inevitable for banks in bringing in transparency and reducing efficiency. Says he: “In theory a distributed the country to slowly adapt to this new turn-around-time for a transaction. These ledger is automatically reconciled, because technology because of the various other will in turn bring in cost optimization as the parties in a transaction could see the advantages it brings to the table like faster well increase business potential for the state of the transaction all the time. They transactions, improved security, improved banks. do not need to cross verify and check with data quality, lower cost, transparency and Says he: “Blockchain-based trans- each other or wait for a file to know about of course interoperability and innovation. border remittances are on the increase the state of that particular transaction. with several providers gaining momentum Since participants are having access to true REGIONAL CONSORTIA across the globe. The blockchain technology copy of the data, many of the use cases such Monish Shah of Deloitte shares a enhances the ability of Indian banks as KYC could be achieved by preventing concern: “Every region is coming up with to improve their product offerings and duplication of effort and time and its own blockchain powered networks increase revenue from such offerings. These thereby significantly improving customer (consortiums). These regional consortiums technologies also provide an avenue to experience and reducing costs.” have a risk of not being integrated, which venture into new territories and new service He points out that India being a large could lead to disconnects at a global offerings that were earlier not possible due country with variety of financial institutions, level. Therefore, the networks need to to technological constraints arising from businesses, regulatory authorities and be integrated or standardized to truly nonstandard implementations.” end users, it is almost impossible to get unlock the benefits that come with using each of these entities connected to every blockchain on a global level. Till then, SEVERAL CHALLENGES other entity. “Given the diversity of our scalability of blockchain remains a concern. Prasanna Lohar of DCB Bank says financial country, we need mechanisms using which Additionally, dispute management is still a and bank blockchain technologies bring
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Cover Story Jan 20.indd 11 13-01-2020 11:19:21 Cover Story
in benefits such as lower costs and faster Sunita Handa of SBI says information processing of transactions, elimination sharing is an important element of of intermediaries for transactions blockchain but exchanging and sharing authorization, decentralization and thus, information between competitors can raise independence from central repositories, competition concerns depending on the less paperwork and bureaucracy and above nature of the information being shared all transparency, data integrity and security and the structure of the relevant market. He is, however, cautious as he says She feels these concerns can be addressed blockchain technology in banking and with correct setup of blockchain protocols. finance faces some challenges. For example, “It is essential to restrict the access current regulations and legislation do not to transaction records, in particular, allow the use of blockchain technology in commercially sensitive information such finance, such as the prohibition of personal as contractual terms, sales volumes, pricing financial data immutability. There is need data and party names. This information for improved security and platforms and should not be automatically shared with applications that are used for blockchain every user or node. An extra layer of transactions should have 100% protection privacy may need to be added to safeguard against hackers and standards for identity Prasanna Lohar maintains that competitively sensitive information. Most verification on blockchain are yet to be with the adoption of blockchain private blockchain protocols have the developed. there will be need for international possibility to segregate data for privacy Lohar is also reminding that the number purposes. It is necessary to recognize the of records and data sizes is increasing as the and national regulations around it correct protocols to be used for blockchain number of people continues to grow. “This will become mandatory deployments. This is as much a matter of poses a big challenge to the application stake holders being educated about the data of blockchain technology network. The exchange houses and banks would be part privacy maintenance,” says she. network designed through a blockchain of the network, thereby reducing/sharing She is also of the view that being an should be able to handle the growing the costs involved. emerging technology, it is desired that the volumes while maintaining the speed of Federal Bank too is facilitating real- regulator should set up rules and frameworks, accessibility for the network stakeholders. If time transactions for inward remittances which should be applicable to all participants. the blockchain technology is applied to the with its current open banking capabilities. New regulations, with role and responsibilities current banking systems, it has to ensure However, Jithesh feels DLT can give a of each participant will increase trust among the capacity of handling large volumes of different dimension to the product thereby participant and will help to boost the usage of data too. Scalability becomes important bringing more transparency and hassle- blockchain, says she. aspect to be taken care during blockchain free reconciliation while allowing real- application implementation,” he says. time credit to accounts with all partner MULTIPLE VARIANTS Sony of South Indian Bank is of the banks in the consortium. This will allow Asit Oberoi of Yes Bank points out that view that business success of trans-border exchange houses and remitting banks to be there are multiple variants of blockchain transactions depends on factors like speed, more digital, while providing a level playing implementation like public, private and a competitive rates and hassle-free settlement. field for banks in the country even without hybrid of public and private. “Banks have “Currently, in our experience, our cross having to partner with all the members in been traditionally focusing on ownership border transactions through various the ecosystem, he adds. of data due to the data sensitivity that channels do happen in a near-to-real-time “As an example, for the remittance use must be adhered to by the financial environment. Proactively involved in digital case we also see the possibility of using smart institutions. Banks will be more inclined initiatives, we had done a pilot project in contracts to make real time FX deals and towards implementing a private blockchain blockchain for remittance transactions thereby improve efficiency in the business network that would still be a decentralized where it was observed that the speed of process with a possibility of creating new one in nature. However, this ensures that the transaction was unvaried, compared to business models for remittance, by passing stakeholders from the ecosystem can be our existing channels. However, settlement more benefits to the end customers,” he adds. part of the network to the extent of only and reconciliation of accounts can be more being able to access data that is intended efficiently managed with blockchain.” QUESTION OF SECURITY to be accessed by them. Non-financial He adds that if blockchain is to make Being a decentralized ecosystem, blockchain stakeholders could participate in the a real impact in remittances, the business platforms allow multiple participants - blockchain network as an ancillary service model would have to change to an even competitors - to have access to data. provider through the public and private ‘aggregator’ approach wherein multiple Is this a cause for concern? hybrid model to complete the end to end
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Cover Story Jan 20.indd 12 13-01-2020 11:19:22 transaction journey enhancing customer infrastructure security. Blockchain experience,” says he. systems can be permissionless or He is confident that once the sector with permission, depending upon the reaches a level of maturity and confidence nature of transactions. on blockchain technology, the need for (v) Scalability: With growth in blockchain newer and simplified regulations will applications, the need for a larger be vital from a customer experience blockchain database is required along perspective to enhance trust. with the speed of access to database. He says the regulators are very keen Speed and accuracy of processing of a on exploring this technology, which is transaction will be of utmost importance validated from the recent launch of the to make it commercially viable. Vajra platform by NPCI for reconciliation (vi) Energy Consumption: There is and settlement of payment rails under NPCI enormous consumption of energy in and various other initiatives of RBI and the use of blockchain technology. It other regulators in the financial industry leaves a massive carbon footprint of to explore and implement industrywide its own. It requires huge computing blockchain applications. power greater than the world’s fastest Monish Shah says data privacy supercomputers. is restricted in private permissioned Sony A feels with the use of (vii) Legal Framework: Blockchain blockchains in which data access is restricted blockchain operational costs with technology and its applications to only those participants who are supposed regard to compliance and legal lacks any national and international to be party to that transaction. Additionally, adherences could be reduced, regulations. Though various data resides within the premise of the thereby taking care of reputational governments across the globe transacting bank and actual data never flows and legal risks are exploring the applications of through the blockchain rail. What essentially blockchain, but still more clarity is gets transmitted is a hash-pointer to the data required on the legal aspects. stored in the bank’s database, which has a an international standard for Sony of South Indian Bank agrees this high level of encryption. competing blockchain systems. Better is a cause of concern. The banking sector, “However, while data security may not interoperability is needed to make he says, is a fiercely competitive one and be an immediate concern, regulations would blockchain compatible with the wider data privacy issues are of great importance be needed to monitor the data in terms of web and to integrate them into existing and hence allowing multiple parties to data updation, storage, maintenance and practices and processes. access data is totally unwarranted. “We may archival and a robust ecosystem need to be (ii) Privacy: Data on blockchain technology have to rely on ‘permissioned blockchain’, established irrespective of the adoption at is inherently shared publicly among all wherein access to blockchain nodes would this stage,” he says. the participants of the system. There be restricted. It is seen that our central are various problems with respect to bank is taking a cautious approach in REGULATIONS MANDATORY transaction privacy on blockchain as the formulating the policies and guidelines in Lohar of DCB Bank maintains that data is made public and anybody can see this regard. The maturity of the ecosystem with the adoption of blockchain in the it. Private blockchains are much secure, will largely depend on regulatory vision and banking sector, the need for international but they face interoperability issues. identification of viable models,” says he. and national regulations around it will (iii) Encryption: If the key is made public The issue concerns the use case and become mandatory. “Recently we have anybody can access the encrypted data blockchain technology which are being used, seen how, cryptocurrencies, the most and if someone loses the key to unlock according to Jithesh of Federal Bank. Says popular application of blockchain, do not the blockchain, it is impossible to get he: “There are third generation enterprise have any regulations around them, which it back. Encryption used in blockchain blockchain technology solutions which will makes them susceptible to both profits and technology may be broken through help to achieve transaction privacy. We, at losses. However, blockchain has immense loopholes in the system as people may Federal Bank, could architect systems in potential and certainly clear regulations find out new ways to manipulate or such a way that entire data is not shared need to be in place so as to avoid chaos,” misuse the data. with all participants or competitors. There he says. (iv) Security: Multi-level security must be in are different ways to create and manage Lohar points out certain existing place which encompasses authorization policies in the blockchain architecture weaknesses: of parties accessing blockchain, which can take care of the current and (i) Interoperability & Standardization: security from malicious insiders, proposed data privacy and protection laws, The technology does not have cyberattacks, transaction security and regulations and business rules. I don’t see
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Cover Story Jan 20.indd 13 13-01-2020 11:19:22 Cover Story
a need for any new regulation for such Yes Bank being proactive in adopting these platforms.” emerging technologies, we are well placed to build infrastructure to connect to any such INDIAN BANKS IN IIN technologically advanced networks available Several Indian banks have now become across the world,” says he. members of JPMorgan’s Interbank Information Network, or IIN, set up in 2017. SIB IN MANY CONSORTIA Participating in the network is expected to South Indian Bank, which is not part help these banks to reduce payment delays of IIN, is however, member of multiple with other member banks. The platform consortiums with other major banks as aims to create an infrastructure for global members. Sony believes a consortium banks to exchange information on financial approach is very much helpful for exchange compliance and AML. As long as the data of ideas, discussions and diffusion of and system architectures for Indian banks challenges and imbibing a shared sense are compatible with IIN, joining the of technological knowhow as well as costs. network should not be a hurdle in terms He reveals that the consortium in which of tech infrastructure. The network aims the bank is a member, strives to take into to keep data secure and free from data Jithesh PV is confident that use account better fraud risk management tampering, which is crucial for banking of blockchain will allow exchange practices and is in advanced stages to float networks so fraudulent loans, cash flows, houses and remitting banks to a company with all the member banks. diversion of funds do not go unrecorded. It The bank, he says, in its pilot project implements a layer zero-knowledge proofs be more digital, while providing a of remittance through blockchain, had (ZKPs) used with the Ethereum blockchain level playing field for banks in the ensured data privacy by engaging only the protocol. The network claims it is able to country relevant business entity. “However, we may address data privacy issues. have to resort to permissioned blockchain Sunita Handa says that apart from IIN can also do so. “If validation against in the case of consortium approach in order preparing the tech infrastructure for sanction (negative) lists (eg OFAC or UN to manage data privacy issues. Blockchain blockchain implementation, Indian banks prohibited entities) are more efficient, it is can be deployed in both on-premise and in which have joined IIN, are trying to figure bound to improve the quality of transaction cloud. Both models will have appropriate out how and where the network will bring transmission. The initial application on security measures,” explained further. them value additions. “Since these banks are IIN may aim to create an infrastructure for Jithesh of Federal Bank says IIN competitors as well, there has to be unanimity financial institutions to exchange data on is aimed at providing secure exchange on the type of information they would like global financial compliance and for AML information to banks associated with to share with other bank participants and purposes,” she says. cross-border payments. It reduces costs how exactly they will benefit out of that Since data on a blockchain cannot and mitigates risks involved in those cross- sharing. While data exchange with regulator be tempered with, she is of the view that border transactions. With IIN, the time or a central authority is done as a matter of attempts to commit fraud through data taken to resolve these inquiries can be regulation, transparency with other banks rewrite will not go unrecorded. “Many reduced from up to 16 days to mere hours. is something they would like to be very people say that India’s Punjab National He says Indian banking has some unique careful about. For dealing with peers in the Bank fraud case would not have happened payment systems like UPI and IMPS which financial industry, banks have always looked if the global financial messaging network processes billions of transactions and all the upon a neutral intermediary or a central had used blockchain based consensus Indian banks are together processing these authority or a regulator to finalize the rules systems. However, if the representatives of transactions in a decentralized manner. It and operative guidelines. Without a neutral a participant entity collude to circumvent or is therefore evident that Indian banking is intermediary, any one bank taking the lead break all rules of checking and validation, more evolved and tech oriented than many and forming those rules will not find easy any system including blockchain will not be international banks and hence joining IIN acceptability with other players. So, the IIN able to prevent frauds,” she adds. would not be a big challenge for any of the venture is new in more aspects than one,” Asit Oberoi points out that IIN with 365 banks in the country. she contends. banks across globe as members will help Prasanna Lohar says 7 Indian banks She also feels that any system that Indian banks to scale their cross-border joining IIN is a milestone. He points out enables near to real time update of business, increasing efficiency by getting real that IIN may use a native cryptocurrency transactions helps in eliminating frauds and time information on status of remittances. JPM coin to help move funds and provide malpractices in cross border transactions. If “With the recent developments in the tech liquidity. The network, he says, aims to implemented correctly by all participants, world and with Indian banks including make global banking faster & more efficient
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Cover Story Jan 20.indd 14 13-01-2020 11:19:23 by exchanging and verifying transactional data in real-time. He also explains that IIN is based on Quorum, a permissioned distributed ledger whose code was forked from the Ethereum public blockchain. Unlike the Ethereum network, Quorum is not decentralized and is controlled by JP Morgan. It has enjoyed an extensive network of participant banks - about 350 Global banks exploiting the power of blockchain global banks - which collectively own trillions of dollars in assets. He also points and KPMG in 2017. The consortium trust each other to come to agreement on out that the network also aims to keep data completed several pilots in 2017-2018, the state of a database, without using a secure and free from tampering. Besides, enabling its members to share KYC, AML middleman. By providing a ledger that fraudulent loans, cash flows and diversion and CTF details over a blockchain. nobody administers, a blockchain could of funds do not go unrecorded. The Reserve Bank of India affiliate provide financial services like payments, With regard to security, Lohar points Institute for Development and Research in securitization, Central KYC or other out that Facebook’s Libra blockchain Banking Technology is working on the use validations etc. Further, blockchain allows project failed to convince critics. However, of blockchain for the Indian banking system. for the use of tools like ‘smart contracts,’ JPMorgan, in order to ensure user privacy, Yes Bank is working a blockchain- which could potentially automate many of has implemented a layer zero-knowledge based project to bring some 33 vendors on the manual processes. proofs (ZKPs) used with the Ethereum board an invoice financing blockchain. She says DLT could help in use cases that blockchain protocol. Axis Bank has developed an inward don’t need a high degree of decentralization remittance solution based on blockchain but could benefit from better coordination. COMPLEX SECURITY DESIGN along with RAKBank. It will cater to the Some of these, according to her are Clearing Fundamentally, says he, the blockchain retail customers of the Middle East. The bank and Settlement Systems, Securities, Trade network is secure and powerful as it is has also aligned with Standard Chartered Finance and Securitization of assets by embedded with cryptography techniques. Bank (Singapore) to develop a solution for banks/ financial institutions. “Blockchain based cryptographic networks corporate trade remittance. The bank is She adds that SBI is doing pilot are very complex to breach or hack and using Ripple for creating the network. projects using blockchain including inward thus, any kind of security fraud in such ICICI Bank is working on a closed- remittances from a particular international networks would require a high amount of loop wallet for use in campus transactions. geography and in financing of car dealers on computational power in order to secure any It has also developed 2 blockchain- the basis of Virtual Identification Number hack. When a blockchain network is applied based solutions with Emirates NBD for or VIN of each vehicle acquired or sold by to any banks, it has to be secured with remittance and trade finance. the dealer. multiple security protocols. The blockchain DCB Bank has conducted 7 Hackathons Monish Shah says delivering trade network design should be capable enough around blockchain and it is closely working finance optimally is one of the most tried to restrict participating authorities to take with IDRBT, NPCI, various institutes, and tested use cases on the blockchain control of the network only according startups and fintechs for adoption of platforms. The technology has helped to the access permission given to them. blockchain. create more transparency and security Depending on the requirement and Infosys Finacle and R3 have completed by replacing the existing complex use cases, the blockchain involved in a 5-week long global blockchain trial. documentation process in the domain, such systems or organizations could be India’s income-tax department has done leading to a higher degree of trust among designed permissioned or permission-less. pilots with DCB Bank, Kotak Bank and other trade parties globally. People aspect in an organization need to banks to create blockchain-based IT returns. He is also sure that payments and be handled with different levels of access NPCI’s Vajra Platform is intended to clearance and settlement systems will permissions in order to save the overall be based on an open-source technology/ continue to be among the domains network from malicious insiders and cyber framework/solution. disrupted by blockchain technology. hackers, he says. “Distributed ledgers can reduce operational Lohar lists some of the blockchain CORE, UNDERLYING TECHNOLOGY costs and bring us closer to real-time projects in India: Sunita Handa finally explains that transactions between financial institutions. Bankchain, which is the State Bank of blockchain technology is a core, underlying Furthermore, it can facilitate faster India’s effort along with DCB Bank, ICICI technology with promising application payments at lower fees by establishing Bank, Kotak Mahindra Bank and other prospects in the banking industry. “It decentralized ledger for payments,” says he. commercial banks, IBM, Microsoft, Skylark provides a way for parties who don’t fully [email protected]
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Cover Story Jan 20.indd 15 13-01-2020 11:19:23 NBFC Kinara Capital - offering last mile financial inclusion Kinara Capital offers funding without any collateral security, effectively making use of its proprietary risk assessment processes:
n NBFC that exclusively funds small the company to modulate its decisions businesses in the manufacturing based on a range of parameters and factors Aand trading sectors and that offers so that there is no undue emphasis on any these funds without any collaterals is a one factor, such as bank account balance, rarity indeed in the Indian financial services or a credit score. Instead, it takes into domain. But that’s Kinara Capital, which account multiple variables, confidently today is fulfilling the last mile financial providing loans without property collateral inclusion with the help of technology tools on a reducing interest rate basis. “Mind you, and personalized customer service. The our disbursals happen within 5-7 days from company confines to offering loans in the the start of the loan inquiry, which is about range of `200,000-`2.5 million to small 80% faster than the industry average,” businesses alone and these businesses are avers Hardika Shah. assured of availing the loans in a matter of “In fact, we take a lot of pride in our 5 to 7 days without any collateral security. unique and proven business model. We hit “We are dedicated to driving financial profitability before we had even reached inclusion of small business entrepreneurs Rs100 crore book size as a company, which in India,” says Hardika Shah, founder and is unusual. We are now a Systemically CEO of Kinara Capital. “About 90% of Important NBFC as recognized by the our customers are new to business credit. Hardika Shah describes Reserve Bank of India, and we won a Getting a loan from a bank is most often the model she has adopted Gold Award as ‘Bank of the Year-Asia’ by not an option for them. By opening up as a blend of fintech with IFC/World Bank for our work in helping access to capital, we see it time and again doostep customer service - an MSMEs,” she adds. how empowering it is for small business orchestra with lot of moving entrepreneurs who can turn their dreams PROPRIETARY RISK MODEL parts and aspirations into reality,” she adds. Kinara Capital has built its own proprietary businesses that has directly led to the risk assessment methodology that takes NO LAND, BUILDING creation of 10,000+ new jobs, including multiple parameters into account and What’s unique about the NBFC is that for first-time earners and women. Led by allows effective risk mitigation. The risk it does not accept land or buildings as a women-majority management team, the mitigation models allow it to extend loans collateral security. It does not collect any company has impacted over half a million to the type of entrepreneurs who are often property papers either. Instead, it believes lives in India. overlooked by others. “For example, we in shouldering the risk when the mission offer loans to customers without business is to drive financial inclusion. Hardika ESSENTIALLY A FINTECH credit histories, no CIBIL score, or someone Shah believes making lending decisions Hardika Shah elaborates that the business who is a young entrepreneur, or someone solely on the availability of land collateral model the company has adopted is a blend a couple of years into his or her business,” stymies progress, especially in a vibrant of fintech with doorstep customer service. says Hardika Shah. economy like India where there are millions “It really is an orchestra with a lot of moving In this context, she recalls the rolling of micro, small and medium enterprises. parts that all work together to deliver top out of ‘HerVikas’ program that offers loan “We have proven with our proprietary risk- service and top value to our customers. discounts to women entrepreneurs who assessment methodology that unsecured As a result, the majority of our customers remain outnumbered in the MSME sector. lending is possible and sustainable,” return to us to secure their second, third, At Kinara Capital, loans are ‘auto- she adds. and fourth loans as they continue to grow disbursed’ within minutes. The disbursals Kinara Capital has disbursed Rs10 their business,” she reveals. took longer in the past and sometimes it billion across 30,000 loans to small A strong data analytics procedure helps would take several hours for the company’s
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Kinara Capital Jan 20.indd 16 13-01-2020 11:17:52 bank to send the funds. “We worked with our bank partner to set up a unique centralized process that lets us disburse the funds pretty much as soon as the approval is received,” says Hardika Shah. She adds: “We are constantly finding ways to use technology to deliver an optimal customer experience. By adopting end-to- end technology practices, we have made the complex lending process efficient for our customers and our employees.”
DIGITIZED DATA All the customer data is digitized and submitted by the field officers directly into the proprietary system. The end- to-end digital practices have eliminated all unnecessary paperwork and sped up the process. “With a strong back-end technology in place, we are able to offer the most efficient TAT. Our unified technology A woman making diyas at a unit funded by Kinara Capital platform means that all teams - whether in the field, call center or the corporate office and helps him with the loan application together to apply for a loan,” says she. - can access the same data in real-time process. This information is submitted Hardika Shah says the company in spite minimizing room for delays and errors,” digitally by the field officer and is analyzed of its lower interest rates and the small says Hardika Shah. and quickly processed. The field officers ticket size has not faced any liquidity crisis The company has recently come up digitize the customer data, which speeds up because it is transparent in its dealings with a customer app that facilitates instant the verification and evaluation processes. and takes a balanced approach. “However, access to customers’ loan details anytime As soon as this is done, our data-backed liquidity issues at the industry scale have they need to. Similarly, they have more decision-making processes allow us to turn had repercussions that almost everyone in options now to make payments via the app, around a decision quickly. Once the loan is financial services is dealing with. The cost or online through the company’s website. approved, it moves towards disbursement of borrowing (bps) has gone up this year. The company has also moved to digital and that too is done electronically with Yet, we have consciously chosen to take this franking processes in all its 100+ branches. funds submitted to the business bank hit and not pass these increased costs to our This means that the employees do not have account of the customer within minutes customers” says she. to stand in long lines to get stamping done after approval. Finally, for repayment, She is also of the view that banks must saving them a lot of time and hassle. our customers mostly opt for electronic differentiate between NBFCs and should payments and they now also have the qualify the stronger NBFCs perhaps by LENDING PROCESS option to make the payment online through reviewing parameters such as the concerned What are the processes involved in the our website or the exclusive Kinara Capital NBFCs’ profitability, overall growth, and lending - right from loan origination to customer app.” portfolio quality. sanctioning to repayment? She emphasizes that customer Does she believe Indian NBFCs can Responds Hardika Shah: “The education is at the core of what enables the attract PE funding? average ticket size of the loans we offer is company to drive financial inclusion. The “NBFCs certainly can and already are `350,000. Small business customers can company has 110 branches across 6 states attracting PE funding. Yes, this mode is get loans for working capital, business in India. It has invested in training its field advantageous because until recently, a expansion, property improvement, old or officers, who in turn render all help to the social impact for-profit business was often new machinery purchase, line of credit small business entrepreneurs. “Many of our considered as a business with low margins or or bill discounting. The process involves entrepreneur-customers never thought that closer to a not-for-profit organization. The a first point of contact with an interested getting a loan from a legitimate institution ability to drive large-scale impact and run a small business owner reaching out to us. was ever an option for them. Our field growing profitable business means that the Then, our local field officer will visit the officers visit the business owners and business model is commercially viable for a place of business and helps him figure out educates them on the loan process, EMIs PE investor,” responds Hardika Shah. the best loan option for his unique need and the information they need to put [email protected]
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Kinara Capital Jan 20.indd 17 13-01-2020 11:17:53 Market Research
mbai Mu 27 % Navi h Zone 16% ut ANTS So DISTRIBUTION ne Zo
RTICIP 33% West PA OF 24% East Zone OGRAPHICAL Sakshi Surana 5% 0% GE 35% 30% 25% 20% 15% 10% s Drashti Kothari 15% ANTS ver 45 year sO RTICIP 21 % 6-45 year PA s3 OF Sandeep Rao 39 % 6-35 year s2 Rao, Drashti Kothari and SakshiSurana. They worked really hard and diligently to make this this They Kothari and SakshiSurana. to make Rao, Drashti really hard and diligently worked 25% E PROFILE onsidering that PMC Bank’s based was Mumbai, the study was concentrated on Mumbai. The city onsidering that PMC Bank’s based was Mumbai, the study concentrated on Mumbai. The city was divided into 4 zones – Western suburbs, Eastern Southern suburbs and Navi Mumbai. Upto 25 year Banking Frontiers invites banks and financial organizations to supoort similar studies on a larger scale AG 5% 0% C About 100 people were targeted in each zone. While Banking Frontiers prepared the questions and and questions the prepared Frontiers Banking While zone. each in targeted were people 100 About analyzed the data, actual survey was done by a team of 4 interns, who are students – Sneha Agrawal, Sandeep is also thankful to CRG Solutions for hosting the data on Tableau and Banking Frontiers study a reality. providing the interface for doing analysis. with focus ed objectives to achieve between customer segments , a better understanding of the co-relation channels, incentives, campaigns, etc alternate . product offering, Sneha Agrawal 45% 40% 35% 30% 25% 20% 15% 10% 5 ANTS kh e ` 7. 55% la ov Ab RTICIP lakh 25 % PA ` 5-7.5 OF 12% lakh ` 2.5-5 PROFILE ` 2.5 8% lakh Upto 0 10 30 40 20 50 60 INCOME Facing Adversity – Banks must deepen Customer Insights In the wake of the PMC Bank fraud and In the wake enormous financial and psychological impact on its depositors, Banking Frontiers conducted a survey among 401 people in different parts of Mumbai city to understand the depositors in terms of their preferences for savings across We gold and property. equity/MF, bank/FD, present here the initial analysis of data. Further analysis will be presented later:
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Chart Jan 20.indd 20 14-01-2020 12:02:17 y y S 36% 23 % S ropert ropert P P OMER OU OMER OU ST ST GR GR dP dP ol ol 9% 17 % ARS AGE FG FG YE ty/M ty/M 20% 19% qui qui ER 45 YEARS AGE 5- 35 OV T PREFERENCES OF CU T PREFERENCES OF CU DE DE IN THE 27% 49% IN THE 2 PRODUC Bank/F Bank/F PRODUC 5% 0% 0% 40% 35% 30% 25% 20% 15% 10% 60% 50% 40% 30% 20% 10% The second lowest age group shifts its preference from bank deposits compared to the yougest age group. to property, The highest age group has an uncanny resemblance to the youngest age group - most interested in bank deposits and least interest gold.
y S 22 % 44% ropert Property P P OMER OU OU OMERS ST GR ST GR dP ol 14% 20 % Gold ARS AGE FG YE y/MF ty/M it 19% 14 % qui qu 5- 45 T PREFERENCES OF CU T PREFERENCES OF CU DE DE IN THE UNDER 25 YEARS AGE IN THE 3 45% 22% Bank/F Bank/F PRODUC PRODUC 5% 0% 5% 0% 50% 45% 40% 35% 30% 25% 20% 15% 10% 50% 45% 40% 35% 30% 25% 20% 15% 10% The youngest customers in this study have a cleep preference for bank deposits and minimum interest in gold. The sedond highest age group has a towering interest in property and minimal interest in equity & mutual funds.
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Chart Jan 20.indd 21 14-01-2020 12:02:18 Market Research S S P 29% 26 % P Property Property OMER OMER ST ST 13% 22 % Gold Gold 15% 20% ` 7.5 LAKH INCOME GROU -5 LAKH INCOME GROU
Equity/MF Equity/MF 5 ER ` 2. T PREFERENCES OF CU T PREFERENCES OF CU OV 37% 38% Bank/FD IN THE Bank/FD IN THE PRODUC PRODUC 5% 0% 5% 0% 40% 35% 30% 25% 20% 15% 10% 40% 35% 30% 25% 20% 15% 10% The lower-middle income group in this segment too prefers bank deposits, but has swapped equity in place of gold as its preference compared to the lowest income group. The preferences of the highest income group in this study have an uncanny resemblance to the preferences of lowest income group!
S P 26% 34% P Property Property OMERS OMER ST ST 22% 23 % Gold Gold LAKH INCOME GROU 15% 13 % ` 2.5 LAKH INCOME GROU Equity/MF Equity/MF ` 5 - 7.5 T PREFERENCES OF CU T PREFERENCES OF CU 37% 29% IN THE Bank/FD Bank/FD PRODUC PRODUC IN THE UNDER 5% 0% 5% 0% 40% 35% 30% 25% 20% 15% 10% 40% 35% 30% 25% 20% 15% 10% The lowest income group in this study have a clear preference for banking deposits and minimal interest in equity/MF. The upper-middle income group in this study has swapped bank while mirroring the lowest income group deposits with property, regarding equity and gold.
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Chart Jan 20.indd 22 14-01-2020 12:02:19
N 35 % 35% Property Property
OF OF ME 17% 13% Gold Gold OMERS CUST PREFERENCES 17% 20% PREFERENCES Equity/MF Equity/MF MARRIED PRODUCT 35% 28% Bank/FD Bank/FD PRODUCT 5% 0% 5% 0% 40% 35% 30% 25% 20% 15% 10% 40% 35% 30% 25% 20% 15% 10% Married customers have a clear preference for property, lowest Married customers have a clear preference for property, interest in gold. and Men have a clear preference for bank deposits and property, the lowest inclination towards gold. They have very non-uniform preferences. 27% 29% N Property Property
ME OF WO OF 24 % 15% Gold Gold OMERS CUST PREFERENCES 21% 17 % Equity/MF Equity/MF PREFERENCES UNMARRIED PRODUCT 39% 28% Bank/FD Bank/FD PRODUCT 5% 0% 30% 25% 20% 15% 10% 5% 0% 45% 40% 35% 30% 25% 20% 15% 10% Unmarried customers have a clear preference for bank deposits, and a minimal preference for gold have nearly uniform preferences for all the four product Women categories
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Chart Jan 20.indd 23 14-01-2020 12:02:19 Insurance Customer Centric Culture @ Shriram Life Shriram Life Insurance Co has plans to deepen its penetration and have its sales managers, enabled with technology support, at block level pan India:
hriram Life Insurance Company purpose of creating customer-connect, we recently bagged the ‘Active Customer have designed pictorial representations SEngagement Award – 2019’ based on of our best-selling plans, which is a at the ‘CII Award for Customer Obsession unique initiative in the life insurance - 2019’. Manoj Kumar Jain, MD of the industry. Our policy servicing and claim company, says multi-lingual communications, forms are simplified and bilingual. Along pictorial representation, salesforce app, quick with English, we have regional language settlement, video interaction and self-service translations available in the forms, so that website had all contributed to the company our customer segment can comprehend the receiving this award. forms easily,” he says Customer communication has been an important focus area for Shriram Life ENHANCING EXPERIENCE Insurance. The predominant modes of The company gives a positive experience communication are letters, emails, SMS to its customers at various stages of their and voice calls. Jain explains: “We ensure journey. The claims team took up a project that the customer is informed at all stages of to clear death claim payments within 48 the customer journey like policy document hours of intimation. Says Jain: “Quick delivery, policy servicing request status, analytics identified that 25% of all claims grievance status, different stages of renewal, Manoj Kumar Jain mentions reported were genuine with no need for claim registration, claim settlement, post that Shriram Life Insurance will further investigations and could be settled claim settlement etc. Additionally, we are use bots and voice tech and instantaneously. These claims are now also working on implementing WhatsApp pursue digital transformation being identified at the initial stage itself communication and chatbot.” and moved into the ‘fast-track bin’ for quick to service its customers in the settlement.” FOCUS on COMMUNICATIONS most efficient manner Though insurance is an instrument The company has multi-lingual of risk coverage, Shriram Life Insurance communications, which is a rare critical to the insurance policy, it is very understands that from customer’s point of feature. “We have created a multilingual important that the customer understands view, every customer would wait for his/ her communication platform for our customers the complete proposal form before he fills maturity or survival benefits. The company to understand our products, our services in all the details,” says Jain. believes that delivering higher experience and other details in his/her own language,” The company has also invested in is ensuring that customer does not have says Jain. The proposal form is available in vernacular call centers and hires agents and to necessarily approach it with an issue or regional languages. The form is simplified to sales persons from the same areas where concern. “Hence, we have started a ‘We Owe the maximum possible extent and has been the call centers are located. You’ initiative to help our customers receive translated into 9 languages (Hindi, Telugu, their maturity payouts on due dates. ‘We Tamil, Marathi, Oriya, Bengali, Guajarati, PICTORIAL REPRESENTATION Owe You’, started in August 2017, aims at Kannada, Malayalam). “Since the accuracy Jain connects to the popular adage ‘A picture reaching the customers 45 days in advance of details entered in a proposal form is speaks a thousand words’ and says: “For the and informing them about their due date and guides them towards submission of necessary documents for maturity and Group DNA For Common Man survival benefit,” says Jain. he factors responsible for growth at Shriram Life Insurance are unique. The company has Tadopted the Shriram Group DNA of focussing on the large ‘aam aadmi’ segment, which the APP FOR SALESFORCE group has been practising over the last 45 years. “We have cracked the barriers to entry through In an effort to simplify various processes for partnering with Shriram Group organizations and this has helped us to replicate the model for the customers, the company has introduced a the rest of the customer base at large. Our business models through innovation, leveraging the group companies with a focus on low cost distribution. We are in niche segment with high barriers mobile app for its salesforce, which has proved to entry,” says Manoj Kumar Jain, MD of the company. beneficial in a number of ways. Says Jain: “The app has eliminated physical paperwork.
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Shriram Life Insurance Jan 20.indd 26 13-01-2020 11:13:37 Instant policy issuance, if premium is paid in cash within the permissible limits, has been made possible. It has mitigated the risk of ambiguity of existence of the customer. It has ensured no delay in covering the risk and no need of repeated customer interactions by doing it right the first time instead of causing inconvenience to the customers by repeated Manoj Jain, MD, Cassie Kromhout MD & CEO and Vineet Agarwal, Zonal Manager handing over the death claim visits for documentation. The app aids in cheque to the family of late Shyam Babu, CRPF, at Kanpur, who made supreme sacrifice in Pulwama terror attack capturing the customer details instantly.” The company is now stepping into the partner to manage fraud and improve SELFSERVICE WEB world of bots and voice tech and undergoing persistency ratios. Says Jain: “Analytics Shriram Life Insurance has understood a digital transformation like implementing tools have been implemented so as to that many customers, in their hectic work workflow engines to service the customers identify high and low fraud propensity schedules, would find it difficult to attend in the most efficient way. proposals which will help in passing their medicals at the diagnostic centers the cases through higher due diligence after their working hours. Jain says this ACQUIRING & RETAINING for very high fraud score and issuance realization has made the company come Shriram Life Insurance has unique sourcing of policies through straight through up with an innovative process - Video models. Leveraging the group ecosystem process if the fraud propensity is very low. MER (Medical Examination Eequirement). is really doing well. “We have initiated a Similarly, analytical tools are being used for It started in March 2018, in which the dedicated ‘Customer First’ department, managing ideal number of call penetrations prospective customers need not travel long which focuses on monitoring the outcome to the customers for renewal of the policies. distances to do their medicals. of every interface of our organization with Analytics for effective funnel management The company also realizes the pain our customer at all stages of the customer is at sourcing stage, work is being done and anxiety a claimant will have to go life cycle.,” says Jain. by analytics partner.” The company has through during the emotionally draining One of the most unique initiatives of the conducted 2 major engagements - an on end- time, especially while filing a death claim. company in the recent times is ‘We Care’. to-end IT roadmap and digital architecture Jain says the company has hence launched “This is the first-ever initiative which is purely study – in association with Deloitte India. an exclusive 2-minute video in English a ‘service initiative’ to educate customers Basis this IT roadmap, the technology and Hindi specially aimed at assisting about their policies, benefits, clarify any implementation partner Novac Technology the nominees to have a hassle-free claim doubts and build relationship with them. Solutions has been implementing various IT settlement experience. “It’s a video This is to ensure that the customer and his solutions to meet the technology needs on an assistance for making a claim,” says he. family continue to enjoy the benefits of the ongoing basis. The company’s website has included policy for many-many years to come. Other more services in customer login such as retention initiatives include conversion PENETRATION PLANS downloading premium paid certificate, of potential customers, balance in open In respect of number of policies (NOP) requesting for PPC (Premium Paid sourcing potential along with ecosystem issued, Shriram Life Insurance ranks among Certificates) by post, updating of PAN, potential and opening offices in tier 2 and 3 the top 8 life insurance companies in India. address and contact details, fund switch, untapped but difficult markets, which have The uniqueness of the customer segment of request for medical reports, etc. “This huge entry barriers,” says Jain. the company is that it is serving the unserved has created a better experience for the and underserved sections of population customers as they do not have to contact ANALYTICS TO MANAGE FRAUD who needs protection and cover the most. either the branches or the call centre for any As part of using big data and analytics, the “Currently, we have about 0.75 million of these services anymore,” says Jain. company has tied up with a technology in-force policy book and our book is growing yoy. We are adding customers at a CAGR of 25% over the last 3 years,” says Jain. Measuring and Enhancing NPS Shriram Life Insurance has plans to hriram Life Insurance has initiated a Net Promoter Score (NPS) feedback mechanism to deepen its penetration and plans to have systematically monitor the outcome of the interface with customers. Around 123,000 S its sales managers, enabled with technology customers have been touched for feedback since the launch of NPS. The survey focuses on support, at block level pan-India. “We firmly capturing the overall experience in detail pertaining to the bond delivery, service at branches, believe that we will be able to reach out to our renewal experience, etc. All the passives and detractors are contacted by the ‘Customer First’ team to understand the reasons of dissatisfaction and the concerns are followed up with the focussed group of customers and continue to respective departments to close them to customer’s satisfaction. pursue our growth ambitions,” says Jain. [email protected]
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Shriram Life Insurance Jan 20.indd 27 13-01-2020 11:13:39