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Technology in Banking Insight and Foresight Technology in Banking Insight and Foresight Institute for Development and Research in Banking Technology (Established by Reserve Bank of India) Foreword The Indian banking industry, almost in keeping with the deep entrepreneurial approach of the country’s business, has come a long way. This report is an effort to capture some exemplary initiatives and developments so far as well as discuss the emerging trends. The insights and understanding of the technology trends and ground-level work being done by the banks has been culled from the nominations received from banks for the IDRBT Banking Technology Excellence Awards 2010. The transformation of Indian banks in the last decade has been phenomenal — from local branch banking to global presence and anywhere-anytime banking. Most of the regular banking transactions can today be carried out from mobile phones. Sustained reforms and information technology (IT) have played a pivotal role since the initiation of the second phase of reforms post 1998. The benefits of technology such as scale, speed and low error rate are also reflecting in the performance, productivity and profitability of banks, which have improved tremendously in the past decade. Regulatory initiatives from the Central Bank have also played a large role in the banking sector. Robust technology-enabled organizations have now become the mainstay of the industry. Initiatives such as electronic clearing service (ECS), national electronic funds transfer (NEFT), real-time gross settlement (RTGS) have accelerated the pace of technology adoption by banks and enabled interconnectivity between banks. While the focus in the early stages was on technology adoption and aligning/retraining human capital, now with more or less suitable technology infrastructure in place and a young technology-adept workforce, banks are focusing on improving the performance and optimum utilization of IT systems. Most IT initiatives are today derived from business objectives. The report captures technology initiatives taken by banks in the areas of financial inclusion, mobile banking, electronic payments, IT implementation and management, managing IT risk, internal effectiveness, CRM initiatives and business innovation. While some areas have gained sufficient traction, others are still evolving. However, without doubt, technology has today become imperative for banks, and going forward, will become a strong business driver in all functional areas of the banking business. B. Sambamurthy Ashvin Parekh Director Partner and National Leader Institute for Development & Research Global Financial Services in Banking Technology Ernst & Young Pvt. Ltd. Technology in Banking – Insight & Foresight 1 Contents 1. IDRBT Banking Technology Awards...........4 1.1. Background ........................................................................................................................ 4 1.2. Coverage ............................................................................................................................ 4 1.3. Nomination Process ............................................................................................................ 5 1.4. Evaluation Process .............................................................................................................. 5 1.5. Announcement of the Awards ............................................................................................ 6 1.6. Awards for this Year - 2010 - 2011 ...................................................................................... 6 1.7. Major Changes during the Current Year .............................................................................. 6 2. Introduction ................................. 7 2.1. Technology and Transformation in Indian banking .............................................................. 7 2.2. Business Growth and Expansion ......................................................................................... 7 2.3. Areas of use of Information Technology (IT) ........................................................................ 8 2.4. Productivity and Efficiency .................................................................................................. 8 2.5. IT Governance and Management Systems .......................................................................... 8 3. Current and Emerging Trends in Banking Technology...............10 3.1. Financial Inclusion .............................................................................................................10 3.1.1. FI Accounts ....................................................................................................................12 3.1.2. Distribution Network .....................................................................................................15 3.1.3. Training and Development .............................................................................................16 3.1.4. Review and Control ........................................................................................................17 3.1.5. Technology ....................................................................................................................17 3.1.6. Enrollment, Authentication and Transaction Process .....................................................18 3.1.7. Way ahead.....................................................................................................................18 3.2. Mobile Banking ..................................................................................................................18 3.2.1. Mobile Money and the Indian Market ............................................................................19 3.2.2. RBI’s take on Mobile Banking Transactions ....................................................................19 3.2.3. Interbank Mobile Payments Service (IMPS) ...................................................................20 3.2.4. Developments in the Mobile Banking Arena...................................................................21 3.2.5. New Trends in Mobile: ...................................................................................................22 3.2.6. Operator Bank Tie-ups ...................................................................................................22 3.2.7. IMPS Merchant Payments ..............................................................................................22 3.2.8. Prepaid Wallets and Mobile POS ....................................................................................23 3.2.9. Critical Success Factors ..................................................................................................23 3.2.10. The Road ahead .............................................................................................................25 Institute for Development & Research in Banking Technology Technology in Banking – Insight & Foresight 2 3.3. Electronic Payments ..........................................................................................................26 3.3.1. Evolution of Electronic Payments in India .......................................................................26 3.3.2. Overview of Electronic Payments Markets globally and in India .....................................26 3.3.3. Vision of the Regulator ..................................................................................................27 3.3.4. The Rise of Electronic Payments.....................................................................................28 3.3.5. Trends in Electronic Payments .......................................................................................30 3.3.6. Electronification Approaches by Indian Banks ................................................................31 3.3.7. Internet Banking ............................................................................................................31 3.3.8. Upcoming Technology Architecture ...............................................................................31 3.3.9. Fraud and Security Aspects of Electronic Payments ........................................................31 3.3.10. Emerging Payment Channels and Technologies ..............................................................31 3.3.11. Real Time Gross Settlement System ...............................................................................31 3.3.12. Rise of Prepaid Instruments ...........................................................................................32 3.3.13. New Credit Bureaus .......................................................................................................32 3.3.14. IMPS: Mobile-based Payment System ............................................................................32 3.3.15. Future Trends ................................................................................................................32 3.4. CRM Initiatives ..................................................................................................................33 3.4.1. Customer Education ......................................................................................................34 3.4.2. Grievance Handling ........................................................................................................34 3.4.3. Customer Service Delivery Channels ..............................................................................34 3.4.4. Cross-channel Integration ..............................................................................................35
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