Accenture Business Journal for India. Digital Disruption in Banking Time for Indian banks to embrace digital is now

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1 Accenture Business Journal for India Digital Disruption in Banking Time for Indian banks to embrace digital is now

2 Digital Disruption in Banking Time for Indian banks to embrace digital is now 2 3

3 Digital Disruption in Banking Time for Indian banks to embrace digital is now Remember when going to the bank meant setting aside half a day, waiting in long queues, shuttling from one counter to another and seeking in vain for someone to serve you? That s history. Figure 1: The Indian digital customer Is a traveler who books online (40%) Is a smartphone user on an Android device Is an educated, curious digital professional Is a heavy user of digital content 69% 57% 44% 25% Has at least 1PC or tablet in the household The digital era has given rise to disruptors, who are revolutionizing industries and reinventing the way people live and work. Consider pioneers such as Apple, Amazon. com and Google they introduced disruptive products and services that people had no idea they wanted but have now become part of everyday life. Banking is no exception. Disruptive forces are causing a tectonic shift in the industry, and the digital consumer is now firmly in charge. This is fundamentally changing customers behavior and upending the way they engage with brands leading to the emergence of the next generation of customers, Customer 3.0. In Indian banking too, every customer is now a digital customer albeit moving at his or her own pace and taking different paths to digital adoption. Accenture survey shows that 75 percent of the respondents in India use Internet banking at least once a week, while only 6 7 percent regularly visit a bank branch (see Figure 1). Customer 3.0 presents huge growth potential for banks, while simultaneously raising the stakes, if left unserved. These customers are hyperconnected, highly informed and spoilt for choice. They are empowered by their ability to adopt and apply new technologies, garner critical information and ensure that their needs are met, whenever required. The demise of many traditional business models across sectors including retail and transportation illustrates the impact these digital customers can have on easily commoditized products and services that don t adapt to their needs. Is a savvy online shopper (54%) Is looking for a spouse (28%) or is married (70%) Digital Banking Customer Speak Banking Relationship Better brand and online presence are the top two reasons for choosing a bank 68% Branding and trust Lives in an urban environment 54% Online presence through Internet and mobile banking Channel Usage Better brand and online presence are top two reasons for choosing a bank Use Internet banking at least once a week through desktops and laptops 90% Centers rarely use contact center and frequent usage of branch and relationship manager is only 6%-7% 31% Use mobile banking at least once a week Affluent Indian customers rarely visit a bank branch and do so only when required by the bank or to seek detailed advisory services for complex products. 93% Visit a branch at least once a month 31% Visit branches for transactions and services not available online Key Value-added Services for which digital customers are willing to start a new banking relationship 84% 70% 80% 16% Respondents selected shop and save (personalized discounts and rewards) Respondents selected free Wi-Fi services at malls and other establishments Respondents selected impulse saving (save a specific amount with just one click on your mobile) Respondents selected social banking as a top priority 4 5

4 Figure 2: Different digital business models at play in the Indian marketplace Banks need to go beyond digital and act as disruptors, reinventing themselves into what Accenture calls the Everyday Bank. Everyday Banks play a role well beyond transaction facilitation by becoming a central part of customers everyday life, meeting their financial as well as nonfinancial needs. For instance, when customers buy a car, their bank not only provides the loan, but also helps negotiate the best price and offers to insure, service and maintain the vehicle (through its network partnerships). An Everyday Bank connects with customers by building close relationships around three roles (see Figure 2): Advice provider that draws insights from customer data to recommend the best products and services for customers, from the bank or third parties. Access facilitator that helps customers get financial and nonfinancial products and services, using the channels they prefer. Value aggregator that brings customers relevant merchant-funded offers, discounts and loyalty rewards that go beyond the financial value proposition. An Everyday Bank pursues the right mix of an evolution in the existing business model and a revolution of innovative approaches. Today s leaders, such as BBVA, mbank and BNP-Belgacom, know that digital will be key to driving profitability in the long run. Their increasing adoption of the disruptive Everyday Bank model is transforming the global banking industry. The Indian banking industry too is seeing the nascent emergence of the Everyday Bank model. Banks are still evolving through different digital business models, driven by their capability maturity levels, investment appetite and risk tolerance. As market dynamics evolve, banks need to choose remain a utility or transform into an Everyday Bank. But speed matters, and banks need to embark on this journey sooner than later (see Figure 3). Our survey shows that for 83 percent of the respondents in India, personalized service is the biggest reason for choosing a bank, while for 56 percent, a stronger digital banking proposition is the top reason for switching banks. Source: Accenture, The Everyday Bank At the same time, the opportunities these customers present are immense, and banks can t afford to ignore them. Our analysis shows that the top 10 Indian cities 1 have a digital profit pool of INR183 billion 2 and account for 57 percent of digital retail deposits. What if banks could tap this opportunity and engage with Customers 3.0 on their terms? To realize this, banks need a radical approach to banking, given that disruptive technologies are redrawing the contours of the industry, and traditional players face threat from even nonbanking entrants. For instance, Alibaba became a US$16 billion lender in less than three years and China s largest seller of money market funds in only seven months. 1 Top 10 cities include Mumbai, Delhi, Bengaluru, Chennai, Kolkata, Hyderabad, Pune, Ahmedabad, Jaipur and Nagpur. 2 Within this, the profit opportunity is predominantly concentrated with the affluent and high net worth individuals accounting for 87 percent of the digital profit pool. 6 7

5 Figure 3: Why it is time for banks to change From flat growth to new revenue pools: Everyday Banks can help multiply interactions 10 times, gain 50 percent in operating income and attract an additional 15 percent or more of the existing customer base through new offerings. From high-cost to low-cost channels: The Everyday Bank advances low-cost digital channels in new ways, and requires approximately percent fewer branches and percent fewer employees per branch. From dissatisfied to delighted customers: The Everyday Bank puts customers first to create an immersive relationship. It can increase the number of pure digital customers and cut digital churn by up to 50 percent. From disintermediation to differentiation: Traditional banks are best positioned to become Everyday Banks compared with new entrants due to their deep customer knowledge, ability to operate in a highly regulated environment, and varied and coherent value proposition. Evolving from a mere transactional player to an Everyday Bank For most Indian banks, obtaining new digital banking capabilities will require redesigning and/or augmenting existing core banking platforms. How banks structure the nature, scope and approach of their journey will be driven by the complexity and depth of the change. This, in turn, will depend on each bank s unique starting point, ambitions, priorities and business model. To become Everyday Banks, Indian banks will need to bring multiple elements together channels, customer experience, analytics, partnerships, digital platform and innovation involving changes in the following areas: Extending the ecosystem: For many banks, the fundamental step will be to move beyond their traditional boundaries and develop an ecosystem of partners, such as telecom companies, retailers, utilities and technology firms, to enable a deeper everyday customer relationship. Mastering analytics: Banks are searching for ways to use customer data, drawn from sources such as mobile usage and social media, to anticipate customers needs and deliver timely offers. As banks tap new sources, the explosion in data volumes will make real-time analytics essential. Embracing omnichannel: In some cases, Everyday Banks will be at the center of the interaction with the customer; in other cases, they will be in the background, playing a supporting role as the customer interacts with ecosystem partners. To embed themselves in customers daily life, banks must strive for seamless integration of customer experience across all channels. Adapting a two-speed IT architecture: Since most banks are hampered by legacy systems and siloed operations, Accenture believes that banks require a new digital architecture that runs alongside legacy systems. They will need a two-speed IT architecture that coexists between open architecture platform and core banking legacy systems. This will facilitate the development of their customer-facing capabilities at high speed while decoupling legacy systems at a slower pace. No matter how banks undergo the journey or which path they take to transform into Everyday Banks, they need to start today if they want to succeed. The banks that become Everyday Banks will disrupt the market and stand to potentially realize percent return on equity by Will your bank be one of them? The authors Piyush Narain Singh Managing Director and Lead Financial Services Operating Group Accenture, India piyush.n.singh@accenture.com Samir Bali Managing Director Financial Services Operating Group Accenture, India samir.bali@accenture.com Sonali Kulkarni Principal Financial Services Operating Group Accenture, India sonali.kulkarni@accenture.com 3 The Role of Core in Digital Adoption ( 8 9

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