Shaktikanta Das, Governor, Reserve Bank of India

The banks will face competition from Fintechs which are already making their presence felt within the financial services space

With advancement in digital banking, cybersecurity will remain an important challenge for all stakeholders. The increasing use of IT systems by banks, remote working arrangements, accelerated adoption of digital banking services by customers, along with increasing dependence on third parties for various services would warrant enhanced resilience capabilities to ensure business continuity

Climate-related risks will be a focus area in times to come. Such risks will impact the business models of banks

The Changing Landscape of Banking

The banking sector is going through a period of churning. The future of banking would witness a major shift in customers’ choices and preferences with enhanced expectations from the banking industry. Each of the developments would present unique opportunities and challenges to the existing and newer players. It has to be borne in mind that sometimes the disruptions can be so sudden that it is impossible to anticipate them.

To me, however, it seems reasonable that ‘Banking Beyond Tomorrow’ would revolve around (i) the adoption of emerging technologies, customisation of products and services, enhanced business and process automation; and (ii) development of suitable business models with strong governance frameworks, better information management, changes in the mode of working, building of enhanced resilience capabilities and a more responsible societal and environmental role for banks. Let me dwell upon the above in some more detail.

Increased Digitalisation, offering personalised services and Collaboration with Fintechs

The Indian banking system has undergone significant changes in terms of market structure and competition. The increased adoption of technology by traditional banks through self-upgradation or collaboration with Fintechs is resonating with the idea of new-age banking. This is leading to innovative products and services and newer business models. In this context, it is often cited that the banks will face competition from Fintechs which are already making their presence felt within the financial services space.

Today’s customers, especially the retail customers, expect banks to provide them quick, reliable and personalised services. Therefore, to stay relevant, banks would need to embrace newer and tested technologies for effective and timely business decision making, understanding the needs of their customers and delivering personalised services to them. Banking beyond tomorrow would necessitate significant investment in technology and organisational capability.

Open Banking

Globally, banking is becoming more ‘Open’ facilitated by the availability of newer technologies and application programming interfaces (APIs) that allow interoperability among banks as also Fintechs. This development presents unique opportunities for collaboration among various participants for faster and improved delivery of products and services suited to the customer.

Unlike other developed countries, India has embraced a hybrid model where both the regulator and the market have collaborated for the development of Open Banking. UPI marked a watershed in the commencement of Open Banking in India. With the success of UPI, implementation of the account aggregator (AA) framework and the mass adoption of digital banking services, India is witnessing an emergence of new business models.

More and more banks are opening up for collaboration with new age service providers for facilitating customers to make better use of their data and avail a wider and richer set of services.

User Friendly Apps, Website Navigation and Enhanced Customer Service

Given the digitisation wave in the banking world and with the new tech-savvy customers, banks must also strike a fine balance between digital and paper based forms of communication. While the apps and websites of banks have grown in leaps and bounds over the years, there is still substantial scope for facilitating easy navigation for customers. Simplifying disclosures and access to information and innovative deployment of tools such as chatbots to help customers navigate through the websites and mobile applications will greatly enhance the banking experience.

Financial Inclusion

18. Financial inclusion has been pursued vigorously with steady improvements as reflected in the Financial Inclusion Index introduced by the Reserve Bank. Receiving digital payments such as wage payments, government cash transfers and domestic remittances are catalysing the financial inclusion drive. The push provided by the JAM trinity has resulted in increased access to banking services to the unserved and the underserved. While digital technologies are also offering a powerful way to overcome barriers to access banking and financial services, we also need to be sensitive to the requirements of our people to avoid digital divide.

The presence of human touch in traditional branch banking would still be relevant for customers in many respects. There is also a need for providing timely and seamless credit to agriculture and MSME sectors. While the RBI is engaged in encouraging initiatives in areas such as MSME lending through its Regulatory Sandbox, other stakeholders such as banks and fintech companies are also collaborating to provide digital credit delivery mechanism in cost-effective and hassle-free manner.

Increased Use of Social Media and Information Mediums

Social media is an alternative platform for reaching millions of customers. Indians, on average, spend about 2.4 hours daily on social media1. Further, the number of social media users has been growing steadily.

The analysis of social media use has the potential to help banks in reviewing their strategies in terms of customer segmentation, customer acquisition and furthering financial inclusion plans. Social media can also be used in customer grievance redress management.

Cybersecurity

With advancement in digital banking, cybersecurity will remain an important challenge for all stakeholders.

The increasing use of IT systems by banks, remote working arrangements, accelerated adoption of digital banking services by customers, along with increasing dependence on third parties for various services would warrant enhanced resilience capabilities to ensure business continuity. This would include building strong defences against cyber-attacks and malicious attempts at disrupting, disabling or destroying a computing infrastructure or stealing confidential information and data.

Banks would need to undertake constant upskilling of personnel. Continuous knowledge acquisition and staying ahead of the curve would become even more crucial.

Comprehensive and Strategic Approach to Climate-Related Risks

Climate-related risks will be a focus area in times to come. Such risks will impact the business models of banks. The increased requirements of funding businesses and industry for tackling climate change would be greatly influenced by the global move on climate related risk management. Various stakeholders already consider environmental, social and governance (ESG) as an important aspect while making investment decisions.

Banks are also increasingly aligning their businesses, including assessment of financing assets, with the global climate sustainability agenda. The need for banks would be to develop appropriate business strategies and strengthen the governance framework to gauge the associated risks.

In line with international best practices, a forward-looking, comprehensive and strategic approach would be required to address climate risks.

Concluding Observations

Going ahead, the world of banking is expected to be more collaborative as well as competitive, with newer players offering innovative financial products. Banks need to prepare themselves for facing the dynamic environment, while keeping their focus on appropriate business models, sustainability, stability, and consumer centrality.

More importantly, good governance remains fundamental to success and should not be compromised. Due care needs to be taken to protect the stakeholders from digital frauds, data breaches and cybercrimes. At the end of the day, banking is a service, and enhanced customer protection and experience should be given the primacy it deserves.

From the regulator’s perspective, the Reserve Bank is fully committed to build an enabling environment for accommodating the new disruptive innovations in a sustainable manner, while preserving financial stability.

History suggests that when technology, market participants and regulators join hands, revolutionary innovation and growth would follow.

I hope our banks of tomorrow make it come true.