Banking Solutions Director, Oracle Financial Services
Banking landscape in India is undergoing rapid change
Urban Co-operative Banks (UCBs) are a vital cog to the Indian Banking landscape embedding themselves and bringing deep-rooted connections to specific communities. This inspires trust, whereby they are able to mobilize deposits, especially from the smaller savers and provide financing to the financially excluded segments. UCBs today face several challenges and are facing a newer playing field across multiple dimensions:
|Competitive Landscape||The banking landscape in India has been completely reshaped with several banks making investments on their digitization agenda as well as several newer banking licenses and growth of FinTech. India is among the fastest growing Fintech markets in the world with 25 Fintech Unicorns1 today|
|Digital Adoption||Backed by a robust India Stack, digital adoption continues to deepen. Digital transaction volume in FY23 is now 200 billion up from 20 billion in FY20 while Unified Payments Interface (UPI) now accounts for 42% of total transactions by volumes of all digital transaction2|
|Structural Challenges||There are several UCB’s which have come under the scanner of the Reserve Bank of India (RBI) on several measures such as weak asset quality and capital positions, while some also are struggling with low credit-to-deposit ratios which is affecting growth. Several UCBs were merged or liquidated in the last 5 to 7 years. RBI has also taken several steps to ensure structural integrity of the UCBs including bringing in a revised four-tiered regulatory framework|
|Customer Expectations||India is experiencing one of the highest population percentages of Gen Z and Millennial populations, at 52% of the total population3. And it is their behaviours which are driving business opportunities. So instead of thinking of today’s youth as digital natives, we like to think of them as accessibility natives. Imagine growing up in a world of constant access (a world in which you can have everything, anywhere, anytime) – that’s the expectation. To put it in context, one-third of online loans availed in India come from the 18-25 age group and this is the behaviour we shall see going forward7|
Critical success factors for a successful digital-led transformation
Today there are 1,514 UCBs and there are both pressures for growth as well as garnering newer deposits. Despite a long history of serving niche communities, market share of UCBs today stands at 3%4. UCBs bring trusted banking services to close-knit communities and bring the underprivileged into the banking fold; it is now ripe for UCBs to re-imagine their customer journeys and the way they service their customers. This will help UCBs to not only propel growth, continue to grow their customer base but also bring cost efficiencies into their operations. Let’s look at some of the critical success factors to a successful digital-led transformation.
Frictionless Customer Journeys & Hyper-personalized Communication
Bringing in smooth, secure, and intuitive experiences on digital channels are the need of the hour in this era of accessibility natives. In some sense enabling frictionless experiences can be synonymous with simplicity. It is critical for UCBs to design their digital journeys in such a manner that there is no breakages in any journey context whether it is loan onboarding by a customer or availing of a statement online.
Completely Digitized Lending Journeys
To spur asset growth and continue to compete with a range of SFBs, fintech start-ups, and commercial banks, UCBs need to revisit their lending journeys. It is estimated that digital lending is set to account for 60% of the total fintech market by 20305. UCBs risk being left behind if they do not get their lending journeys right. From the very touchpoint of customer identity verification via video-based KYCs to automated credit scoring as well as loan disbursement, the entire journey needs to be digitized and automated.
Quick to Market & Personalized Offerings
To compete in a dynamic banking environment, turnaround time on new product launches and flexibility to cater to every customer need is of utmost importance. A banking environment that allows for quick configuration, testing, and launching of products can drive growth at UCBs.
Automation is a key factor for better customer experience. These could include quick pre-screening of the right customers who meet banks’ credit polices thereby enabling faster time to conditional “yes”. These could also include straight-through processing (STP) of all payments as well as automation of financial and non-financial transactions, to drive up operational efficiency and provide enhanced engagement, and could extend to automation in the underlying technology stack as well.
Connected & Embedded
Going beyond the traditional touchpoints and bringing an API-first environment will allow UCBs to leverage the efficiencies of a connected ecosystem and enable UCBs to offer differentiated experiences to their customers too. Leveraging India’s growing fintech ecosystem will allow UCBs to bring greater efficiencies in to their operating landscape.
Built to Change
UCBs needs to migrate to a next-generation architecture, which is easy to change and adapt to evolving changes in banking. UCBs need to embrace early-market and industry-leading technologies such as cloud services, artificial intelligence, machine learning, and natural language processing (NLP) to keep pace with disruption and bring value to customers regardless of size or geography.
Migration to Cloud
Cloud economics not only brings lower Total Cost of Ownership (TCO) and the ability to innovate, it will enable UCB to transition to a secure and scalable environment. RBI’s circular ‘Technology Vision for Cyber Security’ 6 for UCBs also stresses the need for robust IT security measures that can more easily be met in a cloud environment.
Finally, UCBs need to devise ways to attract and retain top talents and create a fintech- like working environment for this talent to meet their digitization objectives.
Oracle has partnered with several Urban Co-Operative Banks in helping drive their digital transformation agenda. Oracle brings a complete suite of capabilities in banking from digital to core to cloud, thereby bringing the most compelling propositions for UCBs.