Disruption in Indian Banking

download (3)Five weeks after Kolkata-based Bandhan Bank Ltd began operation, IDFC Bank quietly launched in Mumbai. Previously, the banks fought it out with two dozen contenders to get the Reserve Bank of India’s in-principle approval a little over a year ago. This is besides the fact that the bosses of both the new banks, Chandra Shekhar Ghosh of Bandhan Bank and Rajiv Lall of IDFC Bank are not bankers, they are running their banks more differently than you can imagine.

Bandhan Bank began operating with 2,022 doorstep service centers with 501 branches and 25 ATMs all across India. One-third of their branches are in rural areas and unbanked pockets. However, in the past few weeks, it has increased its branch network and substantially increased their customer base. Bandhan plans on continuing to serve this segment of the market and add small to medium entrepreneurs to its loan portfolio. They don’t want to dabble in corporate loans for now, but will collect deposits from all, including high net worth individuals and corporations.

In contrast, the IDFC bank is aiming to be a smart corporate bank. It began with 23 banks including eight in Mumbai, New Delhi, Bengaluru, Kolkata, Chennai, Ahmedabad and Pune offering corporate and wholesale banking products. The remaining 15 branches are in unserved areas. IDFC’s focus is using state of the art technology to make transactions easier.

There is a new wave of competition in Indian banking and it will continue to intensify. In the past 20 years, 12 new banks have been created, but not all of them have survived. Just in the past seven weeks, two more banks have appeared. In the next year, we can expect to see many more. Both banks are challenging the high street banks to redraw their strategies. They have to take note of Lall’s passion for technology. Some banks have already made big moves into rural India to fight Bandhan’s expansion.

The story doesn’t just end here. More than four foreign banks have approached RBI for local incorporation. Once they incorporate, they can open more branches and buy out weaker banks. RBI could also allow for some strong urban banks to convert themselves into commercial banks. Most importantly, banking licenses for universal banks and specialized entities should be in healthy supply.

Get ready to see huge disruptions in Asia’s third largest economy consisting of Rs.90 trillion. Let’s sit back and watch small banks fight pitched battles with big banks for locations and local incorporate banks lure depositors. Sophisticated corporate and personal banking products are coming to India.

The Banking Revolution Is Coming

Today, almost all retail banks have their own applications for smart phones. However, I believe that digital banking will continue beyond that. We can already see similar trends in other industries. These opportunities can help support branch productivity, customer analytics and much more.

Your Phone = Your Wallet

Soon enough, you will not have debit and credit cards in your wallet. We already tap to pay with NFC chips in Android phones – for the past two years. By the end of this year, Android b ank apps should let us tap and pay too. The early adopters are already putting it to use in Australia and New Zealand. Of course, Apple is on it too. Apple Pay consists of tapping your phone and then swiping your fingerprint to authenticate. However, this
aspect also makes Apple a competitor of banks.

This is just the beginning too. Businesses will release their own apps that let you ‘store’ your information in your phone and then tap to pay just like the Google wallet. The pre-paid card industry will switch to virtual cards. Italy and South America, the leaders of pre-paid will lead the way for us.

Now, let’s think beyond tapping. What about adopting collecting points or spotting matching visuals? There are experiments going on that will have apps reward users with points when they explore new services and even unlock in-app levels. This will encourage regular engagement, driving down the need for branch based banking with is a huge cost.

Banks will have to go beyond just retail banking. Something that I am personally looking forward to are international money trG-WALLETansfers. Western Union and Money gram currently dominate this global industry. However, there are online players such as Xendpay, Xoom and Transfer Wise. By adding this to their banking app, they can acquire new customers with a targeted money transfer app. P2P transfers, bill payments, share trading, pension management and more are some other options as well.

Something else that will easily come are location or activity based services and offers. Think about being at home, logged into your bank account and you’ve paid a few pills. Next thing you know, you’re offered to face time with a relationship management or have an online financial health check.

Most of what I presented is not new. Banks are smart and they are looking at other industries like retail, gambling, gaming, news and entertainment and realizing that they should be doing the same things. This is only the beginning – our banks are revolutionizing themselves.