Tuesday 29 September 2015

Transformation Challenge for Banks into the new Digital World

Yes Bank, has adopted an innovative way to crowdsource ideas from the millennium generation, by way of creating a competition for  the B-School students, see the details here.  This also provides Yes Bank the opportunity to interact with the best of breed talents.

The case study (PDF file), makes an interesting reading. Why interesting? because, beyond half a paragraph on unbanked and frugal innovation, the 14 pager report, it mainly focuses on top of the pyramid customers, and too focused on what Western banks have done.

The Top of the Pyramid segment, or the Sec-A as we call them, already have multiple accounts with the best banks.  The case study, reflects the persona of the Yes Bank itself. Thus, is it trying to compete with the best of the Big private Banks, like ICICI, HDFC ? or international banks like CITI?

In the new regulatory landscape, see my slideshare,  the mid sized banks like Yes Banks, should avoid competing with Wallets providers, Payment Banks and Small Finance Banks. As, they carry less regulatory baggage and thus more agile.

 Also, it should not, and it can not compete with banks tagged by RBI as "Too Big to Fail".  As these Big Banks are perceived to be more stable. While I have relationships, with multiple banks, the monies I bank with them is proportional to their size. I checked with my friends and acquaintances, and I see a similar pattern.

In my opinion mid sized banks should have dual brand strategy, under an umbrella brand:


  • One Brand, say YES NEXT GEN: focused on aspirational youth and enthuse a "Cool" factor. 
  • Second Brand, YES BASICS, which focuses on urban poor and unbanked.
Both these brands should be an extension to their current core brand, which should NOT change.

The two new brands should focus on Digital Disruption technology enablers, and both these brands avoid the bank branches.

The unbanked can have door step banking, via TABLET enabled BC (Banking Correspondents) also, now called Bank Mitra.

For the Next Gen "cool factor" banking, it can something like Moven Bank, hear Brett King, CEO & Founder of Moven, the Mobile App only bank, talks about "Friction-less Banking" .



 

Sunday 7 June 2015

Enhanced User Experience of Airtel Money adds to Transaction Risk

I am quite happy to note that UX (User Experience) of Airtel Money Mobile App has now very smooth and easy to use.

The on-boarding process is now seamless; As well as forgot MPIN is very easy. You press forgot MPIN, and an OTP (One Time Password) is sent to your mobile number which is then intercepted by the App, and you are prompted to change the MPIN. That's it.

Compared to the previous tedious process where if a user forgot the MPIN, they had to go through hoops and loops of calling the call center, wait in call queue, answer questions about your identification and then the password reset OTP was sent. By doing away with this step, Airtel saves money on call center overhead, while user is spared the torture.

That's good win-win deal right? Not really, if you consider this scenario. Someone stole your mobile, starts your Airtel Money App, resents the MPIN (see the previous paragraph on how to reset) and expends the money on buying some stuff from the local shops.

So, to avoid this scenario, lock your mobile, enable anti theft and alert Airtel to block your SIM as soon as you realize you lost your phone.

  

Tuesday 10 March 2015

Banking Regulatory Landscape in India


This blog deals with the overview current regulatory framework in India.

Overview

Reserve Bank of India (RBI) is the Banking regulator, while IDRBT (Institute for Development & Research in Banking Technology ) is the research & development (R&D) arm of RBI.
Apart from conducting R&D activities, IDRBT was also managing the National Financial Transaction backbone. Which constituted of:
  • RTGS (Real Time Gross Settlement) for High Value (₹2L to ₹10L) transactions
  • NEFT (national electronic funds transfer) for low value transfer, up to ₹2L.
  • National Financial Switch (NFS) which is the all India ATM network backbone.
RTGS, NEFT is being modernized from Structured Financial Messaging System (SFMS), based on ISO15022 to UNIFI (ISO20022). While NFS runs on ISO8583 protocol, 1987 version.

SMFS/ISO15022 is more like a COBOL type fix ASCII file format, while ISO20022 is XML and all financial industry have committed to converge towards it, thus it’s referred as UNIFI.

ISO8583 is a binary protocol. I have written a simplified parser in Java which can convert the binary format to XML, thus you can use an XML transformer to convert it to ISO20022 format.

However, in 2005 released it’s Retail Payment Vision document, which envisaged a high velocity, affordable 24x7 national retail payment infrastructure. In this view it set-up the Board for Payment and Settlement Systems in 2005 and in 2008, RBI also promoted NPCI (National Payments Corporation of India) as a Section 25 company of companies Act 1956 (now it’s section 8 of Companies Act 2013, essentially a not-for-profit company). Members of the IBA (Indian Bankers' Association) are NPCI share holders. RBI transferred the existing retail payment from IDRBT to NPCI. Thus NPCI got NEFT and NFS.

NPCI, in accordance with RBI’s vision implemented the following innovative retail platforms:
  • IMPS (Now re-branded as Immediate Payment Platform): 24x7 Mobile payments
  • RUPAY : Indian Credit Card System to counter/complement Master, VISA platforms.
  • AEPS (Aadhar Enabled Payment System) : National ID based direct subsidy transfer platform.
While NEFT presently uses ISO15022, the rest of the platforms use ISO8583 . The road ahead is to UNIFI all the channels.

Also RBI introduced Cheque Truncation System (CTS) in 2008 as a pilot at NCR (National Capital Region), and covered all India by 2013.

RBI in Financial Year 2014-2015 have unleashed a series of regulatory changes, with the vision of financially including the un-banked population on one hand, and speeding up the economy by helping Internet & Mobile Commerce by a series of forward looking regulatory innovations and technology enablements.

NPCI launched a National USSD (Unstructured Supplementary Service Data) Gateway, called National Unified USSD Platform (NUUP).

NUUP infrastructure enables any mobile phone user to transact, send and receive money by dialling *99#, no smart phone is needed. All Telecom operators will be supporting this gateway, and all banks will connect to it. However, it’s still at beta level, I tried and fail multiple times to use it from HDFC and ICICI banks, see my Tweets and Blogs on this subject. But, I am hopeful that NPCI will get this right eventually.

IDRBT issued Social Banking & Security guidance, in November 2014 described later; And NPCI, on 15-Feb 2015, issued an Universal Payment API. Though I am still digesting the material, but I am very excited about the implication and the vision.

Another important development involves new banking licenses and Payments Banks thus making the incumbent banks move faster and innovate to acquire and engage the socially mobile (pun intended) customers. Other developments include, allowing for profit BC (Business Correspondents), Mobile Wallets linked to IMPS and RUPAY, the indigenous card platform from NPCI. NPCI also plans a convergence in payment platforms, namely ATM network, IMPS, AEPS and NEFT.

There are currently about 130 Prepaid Payment Instrument (PPI) licensees and any corporate with INR 5 Crore of net-worth can apply for a PPI license and connect to the NPCI IMPS Switching backbone, and start innovating on Social and mobile wallets products. But, PPI holder cannot enjoy (earn interest) the float money and needs to deposit the daily float to a Scheduled bank. Also, such NBFC (Non Banking Financial Companies)can have 100% FDI (Foreign Direct Investment).

A corporate with 100 Crore can form their Payments Bank. However, the FDI is limited to 40%.

Social Media is Imperative for Banking

Social Media is dawning as an important channel in the old school banker’s horizon. RBI has issued Social Media guidelines for Banks to follow. ICICI Bank has already launched (early 2013) it’s Facebook (FB) Application as well as a social media enabled product iwish.

RBI on the other hand still retains the control of RTGS , but is in the process of modernizing the infrastructure by implementing UNIFI (ISO20022).

Still 6 out of 10 Indians do not have a Banking account, but 7 out of 10 Indians have mobile. Smart Phones have become cheaper and a low cost Android phone can cost as low as INR 2400. Many lower middle class Indian, like taxi drivers and office peons have INR 40,000 phones, thanks to EMI and aspiration of upward mobile lifestyle. Mostly all Indians having a smart phone have a Facebook account.

Thus the next generation banking innovations cannot ignore Social Media and Smart Phones. IDRBT Social Media Framework

Mr. Sambamurthy, Director, IDRBT lists a 10 point plan for Banks in the foreword of IDRBT whitepaper titled "Social Media Framework for Indian Banking Sector".
  • Establish business goals
  • Establish social media goals
  • Align to business goals
  • Draw up social media strategy
  • Design and implement social media organisational structure
  • Design and implement a plan to build social media operational capabilities
  • Establish a mechanism to handle adverse events
  • Place right skills, staff
  • Place controls for customer engagement and dissemination of information
  • Create new social media business unit and fund it.
While this paper, covers governance, security and Legal frameworks; this paper tows the popular pitch given by the Social Enterprise technology providers. It misses the vital transaction and commerce aspects of the Social Media.
Indian Payments marketplace trends will be segment dependent. I have borrowed upon CK Prahalad’s Pyramid model, while thinking about market segments.

Top of the Pyramid

At the Top of the Pyramid segment, it will be social commerce, for example Oxicash and ICICI are already providing transactions support over the social networks, others like EKO will be launching their respective products.
The CX (Customer Experience) of Social Commerce will improve.

Middle of the Pyramid

NFC based smart card prepaid wallets will be more popular with the middle of the pyramid. Currently the prepaid smart cards are not inter-operable in India, even though the standards and regulations are in place, the B2B relationships are in search of a robust business model. Recently, I heard about a NFC enabled ICICI Debit cards being co-branded with Delhi Metro, so that it can be used for a seamless travel experience in Metro.

Bottom of the Pyramid

For bottom of the Pyramid it will be card less ATM cash withdrawal, and Aadhar linked no frills accounts that can be transacted using a feature phone using National USSD Payments Gateway.

Integration Options for Bank to Enterprise

With the retail banking advancing at a blazing speed, the corporate enterprises also need to keep the pace. They can leverage the Unified Payment API to streamline their Banking integration.

Before this, enterprise has the options to either directly connect to each of their banks or use the expensive SWIFT (Society for Worldwide Interbank Financial Telecommunication, all banks across the world are connected through it and it supports ISO20022 protocol) connectivity.

One CFO of a telecom company shared with me that they connect with about 60 banks and have to deal with 200 odd file formats for their banking messages. While SWIFT was an option, it’s transaction fees were at a higher side, so they were using direct banking one-to-one integration.