Digital Banking

Opportunity for Extraordinary Gains

in Reach, Service, and Productivity
in the Next 5 Years
September 15, 2014

Digital Opportunity
Engage customers on digital channels for higher engagement / sales
Not just lower cost
Digitize various processes to improve efficiency
Sales
Back office
Credit collections / monitoring
Administrative functions
Create propositions to attract the digitally savvy fast growing segment
Work together to create systemic efficiency (eg. Eradicate cash)

Digital vs digitization-15sept14.pptx

CASA growth = Transaction growth

Savings balance vs. transactions per account across banks (FY 14)
Balance / active account
100,000

80,000

R2 = 92%

60,000

40,000

20,000

0
0

10

20

30

40

50

60

Total transactions / active account

Digital vs digitization-15sept14.pptx

Digital transactions will dominate in 5 years

Transaction profile of Indian Banks
Growth
CAGR
Digital

18%
40%
53%

40-50 %

ATM/CDM

20-30%
Traditional
3%
FY
14
Digital vs digitization-15sept14.pptx

FY 20
(I)

FY 20
(II)
3

Emerging paradigms
Current Paradigm

Emerging Paradigm

Deposits business
offer payments for free

Payments service
deposit follows

Source: BCG analysis.

Digital vs digitization-15sept14.pptx

Digital activation is very rewarding

Example: Cross sell in Current Accounts Customers
Number of products from primary bank
8
6
4
2
0

MSME
Digital vs digitization-15sept14.pptx

3
4
5
+
No. of channels used by customer
Shopkeeper
5

Customer activation is low

Accounts
active on

SA

CA

POS

5.6%

Internet

3.0%

9.1%

Mobile

1.7%

1.6%

Digital vs digitization-15sept14.pptx

Small business claim banks are disinterested

# of digital channels used
5
19 %

4
11 %

3
70 %

Never / Don't remember

Once

Many times

# of times digital channel was explained

Digital vs digitization-15sept14.pptx

Why is digital adoption low?

Too busy opening accounts
Cumbersome on-boarding process
Organizational ownership of digital channels not prominent
Digital channel designed for transactions not for engagement / sales
Disproportionate attention on retail (SB) at the cost of SME (CA)

Digital vs digitization-15sept14.pptx

Customer acquisition productivity is stagnant

Number of savings bank accounts opened per metro and
urban branch

1,594

1,052
933

PSU
(Large)

860
897

796

PSU
(Medium)
FY 12-13

Digital vs digitization-15sept14.pptx

756

Private (Old)

1,468

Private
(New)

FY 13-14
9

Digitization of sales is huge opportunity

BCG Experience

Impact
Productivity

1.35x
+35%
x

TAT

First Time Right

(FTR)
1.33x

x +33%

-50%
0.5x

Digital vs digitization-15sept14.pptx

Travel
time
x

-55%
0.5x

10

Could public sector leap frog to a digital back end?

Back office FTE as percentage of total FTE (FY 14)
13.3

9.0
5.0

3.9

4.2

2.5

2.4

3.7

1.4

1.8

1.3

PSU
(Medium)

PSU
(Large
)

Private
(Old)

4.3

Operational
Digital vs digitization-15sept14.pptx

10
Global
benchmark

Private
(New)

Credit
11

10-20% over staffing in administrative functions

Admin staff / Total bank FTE (FY 14)
% of total bank FTE

14.7
13.1
11.5

11.2

10.3

Global
median
(10%)

Digital tools
for efficiency
Ultra transparent
performance
management

Optimum resource
allocation s

PSU
(Medium)

PSU
(Large
)

Digital vs digitization-15sept14.pptx

Private
(Old)

Private
(New)

Industry

Re-engineer
administrative /
functional
processes

12

Technology spend in India

Spend on technology as % total revenue
5.9%

5.7%
4.6%

3.1%

3.3%
2.8%

Private
(New)

PSU
(Large
)
Average in FY 12
Digital vs digitization-15sept14.pptx

Average in FY 13

Average in FY 14
13

New approach to technology

Human Centered Design

What is the
real "need"?

Iterative, short sprints

What
solutions are
"feasible"?

Minimum
"viable"
option?

Digital vs digitization-15sept14.pptx

14

Seven hurdles in digitization

Non - Human
Centric Design

Risk
perception

Multi stake holder

alignment
Digital vs digitization-15sept14.pptx

IT Change
capacity

Value leakage
between design
and execution

Vendor
Capabilities

Compete with
BAU
15

"Bank in a Bank" for creative destruction

Incumbent Bank

Digital Attacker Bank

Typically universal

Target The Digitally

Savvy Customers

Digitise the legacy

Processes designed
from scratch

Branch at the core;

digital channels are
alternate

Digital channels at the

core

Digital vs digitization-15sept14.pptx

16

At first people refuse to believe that a strange new

thing can be done,
...and then they hope it can be done,
...then they see it can be done,
...then it's done and all the world wonders why it
was not done before.
F H Burnett
Digital vs digitization-15sept14.pptx

17