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IBA Technology Awards Reimagining business models

February 2016

3IBA Technology Awards: Reimagining business models |

ForewordAcross the globe technology is forcing banks to fundamentally rethink their business models. Fintech upstarts are threatening to lure customers into a new world where banking is simple, personal and ubiquitous. Whether it is processing a loan in seconds, responding instantaneously to a customer click on a mobile ad or enabling call center staff with real time service actions, banks are realizing the need for speed as they cater to an increasingly well informed, demanding and impatient customer. Robotics is changing the approach to automation by rede ning the man machine boundary. elco driven mobile money paradigms, already successful in several developing countries, continue to gain traction. Blockchain is forcing disruption in basic operative ledger and has done the unimaginable – making double entry book keeping a trending topic!

India is at the forefront of this revolution. 2015 was a year of dramatic change in Indian banking. he granting of licenses to payment banks and small nance banks has spurred signi cant innovation as technology providers scramble to stitch together t to purpose solutions for the differentiated business models of these new players.

M V TanksaleCEO, IBA

Abizer DiwanjiPartner and National Leader, Financial Services

With rising smart phone penetration, mobile rst digital paradigms have become a central part of the customer engagement strategy in many banks. While digital is a key focus area banks have continued to make progress with their core systems modernization agendas. In the payments area there has been an explosion of mobile wallets – both from existing banks as well as non bank entities like telcos and prepaid license holders who are seeking to dominate customer relationship through simple, personalized payment applications with linkages to marketplaces and offer management platforms. he ecosystem is on the threshold of more innovation over the next few years as NPCI builds out its ni ed Payment Interface roadmap and the Bharat Bill Payment System comes onstream. Key government initiatives including P , irect Bene t ransfer and rural network connectivity has begun to accelerate nancial inclusion.

Against this backdrop we are happy to present the IBA Technology awards for 2014-15.

We congratulate all the winning banks as well as the participating banks that had nominated themselves for the IBA Banking echnology Awards. It is our aim that these awards continue to set the bar for innovation in technology in the years to come.


4 | IBA Technology Awards: Reimagining business models

he IBA Banking echnology Awards were instituted by the IBA in 2005 to recognize and reward banks and bankers who were forerunners and trend setters in banking technology – whose innovative ideas, initiative, risk taking ability, leadership qualities and implementation of largescale initiatives enabled their organizations to forge ahead of their competitors.

he awards acted as catalysts by recognizing and rewarding the efforts of banks aiming to make better use of technology, accelerate levels of technology absorption and improve levels of customer service and satisfaction.

he awards set hitherto unmatched industry standards with stringent methods of evaluation and analyses set by eminent jury members. Year on year (YOY), these landmark awards have come to symbolize excellence in banking technology and outstanding achievements demonstrated by banks.

Nominations from banks are short listed and points are rewarded on the basis of levels of implementation of technology, innovative techniques adopted, cost reduction and productivity achieved, customer service levels, tangible customer bene ts, returns on investments to banks stakeholders and an incremental business and customer service impact — among other crucial factors.

Over the years, the categories and number of awards have changed in keeping with evolving trends and initiatives taken by banks.

he process for formulation of the current edition of the Banking echnology Awards 2014–15 was initiated

under the guidance of an eminent jury comprising:

1. Padma Bhushan Dr. Raghunath A Mashelkar, Chairman, National Innovation Foundation.

2. Mr. G Padamnabhan, Former Executive Director, RBI.

3. Mr. K R Kamath, Former Chairman & Managing Director, PNB.

IBA Banking echnology Awards 2014–15

4. Prof. N Balakrishnan, Hon. Professor, Aerospace Engineering & Supercomputer Education & Research Centre, IISc, Bangalore

5. Mr. Deepak Ghaisas, Chairman, Gencoval Strategic Services Ltd

We have analysed in this report what banks are planning to achieve in the following areas to not just combat existing and new entrants for unaddressed market segments but also their existing market segments. he categories in which projects and initiatives have been addressed this year are:

1. Best echnology Bank of the year

2. Best use of technology for customer initiatives

3. Best digital initiatives

4. Best payments initiatives

5. Best nancial inclusion initiatives

6. Best initiatives in fraud, risk management and cyber security

7. Best co operative bank and regional rural bank of the year

We asked responding banks to provide us with information on their current and future technology priorities

Evaluation processA total of 119 nominations were received from 40 Large, Medium and Small banks. Recognizing that there are fundamental differences in the technology curve of Large, Medium and Small banks, banks were segregated on the basis of the asset size. Following the evaluation, a list of the selected banks was presented to the jury to choose the

nal winners.



06


Technology Transformation - 2015

10Customer Experience

Transformation

14The Tao of

Digital Banking

24Accelerating

Financial Inclusion

18Payments Innovation

30Technology in Fraud

and Risk Management

Contents


Technology Transformation – 2015


The IBA Awards this year have focussed on certain key categories that encapsulate the role technology is playing banks. The objective is to focus the assessment and report on what banks are doing differently to address the changing trends in the industry.

Current projects planned and future outlook:Digital and payments:

his segment continues to dominate the current agenda for banks. Similar to last year, 40% of respondents claim that there have been signi cant projects under way in this area. Initiatives on app development, mobile banking, social media and social listening are being undertaken across the board, which makes this one of the areas witnessing the most activity. his level of activity in these two complementary segments is in line with industry trends, where banks are betting big on digital payments to grow rapidly due to NPCI s initiatives, as well as the emergence of ntech startups.

Projects in the alternative channels, mobile wallet, portal and payments areas also feature very strongly in the list of future projects. Projects ranging from social media banking, digital banking, app related projects, mobile banking, wallets, etc. re ected very prominently in the list of planned projects. What is noteworthy is that the range of projects this year is much broader than the range last year. his indicates an expansion of the observed scope of digital technology in the banking industry as a whole.

Infrastructure and security:

here is a very strong focus on infrastructure and securityrelated projects, with 23% banks across the board implementing complex projects across information security, like privileged information management and smart vault. hese projects indicate that banks are maturing to the next level of security by taking on advanced projects.

From a futuristic perspective, the focus appears to be primarily on information security projects, such as defense layer augmentation and Security Operation Center (SOC) establishment. ery few banks have mentioned cloud related initiatives being planned for the future, which could be attributed to perceived issues with information security in cloud based models.

Core systems upgrades:

Eighteen percent of banks have large core systems modernization projects under way currently. hese are projects ranging across core banking platform upgrades, trade nance, asset liability management and clearing centralization. his range of projects would indicate that banks still believe that there is ef ciency to be gained from building on core systems in different parts of the bank. Banks are also looking at core system modernization as they attempt to gain the full bene t of their digital initiatives by implementing integrated back of ce Straight through Processing(S P).

From a future looking perspective, we observe an interesting mix of projects being envisaged. Firstly, one of the clear trends across categories of banks is the focus on core banking platform migration, with atleast six banks across categories planning to take up a core banking version upgrade next year. Such projects are complex in nature and the fact that banks have committed to these projects will mean that there will be a signi cant allocation of resources toward these projects in the coming years.

Analytics, data warehousing and CRM:

his category witnessed a surprisingly small number of respondents reporting it as a signi cant focus area. his could be attributed to many banks having yet to achieve business bene ts from their data warehouse implementations. his is a marked difference from what is anticipated to be the trend in the future where almost 20% responses are focused in this area and that too in advanced areas like analytics and Big Data, which clearly did not feature strongly last year.

While in the year 2015 we saw a trend toward investments in data warehouses and a moderate focus on analytics, this year, we are observing a clearer shift in responses. Across the board, banks are planning to focus on analytics and specialized analytics, such as cognitive analytics, Big Data and “advanced analytics . his is clearly a move forward in the data space where banks are not waiting for investment realization in longterm, capital intensive data warehousing projects, but have set their sights on outcome centric projects in the analytics area. he other interesting element is the re emergence of Big Data, which was not observed as a key focus area last year. Additionally, customer relationship management (CRM) still remains on the agenda of banks, as four banks are planning to take up CRM in the next three years.


Areas under which projects are under implementation in banks*

Current projects being implemented across banks

CRM, DW &Analytics, 5%

Digital and Payments, 40%

Infra and Security, 23%

BPM and middleware, 2%

Core System, 18%

Fraud and Risk, 12%

The above chart shows the % of projects under implementation in banks* in different areas *Above data is based on the responses of the 10 public sector and 10 private sector banks

Areas in which projects are planned by banks over the nextthree years*

Future projects being planned by banks over the next three years

CRM, DW & Analytics, 20%

Digital and Payments, 37%

Infra and Security, 13%

BPM and middleware, 12%

Core System, 13%

Fraud and Risk, 5%

The above chart shows the % of projects planned in different areas by banks*.*Above data is based on the responses of the 10 public sector and 10 private sector banks

Fraud risk management solutions

In the fraud and risk management category, while 12% of all respondents say that they are executing projects in this category, only 5% of projects are planned in this area in the next three years.

Cooperative banks and regional rural banks

This is a new category introduced this year and banks in this category are focusing on a variety of initiatives across customer speci c areas to internal improvement projects. These banks, by all means, appear to have the capability to handle large and complex projects similar to the scheduled banks; however, the scale and impact may be lower.

Most banks in this segment have not yet put in place a formal IT strategy and governance framework. Financial inclusion, alternate channels build outs are the key focus areas in this category. Most of these banks have in place basic management information systems (MIS) to provide key reports to the top management.

Several banks are planning to put in place CRM systems and capabilities, as well as call center platforms.

In terms of solutions being implemented, currently we see a very diverse implementation landscape across regulatory systems, such as anti money laundering (AML), to infrastructure related systems like wallet integration. These are re ective of where each individual bank is on the maturity curve.

Conclusion:Digital banking, payments, infrastructure and core system modernization continue to be major focus areas for banks. All these themes are related to each other, as banks seek to transform their customer engagement processes while revamping their legacy infrastructure to meet the needs of these new paradigms.

9IBA Technology Awards: Reimagining business models | 9IBA Technology Awards: Reimagining business models |


Customer experience transformation


IntroductionAs the global adoption of digital is maturing, banks have been faced with both opportunities for radical innovation in customer experience, as well as potential disruption – especially when faced with competition from outside their traditional realm of in uence like FinTech

FinTech products — nancial services products developed by non bank, non insurance, online companies — are one such disruptor. They offer alternative ways of accessing a variety of services, from money transfers to nancial planning. FinTech is gaining traction and young, high income users are the early adopters. The projected growth is dramatic.

In a recent global survey conducted by EY, the relative ease in setting up an account was overwhelmingly cited by respondents in our survey as the top reason for using FinTech. More attractive rates, access to different products and services and a better online experience were also popular responses but it is the simplicity involved in using FinTech products and services that is driving adoption. While many traditional providers are grappling with how to replace cumbersome, outdated and time consuming account establishment forms and processes, FinTechs are enabling customers to set up services with as little effort as one click.

Survey result: Why to customers want to use FinTech

Easy to set up an account

More attractive rates/fees

Access to different products and different services

Better online experience and functionality

Better quality of service

More innovative products than available from traditional bank

Greater level of trust than the traditional institutions

43.4%

15.4%

12.4%

11.2%

10.3%

5.5%

1.8%

Total response: 1,485

Banks in India are responding to these challenges. They are stepping up their efforts to serve customers just as effectively or more, and to harness technology to deliver value and convenience. Further, banks are re evaluating their own multi channel strategies as well as exploring partnerships with FinTech providers.

Traditional channels (eg..branches) are becoming more customer friendly, digital channels such as internet, mobile and social media are being tapped much more effectively. Banks are also investing in analytical tools to better understand buying behavior and channel usage patterns.

In order to understand how banks are responding to these changes, we asked them to provide information on the key components of their customer management programs.

These are presented below:

• Customer experience related initiatives: These include programs that deepen the channel experience as well as customers experience by redesigning banks initiatives

• Customer segmentation: Banks were asked to describe their customer segmentation processes and discuss how these segments were targeted and engaged through business processes and systems

• Use of technology: Banks were asked to provide details of how they are using technology to provide an enhanced customer experience

• Measurement: They were asked to describe the process by which they measured satisfaction and what was done with the results


Customer experience-related initiatives

Our survey indicates that banks are engaged in a large number of initiatives that are aimed at improving customer experience. Most banks are engaged in enhancing their digital channel capabilities. Some of the leading public sector banks have not only deepened their online banking capabilities, but have also started to adopt advanced mobile banking and payment capabilities, including digital wallets. Private sector banks are further along this journey. They have already put in place online banking platforms and their focus is now on improving the user experience on these platforms. One of the banks has pioneered transactional banking services on Twitter, and introduced a new category in banking through wearables It also has a watch banking app.

Key initiatives in this area revolve around redesigning and simpli cation of basic processes (reduction of the number of clicks to perform key transactions) to improving the user experience. Processes such as auto e pin generation (Green PIN) and updating of Aadhaar related information are also focus areas for banks as they try to help their customers simplify their experience. Private sector banks are also widening their mobile banking platforms by undertaking app , web and SMS based strategies to cater to their diverse consumer base. Several banks are making use of social media venues s (e.g.. Facebook) for account management and payments.

Tablet based home banking for account opening and banks on wheels have also become key focus areas as banks attempt to smoothen their on boarding processes and reach customers at venues of their choice. A few banks have introduced a much faster way for t technology savvy users – to open accounts a Sel e account opening facility .

Many banks have introduced payment apps. Some of these apps enable customers to send or ask for money and mobile recharge across Facebook, WhatsApp, Twitter, SMS or e mail.

This year, banks continued to expand technology at branches to improve customer experience while reducing the cost to serve. Almost all banks have e ones in their branches where they have multi–purpose ATM machines, self service kiosks and collaborate with remote experts for exploration of products and

nancial advice. A few large public sector banks have taken a leap forward in launching in touch branches.

One of the banks has introduced Voice Biometric, as a means to make the authentication process in Interactive Voice Response(IVR) much easier for the customer.

Banks have devised innovate ways of handling compliant management. Recent banking apps provide users the ability to carry out a video chat with the call center team, or directly call the branch manager.

Segmentation of customers

Segmentation of customers is the key to improving customer experience. Banks need to understand their customers and then create meaningful segments that allow them to differentiate their marketing sales and service strategies to cater to these segments. Our survey found that most banks had a few unique approaches to customer segmentation. Some of the private sector branches had a differentiation based on the value of the customer relationship (e.g. premium segment gets immediate routing to phone banker, hence there is no waiting time on IVR). Public sector banks on the other hand, had differentiated segments like rural, non resident Indian(NRI) and corporate. One of the banks had a unique scheme to empower women entrepreneurs. However only a few banks cited segmentbased service strategies and described how their operational processes and systems were geared toward using customer segmentation to differentiate the customer experience. One common theme across the banks was an increasing recognition of the youth and technology savvy segment, and their unique needs.

Technology initiatives to improve customer experience

Banks that have successfully transformed their customers experience have achieved this on the back of sustained investment in technology and initiatives. These initiatives are not only at the front end of their customer interaction, but on the operational side, e.g., data analytics and process improvement, which result in an excellent customer experience. On the front end these initiatives include extensive integration between channels to provide seamless banking across ATMs, net banking, mobile banking, Point of Sale (PoS), credit cards and SMS banking.

Mobile banking has become an important channel that helps banks market, sell and service their customers on a

24x7 basis. It is targeted at smartphone users though apps; non smartphone users can access mobile banking services through SMS and toll free banking. The back end is bolstered by an increasing deployment of customer relationship management CRM applications to enable sales and service of products and services. It also supports integration across channels and portfolio management of customers. Some technology initiatives include service oriented architecture for alternative channels, centralization of back of ce operations, automated compliance management systems, and migration and integration of platforms to meet upcoming transaction and regulatory compliance related needs. Several banks are in the process of implementing analytics tools and technologies that will help them move from customer outcome to customer


interaction based business decisions. Banks are increasingly rolling out technology initiatives in the digital and social media space to promote various products and offerings and also use it as a customer servicing channel. One of the banks has automated email customer response surveys and, another has a dedicated Twitter handle. A few banks have created, or are in the process of creating the role of a Chief Digital Of cer, in recognition of the impact of digital technologies across the entire organization.

Measurement of customer experience

The use of customer satisfaction scores is becoming prevalent across the industry. One of the banks stated their use of KPIs like complaints reduction, turnaround time for query resolution, and voice of the customer survey results.

In the top down approach, an annual exercise is carried out to assess the market standing of a bank in relation to its competitors through a double blind methodology. In the bottom up approach, customers advocacy is measured against a set of pre de ned touch points that are critical for in uencing the client experience. These practices are however not prevalent across the industry and much more work needs to be done to transform the measurement of customers experience on a quantitative basis to provide relevant input to managements decision making

Some banks carry out their customer satisfaction survey through incognito visits by of cials to record the response of the customers, whereas a few of the banks are recognizing the ability of social media to provide them a candid view of how their customer experience is being perceived. None of the banks however have reported yet that they have undertaken a systematic social media analytics exercise.

References used:

1. http://www.ey.com/GL/en/Industries/Financial Services/ey ntech adoption index

2. https://www.gfsi.ey.com/the journal of nancialperspectives.php

3. http://www.ey.com/GL/en/Industries/Financial Services/Banking Capital Markets/EY global commercial bankingsurvey 2014

4. http://www. nanceasia.com/News/404621,time forbanks to get going on ntech.aspx

5. http://www.livemint.com/Money/qFe98IF7j5NR5sK rr RK/Fintech rede ning moneytransactions.html

6. http://timeso ndia.indiatimes.com/tech/tech news/Aresurgence for ntech rms/articleshow/50422983.cms

7. http://www.thehindu.com/business/Economy/ ntechstartups disrupt mammoth banks/article8011052.ece

Conclusion:Increasingly, we are going to see traditional banks compete with newer, disruptive trends like FinTech. They will need to partner with the operating system owners, as establishing their own digital wallets will become very challenging. Broadly, banks will continue to integrate their traditional customer management solutions with newer digital platforms to bring products and services closer to customers across the value chain. As the banks increasingly leverage social media integrated with CRM processes, they will need to adopt techniques like social media analytics. Finally, the banks will need to balance the need to address the needs of an increasingly technology savvy set of customers with cutting edge digital technologies, with the need for the users to feel secure about their nancial transactions in a complex, multi device landscape.


The Tao of Digital Banking


As the name suggests, Tao or Dao is a Chinese concept signifying way , path , route , or sometimes more loosely, doctrine or principle . Within the context of traditional Chinese philosophy and religion, Tao is the intuitive knowing of “life which cannot be grasped fully,but as just a concept.However it is known nonetheless through the actual living experience of one s everyday being.

In the digital world, Tao attempts to lay down the principles of strategy for businesses to achieve their end objectives that have been laid out. The Tao or the route to achieving the strategic end in a digital world is either by investing in growth ideas or creating ef ciencies or optimizing the business or through innovation, by launching new products and services

A transformation is a high level plan to achieve one or more goals under conditions of uncertainty. In the banking industry, transformation explains how a bank, when faced with competition or pressures, will achieve superior performance using various formats like corporate strategy, growth strategy, or operational strategy. Digital transformation is the new kid on the block and it helps de ne a bank s plan to maximize banking bene ts by investing in digital initiatives and programs for the bank and its customers.

In mature banking markets, digital is now the leading sales channel for simple products, and in many cases, it has overtaken branch and telephony services. The rapid growth of smart phones, tablets and a range of other digital innovations is currently driving a new wave of digital transformation in banks globally and can help deliver this new generation of digital products and services.

Digital transformation is one of the most critical strategic issues for bank leaders, but not all banks fully appreciate the scale and impact of digitization. Digitization is truly transforming banking and impacting customer expectations, product and service models, the role and design of the branch and customer relationships.

New digital market entrants have distinct advantages and banks must build adaptable digital capabilities, differentiate customer service and train and recruit the right talent. Improving processes, information technology, data analytics, data source integration and privacy are major focus areas – most of the

banks surveyed are taking key steps to ensure digital initiatives are streamlining processes for account opening, know your customer (KYC) and customer servicing to improve customer satisfaction and reduce costs. But, banks need to press for innovation and experimentation (only one leading private sector bank mentioned that they have established an in house Digital Innovation Council), ensuring discussions about digital receive due attention while considering a long term investment plan. The industry must consider the effects of regulatory scrutiny on bank innovation, the impact of digitization on conduct supervision, consumer protection and how regulation will address non bank competitors. Only one private bank detailed they have instituted an electronic platform to be used for audits and regulatory requirements, while several public sector banks mentioned they are still evaluating risks involved before they initiate more digital initiatives

A digital bank drives revenue and results from new combinations of digital and business resources. Leading digital businesses successfully navigate through a series of complex choices and demanding decisions to nd innovative digital initiatives. Digital businesses are changing the decisions that corporate leaders have to make and the role they play by asking new questions of them. If the disruption has fuelled new competitors emerging from previously unrelated industries, then the CEO of a bank today, would need to focus on strategic options like how digital strategy can help strengthen the banks position, enter new markets and grow the business?.

Banks are undergoing changes and evaluating how they need to build for a digital future. Changing forces are impacting customers and business models. Banks need a digital strategy that embraces this new reality. A digital bank needs to be well architected, designed, and integrated to achieve objectives that help unlock synergies across all its channels.

Most private sector banks surveyed have detailed digital strategic goals that encompass customer acquisition, endto end customer experience through seamless integration of channels, marketing, customer engagement and retention as well as customer service through digital initiatives that will address the “anytime anywhere consumer needs.


• Letter of Credit & Guarantee Authorizations.

• Domestic and Cross Border Payments

• Forex Dealing Platform on mobile

• Automated File and Report Delivery (AFRD)

• Big Data Analytics (Visualization tool) and Fraud Risk Management for their payments, receivables and liquidity/account structure.

• Automatic Bank Relationship Manager to increase upsell and cross sell.

• Multiple business lead generation campaigns & brand engagement campaigns through Social platforms

• Omni channel campaign Management for all customer facing channels

• Smart Tables (Touch Screen Surfaces) and tablets for new loan applications in digital branches

• ATM crowd sourcing to decide on the location of upcoming bank s ATMs by casting their votes on the Facebook page

• Twitter handle caters to resolving customers queries and complaints

• Active Social Listening to gain insights and serve better

• Product crowdsourcing; Regular user surveys; Product Feedbacks

• Enabling Mobile platform to handle Forex, Trade

nance, Corporate Bulk Payments

• Multi bank mobile payments app Increase in

conversation of sutomers from of ine channels

• Toll free missed Call Banking

• Digital Bank Branches with Virtual assistants, Video Conference

• e KYC Aadhaar based Customer on boarding

• Multi Social payment app To send or receive money and mobile recharge across Facebook, Twitter, WhatsApp, SMS and e mail.

• Digital Wallet

• Payment collection platform for the merchant

• Proximity payment soclution using NFC

• Portable ATM s for rural and other inaccessible areas

• USSD based Mobile Banking

Payments Channels SocialBusiness Growth

CorporateEnablement

Payments

Some of the notable digital Initiatives adopted by Indian banks are:

Payments:

• Multi bank mobile payments app to increase in number and value of Person to Person(P2P) money transfers; increase in conversion of customers from of ine channels (cash, cheques & branch initiated funds transfers) to digital channel.

• A multi social P2P payments solution (leveraging social media platforms) (B2C) multi social payment app, that lets customer send or make request for money and mobile recharge across Facebook, WhatsApp, Twitter, SMS or e mail.

• Payment collectionplatform for the merchant

• Proximity payment solution using Near Field Communication(NFC)

• Unstructured Supplementary Service Data (USSD) based mobile banking

• Portable ATMs built for rural and other inaccessible areas.

• Digital wallets to promote cashless transactions.

Channels:

• Digital branch is an innovative concept which few banks have adopted with the aim of providing superior customer service through 24/7 access, speed of transactions and service consistency on self service. Facilities include::

• Video conferencing room

• Smart tables(touchscreen surfaces) and tablets for loan applications and nancial planning

• Interactive screens with gesture control

• Instant account opening with issuance of debit card and internet banking all within 15 minutes.

• Internet banking kiosk,

• Cash acceptor machines and

• Kiosk with Cheque deposit functionality

• e KYC Aadhaar based customer onboarding

• Smart watch Integration Users can access services like checking account balance,and receiving statements for their savings account & credit cards on Smart Watch


• Toll free missed call banking: speci c enquiry and request transactions: caters very well to rural and semi urban markets for user of phoneswith basic features .

• Omni channel campaign management for all customer facing channels like ATM, branches, call centre, email, SMS, iMobile App, IVR and website

• Virtual assistant – Helps migrate customers fromphonebased helpline and written communication channels to self help service channel

• SMS based (IRCTC) railway booking.

• Biometricaccess to Lockers

• Sel e banking to streamline account opening using pictures for veri cation.

• ATM facility for the visually challenged

Social:

• Active social listening to gain insights and serve better.

• ATM crowd sourcing Unique innovation in the social media sphere where social media users decided on the location of upcoming banks ATMs by casting their votes on the Facebook page.

• Product crowdsourcing; regular user surveys and product feedback through social platforms.

• Being presenton Social Media platforms Facebook, Twitter, Google , YouTube, LinkedIn, Foursquare, Pinterest, SlideShare, Instagram and social messaging applications such as WhatsApp andWeChat, and also on Blogs.

• Dedicated Twitter handle which caters speci cally to resolving and helping customers with their queries and complaints

• Multiple business lead generation campaigns and brand engagement campaigns through Social platforms

Business growth:

• Connecting customers with their Relationship Manager(RM) using innovative technology Automating bank RM and customer communication will result in increased up sell and cross sell

• Enablement of cross sell and upsell through video advisory with remote experts

• Rolling out live chat for customers To help online customers with support for clarity on products, consultative selling process and help in answering queries related to accounts.

• Predictive analytics provide the customer with context based offers

• Cross selling and upselling through virtual branches. ( e.g.. smart tables and tablets for loan applications)

Corporate enablement

• Domestic and cross border paymentsalong with Letter of Credit Guarantee Authorizations.

• Enabling mobile platform to handle Forex, trade nance, corporate bulk payments is one of the major leap for private banks in their channel migration Initiatives.

• Automated File and Report Delivery (AFRD) enables clients to schedule le import and export reports through the corporate mobile platform

• Big Data analytics (visualization tool) as well fraud risk management for their payments, receivables and liquidity or account structure.

Digital channel acceptance is crucial for every bank to optimize cost and run a sustainable business. Some of the major efforts take by banks for channel migration:

• Increased penetration of mobile banking in rural 92% and semi urban 76% areas through focus on promotion campaigns and demos to walk in customers at branches.

• Incentivize through discount offers and cash back scheme on migration and transaction using net banking and mobile

• Branch wise targets are allotted for e transactions (as a percentage of total transactions) for 100% participation. Trainings are imparted and reading materials are provided in the intranet, for staff for familiarization with the product which helps in better marketing by educating and familiarizing all the customer segments to adopt e transactions.

In the end, for any banking business what it ultimately means is that customers have come to expect a new level of experience across channels which they will choose at a time and place of their liking. Banks that do not meet consumers expectations will lose them. Technology adoption will allow for further increase in productivity, and create stiffer pricing wars. Tracking and monetizing customer insights will be the key differentiator in this game. Capability requirements will continue to change the landscape and businesses will need to differentiate with better experiences and digital investments by developing and instituting process frameworks and service level agreements(SLAs) (in place at a few key banks, while others mention they are working to set up such initiatives).

To sum it up, digital transformation for a bank would be to understand its corporate objectives and develop short term and long term approaches to achieve its vision through investments in digital capabilities. A digital bank s vision should be to integrate its customer strategy so that it can acquire customers, address markets, de ne tactical activities to achieve its corporate goals and better engage across the banking lifecycle.


Payments innovation


Payments industry in India: Rapid growth, changing customer preferencesThe banking industry in India has experienced major changes over the last one year, with a signi cant focus from banks on driving electronic payments through mobile banking, social media banking, wallets and other consumer centric payments services.

At the same time, last year witnessed the very successful PMJDY scheme, with more than 200 million accounts getting opened since the launch of the program, grant of in principle approval for 11 payments, and 10 small nancial banks and RuPay debit cards issuance reaching a critical mass of customers.

The role of non bank players in payments and nancial technology is becoming important for the ecosystem, with digital wallet players gaining in scale and size along with signi cant customer adoption. However, cash still remains the preferred mode of payment, with card spends amounting to only 5% of the personal consumption expenditure for the economy.

The banking industry is witnessing change; 21 banks (payments and small nance banks) are in various stages of operationalization and are expected to launch their services in 2016. The payments market in India is rapidly growing, with shifting consumer preference toward digital payments, complemented by increasing penetration of smartphones, the internet, and consequently, e tailing and Pre Paid Instrument (PPIs.)

Emerging trends The payments landscape in India is evolving, with new payment systems being implemented and payment banks getting operationalized, coupled with changing consumer preferences and the important role played by non banks in the payments space.

Emerging payment systems

Bharat Bill Payments System

The BBPS is expected to operationalize in the coming year, with a focus on standardizing the bill payments market in India through both electronic and physical channels. The Reserve Bank of India is currently evaluating the applications for Bharat Bill Payment Operating Unit (BBPOU). Going forward, a network of BBPOUs and their agents are expected to roll out bill payment services across the country.

UPI conceptualized by NPCI will enable users to transfer funds and make payments instantly across multiple banks without the need to share the mobile number or account number. With an interoperable architecture, UPI will simplify person to person transactions and can potentially act as a solution for low value cash transactions.

Operationalization of proposed payments banks

The applicants granted in principle approvals for setting up payments banks in India are in different stages of operationalization and are expected to be launched in 2016. These banks are expected to expand the reach of banking to a larger base of customers, speci cally addressing the requirements of the underbanked and unbanked population.

Changing customer expectations

Increasing mobile penetration and internet access across cities and villages in India and the e commerce boom is steadily changing customer s payments preferences. Though the average user still prefers to use cash for daily, low ticket expenses, there has been an increase in usage of electronic modes for recharge and bill payments, peer to peer (P2P) transfers, Direct to home payments, online shopping, etc.

uite a few non bank players have channeled their efforts toward offering seamless payments experience to their customers, riding on technology innovations and superior processes. This has led to a signi cant scale up of their business coupled with innovations on the merchant acquiring side as well. One time password (OTP) or quick response ( R) code based payments can reduce the cost of merchant acquiring compared to traditional point of sale (POS) terminal deployment model.

Focus on cross-border payments

Cross border payments contribute substantially to domestic consumption and investment. Several public and private banks are focusing on simplifying the process and developing better services for inward foreign remittances, such as instant transfers through immediate payment service (IMPS) and partnerships with global money changers.


Indian banks’ response to the changing of the payments landscapeFor the IBA payments awards multiple private and foreign sector and public sector banks have been assessed on six key parameters — payments strategy, technology and innovation, products and services, integration of electronic bene t transfer (EBT) or Aadhaar and customer proposition strategy. A brief description of each parameter is included below, highlighting the key points.

Payments strategy

Banks in India are signi cantly focusing on the digitization of payments, for operational ef ciency and providing a convenient mode of transaction for their customers. Empirically, it has been established that focus on payments leads to higher balances. Banks are focusing on payments for both retail and corporate customers. As a result, payments are becoming a key component of banks overall strategy, with a signi cant focus on technology to drive the change.

There is a balance for both retail and corporate payments through channel innovation (mobile and/or online banking), analytics and upgrading of technology platforms supporting payments. Additionally, there is a focus on participating in direct bene t transfer (DBT) transactions, simpli cation of onboarding processes and e KYC.

The following graph indicates the score distribution for the overall payment strategy, on the basis of the nomination responses shared by banks. The evaluation has been done on two parameters: overall payments strategy of the bank, and alliances and partnerships to develop the payment infrastructure.

Product and service innovation

Most banks are developing seamless solutions for their customers and merchants for both online and of ine payments. Products and services, such as contactless cards, near eld communication (NFC) enabled acceptance terminals, mobile wallets, biometric enabled automated teller machines (ATMs), customized loyalty programs have been launched.

Apart from that, banks have implemented process led innovations, some of which are highlighted below:

Internet banking for the visually challenged

Biometric and talking ATMs

Quick transfer through IMPS using QR code

Instant card issuance

Tailor made rewards program, such as pay with points, redemption through social media

Technology in payments

With technology gaining center stage, it is imperative for banks to keep pace with the emerging technology requirements. Automation of payments is a common theme of the technology strategy of most banks. Some of the transformative initiatives undertaken by banks this year include consolidation of various payments systems, implementation of Enterprise Payment Hub (EPH), and developing alternate payments platforms and channels.

The following graph depicts the score distribution for banks payments technology on the basis of the responses shared. Banks have been evaluated on the basis of existing technology infrastructure and technology led product or use case innovations done over the last one year.

Bank's payments strategy

1

34

1 1

4

2 2

0 0

Num

ber o

f ban

ks

Effective

Public Banks Private & Foreign Banks

Extremely Effective

Very Effective

Somewhat Effective

Not Effective

Source Based on IBA award responses received from 10 public sector banks and 9 private and foreign sector banks

Role of technology in driving payments business

Num

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f ban

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2 2

3

2

1

3

2

3

0 0

Extremely Effective

Very Effective

Effective Somewhat Effective

Not Effective



On the retail banking side, banks have marketed digital channels and also focused on training the frontline staff to assist in popularizing these channels. The graph below indicates the overall effectiveness of the electronic products and services offered by the banks. The evaluation has been done on the basis of new product initiatives and customer propositions.


Additionally, banks are focusing on improving the customer feedback and dispute resolution processes. Most of the banks are also actively monitoring customer touch points and pro ling customers based on spends and transaction patterns for targeted solutions.

Growth of digital payments

The overall banking sector in India has witnessed substantial growth in digital payments over the last one year. Four major private banks have seen more than 100% growth over the last year in IMPS volumes by their customers. Five public sector banks and ve private / foreign banks have more than doubled their mobile banking transactions from the previous year.

Banks have been encouraging their customers to use electronic payments, and to adopt online and mobile banking channels.

The following graph represents the growth in the average daily value of mobile banking transactions as reported by the evaluated banks. Four private and foreign sector banks and a public sector bank has achieved more than 100% growth in the average daily value of transactions initiated from mobile banking apps.

Score distribution for products & services

Num

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f ban

ks

Public Banks

Extremely Effective

Very Effective

Effective Somewhat Effective

Not Effective

Private & Foreign Banks

0

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IMPS transactions have also grown multi fold, with 124 participating banks in the system. Out of the 18 banks evaluated, 2 public sector banks and 4 private / foreign banks have achieved more than 100% growth in IMPS volumes from the previous year.


On the merchant acquiring side, the average daily value of POS transactions has grown signi cantly over the last year. Three out of nine public sector banks had POS volume growth of more than 25%, two out of seven private / foreign banks had POS volume growth of over 25%, while one private bank had over 75% growth in the same period.

Highlights from the banks’ responses

Electronic payments volume on the rise while paper based payments fall

The changing customer preference for electronic payments is clearly re ected through a surge in electronic payments in FY14–15, while paper based transactions are on a decline.

• For electronic payments, the upward trend stood strong, with 41% y-o-y growth in transaction volumes

/ foreign banks.

•

public sector banks for FY13–14 and FY14–15 indicate that the volume of paper-based payments has fallen by approximately 50%.

Growth in POS transactions

POS transactions have increased by 16% during the nancial year 2014 15. From the responses received from banks on POS transactions (from six public sector and seven private/foreign banks), reported gures were evaluated for average daily number of POS transactions during FY13–14 and FY14–15.

The POS terminal count has experienced a y o y growth of 5.63% and the number of terminals deployed as on FY15 is 1.13 million.

Growth in average daily value of mobile banking transactions

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2

43

13

0 0 0

4

0-25% 25-50% 50-75% 75-100% >100%


Of the 13 banks evaluated, 6 have registered an increase in the average daily value of POS transactions in the range of 0%–25%, 1 has grown in the range of 25%–50%, 3 in the range of 50%–75%, 2 in the range of 75%–100%, and 1 public sector bank has experienced an increase of more than 100%.


Steady growth in ATMs and cash withdrawals

In all, 14 public, private and foreign sector banks experienced an increase of 8% in the average daily value of cash withdrawals through ATM networks over the last year.

The pan-India ATM count increased by 13% for FY14–15 and stood at 0.18 million.

Of the banks participating in the survey, nine banks have experienced an increase of 0%–25% in the daily average value of ATM withdrawals, while three banks show a growth of average daily withdrawal from ATMs in the 25%–50% range, and one bank between 75% and 100%.

One of the public sector banks has experienced an increase of more than 100% in average daily withdrawal from ATMs.

6,60,9208,54,290

10,65,984 11,26,735

FY 12 FY 13 FY 14 FY 15

Number of POS Terminals (all banks)

20.54

22.11

FY 14

FY 15

YOY increase percentage for the ATM cash withdrawals for FY 14-15 basis the responses shared by 14 banks(Cumulative daily withdrawal, INR bn)

Banks have shown growth in both debit and credit cards spend volumes. For the 11 banks (7 private/foreign and 4 public sector banks) whose responses were evaluated for debit card spends, the average daily value of spends has increased by 7%, with a total spend volume of INR15b for FY14–15 (sum-up of all 11 banks). This is also indicative of the overall industry growth.

Six banks experienced a growth of 0%–25% and four in the range of 25%–50%. Only one public sector bank experienced the steepest surge by recording a growth of 371% for the average daily value of debit card transactions.

Conclusion:Increasing awareness among customers toward the use of digital channels and adoption payment modes such as wallets have led banks to focus on technology-led product innovation.

Initiatives such as BBPS, UPI and digital payments will give a boost to the overall payments ecosystem in the country.

Consumer expectations from banking and payments are changing, with increasing preference toward digital payments and mobile as a channel. The growth in volumes of electronic transactions is a clear evidence of this and the trend is expected to continue in the coming year as well. Banks are investing in technology and digital channels and also bolstering internal technology infrastructure. As a result, payments has become critical to the overall strategy of most banks.

As the payments landscape evolves, improvement in internet accessibility and smartphone penetration will act as a catalyst in furthering the adoption of digital banking and payments.

While the overall y-o-y increase in credit card spends is 23%, the six banks whose responses were assessed for average daily value of credit card transactions achieved an annual volume of INR1.01b, with an overall growth of 25%, with private sector banks leading the turf.

Among the respondents, 3 experienced a growth of 0%–

50%–75% range, with one private sector Bank recording a growth of 67% for FY15 for the average daily value of credit card spends.

23IBA Technology Awards: Reimagining business models | 23IBA Technology Awards: Reimagining business models |


IntroductionFinancial inclusion continues to be high on the agenda in India. Over the past few years several key initiatives have helped accelerate

nancial inclusion and bring millions of Indians into the formal nancial system with access to basic savings, payments, credit and insurance products. In 2015, the RBI also approved licenses to small nance banks (SFBs) and payment banks to transform the institutional infrastructure for nancial inclusion in the country. Through the leverage of their reach, innovative technology and effective cost management, these banks are expected to bring about a revolution in the way nancial products are produced and distributed to millions of Indian consumers and businesses who are not included in banking.

Financial inclusion journey in India The government, along with regulators, has made considerable effort to push nancial inclusion with a wide range of initiatives:

Total Number (in Crores) of PMJDY Accounts (as on 27.01.2016)

8.95

3.12

0.45

7.13

0.52 0.3

Public Sector Bank

Rural Urban

Regional Rural Bank Private Banks

Announcing PMJDY in 2014-15 was a big leap in nancial inclusion. The progress made by public and private sector banks (including regional rural banks) under their nancial inclusion plan as on 27 January 2016 is as follows:

The banking sector participated actively in PMJDY, the biggest nancial inclusion initiative of the Central Government. As

per the latest reports published with reference to PMJDY, banks have opened 20.47 crore accounts, with a balance of INR30796.46 crores under PMJDY, and 30.99% of these accounts are zero-balance accounts. Of these zero balance accounts opened, 78% of the accounts were opened by public sector banks, 18% by regional rural banks and 4% by private banks. The number of Rupay Debit Cards issued has reached 17.20 crores.

License approval for SFBand Payment Banks

Banks to engage Business Correspondents (BC)/

Common Service Centres (CSC)

Enforce Branch setups in rural India

PMJDY and BSBD Acounts

Self-Help Group (SHG)- Bank Linkage Programme (SBLP)

Easing of Know Your Customer(KYC) norms

Reinforce priority sectorLending requirements

Emphasis onFinancial literacy

Financial inclusion

Reference: http://pmjdy.gov.in/ - Progress report

As of March 2015, 65% of the total branch mix of scheduled commercial banks (SCB) accounts from rural and semi urban branches


In FY 2015, the number of offsite ATMs were 92,191 and the number of on-site ATMs were 89,061. Also, the number of offsite ATMs have been increased from 48% in 2014 to 51% in 2015.

Total branches by Population Segment mix of Scheduled Commercial Bank (2014-15)

4529

3

3153

0

2153

2

1927

5

4855

7

3376

6

2303

6

2049

8

0

10000

20000

30000

40000

50000

60000

Rural Semi Urban Urban Metropoltian

FY 2014 FY 2015

Total ATM of Scheduled Commercial Banks

0 50000 100000 150000 200000

FY 2012

FY 2013

FY 2014

FY 2015

Num

ber o

f ATM

's

Reference: http:// nancialservices.gov.in/– Overview and progress on nancial inclusion

No-frills accounts labeled as Basic Saving Bank Deposit Accounts (BSBDAs) were advised to provide basic banking service to marginalized sections of the society.

In the past 5.5 years, the number of BSBD accounts have increased more than six-fold and 50% of these accounts are opened through business correspondents (BCs).

Progress in no-frills accounts/BSBDAs

600

(` b

illio

n)

(mill

ion)

600

450

300

Mar

201

0

Mar

201

1

Mar

201

2

Mar

201

3

Mar

201

4

Mar

201

5

Sep

2015

150

0

500400300

Amount outstanding

Source: RBI

Number of Accounts (right scale)

200100

0

For the past two decades, Self-Help Group (SHG)-Bank Linkage Programme (SBLP) has been part of nancial inclusion initiatives to avail credit facilities for individuals who are not included in banking. As of March 2015, loan portfolio under SHG program is over INR500b.

Reference: RBI – Publication* on nancial inclusion dated 28 December 2015

*https://rbi.org.in/Scripts/PublicationReportDetails.aspx?UrlPage=&ID=836

Financial literacy programs Audio-visual Tools for awareness Product & Facility communication

in vernacular language

Bio-Metric/OTP Authentication Aadhaar based transactions e-KYC based account

Mobile and Hand handled devices as Banking Channel

Doorsetp Banking Micro-ATM, Table Banking

Online and Of ce transaction at BC Point

Finger Print at POS, Bio-Metric Smart Cards

Basic savings and credit facilities Insurance & pension producdts Customized Products eg. Tie up with Agriculture/Dairy societies for seamless payments Finger Print at POS, Bio-Metric Smart Cards

No frills basic savings account Transactions at choice of outlet

BC agents, branch, ultra small branch and ATM

Financial inclusion TechnologyFramework

Adaptability

AffordabilityAvailability

Accessibility Awareness

Financial inclusion technology framework:Technology innovation is the crux for a sustainable nancial inclusion journey. A disruptive technological breakthrough can create a huge impact in the penetration of nancial inclusion.


• Growth in savings outstanding in BC-linked saving accounts from March 2014–15 for PSU banks is 99% and for private sector banks is 8%.

• BC savings outstanding has doubled for PSUs, whereas, for private banks, the number of BCs has reduced in 2015.

Growth of SHG groups:• Unlike BC and BC agents growth in private sector banks,

SHG growth is very signi cant in private sector banks.

• SHG facilities have provided opportunities for easy credit facility among the rural population not included in banking.

Growth in number of SHG groups from March 2014–15 (for PSU banks)

Growth in number of SHG groups from March 2014–15 (for private banks)

• Growth in SHG credit outstanding from March 2014–15 for PSU banks is 15% and for private sector banks, it is 55%.

Branch distribution:• As on March 2015, average ratio of semi urban branches

to total number of branches for PSU banks is 28.16% and for private sector banks, this is 31.80%.

• For same period, average ratio of rural branches to total number of branches for PSU banks is 31.90% and for private sector banks, it is 21.40%.

This study has analyzed the responses from 20 SCBs across public sector units (PSUs) and private sector units, and assessed them on multiple parameters.

Bank have built robust distribution with various forms like ultra branch model, branchless banking, doorstep banking, branch on wheels, banking through BC, etc. Banks have implemented technological solutions for customer enrolment and transaction processing. We have analyzed and compiled the efforts taken by banks based on the effectiveness of these distribution models. Some of the key observations of the study are as follows:

Active account ratio:Growth in number of active accounts* is a positive sign indicating the progress of a nancial inclusion program.

From the study of 12 PSU banks on active accounts vs. no-frills accounts:

Average active accounts out of total no-frills accounts, March 2015. (for PSU banks)

• For PSU banks, growth in total no-frills accounts from March 2014 to March15 is 88% and growth in total outstanding balance of no-frills accounts from March 2014 to March 2015 is 61%.

• In FY 2015, 40% of PSU banks have an average active accounts ratio more than 50%.

• For private sector banks, growth in total no-frills accounts from March 2014 to 2015 is 22% and growth in total outstanding balance of no-frills account from March 2014 to March 2015 is 55%.

*(One transaction in the last six months during FY 14-15 is considered to take

account as active).

Growth of BC and BC agents:The growth of BC and BC agents is directly proportional to the effectiveness of nancial inclusion.

• Public sector banks have progressed with a 17% growth in number of BC and BC agents from March 2014–15.

• BCs and agents have opened the doors of banking services to the population which was not part of banking.

Growth in number of BC and BC agents from March 2014–15 (for PSU banks) 17%

Growth in number of BC and BC agents from March 2014–15 (for private banks) -25%

33.4%

6% 43%

Branch Distribution (Semi Urban and Rural branches) – as on March 2015

28.16%31.90%31.80%

21.40%

0%

5%

10%

15%

20%

25%

30%

35%

(Semi-Urban branches Nos as a % of total Nos)

(Rural branches Nos as a % of total Nos)

PSU Private Sector

Source – Based on the IBA award responses received from the banks

• Ultra Branch Model has been adopted by many PSUs and private banks.

• Majority of banks are focusing on branchless banking through kiosks.


Enablement initiative:Banks have taken initiatives to enable participants in the value chain, such as BC, agents, customers and parts of the rural population. Some notable enablement initiatives by the banks to promote nancial inclusion:

• Rural Self-employment Training Institutes (RSETIs) have been set up by the bank to train and assist the youth to take up self-employment activities and promote rural entrepreneurship.

• RSETIs are conducting residential training programs in personality and skill development to rural youth, free of cost.

• Training programs have also been conducted in alliance with corporate houses.

• Financial Literacy Guide (operational guidelines for conducting nancial literacy camps)

• Financial Diary (objective of enabling customer to keep a record of their income and expenses)

• Posters (Lessons on nancial literacy is covered in posters with simple and appealing slogans)

• Bank has engaged Institute of International Bankers (IIB) and National Bank for Agriculture and Rural Development (NABARD) approved institutes to train BC agents.

• Entrepreneurship development programs to BCs nancial inclusion

• Comprehensive training program and certi cation exams for BCs

Financial inclusion technology enablers Some notable practices that we observe in this study, where banks are effectively utilizing technological for customer enrolment and transaction processing are:

• Biometric solution in multiple variants: smart card-based, mobile-based, kiosk-based, Aadhaar-based (online authentication).

• Kiosk Model, where BC has a xed location to provide banking services and internet connection is available.

• POS BC Model, where there is connectivity problem, banks have deployed GPRS based POS machine to BCs for providing banking services.

• Handheld devices (POS, handheld terminal (HHT), micro-ATMs, etc.) are the delivery terminals used by BCs; Aadhaar enabled payment is also provided by HHDs.

• Mobile branch/van: Branch on wheels to cover multiple villages (doorstep banking)

• Kiosk banking used for loan recovery, non-performing asset (NPA) recovery. elaborate fee structure for customer service point commission, etc.

• Aadhaar is leveraged on three levels: Aadhaar Enabled Payment System(AEPS) , Aadhaar Payment Bridge System(APBS) and for KYC and account opening in close coordination with NPCI and Unique Identi cation Authority of India (UIDAI).

• POS-based Tiny Card Technology to provide high mobility in hinterland areas

• Cell phone-based messaging leveraging mobile technology; compatible with low-end mobiles

• Ultra-lite Core Banking application to support rural branches with low bandwidth or connectivity issues. It provides a single user interface providing a 360-degree view of the customer across branches and call centers.

• POS machines are also installed in and around the village (like Kirana stores, fertilizer dealers, etc.) where farmers carry out most of the transactions to develop a cashless ecosystem.

• Remittances by enabling walk-in customers who do not have a bank account to transfer funds to the bank accounts of bene ciaries residing in villages and smaller towns

• Wage Solutions Cards are issued to employees of the entities. The entity opens a current account with the bank and routes the salaries of its employees through these cards by giving relevant instructions to the bank.


The way aheadAlignment of objectives and implementation of nancial inclusion is crucial for success.

Key drivers for accelerating effectiveness of nancial inclusion:

• Financial literacy

• Disruptive technology innovation (digitalization, IOT, etc.)

• Government policies and banking regulations

• Strong supply chain networking in unbanked areas

• Necessary infrastructure facilities

Upcoming small nance banks will foster nancial inclusion implementation through the following ways:

• Last mile distribution of products

• Options for saving instruments (saving accounts, term deposits, etc.)

• Easy availability of credits for small- and medium-sized enterprises (SMEs) and other unorganized sector entities

Payment banks will contribute to nancial inclusion through the following ways:

• Serving the rural population to use payments bank for remittance services and DBT schemes

• Facilitating the unorganized sector to get access to government schemes, nance and aid.

The Government and regulators have been striving to provide a suitable ecosystem for empowering unbanked and underbanked regions through nancial inclusion. Some of the major steps are given below:

• Awarding licenses for small nance banks and payment banks, with the goal of furthering nancial inclusion

• Eliminating prohibition against banks establishing agents beyond coverage limit (30kms) from nearest bank branch.

• Infrastructure to improve connectivity to remote locations with high-speed internet as part of Digital India initiative.

• Non-banking nancial companies (NBFCs) can also act as business correspondents.

Banks should continuously innovate for a cost-effective approach to achieve nancial inclusion while adopting a sustainable business model. Without creating awareness of the facilities, providing services will be ineffective.



Technology in Fraud and Risk Management


The digital universe abounds with rapidly expanding opportunities for innovation, and businesses, governments and individuals have turned their attention to the signi cant bene ts. Unfortunately, in the rush, many precautions have been overlooked and risks underestimated; the realization that there is a ip side and that the digital world also offers great potential for exploitation by criminals and others wanting to cause trouble, has come too late.

In light of this dynamic and fast paced growth and subsequent emergence of complex, unintended consequences from the interconnectivity between people, this survey was conducted to cover the below areas with respect to IT risk and Fraud Management measures in Banks:

• � Adherence to BASEL II and National Critical Information Infrastructure Protection Centre s (NCIIPC) guidelines

• � Business continuity planning

• � Enterprise security architecture

• � Human resources and project management

• � Implementation of industry leading practices

• � Incident and problem management

• � Information security awareness

• � Innovation in IT risk management

• � Interfacing with external entities (like CIBIL)

• � IT asset management

• � KYC)requirements

• � Logical and physical security

• � Network and security monitoring systems

• � Resource, capacity and storage management

• � Vulnerability and penetration testing

Current stateIn the area of risk management and fraud prevention, we noted the following setup across banks:

• � Majority of the banks have implemented or are in the nal phases of implementing industry good practices around information security and IT systems giving way to building a standardized environment for security-based banking operations. Guidelines (e.g., ISO 27001) and frameworks (e.g., COBIT) have gained board-level importance and are being implemented to strengthen the banks information security processes.

• � Banks have realized that internal sources also pose a major threat to their information assets; hence, more importance is being given to establishing standardized access management controls as part of risk and fraud management.

• � Most banks have implemented or are in the process of setting up SOCs in their effort to instil a proactive threat

intelligence and incident response system. SOCs have gained importance and banks have started to realize the value that an effective SOC brings to the table in terms of proactively monitoring threats. Banks are increasingly inclined toward using analytics in identifying anomalies to thwart unknown risks (zero-day malware) and deploying critical incident response teams to quickly respond to attacks at the early stages to minimize the extent of damage.

• � The other growing trend in most banks interaction with and feedback from customers has been usage of social media. This signi cantly helps banks engage with them on issues, and understand their preferences and habits to provide them with an enhanced experience.

Survey observationsBased on the responses received from banks, we observed the following:

Cybersecurity as a board-level agenda

Banks now have suf cient representation or are in the process of involving senior leadership in cybersecurity. We have observed that boards now have discussions on cybersecurity along with clear, actionable items. There is a general improvement in terms of awareness and the impact that the brand may face in case of a cyber-attack. This has caused banks to invest in technologies, as for instance, distributed denial of service (DDoS), advanced perimeter security focussing on business applications, proactive threat intelligence, security analytics and advanced malware protection.

Banks deploying extensive security installations

Security Incident and Event Management (SIEM/SIM) solution products or their new variants, are supported by Big Data architecture to enable faster correlation and analysis of events. Banks are also using various other products, such as intrusion prevention system (IPS), and anti-phishing, anti-pharming and anti-malware solutions, vulnerability assessment (VA) and penetration testing (PT). Banks have realized or are in the process of realization that analytics, reporting and forecasting play an important role in getting an executive buy in from their boards and assist them in being better prepared for potential cyber-attacks.

Compliance with regulatory bodies

Banks are implementing anti-money laundering (AML) solutions to thwart money laundering-related risks. These solutions can extract data from their Core Banking Solutions, make certain calculations based on rules con gured in AML software, and generate alerts on suspicious transactions. These alerts can then be monitored and relevant action taken on agged alerts or events. In addition, suspicious transaction reports (STRs) should be submitted to a statutory authority regularly.


Managing IT Risk: Challenges and way forwardThe past years have witnessed a steep increase in the intensity and extent of cybercrimes. The global nancial services sector has been hard hit by cyber terrorism, violation of intellectual property rights (IPR), leakage of card data, and electronic fund transfer (EFT) fraud, among others. The nancial services sector is often targeted due to high recognition and rewards associated with it. Therefore, banks should keep their information security functions strong by managing their IT risks ef ciently and diligently.

The Government of India s cybersecurity arm, Computer Emergency Response Team-India (CERT-In), reported 54,483 cyber security incidents for the year 2015. These crimes are becoming more sophisticated and are targeted at critical institutions. They can cripple national security with the rapid evolution and increasing complexity of the technology landscape. Today, banks are engaged in mitigating a large number of challenges around managing the effectiveness of their security solutions, their compliance with regulations on software licenses, managing technological obsolescence-related issues, online monitoring of fraud, detection of zero-day attacks, response to incidents and challenges around cost optimization of investments in security measures. Based on current trends and future speculations, we suggest the following steps for banks to be prepared for the challenges mentioned above:

Focus on hiring cybersecurity experts

Banks should aim at investing in resources who possess deep technical knowledge, a broad range of capabilities, and a diversity of experience. Cybersecurity experts are in a better position to analyze large volumes of data, intuitively recognize the need for further investigation. An expert workforce should strike the right balance between security professionals and internal IT transferees who can bring a solid understanding of the company s IT environment and the core business functions the infrastructure supports. External security consultants can bring a fresh perspective based on prior experiences. These experts would also be in uential in augmenting resources with less experienced personnel who can be developed with proper coaching and mentorship to become seasoned security professionals. Banks should consider moving from considering security as a cost, to security as an investment.

Security is usually positioned as an obligatory cost — a cost to pay to be compliant, or a cost to pay to reduce risk. But moving to a model of security as risk and trust management implies

Graph A: Broad areas covered by the survey: benchmark scores vs. scores received

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Graph B: Following are the areas that received the lowest scores across banks in all three sectors and require

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Compliance Reporting Training FraudPrevention

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looking upon security as a business enabler; for example, managing consumer data access leverages the monetary value of the data instead of focusing on the protection of the data itself. In fact, this transformation means enabling the development of even more extended networks of networks, of more and new forms of collaboration and mobility, and of new business models. “Security as a plus should be a mainstay of the business.

Build quick response teams

Security breaches and subsequent incidents of fraud are on the rise, both in terms of their frequency and scale. It is evident that banks and other targeted organizations are trying to meet this increasingly dangerous challenge as best as they can, with the resources they have at their disposal. However, we must face the fact that these threats will also continue to rise. The enemy is a formidable foe indeed — modern day pirate-hackers. While organizations cannot always prevent a breach, quick response to a security event can go a long way when it comes to minimizing nancial damage and most importantly, protecting the business and its reputation.

Developing a coordinated control approach

Most banks have yet to determine the right approach to managing cyber risks across IT, risk management, internal audit and compliance. The challenge is compounded, as these risks extend to customers, employees and third-party vendors and other key functions, such as the human resources and legal departments. A clear communication strategy is often dif cult to be documented; attacks need to be rst analyzed for impact, and emergency response teams should have access to technologies that can counter the attack and hold fort. Response mechanisms should involve communications to shareholders, customers and governing authorities, clearly stating the impact and the measures being deployed to counter such incidents in the future.

Training and awareness

Training and awareness sessions are a common practice now; however, banks have also begun providing specialized training to their technical staff on new risks and threats facing the banks. New threats can range from phishing and targeted attacks to banking Trojans and ransomware.

Banks need to extend their information security campaigns to their customers. Banks should set up grievance cells and fraud monitoring of ces, and conduct customer-speci c anti-fraud campaigns. Such programs will result in improving the security posture of the banks and assist a great deal in raising the customers and investors con dence.

Way ahead Through the years, we have gained an in-depth understanding of the cybersecurity universe. With the recent technological advancements, we have observed digitization of banking as an upcoming and promising trend. While it is undeniably the way to go in order to achieve hassle-free banking from a usability standpoint, it also puts critical information like Personally Identi able Information (PII) of customers and employees at the risk of a digital breach, as we have seen countless times in the past.

Like every promising concept or technology or solution, digitization comes with its own set of associated risks, which, if understood and managed ef ciently, can yield powerful results. In the pursuit of understanding and managing the same, we see the emergence of new standards, tools and at times, even laws and legislations. However, cybersecurity measures often fall short of expectations and attackers are able to penetrate through the loopholes. From this, the following can be understood:

1. Attackers are mostly one step ahead of those trying to prevent them as the latter is at the receiving end and can only defend against what is anticipated, while the attacker has no such limits.

2. All our efforts to prevent cyber adversities are toward “treating the symptoms and not “curing the disease ; i.e., our efforts are often concentrated toward preventing an attack and not stopping the attackers themselves.

It is time we nally “cure the disease and concentrate our efforts toward stopping the attackers in an innovative and method-agnostic manner like deception technology; it beats attackers at their own game by deceiving them in order to defend the information systems. While not a novel concept in information security, the ways in which deception is applied using new techniques and capabilities make it the game-changer on dealing with attackers. Instead of guarding the actual crown jewels (critical information) with measures known to attackers, deception works by mimicking the crown jewels themselves in a controlled and monitored environment.


AcknowledgementsFor more details please contact EY Team

IBA Team

Mahesh MakhijaPartner, Financial ServicesEmail: [email protected]

Nilesh NakerPartner, Financial ServicesEmail: [email protected]

Rajendra ReleDirector, Financial ServicesEmail: [email protected]

Kartik ShindePartner

Manish JainDirector

Dheeraj AnejaDirector

Srinivas YelandurDirector

Anand AgnihotriDirector

Gauravgajanan M KayalManager

Vijay ShankarSenior Consultant

Prethesh Raj K RConsultant

Mr. Ashwani Kumar Chairman, IBA & CMD Dena Bank

Mr. Rajeev Rishi Deputy Chairman, IBA & CMD Central Bank of India

Ms Arundhati Bhattacharya, Deputy Chairman, IBA & Chairman SBI

Mr. Aditya Puri Deputy Chairman, IBA & MD HDFC Bank Ltd.

Uttara ShahConsultant

Neha AgarwalConsultant

Rohit KrishnanConsultant

Tawishi SinghConsultant

Uttara ShahConsultant

Vishakha BhambriConsultant

Priyadarshi JhaAssociate Consultant

Siddhant JainAssociate Consultant


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