Customer Engagement- The success mantra for the new Payments Banks

The Nachiket Mor panel appointed by Reserve Bank of India recommended in January 2014, the formation of special category of banks, called payments banks, in order to make payment services and deposit products to small businesses and low-income households more effective and meaningful in India.

On August 19, 2015, The Reserve Bank of India on Wednesday gave in principle approval for 11 entities to set up Payments banks, to be driven by mobile connections and technology, making banking accessible to everyone. The move has been touted as a giant step the Indian banking sector, ushering in multi- format banking system in the country. Payments banks differ from conventional banks as they are not allowed to lend to customers or issue credit cards. They can, however, accept deposits of up to Rs 100K and can offer current and savings account deposits. They can also issue debit cards and offer internet banking.

The big question being asked is how are these payments banks to succeed in taking banking to the doorstep of the hitherto financially excluded , a feat which the large public sector banks have not been able to achieve for the last sixty years. What will be their business model? How will they viably build business around financial inclusion?

The bet is on low-cost technology and high volume of payments and remittance services. The business opportunity is seen in the over 900 million mobile subscribers in India today, a number significantly higher than the operational bank accounts in the country. As per IMRB’s syndicated study Target Group Index (TGI) 2014, 84% people had a mobile connection whereas 60% people had a saving/current bank account. The resounding African success of mobile money has shown how mobile money including mobile payments can perform miracles in terms of financial inclusion, with nearly 60% of Kenya's GDP moving via mobile money transfers. In India, telephone banking has seen a jump of 22% from 2008. Also, mobile banking has seen a rise of 38% from 2010. Phenomenal growth is seen in people choosing to transact online, i.e. from just 0.6% in 2013 to 4% in 2014. Interestingly the proportionate growth in telephone banking (growth- 30% vs 22%), banking through cellphone (growth- 79% vs 38%) is higher in SEC C as compared to SEC A. These show a slow but steady adoption of telephonic and mobile banking even among the lower Socio Economic strata. Source : IMRB’s TGI India

Building similar success stories in India will hinge on the ability of the payment banks to identify the right locations to expand, of developing a real understanding of not just the local economic landscape, but also elements relating to social, physical and community fabric. Creating engaged customers and winning their trust could become the keystone of success for these banks. As per IMRB CSMM normative data , 69% of the Indian customers are happy with the overall quality of product and services offered by Banks. The CSMM driver analysis suggests that creating engaged customer requires focus on the product, service touchpoints e.g. Branch, Call Centre as well as the Reputation / image in the market. Most critical images for banks to score on are - Being seen as Transparent, Trustworthy as well Technology oriented. Scoring on technology is also important and is an emerging expectation of customers with the advent of mobile and internet banking. Another image parameter which is also important to build on is “Delivers on Commitment’. Imrb data indicates that satisfied customers investment with their banks is twice as much as that of dis-satisfied customers.

The operating model of these banks offers them a vantage position of working in close proximity with their customers, and this could become their strategic advantage over their universal counterparts. Proximity to home tops the factors considered to open a bank account- Source : IMRB’s TGI India . This customer knowledge would allow these banks to design and offer relevant and holistic products and services based on understanding of the life of the unbanked and underbanked customers- the role and journey of money in their lives, their social context, the environmental impediments and facilitators in their lives. These realities may be different for different age groups in the same social milieu; the old, the mature and the young are likely to have different levels of comfort in interfacing with technology, of risk orientation and life goals. People aged 15-24 years are 75% more likely to download a banking app than those who are aged 45-55 years. Also younger generation shows higher affinity towards online transactions (15-24 yrs: 6% VS 45-55 yrs: 4.2%. Source : IMRB’s TGI India It could be a win-win for both the business and communities, if the overall business propositions are drawn around the customer behavior and preferences.

Further, if these banks chose their banking partners and correspondents right and train them well, these partners will have the unique advantage of garnering topline through appropriate and trusted financial guidance, as also proffer the benefit of long term financial planning orientation to the customers. Starting the relationship with simple and basic products like savings accounts and payment products, these banks could wield their high engagement with the customer groups for need based cross selling of other products. 14% of the bank account holders have said that while choosing a bank they eye for availability of other services like Demat A/C, portfolio management etc. Source : IMRB’s TGI India This can be a lucrative TG for the banks. While currently these products cannot be offered by the payment banks themselves, they can do so for their partners as their Business correspondents. Who knows, if they are able to prove their track record of knowing and serving their customers well, in time, RBI might permit them to expand their bouquet of products to include lending and investment products.

On the face of it, these banks are starting out with new age and nimble models of low cost technology and BCs, which are in alignment with shifting customer preferences. What remains to be seen is that how well they contextualize these offerings to genuinely benefit the end customer and forge engaged and loyal customer relationships.

Latika Tandon

IMRB Financial Services

IMRB Financial Services works closely and extensively with stakeholders in the BFSI domain - Banks, NBFCs, Insurance companies, AMCs, HFCs, Policy Advisors . IMRB is currently engaging with Payment Banks to consultatively build their customer and product strategies.