Banking in Turbulent Times: 7 Trends That Point the Way to Cost-efficient Growth

In the past few years, the financial services sector has seen significant changes – including the explosion of UPI-led digital payments, the coming-of-age of public payment infrastructure, the emergence of open banking protocols, maturing fintech models, and fundamental shifts in consumer behaviour.

While FY 2022-23 was a year of resurgence after Covid-19, FY 2023-24 promises to be one of growth. Banks will focus both inward and outward – doubling down on strategic execution, while also preparing for the challenges of a dynamic world.

The Reserve Bank of India’s (RBI’s) Financial Inclusion Index – which gauges how easily the Indian population can access and afford financial products and services – rose to 56.4 in 2022 from 53.9 in 2021. We believe that much of this improvement can be attributed to the financial inclusion initiatives that India has launched in recent years.

For instance, regulators are encouraging differentiated banking licences (small finance banks and public banks), digital-only non-banking financial companies (NBFCs), digital banking units, and account aggregators. They’re also backing market infrastructure such as Unified Payments Interface (UPI), Goods and Service Tax Network (GSTN), Trade Receivables Discounting System (TReDS), and the JAM (Jan Dhan Yojana, Aadhaar, and mobile number) Trinity, while driving a customer-first approach to regulation.

Other financial inclusion initiatives include:

• Pradhan Mantri Jan-Dhan Yojana (PMJDY) which aims to provide universal access to banking facilities such as savings and deposit accounts, credit, insurance, and pension 
• Pradhan Mantri Mudra Yojana (PMMY) which simplifies access to finance for small businesses 
• The RBI’s Financial Inclusion Index which measures how effectively financial products have been extended to unbanked populations 
• Rajiv Gandhi Shilpi Swasthya Bima Yojana (RGSSBY) which offers a health insurance scheme for workers in the unorganised sector 
• Kisan Credit Card (KCC) which offers a credit facility for farmers to purchase seeds, fertilisers, and pesticides 
• Jeevan Pramaan which provides a biometric-enabled digital service for pensioners to securely access pension-related information, and digitally sign pension documents

With India expected to have one billion smartphone users by 2026, banks have a tremendous opportunity to bring millions of underserved rural consumers into the mobile banking fold. Bharat is the next bastion waiting to be conquered.

Customers want a bank that will not only help them manage their money but also promote their financial well-being.

Banks can rise to the challenge by harnessing the power of AI/ML and analytics to draw out insights from customer data. This intelligence can then be used to offer personalised products and services that are more closely aligned to customer goals – be it saving for retirement, educating children, or purchasing a new home.

Customer insights can also be used to deliver ‘nudges’ that help the customer prevent fraudulent activities, access better terms of credit, or retire high-interest debt.

A few new-age Indian banks like Kotak Mahindra Bank, Axis Bank, ICICI Bank, and HDFC Bank are offering financial well-being advice to customers based on their spending habits and income. This trend will pick up the pace, as more customers seek to improve their financial future.

A new generation is entering the workforce – and their relationship with banks is very different.

From our conversations with customers and industry leaders like Renu Sud Karnad, Managing Director, HDFC Limited, it’s apparent that Gen Z in India is:

• More likely to use digital banking platforms such as mobile apps and online banking websites to manage their finances 
• Comfortable with technology, and prefer convenient, self-service options 
• Prone to comparing and researching financial products and services from different providers before making a decision 
• Concerned about the planet’s wellbeing, and more likely to choose banks that demonstrate a commitment to sustainability and social responsibility

Getting to know this demographic better will be a cornerstone strategy for banks heading into the new financial year.

When a traditional bank acts as a platform for other financial services providers to offer their products and services, all participants benefit. Banks can offer more services without having to build and maintain additional infrastructure. Fintech firms can expand their market. And customers can access a wider range of financial services from one platform.

An early example of such open platform initiatives is InstaBIZ - a digital platform from ICICI Bank that allows small and medium-sized businesses (SMBs) to access banking solutions like instant settlements, quick collections with UPI, QR codes, and point-of-sale (POS) machines – even without an ICICI bank account.

While the shift to platform banking may not be simple, the rewards could be tremendous. Being a first-mover in this space could offer significant advantages.

Today’s banks are expected to incorporate environmental, social, and governance (ESG) considerations into their business operations and lending practices. Profitability goes hand-in-hand with sustainability and social responsibility.

Sustainable banking practices include:

• Financing renewable energy and energy efficiency projects
• Supporting SMBs in underprivileged communities 
• Implementing sustainable lending practices – for example, avoiding financing projects that can cause environmental degradation or social harm 
• Promoting fair labour practices and human rights 
• Incorporating ESG factors into investment decisions

Several Indian banks such as HDFC Bank, Axis Bank, ICICI Bank, and SBI are leading the way on sustainable banking. As more financial providers hop onto this bandwagon, India will be better placed to meet its climate goals.

A growing number of third parties like fintech startups and retailers are leveraging the capabilities of traditional banks to offer banking services such as account opening, deposit-taking, and payments processing - under their own brand name.

BaaS benefits both banks and non-financial companies. Banks can use it to diversify their revenue streams, reach new customer segments, and create new partnerships. Meanwhile, non-financial companies can use it to offer new services to their customers, improve customer retention, and drive growth.

These seven trends are democratising banking, and fostering a singular customer experience. The common denominator across all of them is technology. It’s my belief that AI-based hyper-personalisation, customer data platforms, secure integration management, analytics, customer lifecycle management tools, and collaboration technologies will help banks scale and create an ecosystem that’s agile, transparent, open, and secure.

With Salesforce Financial Services Cloud, your teams will have all the data and tools they need at their fingertips to fulfil customers’ financial wellness needs and provide seamless experiences. Our Customer 360 platform is designed with a customer-centric approach and powerful automation capabilities to help you build customer trust, cost-efficiently.

Evolving customer expectations and increasing competition are making it more challenging for banks to stay relevant. But visionary organisations know that putting customers at the centre of their business, collaborating with other industry players, and investing in automation are key to success. These goals may not be achieved overnight, but by starting on them now, banks can cement their reputation as trusted partners in their customers’ lives.

Read more:

5 financial services trailblazers that have cracked the code on customer delight

From brick-and-mortar to click-and-mortar hybrid banking with Salesforce Financial Services Cloud

How banks can transform customer relationships by unlocking the power of data analytics

Customer experience in the digital age: Key lessons from HDFC Limited