Ujjivan recently invited one of India'smost esteemed thought leaders, entrepreneurs and philanthropists, Mr Nandan Nilekani to discuss the onset of a revolution being triggered by some major disruptive technology innovations in the banking sector.
Mr Nilekani shared his thoughts on the tremendous opportunities that await the industry owing to the launch of the Unified Payment Interface (UPI) by the NPCI, which is deemed to be one of the world's most advanced peer-to-peer systems. One of the most important aspects of this innovation is that it will make savings portable. People can switch their savings from one account to another by click of the button. Moreover, it is expected to take the merchant market by storm as current account transactions of banks will take a hit. In addition to this, it will also revolutionize the payment space.
The use of Aadhaar as a financial address implicates that Direct Benefit Transfers by the government will come into the banking system. So far the NPCI has on record over 26.5 crore Aadhaar-linked bank accounts on which it has been able to track over 3 billion transactions. With technological advancements, the NPCI is optimistic about Aadhaar-linked bank accounts touching 400 million.
Further, using Aadhaar-linked payments will render bank account portability a reality for millions of customers as switching costs will no longer serve as barriers to entry and exit. Similar to mobile network portability, customers will be able to port their savings accounts to any bank of their choice with a few clicks on the UPI mobile application resulting in increased fungibility of deposits of banks.
An era of mobile & network penetration will also witness the transformation of India from being a data-poor economy to a data-rich economy as more people will use mobile phones for interaction and transaction, which will enable institutions to amass and exploit digital footprint of customers across the globe.
This in turn will make the availability of credit to the unserved and underserved easier than ever before in addition to the overall formalization of the system as newer technologies will make individual risk pricing possible.
In the context of technological disruptions, Public Sector Banks are likely to be at a disadvantage as a majority of them fail to win the first-mover advantage. Taking into account the healthy economic growth pattern of India and dwindling market share of PSU banks, Mr Nilekani feels that private sector banks can expect to grow at 25 to 30 per cent in the next ten years.
Even as the future seems promising, Mr Nilekani said that disruptions have huge strategic implications. It has the potential to disrupt all the aspects of banking services like deposits, payments and assets. It is highly essential for every bank to get it's strategies and technologies right in order to succeed in the ever changing environment.