How Payment Banks Can Leverage Analytics

How Payment Banks Can Leverage Analytics

By | December 24th, 2015
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The banking industry in India today, though developed, faces the challenge

of connecting with its customers.


Personalization is the order of the day and providing customized products and services to each customer today is the way of life. It comes as no surprise that leading banks, irrespective of size and location are leveraging the power of analytics to truly identify needs of customers by thoroughly mapping their journey of relationship with the bank and thus identifying individual customer’s “micro and macro moments of truth” in an on-going and real time fashion. Basis the 360 degree view of the customer, the products and services offered by the bank are consistently tuned and tailored to address individual customer needs. Today, analytics is enabling the banking industry to deliver such a personalized engagement without violating the boundaries of various governance policies of the banking industry.

Another area where analytics can be employed more effectively is the banking operations driven by mobile platforms and POS devices. Embedding analytical decisions into these platforms for optimized and contextual sales and operational outcomes is where the analytical space is evolving, bringing decision management at the forefront of banking needs. Time-to-market is the key word today ascustomers today want to have the offers immediately rather than waiting for a couple of days. It’s the age of ‘instant gratification.’ Hence digitization and scalable platforms are the need of the hour. Analytical insights need to be generated and deployed/operationalized much faster than they have been to capitalize on the changing customer behavior and preferences. The analytical platformin the form of integrated marketing management suites is the underlying foundation that brings the above mentioned controlled-hyper personalization to life.

A few other key areas of application for analytics are risk management, regulatory compliance and fraud detection. For all categories of banks, minimum compliance with regulatory norms will be required right from the day the bank starts its operations. Hence it is paramount for banks to put in place robust processes, mechanisms and analytical platforms for managing risk and containing frauds. These analytical systems only becomes more efficient over time through their self-learning algorithms. This is a key differentiator that analytics brings as it helps reduce false positives and banks won’t have to hire manpower proportionate to their growth in order to manage fraud and risk.
With the RBI issuing banking licenses to various telcos and MF institutions, the landscape of the banking industry will broaden with small finance banks filling the gaps by reducing the entry barriers for unbanked and rural segment and payment banks can change the payment behavior of the customers increasingly inducing the customers to use new payment options. It may appear that the new licenses may eat away business of existing banks but the customer behavior may build an altogether complimentary model for existing commercial banks and the new banks.

What this means is that every banking consumer is going to have much higher freedom of choice in choosing the bank, the product and associated services that are ideally suited for his or her specific need. While the top urban market is well addressed and the penetration of banking service is well established, with the RBI’s issuance of licenses in the small and payment banking space, a larger chunk of the country that is not currently well tapped into viz. the Tier-3/4/5 towns and the rest of rural India is going to jump into the band wagon. Synonymously speaking, the telco revolution that started in mid 90’s that ensured almost every Indian is connected today is close to what is about to start in the banking space with the new licenses that are being issued by the central bank for payment and small banking arena.

For starters, while the banking hasn’t reached every Indian possible, it is still a red-ocean filled with well-established players in the market. While new licenses are being given, it is important to note that the established players are going to raise their ante to address the change in competitive dynamics. Considering this fact, new entrants, given their strategic goals, must carve out a niche and identify a means of consistently attracting prospects and sustainably servicing their customers with hyper personalized engagement. Payment innovation has historically come from non-banking organizations. Payments are attractive to these players since they provide ownership of transaction data, which can be a potential goldmine. The role of analytics in such a data-rich environment driven by mobile and digital banking platforms is thus undisputed and will be applied to a wide range of business scenarios. Undoubtedly, this calls for new entrants to start on their analytics journey at a higher level of analytical and technological  maturity than what traditional banks did as they don’t have the luxury of time. Customers are spoilt for choice today and in fact,they appreciate relevant and timely interventions.

So this brings us to the question as to what can Small and Payment banks do in such an environment.

We recommend a 4-step approach:

Identify the unknown so far that could be serviced by new entrants and define a sweet spot for operation (Eg., Farmers and Agriculture industry focused Banking offering from a Bank)

Identify every possible data that could be leveraged to be able to onboard more customers and through onboarding new customers and hyper personalized service of engagement, make existing customers refer new customers with tailored incentives for referral program.

Build and maintain individual customers’ journey and various moments of truth and consistently keep positioning and repositioning banking services for each moment of truth.

Establish a closed-loop eco system that not only monitors performance of each of the hyper personalized offer, but also corrects itself with everyday changing dynamics of the customer and the banking industry as a whole.

Let’s look at the challenges these new entrants face – Small Bank and Payment Bank licenses are issued with the government’s fundamental objective of financial inclusion. Given the customer attitude towards banking in India, the primary challenge these entrants face is to make customers move quickly beyond cash-in / cash-out behavior which will rapidly result in inactive digital accounts.

Further, Payment Banks must break the traditional banking mentality, particular of State-Owned Banks, of being risk-averse and make low investments on Credit-Market investments. A non-risk averse mindset stems from a strong analytical capability to reasonably predict performance and make decisions based on analytical inferences, and thus, payment banks must develop these capabilities and innovate.Agility and flexibility is the new norm.

All the possibilities that we have discussed so far, give rise to one fundamental problem – an avalanche of data. In addition to that, alliances that can be forged between and by these entities can add to this problem and may result in an inability to leverage data across functions or businesses.

We already see a rising need of financial institutions wanting to leverage information assets across businesses to help understand their customer behavior and preferences better, without breaching regulatory compliance. This fuels the need for analytics oninexpensive platforms like Hadoop and data visualization.

We live in a world of disruptive technologies that are extremely powerful to bring established businesses to its knees and at the same time jumpstart new ones. It’s become clear that technology shifts can radically change time-honored business principles and undoubtedly, the new entrants will do well to adopt analytics as a key basis of competition, fueling new waves of productivity, growth and innovation.

Nash David
Nash David is passionate about technology and mobile devices. He closely follows the smartphone, and tablet platform market. He also leads editorial efforts for devworx. You may send him tweets @nashpd or email