Honey I shrunk your bank branch

Banks are sitting on a powder keg. Their business models are likely to be blown to bits if they choose to wait out for the digital disruption to gather steam.

Haresh Chawla

[Photograph: Mobile payment terminal, in Fornebu, Norway by HLundgaard under Creative Commons]

The future has a way of arriving unannounced - George Will

If you work in a bank, you should probably read this.

Banks are in grave danger.

Especially so in India. A 4x5-inch screen is going to eat your business. Or at least most of it. If you don’t move. Now. 

Except for a couple of big banks, most of you seem to be sitting at ease, waiting for this tsunami to hit.

Everything looks fine today. Your stock price is rising. You have millions of accounts, thousands of ATMs and more employees than even you can count. Every corner has a hoarding with your smiling brand ambassadors exhorting me to buy a new car or a new home. And your TV ads showcase how your bank is changing people’s lives and bringing happiness to millions. Your balance sheets are large and growing. Profits are rolling. Of course, I speak of the banks that haven’t given loans to celebrity CEOs (especially the ones who handpick their charming employees).

But the walls that protect you are being taken out brick by brick. Millions are being poured into businesses that are aiming to be quicker and better at serving the financial needs of customers.

And rightfully so. Once venture capitalists (VCs) have overcome their fascination with pouring billions into ecommerce players who want to deliver mouthwash to my house in Mumbai all the way from Bhiwandi on the outskirts of the city, even though my bania is just round the corner, their next attack will be on the bedrock of all these markets, the lubricant for all transactions, the business that you are in. The business of money. 

The challengers are coming

A VC-funded wallet founder claims he’s got a 100 million users. A leading telco, armed with a payment bank licence, is talking about 300 million active users. Whereas most banks have less than 5 million downloads on their own mobile app. Even more unbelievable, some banks are still investing in bricks and mortar branches and ATMs in tier 1 and 2 markets.

In every part of the world, there is a bunch of 25-year-olds working on disrupting your archaic business model and cost structure. They know that banks make too much profits compared to the real value they add. They make money on the float, on the fees—it’s a lucrative business. It is ripe for disruption. 

And these new babies won’t have the drag of regulations. You’ve been sheltered for so many years, now you have to pay the price. And even the regulator believes that the rent you charge and the profits you make from other people’s money is too much. Slowly but surely, RBI is opening the door to the big bad world of competition and saying “Let the best man win”.

Before you know it, millions of customers will move their transactions to the challengers. 

Most bankers don’t realise that the moat around them is getting filled. Fast. And the challengers have nuclear-grade weapons. 

It’s time to smell the coffee. Times have changed. 

You opened the door

You opened the door to them—you stood by when credit card usage went down due to two-factor authentication in 2009; you looked the other way when cash on delivery (COD) drove 80% of ecommerce transactions—you were the mighty bank, how did a few transactions matter, right?

I wonder how many of you could have stood together and lobbied at RBI to do away with authentication for sub Rs 2,000 transactions. I wonder how much fraud-risk did we really face—you could have used location, SMS, and many other features to ensure against it. Lubricating the payments ecosystem was your responsibility, not RBI’s.

It was your job to assess the trade-off between fraud-risk and convenience. Today, you’ve got to win back the consumer who is hankering for convenience. It’s his money, yet why is it so difficult for him to spend it?

The fee economy is vanishing. Zero-fee banking is coming. And coming fast. Whereas you are wasting time negotiating with RBI on how to charge me for accessing my own money at the ATM. 

Don’t be like the telcos who’ve squandered away their mega customer bases and have done so little to enable payments on smartphones. Spectrum to them is like bank licences to you. Everyone loves their moat, don’t they?

Smell the coffee

Even the poorest can afford a second-hand smartphone. There. That’s your branch, right there in a mobile. Your branch has just shrunk to a 4x5-inch screen. It can talk, it can interact, it can speak any language. It can do pretty much everything your physical branch can.  

If you add in Aadhar verification and digital signature into your app, it can do more than even your branch can. People can create their virtual and secure identities on your platform; you can become my single-point locker for everything.

Realise that each of your consumers has a computing device that’s more powerful than most PCs in your branches. You can help them do more – you just need to open your mind.

More changes round the corner

While RBI is handing out more licences, the fact is that the number of banks needs to shrink. With technology each bank employee can handle 100x the transactions and there is no need to have so many banks and branches. Consolidation is inevitable, whether our regulators like it or not.

It’s even worse if you are a small or regional bank—you need to be “acquirable”. Geographical reach or community banking as a differentiator will not help you survive. Your geographic footprint is now a disadvantage. Do you want to be the winner or the vanquished? And if you are not a technology-led bank, then no one will even acquire you. They’ll bypass you and get your customers, and you will be left to die. Slowly. (Someone should ask the government, why recapitalise the ailing banks? Just merge them and kill the overheads. These banks won’t be able to afford them in a few years anyway.)

Banks have utterly failed at getting the credit and debit card economy going. The race is on for the mobile economy—don’t miss it. Your nice little profits will evaporate, and with them your future. 

You are not a bank anymore

Ten years from now when you look back you will marvel at the amount of bricks and mortar you had created.

In hindsight you’ll realise that at the core a bank is nothing but a glorified and secure data centre, supported by people and process—applying their rules and risk-management processes which haven’t changed much for the last 100 years. Despite all the governance, the biggest problems banks have faced is when they have let human beings apply discretion, whether they did CDOs (collateralized debt obligations), or Libor fixing or the rogue-trader bets that hurt them every few years. 

If you think about it, your secure data centre is actually better off running with algorithms. Over 99% of the transactions on your systems don’t need human intervention. Computers don't make discretionary calls, don't give bad loans. Banks will eventually direct their people to run the front-end of the business—where it matters—facing consumers.

And most consumers won't need this servicing. Customers now want to be able to do thing themselves; they only want a simple interface to manage and monitor their money. 

Here’s how a consumer sees you: You are simply a secure storehouse for my transactions. That’s it. You trade in bits and bytes of information about me. I don’t want to do anything more with you. I don’t have to see you, meet you, or touch you. Your existence is now limited to my phone screen and your job is to be the least intrusive layer between me and my money. You are here to do my bidding. I should be able to visualise it; I should be able to literally “swipe” it. I should have full control over it, like I do over my Candy Crush. 

Banking is not a services business anymore. It’s time that you thought of yourselves as product companies with sliced-up micro-SKUs (stock keeping units). Easy to interpret and easy to enable.  

And there is no excuse. We’ve all seen the smartphone revolution coming for over five years now. These ideas need to come off the PowerPoints in board meetings into every single element of your business. Bank CEOs have no excuses if they fail in the mobile payment economy. 

Changing the viewpoint

The heart of the problem is that banks internally work in ossified silos. 

I am not a credit card customer, nor a debit card one, nor a savings bank customer. Oh, you called me a home loan customer. Wait, you labelled me as a private banking customer. Customers don’t want to deal with your internal divisions. I am simply a customer, ready to buy one of your products.

Incentives in banks are not aligned. The credit card team does not talk to the debit card team does not talk to the home loan team does not talk to the savings bank team does not talk to assurance team does not talk to the mutual fund team does not talk to….

Remove your silos and think of me as one. 

Imagine the opportunity if your bank were to become the single mobile window for every transaction. Your bank presently captures commissions on only a fraction of what your consumer spends. 

But each and every transaction can become a commission-earning transaction. A 100% cashless system will ensure that a 100% of transactions with merchants will earn commissions for you. You can make billions in commission income by enabling frictionless and low value transactions compared to all the financial engineering you do to earn that sliver of net interest margin and juggling with arbitrage in your treasuries.

How to do it? 

First, see where you stand. Download your bank app on your phone. If it takes more than 20 seconds for your existing customer to get on-boarded, you are in trouble. 

Second, ask your entire team to go cashless for a month. That’s how every 25-year-old is going to be in the next two years, like it or not.

Rethink your entire strategy around the branch-on-the-phone. Create a vernacular voice-enabled system. Create apps in languages. Run TV ads which educate the illiterate. Make sure that you can enable every purchase at a small kirana shop. You can transform India. Your next 100 million customers are just a smartphone screen away—backed by the same servers, the same team, the same systems. You need to believe in it. Your leverage is infinite. 

Make your interface intuitive. Even today when I pay on an app, most netbanking pages are NOT designed for mobile usage. Why? Does your team have any explanation? (You know which bank I am talking about.) And hey, it won’t hurt to integrate a web-chat client in case I am getting stuck in a transaction—I will be happy to be redirected by a bank-robot than just be stranded and helpless.  

Personalise. Personalise. Personalise. You have a track of what kind of transactions I’ve carried out in my last 100 visits to your website. But you still treat me like a newbie. It’s like starting a new relationship each time.

Not a second has been spent on thinking through what a consumer wants to accomplish. In fact, personalisation may actually reduce the load on your systems. A little extra cost upfront in development of a personalised screen for me, behind which all your 200-odd service offerings can stay. Also while you are at it, try and hire a global designer who will ensure that I don’t struggle with your little off-placed buttons each time I transact. I am assuming that you won’t need a committee to be set up to approve their hiring. Even your ATM vendor has personalised his dinosauric machine and it remembers my favourite withdrawal amount.

Banks don’t even need to launch wallets; they already have everything they need—my money, my identity and my account. The mobile has to become a seamless extension of your branch. Just mobile-enable my debit card as a first step. It’s that S.I.M.P.L.E. 

The good news

It’s not too late—you have the brand, you have the customers, you know their language and you have the people. You can re-train them—and embrace the digital age. Arm every employee with technology so they can service thousands of customers. Aim to improve your customer per employee ratio by 10x first and then 100x.

I hear that one of your brethren is doing huge advertising and paying merchants to adopt their wallets to acquire new customers. You don't need to do that. Just do a marvellous job with your current customers and the word will spread. Most “bribed” wallet customers never transact again. Most wallet players have less than 20% active wallets, and have balances of less than Rs 150. Don’t get carried away by the hype. 

And you will do a world of good by creating a cashless economy. Brokers hated it when India moved from those little green forms to the most demat-ed and sophisticated stock market in the world. Similarly, politicians and some bureaucrats hate Aadhar and its potential for transparency and they will hate the economy going cashless. But you, sir, can drive this change in three years.

A cashless India is a black-money-free India. Imagine getting all the black money participating in our economy—you alone can drive an extra point of GDP growth every year, if not more.

And what if you decide to make even gold fungible and electronic? You will herald the acche din before Narendra Modi can say Swacch Bharat. 

Two points finally: as I was writing this, I saw a conversation on my Twitter feed between two young men, already dreaming of a day when they can simply chat with their bank and give instructions over a messenger app. It’s all doable, right here, right now. Just get in some sharp engineers and they’ll write you a NLP (natural language processing) bot—and you can make this happen in weeks.

Then there is another tsunami coming in the next few years. It’s called Bitcoin.

In simple terms, it can do what Napster and Torrent did to music and video piracy, except with the exact opposite effect. They were designed to remove traceability; Bitcoin will make it completely secure and traceable. Bitcoin doesn’t need the banks. Banks need Bitcoin. Risk management as we knew it will change. Currently the bank has a role as a counter-party in most transactions. That will go away. Transactions will get squared off without ever hitting your systems. So you can join the revolution or be swept by it. Maybe I am oversimplifying it—one leg of your business is to manage risk, the other liquidity and third return. Liquidity is going to change with customers’ control over their money and risk will change with Bitcoin, leaving you to hunt for return.

As I sign off, I see your margins slipping as fixed-fee remittances, direct-to-consumer mutual funds and insurance comparison sites start weaning away your customers. You simply can’t afford to lose this battle. Get going now. It’s all fix-able, and you can become the single-stop-shop for me. Yes, your returns may drop, but again imagine: all these consumers paying fees on each transaction. That’s a lottery, sir.

So go off on a retreat, take your whole team, strip them of their designations and labels and come back as a new-bank.

You have a few years to shift the gears, but shouldn’t the mind-set shift happen tonight?

Dar ke aage jeet hai.

PS: You won’t give those big loans to the big, bad corporates anymore, will you? 

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ashwini shah on Jan 02, 2017 1:04 p.m. said

:( sounds all nice. But what about the crores of Indians in villages which bank with co-op which are outside the purview of mobile banking due to rbi guidelines. What about all those without a smart phone. Those who don't have a signal for a simple call. DATA is virtual non existent. Sad to hear such articles. Sad that you think that banking is just about debit and credit. You believe that the RMs are not capable of giving you wealth advise. I don't think you speak for the the large section of our soceity.

Arpit Choudhury on Nov 01, 2016 1:36 p.m. said

PS: I lost my HDFC current account Debit card in September. Still waiting for it.

Which year you ask? Oh, my bad, September, 2015.

Arpit Choudhury on Nov 01, 2016 1:33 p.m. said

This is amazingly thought-provoking but I feel that corporate banking (especially for startups and SMEs) is way more broken than personal banking. I've been a long time customer of HDFC and as far as my personal banking goes, it's pretty manageable and is getting better. Same with ICICI. But the moment you look at how these incumbents deal with current accounts, it is baffling. Tech enablement in corporate banking is a pity, customer service is non-existent and RMs are like Potatoes. I have spent more time trying to manage banking than our own tech development which lasted 10 months. It's a shame to see these banks trying to chase startups while providing Zero assistance to existing customers. The arcane practices and a Form to enable SMS notifications is nothing but a fucking joke. I'm about to shut our 2nd current account (HDFC followed by ICICI) and hoping to find a saviour in Axis Bank. Makes me sad that one cannot Bank on their Bank when trying to run a business.

Chandrashekar Rao Kuthyar on Nov 23, 2015 12:58 a.m. said

<CS> The title is very apt. The statements are very true. But the tone can hurt the pride of any banker. Banks have done yeoman service to India. Bankers and Regulators have worked hard to make India a strong nation. Even today, the clerks and front-line officers in thousands of rural branches are the most trusted people. They speak the language of the people. Depending on the situation, they reach down to the level of the customer and solve their problems. A 1000 lines of NLP code written by a smart programmer cannot be a substitute for a banker. I need banks, I need bankers. Maybe we are swinging the pendulum between two extremes. I visited the digital village of Akodara set up by ICICI. It was a beautiful blend of both technology and excellent banking service. A team of 4 officers would set-up a branch in Village1 from 9 am to 1 pm. The same set of 4 officers would travel by their personal car and set up a branch in Village2 from 2 pm to 6 pm. Hats off to such smart moves which only people can bring with their deep understanding of human behaviour and passion for customer service </CS>

Haresh Chawla on Nov 02, 2015 11:19 a.m. said

Adam, actually the rest 95% are reachable via a network of agents, or via SMS technology, via Branch-on-a-mobile. So as long as we stay "human-assisted" we can reach out to the millions. My case isn't the we should not have people in banks - but to say that banks can use their tech backbones (and data/analytics) and create a whole new set of services and open markets. Technology allows this "democratisation" instantly - and then you need to layer on the realities of the marketplace - e.g. low internet connectivity, literacy etc...which can all be overcome by *human-asssisted algorithms*

Adam Steele on Oct 31, 2015 10:04 a.m. said

Hey, I read you.
Think of me as your friendly banker.
If I were you, I'd check a few facts, one you and I are the top 5% of the Indian population with an income, a capable enough mobile and an internet connection.
To get the other 95% population on board the new-fangled payments bandwagon, you need a whole bunch of enabling tech, regulations and culture.
Please do remember your lessons with Newton, Von Clausewitz and Sun Tzu. Let's put aside specifics and concentrate on just one equation. Force vs Mass, you carry force of innovation, yet you have a long, long way to go before you reach the tipping point with critical mass, whether in terms of usage, ROI, penentration. Maybe, this will happen tomorrow. If so, remember who I am, I've chased and overtaken a lot of disruptions. Remember all those wars, famines, droughts, bankruptcies and several assorted world crises.
Sure I'm a bit slow, but that is my tradeoff with reliability. I am a bit rude but that is traded off with my risk aversion. I & Mr. Defence have been your earliest, largest and staunch'est' customers. We reaped the benefits of your much vaunted technologies when you matured. I believe that I can take those benefits to make you serve me. I am mass and each unit of me needs a huge amount of you to get work done.

Subbu Selvamani on Oct 16, 2015 12:02 p.m. said

Can this article be anymore full of hot air? I wonder if the author understand anything about banking, Indian consumer mentality or the cash flow position of the payment gateway providers.
The only reason people are still using cash is because of credit or debit card charges, I worked in few countries I consider Indian banking IT as spirit and especially found of 2 tier authentication improved my confidence and reduces my time in trying to verify o security before making online purchase.I had a case of fraud in Nort of America on my corporate card while booking over phone and it was a night mare getting it resolved. Never happened in India.
I work in IT, I use all these wallets only if they give me any discounts. For the investments these guys make they may have to charge 10% as fee, which some payment gateways did, I wonder if they made any turnover. My trust on them is zero. Look at payzapp app, if lose your mobile what stand between the theif and your card(s) is a 4num pin. I think RBI will nail them once they find about what these wallet guys do.
To make India cashless, you need a 0% transaction fee payment method both to seller and buyer I will call that as disruptive. Wallets are
Time will tell, once the VC funds are blown away, we will know what stands
Between just that you know bank software does not come for free takes a truck load of money.
Also bank don't and should not make money on retail transactions they earn money from loan portfolio, CASA is just a cheap funding source. The big two private banks in India made their money from hidden charges and stealthily stealing money from customers with innovative fees and charges with two decades of customer compliant and RBI regulations those are pretty ironed out. These wallets guys will set the rest of those issues.
Last disruption was online, it had a nether to convenience and Mr author the brick and mirror banking is blown then, not now. I don t see mobile payments as an equivalent change.
I hope these is some smart bank which partner with one of the wallet guys transfer their cost side to them who are suckers for customer base and make some money. When realty hits the market you can substitute with your app

Sudipto Patra on Oct 16, 2015 8:11 a.m. said

Mass customization, innovative revenue model, technology and nimbleness will merely put them on life-support measures to extend their existence as they are. For the transformation to happen, the colossus that almost every bank has become needs to reduce to a size more comparable to their actual worth in the economy. After all, banks were some of the earliest institutions created to control the economy and make money from managing the flow of money in the physical world. As technology dematerializes most of our intermediate needs, banks will also cease to be relevant. At a philosophical level, perhaps, banks (as we know them) need to die in order to allow rediscovery and reincarnation of these behemoths and the regeneration of the economy as a whole. Bitcoins (or a variant) can takeover sooner than most of us imagine. However, they might also (over time) become a giant, loose their nimbleness and lend themselves to be gamed. One question that to my mind, relevant for the future of bank-like services, is how to use technology from preventing individuals and vested interests from gaming the system...any system that we may come up with, Bitcoin-like, technology led or otherwise? Can these be learning systems that can be gamed only once (in a particular way) across the world?

Amit Kurseja on Oct 15, 2015 4:33 p.m. said

Payments is never a zero sum game.

In a transaction on a Ecommerce platform like shopclues, their is a paymwnr gateway aggregator, a network, an acquiring bank and a issuing bank, all of them benefit when ecosystem of digital payment grows.

Paypal could have been killed by visa and MasterCard in seconds but they realized that partnerships are important and hence all of them grew and gained. Indian banks need to understand this.

Damodar Mall on Oct 15, 2015 2:55 p.m. said

Sharp arguments. Calling many spades. Provicative expression style. #Like

Jay Trivedi on Oct 12, 2015 4:59 a.m. said

I have been reading your posts & am impressed with your plain talking style.

I believe that dematerialization of cash & branchless banking is the key for any bank to be successful over the next decade.

Debashis Bhattacharya on Oct 11, 2015 1:44 a.m. said

Excellent article and things like Apple Pay are further shrinking the ivory towers. I remember we used to get half day discretionary leave just to do bank work a long time back.

Chand Narayan on Oct 10, 2015 4:04 p.m. said

Haresh this is just too good! I'd love to see the Bankers' faces as they read this!

About the author

Haresh Chawla
Haresh Chawla


True North (formerly India Value Fund)

Haresh Chawla is currently a Partner at True North (formerly India Value Fund Advisors). True North is one of India's most experienced and respected private equity funds, with over $1.5 billion under management. At True North, he focuses on investments in the food and consumer sectors where he identifies and helps transform mid-size businesses.

He is best known though for his leadership in transforming the Network18 Group into a formidable media network. Under his watch as Founding CEO, Network 18 became India's fastest growing Media and Entertainment network.

In his dual leadership roles at Network18 and Viacom18, he built a media conglomerate that reached over 300 million households across platforms including television, print, films, mobile and internet.

His career at Network18 spanned 12 years, and he grew revenues from $3 million in 1999 to $500 million in 2012. He transformed the company from a TV production house to India's leading multi-media house with over 11 TV channels including Colors, CNBC-TV18, CNN IBN, MTV India and Nick India. He forged joint ventures and long-term partnerships with the world's largest media companies including NBC (Comcast), CNN, Viacom, Forbes, A&E Networks.

Haresh has also been keenly engaged in the consumer internet revolution in India from the early nineties. He is credited with building India's largest most well-known internet businesses like Moneycontrol, Bookmyshow, Yatra, Firstpost and Homeshop18. He continues as a successful investor and mentor to several internet and consumer start-ups today.

Earlier, Haresh has been part of founding teams at the HCL Comnet; ABCL, where he set up the Film Distribution Business, and at the Times of India Group where he launched Times Music.
Haresh holds a Bachelor's degree in Engineering from IIT Bombay and a Master's degree in Business Management from IIM Calcutta. He lives with his wife and two children in Mumbai.

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