Impact of digitalisation and partnerships on the business

Different players/cohorts have adopted markedly different strategies to expand their addressable market size from developing in-house platforms (large PSBs), to collaborations (smaller banking cohorts, insurance), digital partnering (large private banks) or going digital (stockbrokers)

• Large private banks were the early adopters of digitalisation and remain trailblazers, forged collaborations with digital solution providers to not only offer a suite of banking products to target customer segments such as MSMEs or millennials13 but also embrace neo-banking architectures.

• Large PSBs have focused more on developing in-house platforms, whereas small and midsize banking cohorts and SFBs, on collaborations. While SFBs were slow of the blocks, they have been extremely proactive in entering into relevant partnerships since the pandemic.

• Small and midsize banks still have significant ground to cover, as per our analysis of the depth and breadth of solutions adopted.

• Few large PSBs (State Bank India, Bank of Baroda and Union Bank of India) have developed their own super-app (Save, Invest, Borrow & Shop) and also carry out the entire loan processing cycle for specific products through the app. On the other hand, a few SFBs have partnered with digital platforms to offer MSME loans to merchants and savings products.

• ICICI Bank has collaborated with Open Financial Technologies (Open)14 to offer solutions such as invoicing, online payments and vendor payouts through a single platform. Further, ICICI Bank,

Federal Bank, South Indian Bank and Karur Vysya Bank have collaborated with online gold finance company Rupeek to widen their target market.

• Insurers saw strong momentum through the web aggregator channel, with sales increasing eight times over fiscals 2017-21. However, the share of the channel in new business premiums was negligible at 0.3% in fiscal 2021.

• The entry of new-age digital-only players caused a tectonic shift in stockbroking industry market share of digital discount brokers on NSE16 active client basis increased to a whopping ~60% in fiscal 2022 from ~5% in fiscal 2016. Further, the top two players in the industry in fiscal 2022 were digital discount brokers, accounting for ~32% share. Brokerages that hitherto had brickand-mortar models completely re-aligned their business models to make digital processes a key enabler in their value chain.

• However, unlike the banking and insurance segments, the industry has not seen any collaborations between new-age players and incumbents.

• Various incumbent players have collaborated with Gramcover17 – a technology led insurance broker with focus on rural India

• Sharekhan17, a full-service broker, launched its discount broking platform Espresso in September 2020 to compete with leading discount broking players

Automation in retail loan processing is high across cohorts. Availability of data with digital trails has made this possible. While document collection has

15 Includes insurance players, brokerage players & AMCs

16 National Stock Exchange

17 Company denoted by brand name

18 Please refer to Annexure VIII for more details gone digital across groups, large new private banks have also taken substantial steps to automate their internal processes, such as reconciliation, treasury operations, and human resource management. Digitalisation has also optimised operating costs for brokerage and insurance players

Private banks and large PSBs have automated processes such as credit bureau score checks, bank statement analysis and ITRs, through API integration with digital solutions providers. As a result, employee intervention has declined by ~75%, especially for unsecured loans and automobile loans. For propertylinked loans such as home loans and loan against property extended to MSMEs, however, the relative penetration of digitalisation has been lower, due to the need for physical verification of property and physical assessment for ascertaining customer capacity and character for lower ticket size loans.

While automation and digital underwriting have gained ground in MSME banking, the extent of automation is still limited compared with retail loans, owing to non-standardisation of documents from prospective customers.

High share in mobile transactions of customers has aided efficiency of large new private banks; PSBs have also ramped up mobile transactions amongst their customer base effectively during fiscals 20172218

Small- and mid-sized PSBs have significant ground to cover to match their larger peers in digitalisation of the entire loan processing workflow, especially in credit underwriting, digital documentation and onboarding.

Though many players have adopted e-stamping and e-signing of loan agreements, the penetration of such arrangements still remains low.

CRISIL Research estimates that banks’ operating cost of loan processing for customers with strong income documentation and better credit profiles declined 30-50%19 as compared with offline processes. Similarly, cost incurred for opening deposit accounts has declined by a whopping 5070%1

The below section illustrates the technology adoption by the incumbents in different financial products. The colour of the block (highlighted below) indicates the level of automation and technology adopted by the player in the workflow.

Private Life Insurance players

• Private life insurers have adopted technology at various stages of their customer life cycle.

• The level of adoption is very high at customer on-boarding stage in processes such as document collection, automated KYC document verification through Optical Character Recognition (OCR) and payment collection. Even at surrender stage, technology adoption is high where customer can surrender a linked or non-linked policy or avail policy maturity benefits via mobile application or web based platforms of insurers.

• In the underwriting process various workflow such as pre-conversion verification, medicals and counter offer/ further document requirement have witnessed high level of automation; Further, insurers have integrated the use of in-house mobile applications as well as partnered with third party applications for renewal payment collection; for large private life insurance companies, 75-90% of renewal premiums are collected electronically.

19 For large private banks, especially for products such as personal, business, home and education loans

• For incumbent brokerage players, digital lead generation and on-boarding have trimmed costs significantly. Pricing has also dropped due to competition from discount brokers.

• Incumbent AMC players have also ramped up focus on in-house digital platforms for customers as well as integration with partners. For one of the top five players by AUM as of March 2021, the percentage of digital transactions increased to 82% in fiscal 2021 from 41% in fiscal 2017.

New products launches enabled by open architecture are still at a nascent stage. Large private banks have effectively leveraged technology to cross-sell products. Tech integration has also enabled new theme-based customised products for retail investors to appear on the scene.

• Large new private banks as well as small- and mid-sized ones have begun offering banking products to MSMEs based on collaborations with digital solutions providers and API enablers.

• Large banks are also using data mining to drive their cross-sell strategy, especially for products such as personal loans, to their existing as well as non-bank customers. CRISIL Research finds that 70% of personal loans extended by large new private banks are to their existing banking customers.

• Through the API banking ecosystem, corporate clients of large new private banks are able to integrate their ERP with the bank’s CBS to facilitate payments and collections.

• Large digital-only NBFCs were the first movers in providing embedded lending products. However, large private banks and NBFCs have swiftly developed their digital infrastructure to offer such products.

• We are also seeing innovation on the liability side. For instance, Equitas Small Finance Bank announced its partnership with Google Pay in September 2021 for sourcing fixed deposits. The collaboration enabled the SFB gain access to a wider consumer base to build its liability franchise.

• Brokerage players have been collaborating with platforms such as ‘smallcase’ and ‘WealthDesk’, which provide customised theme-based investment products to retail investors, which has increasingly gained traction from fiscal 2018.

• Such product innovation has made it possible for retail investors to invest in customised products offered by PMS players, earlier restricted by the investment cut-off of Rs 50 lakh.

• These tie-ups are a win-win for all stakeholders, as product developers earn fees for their products, customers get to choose from a wide range of products, and brokerage ensure customers get to access the entire product suite through a single platform.

Large private banks and insurance players have leveraged digital channels to enhance customer engagement and query resolution

• Large private banks have set up AI bots to automate processes such as blocking of debit/credit card, issuance of new cards, and engage with customers on suspicion of fraudulent transactions.

• New virtual debit/credit cards are issued to existing customers by leveraging AI-based chat bots which can be used immediately for transactions.

• Large private banks have also started suggesting products relevant to customers on the basis of their transaction pattern.

• Insurers have set up AI-driven chat bots to solve customer queries, fill applications forms, and familiarise customers with various predefined process. Insurers are processing digital documents upload through chat-bot windows to ensure quick and efficient claims processing.