Business growth, efficiency and customer experience

Cohort-wise assessment of the impact of digital transformation on the business

• Players in the cohort have developed super-apps (save, invest, borrow and shop) and collaborated with digital platforms for specific products, such as education loan, housing loan and gold loan, to expand the market reach

• However, many players in the cohort are not a part of open banking architectures with third-party digital platforms

Large PSBs

• A bank in the cohort has developed automated risk scoring and decisioning for home, car, education, and gold loans through its super-app

• A player has launched ‘WhatsApp banking’ channel for its customers; further, a bank also provides value-added products, such as online marketplace for purchasing agriculture inputs and farm equipment

• The players in the cohort are yet to forge significant third-party partnerships or build their inhouse digital platforms to leverage tech capabilities; however, they have on-boarded on marketplace portals, such as TReDS26 for supply chain financing

Small and midsized PSBs

• They have launched their in-house digital platforms to serve existing users and for digital application and processing of loans. However, they lag their large peers in designing digital products across customer base and cross-selling of products through medium

• Through collaborations with third-party platforms, a player in this cohort is providing services and products, such as virtual accounts, corporate credit card and unsecured business loans basis cash flow data

Large new private banks

• The players in the cohort have adopted tech in various processes, such as RPAs, to automate reconciliation processes, video KYC for on-boarding customers, automated credit under-writing process, e-stamping and e-signing of loan agreements

• Two players launched their BNPL product in collaboration with a digital platform. Further, basis integration with neo-banking platforms to provide basic banking services, the players are able to effectively sell not only core banking products but also other fee-based products to customers

Small and midsized new private banks

• A few players in the cohort have adopted digital processes while customer on-boarding to substantially reduce their on-boarding costs. They have also leveraged data analytics to create efficiency in their underwriting processes

• The players have designed robust digital web and mobile applications to sell core banking as well as fee income-based products. However, they lag their larger new private peers in collaborations with platforms to offer innovative product solutions

TReDS (Trade Receivables Discounting System) is an RBI-approved electronic platform for facilitating financing/discounting of trade receivables

• The players in the cohort have taken substantial steps to ramp up their digital play from FY18

Large old private sector banks

• A bank in the cohort has created its own neo-bank/digital platform ecosystem in collaboration with Visa; further, a bank has partnered with a UK-based fintech player which provides digital platform to MSME segment

• A player sanctioned ~70% of home loans and car loans digitally in FY21; the users had applied for the loan through the bank’s digital platform

• A few have effectively leveraged AI and ML to cross-sell fee income-based products

• The players in the cohort have collaborated with digital lending platforms to generate new leads; however, the partnerships are yet to mature and are still in their nascent stage

Small and midsized old private sector bank

• They have taken steps to adopt digital processes for loan origination; however, the players are yet to take significant steps to adopt technology in their internal processes. Though players in the cohort have implemented digital channels for its customers, the adoption at back-end office channels lags its peers

• They undertaken very limited collaborations with digital platforms to launch new products. Further, a few players in the cohort do not participate on TreDS to offer invoicing discounting product to MSMEs

• A few players have developed very innovative products to build their liability franchise as well as asset book, due to a lower number of physical branches and lower ticket-size deposits through such branches, few players in the cohort have substantially leveraged the digital channel to build liability franchise

• They have also partnered with digital platforms to offer MSME loans to merchants and saving products

• Many players have swiftly built their digital infrastructure within a short period after receiving their SFB licences

• A player in the cohort launched its neo-banking platform in collaboration with fintech player offering deposit, insurance and investment products.

• The players have also collaborated with insurance players to provide solutions to rural customer base

• As NBFCs have a focussed product portfolio and cannot provide savings products, the collaborations are more outward (NBFCs trying to find right digital partner for products) rather than inward (platforms approaching NBFCs)

Large NBFCs

• A player in the offline BNPL space recently announced that it would launch its own super-app and provide similar products through the online channel as well

• An NBFC has its in-house digital platform for integration with OEM platform for lead flows

• A player in the cohort collaborated with a digital-only lender for providing loans in B2B BNPL space; the segment was completely new for incumbent NBFCs and aided diversification

Small and midsized NBFCs

• An NBFC has collaborated with a fintech partner which provides embedded BNPL solutions to build card-based credit products for merchants; its open architecture has enabled collaboration with other institutions to launch and deliver such products

• The sales field employees of an NBFC-MFI are equipped with mobile tablets to on-board employees in paperless manner

Cohort

Comments on players in the cohort

• Through collaborations with insurtechs, players are able to launch and underwrite products in niche segments such as crop insurance using AI capabilities and other micro-insurance products

Insurance players

• The players have developed automated underwriting capabilities in-order to develop robust risk practices and also enhance operating efficiency

• A top-five life insurance player processes ~40% of its life insurance policies through automated underwriting

• The on-boarding cost for a few leading incumbent brokers has dropped substantially for the incumbent AMCs

AMCs

• A few players have streamlined their in-house mobile application to make customer experience seamless during on-boarding and also during their investment process

• A large incumbent player has completely changed its business model from an offline full-service broker to a digital broker

Brokerage houses

• Thematic investment products are offered by digital investment platform in collaboration with brokerage players

• The wide distribution of such products through incumbent brokers has been enabled due to tech adoption by incumbents and the ability to integrate their core business platforms with the fintech players

Source: Company disclosures, CRISIL Research

Cohort-wise assessment of impact of digital transformation on financial inclusion

Cohort Comments on players in the cohort

• A player launched an agri gold loan product in 2019, exclusively through its digital platform. As of March 2021, ~Rs 450 billion was disbursed under this product. The product was available to customers in a multi-lingual option

Large PSBs

• Despite the drop in the cost of distribution, the last-mile customers have not enjoyed significant benefit

• Though the players in the cohort have played a significant role in financial inclusion by facilitating opening of PMJDY accounts, the role of technology to further deepen the relationship with such customers has been limited

Small and mid-sized PSBs

• On the MSME front, the players in the cohort have collaborated with supply chain financing platform to expand their vendor-financing portfolio. Majority of the players are also a part of the TReDS platform

• The digital adoption is yet to create significant positive impact on cost metrics for players in the segment

Large new private banks

• Through tie-ups with digital platforms for providing savings related products, the reach of the players in the cohort has expanded significantly. For e.g. two players in the cohort have collaborations with platforms which cater specifically to MSME clients with solutions such as automating tax payments, vendor payments, business reporting and instant loans

• Players have developed innovative credit products to cater to local merchants/kirana stores

• However, the lower ticket size personal loans has not gained significant traction for banks in the cohort

Small and mid-sized new private banks

Large old private sector bank

• The players in the cohort have collaborated with digital platforms, e-commerce websites and also leveraged their in-house digital platforms to cater to the unbanked population. API integrations with third party platforms has enabled create effective synergies. A player in the cohort has adopted assisted digital method wherein it trains people in rural pockets to use its mobile application and then on-boards them based on interest

• Through active collaborations with digital platforms, the players are looking to increase their penetration in retail and MSME space

• A player in the cohort is striving to provide a host of solutions to unbanked SME players through collaboration with UK-based fintech platform

Small and mid-sized old private sector bank

• Players in the cohort are giving push to financial inclusion through their business correspondent network. Through assisted digital approach – creating financial literacy through campaigns and then leveraging bank’s digital platforms – the players are serving the unbanked population

• On the other hand, the players in the cohort are yet to take significant strides in increasing reach through innovative solution for MSME and retail customers

• The players have collaborated with third party platforms to sell fee-income based products such as insurance and other investment products

SFBs

Large NBFCs

• The players in the cohort have effectively leveraged digital platforms to expand their customer base beyond the geography of their physical presence

• The benefits of the same have positively impacted them especially in their liability franchise

• In segments such as affordable housing, the players have swiftly expanded their presence in Tier 2 and 3 cities through a mix of physical offices and their in-house digital platform

• Through collaborations with e-commerce websites, the players are providing instant short-term EMI loans on products purchased on platform. The customers are majorly NTC or do not have significant credit history

Small and mid-sized NBFCs

Insurance players

• Many players in the cohort have collaborated with digital platforms to launch products, such as MSME loans and personal loans

• The digital play has enabled them underwrite higher risk-adjusted, yield-based personal loans

• The operating costs for the players have dropped because of increasing dependence on technology and fintech tie-ups for multiple operations

• However, Covid-19 led to insurers reworking their mortality assumptions and strengthening their underwriting norms. The pricing of product offerings, especially group term policies, has increased

• The expense ratio charged by mutual funds have dropped over the last few years; however, the same is due to confluence of regulatory amendments, higher AUM and lower cost due to digital distribution

• On the broking industry front, the lean model adopted by the digital-only brokers has forced incumbents to not only re-align their business models but also reduce their brokerage charges

• However, the brokerage cost has dropped significantly across investment ticket sizes during the past few years

Source: Company disclosures, CRISIL Research

Examples of partnerships entered by players across cohorts to increase addressable market size

Examples of partnerships in supply chain finance Platform Focus segment Banking/NBFC Partners

CredAvenue

Vayana

CashFlo

CredAble

C2FO

Finovate

Progcap

Note: Company referred by brand names

Source: Company websites

• Vendor Finance

• Dealer Finance

• Vendor Finance

• Dealer Finance

• Vendor Finance

• Dealer Finance

• Vendor Finance

• Dealer Finance

• Vendor Finance

• Dealer Finance

• Vendor Finance

• Dealer Finance

• Buy Now Pay Later (unsecured)

• Dealer Finance

• Kotak Mahindra Bank

• Bank of Maharashtra

• Axis Bank

• Federal Bank

• Tata Capital

• N.A

• HSBC India

• Kotak Mahindra Bank

• 15 Banking/NBFC Partners

• Star Finserv

• Muthoot Finance

• Kisetsu Saison Finance

• Ujjivan Small Finance Bank

Adoption of digital platforms by Millennials and GenZ population has further supported growth for ecosystem

• 80% of the clients on-boarded by Upstox – a digital broker and second-largest broker in India as of March 31,2021 – were from the age bracket of 18-36 years

• 80% of investors on Paytm Money – digital wealth management company – are below 35 years of age

• For ICICI Securities (third largest broker in the country), 71% of its clients on-boarded during FY19-21 belonged to millennial and Gen Z category

• 82% of customers on-boarded by NiyoX – a neo bank offering services to customers in partnership with Equitas Small Finance Bank and Visa – were below the age of 35

Source: CRISIL Research

Large new private banks dominate mobile banking transactions; however, PSBs have ramped up their digital payment offerings significantly

To decipher the extent to which banks have been able to persuade customers holding deposit accounts to transact through their mobile banking apps, we looked at the delta between their share in systemic deposits of the various cohorts and their share in mobile banking transactions (on value basis). A positive delta suggests a higher share in mobile banking compared with the cohort’s share in deposits, thereby signifying a healthy digital trend for the cohort. Further, we compared this data over two distinct time periods to analyse the extent of change in either the positive or negative direction.

Our analysis indicates the following:

• All 3 cohorts constituting private banks have positive mobile banking transactions delta large new private banks, small- and mid-sized old private sector banks and large old private banks

• Large new private banks have substantially high delta, suggesting high usage of its digital applications by its customers for payment

• Large PSBs and small- and mid-sized banks have seen a substantial improvement in their mobile banking transactions delta during fiscals 2017-22 although it remains in the negative category

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