Small-sized banks take the digital route

Smaller banks are investing in technology and product innovation in a bid to stay in the race to digitise

It’s not just the large commercial banks that have been bitten by the instant banking and digital banking bug. Small-sized banks, too, have been taking baby steps to get on to the digital bandwagon. Banks such as Federal Bank Ltd, South Indian Bank Ltd (SIB), Lakshmi Vilas Bank Ltd (LVB) and DCB Bank Ltd have launched multiple digital products for retail customers either independently or with financial technology start-ups to keep pace with the evolving banking and payments space.

This is in line with the aggressive stance that such banks have taken in retail banking to stay in the competition. For instance, in October 2015, DCB Bank announced expansion plans to compete with other small banks and payments banks. In a conference call with analysts, Murli Natarajan, managing director of the bank, had said, “We are paranoid and are over reacting because we do not want to be in a situation where we have not reacted at all to increasing competition.”

Mint Money takes a look at some of the retail products from small banks that have already hit the market, and their outlook for next year.

Taking the leap

From apps to quick response (QR) codes, smaller banks are launching digital products that use the latest technology. Federal Bank has been among the aggressive ones in product innovation. “We have been very aggressive in the retail banking space in the last one year and are focused on bringing in disruptive innovation as compared to large banks,” said K.A. Babu, head-retail business, Federal Bank. The bank has so far launched FedBook account opening app, missed call mobile recharge, Scan N Pay app and Easy Pay app.

With the FedBook app, you can open a bank account. Download the app from an Android or iOS phone, take a selfie, scan your Aadhaar and Permanent Account Number (PAN) card, and send to the bank. The app verifies the Aadhaar real time and opens the account (those who do not have Aadhaar cannot use the product). There is no minimum balance requirement. You can view your savings account, term deposit, loan account and cheque clearance details through this app. The maximum amount you can fund is Rs.10,000 initially. Once the bank executive visits you and the complete know-your-customer (KYC) process is done, you can start using the account as a regular savings bank account.

Another product by the bank is Scan N Pay app, which allows you to scan a QR code and pay bills. To use this you need to be the bank’s customer, and have an active Immediate Payment Service option. Also, the merchant should have the app. The bank plans to make it available to other banks’ customers as well.

Similarly, this year, DCB Bank launched three products—Zippi, On the go mobile banking and Mobile Passbook. Zippi allows you to open a fixed deposit (FD) online without having a savings account. You can transfer money to the FD through Net banking or by cheque. Once you register, a bank executive will visit you to collect your KYC documents and the cheque. You need to have a PAN card to open an FD.

On the go app allows you to do basic banking such as transfer funds, create FDs, manage accounts, stop cheques and track loans.

The Mobile Passbook app can track transactions in savings accounts, current accounts and FDs.

“We are looking to aggressively capitalise on the rapid penetration in India with digital footprints. For us, digitisation doesn’t mean a ‘minus-physical’ branch. We want to be present both digitally and physically. If we do a good job, market share will automatically increase. We plan to fulfil customers’ needs either through alliances, technology or both,” said Praveen Kutty, head–retail and SME banking, DCB Bank.

Baby steps

Some banks are in the earlier stages of adopting technology. For instance, LVB is currently running a pilot LVB mobile app, only for its employees.

“By first week of January 2016, we will go live for our customers. The app is at par with the apps that our competitors are providing. Right now, we are testing it with just our employees,” said A.J. Vidyasagar, chief operating officer, LVB, which has around 2 million retail customers.

Recently, LVB also tied up with SBI Cards & Payment Services Pvt. Ltd to offer its customers credit cards, a product that the smaller bank was not offering till now.

Another small-sized bank, South Indian Bank, is still working towards centralising its processing centre for its backend operations.

“At present, we are trying to build a centralised processing center for all banking needs such as bank account and loan products. We are looking to build a platform where all documents can be scanned and sent,” said Raphael T.J., general manager, South Indian Bank.

It has already put in place a mobile banking app. “We launched SIB Mirror app in June this year. If you install the app, you just have to shake the phone to know your account balance,” said Raphael.

The app is currently only for the bank’s existing customers. So far, 70,000 downloads have taken place. The app also includes m-passbook, where one can track banking transactions. One can also do a real-time check on a deposited cheque by entering its number.

What next?

Most of these banks are planning to increase their retail product basket in the next couple of months. For this, they are either working with fintech start-ups or acquiring the product directly from a fintech company and then implementing it.

“We are planning to launch a mobile wallet by the first quarter of financial year 2017. Though the wallet will be implemented by the bank, the software will be procured from a fintech company. The (banking) scenario is dynamic and we have to refine our products to attract more customers,” said Vidaysagar.

Federal Bank, on the other hand, closely works with fintech companies to build apps and other digital platforms as it gears up to more competition in the payments space.

“We are in an agreement with start-ups in the Startup Village in Kochi, where we help them conceive ideas. Any idea that these start-ups come up with, we have the first right to it,” said Babu. “We are aware that small finance banks and payments banks will bring forth an unprecedented chance. So, we have launched payments solutions such as ones that are QR-based. We are trying to preempt the solutions and are confident of being able to protect our piece of the cake,” he added.

Traditionally, small sized banks have been giving personalized services to its customers. These banks historically were considered to serve local geographic areas. Hence, their target customers visit their branch often for any types of banking services.

However, in this digital age this is clearly not enough. Also with technology, these smaller banks have the ability to grow into newer geographies. This chance to increase their footprints followed by the competition that will come in the form of payments and small finance banks will push even more small-sized banks to invest in technology and innovate in the coming year.