Moving towards differentiated banking: The evolving bank-fintech ecosystem in India

Shinjini Kumar, Leader, Banking and Capital Markets

Globally, the ‘fintech revolution’ is underway, and is slowly but surely inching towards ‘unbundling’ the bank. While regulators in other countries have largely adopted a wait-and-watch approach towards the fintech disruption; in India, the RBI is attempting to create a space for non-bank and digital companies to compete and collaborate with banks within the differentiated banking framework.

Here are the 10 ways in which I think the fintech-bank ecosystem will play out post-licensing:

1. Universal banks will struggle with complete process revamp, but will focus on digitising the front end

Globally, as well as in India, banks will invest heavily in changing customer perceptions and making front-end technology digital, while continuing with their existing technology largely for back-end processes.

2. E-commerce will shape customer expectations and put pressure on banks to catch up

Consumers are getting used to the high quality of service provided by Indian e-commerce players. Their expectations from the financial sector will be similarly aligned, and they will expect banks to continually improve on convenience.

3. There will be client segmentation at multiple levels

While income predictability will continue to be a key segmentation factor, banks will also start focussing on ‘new customers’, who are unlikely to have steady income streams, but still use technology to power their financial decisions and enhance their life conditions.

4. With greater competition will come greater collaboration

Since customers have multiple financial needs, niche players will look to collaborate with complementary service providers, in order to retain their customers and deliver value for ‘stickiness’.

5. Niche banks may be more transparent and facilitate price discovery

Unlike universal banks, niche banks will not have the ability to cross-subsidise and will need to bring in real value addition to their products, pushing customers to a ‘paid service’ model. This will facilitate price discovery in the market and a more nuanced understanding of customer expectations from banks.

6. The potential for disruption is high

As the market shifts away from rewarding RoE or market capitalisation and moves towards becoming valuation-driven, the potential for fintech companies to disrupt the financial services ecosystem will grow multi-fold.

7. Financial inclusion will be more meaningful under the ‘principal-principal’ collaboration model

The new paradigm under differentiated banking will change the existing ‘principal-agent’ dynamic as the ‘agent’ side acquires greater ability to create products and also greater ‘power’ in the relationship with the ‘principal’. This may finally provide customers with the opportunity to meaningfully access financial services.

8. Banks will be pushed to create real value for customers

It is likely that the fee structure in microcredit and remittance markets will get disrupted and revenues will flatten out quickly. Service providers will then need to think about going beyond servicing the ‘low-value, high-volume’ customer and create real economic value for each customer segment.

9. There will be a steep learning curve in designing efficient risk- and fraud-management techniques

In order to scale up and acquire greater numbers of customers, niche banks will need to move towards identifying consumers digitally and instituting time-efficient, convenient processes. Similarly, fraud management will also need to undergo a radical shift, become less invasive and facilitate faster, smoother transactional experiences, while picking up early warning signs and potential issues to minimise risk.

10. Regulation will need to be differentiated to fit the realities of differentiated banking

The existing guidelines for payments banks and small finance banks are largely drawn from universal bank guidelines. However, differentiated banks will not be able to bear the compliance cost structure of universal banks. As differentiated banks evolve and become more integrated into the formal financial system, regulatory approach may need to similarly evolve and differentiate.

For a more detailed discussion, read my blog on LinkedIn.

The emerging GST sketch

Vivek Mishra, Indirect Tax Leader, PwC India

The Finance Minister of India has reiterated that 1 April 2016 will be the date for implementation of GST in India. The current government seems to be very keen to follow through and there is more visible progress today than there has been in the last several years. The most significant indication being that the constitution amendment bill was passed by the Lok Sabha last week.

Unfortunately for those expecting this speed to be sustained, the bill has been referred to a select committee in the Rajya Sabha. This is not a significant setback in the larger scheme of things.

Without getting into the technicalities of the process required to amend the constitution, I would say that while the implementation of GST by 1 April 2016 seems to be a bit unrealistic, it’s safe to assume that it will happen in the shortest timeframe possible.

Once the constitution has been amended and the GST council has issued a draft GST law, the states will have the liberty to enact their GST laws. It is at this point that there can be a possible delay. It is unlikely that the states will enact a new law till all their officers are reasonably acquainted with it. There is a small body of officers in each state that is extremely familiar with GST, as it has been working with the Empowered Committee for years. However, the majority has been busy administering the current taxes and will require extensive training.

Therefore, it will be difficult for 1 April 2016 to be the final go-live date. This delay may nonetheless be welcomed by most as it will present an opportunity for the industry to prepare for the proposed GST regime better.

Blurred boundaries and an increasingly connected world: Where does the CEO stand?

Arundhati Bhattacharya, Chairperson, State Bank of India

In the beginning of the 1990s, our bipolar world suddenly became unipolar. In the same decade, the internet and the emergence of cellular mobile phone technology such as GSM in Europe, CDMA in the US and their subsequent global adoption, increased the magnitude of people-to-people contact and enabled the expansion of companies across continents. The term ‘global village’ became popular and the global economy surged till it was briefly punctuated by the 2000 Asian crisis.

Then in 2007, the global financial crisis brought entire systems to the brink of a collapse. Today, we can envisage that no country will be a hegemonic power by 2030; the world is already moving to maximal entropy state. The global crisis highlighted the importance of a coordinated international response to such shocks. A panoramic view of the world suggests that it has, at the same time, become flatter and more uneven in the previous 25-odd years.

The two dimensional effects of demography and technology are reshaping the market for the CEO in India as well as abroad. The universal diffusion of technology such as workflow software, internet and mobile, have altered production and cost structures in complex ways. With increased internet penetration as well as the advent of 3G and 4G telecom services, the scope for online retail is exponentially greater.

For India and the Indian corporate, these global value chains offer immense potential in terms of both backward and forward participation. India’s backward participation is currently higher than its forward participation. If technology is changing the production process and making the world flatter, demographics are altering the very organic composition of future demand, making the world more uneven. Pockets such as Japan, Europe and China are rapidly aging while countries such as India, where the population is predominantly young, are poised to reap their demographic dividend.

Are CEOs in India ready? 
I believe they are. PwC India’s CEO Survey report bears testimony to this sentiment.

But do they know which core capabilities they need for a marketplace without boundaries?Demography is a major vector in creating boundaries and a successful product effort must be accompanied by a cost-competitive solution to a set of fully understood customer problems. Talent management by CEOs in India needs to encompass diversity and inclusion issues. This is where we need considerable improvement. Manpower that possesses multidisciplinary skill sets and can seamlessly perform in diverse cultural settings in today’s world without boundaries has to be the top priority.

Today, when I look at the return on equity from the developed countries, I’d much rather choose to be in Bangladesh and Nepal. Groupings are changing and so are geopolitical realities. We are on a much better footing with our neighbours than we were three years ago and they are, in turn, much more comfortable with us. While the world is becoming more uncertain and volatile, it is also better connected than ever before.

The world will become more and more globalised hereon, as it becomes increasingly connected, yet with barriers in different places. It’s time to gear up for the challenges thrown in our wake.


This is an excerpt from her keynote address at the PwC CEO Summit 2015, Mumbai.

Transport infrastructure: Taking India to the global centrestage

Manish Agarwal, Leader, Capital Projects and Infrastructure, PwC India

The macro-medium term outlook for transport infrastructure is positive, with massive investments required globally as well as in India.
According to PwC estimates, the global infrastructure market will double from 4 trillion USD in 2013 to 9 trillion USD and Asia Pacific’s share will increase to 60% by 2025.
PwC’s report, Future of India: The Winning Leap estimates that India needs to grow at the rate of 9% per annum to achieve its development goals. Enabling this will require logistics costs to reduce from 13 to 8% of the GDP. Investments in rail and inland waterways will need to be disproportionately higher than road in order to facilitate this reduction.

However, it is the micro-short term that drives business plans; especially in terms of infrastructure, where the micro picture is considerably different from the macro potential.

After a euphoric rise in investments during 2008-2011, the slowdown in the sector has been equally dramatic. However, in line with several sections of the economy now beginning to look positively towards the future, infrastructure investors are also becoming increasingly optimistic.

We believe the optimism is largely driven by the government’s initiatives to kickstart the construction cycle by increasing public sector spending. For this to sustain, private investments have to make a grand comeback. Initiatives such as rebalancing risks in PPP structures, reforming the regulatory environment and easing dispute resolutions, can make the investment cycle self-sustaining.

Among the world’s 250 largest infrastructure companies, only four are Indian and only two feature in the 100 largest. Given the emerging opportunities within India as well as across the globe, what is it that Indian companies need to do in order to scale up and build capabilities, in order to play on the global stage?

Read the full version here.

Make in India: Delivering the industrial corridors

Manish Agarwal, Leader, Capital Projects and Infrastructure

The fact that India has a large infrastructure gap, which impacts competitiveness of manufacturing in India, is well understood. The financing and institutional capacity constraints imply that expecting a rapid build-up across all areas is unrealistic. Given this, the industrial corridors are essentially a prioritisation programme to leverage agglomeration benefits. Industrial corridors comprise of sets of projects– an industrial park, with access to sufficient utilities (power, water, etc), well connected to markets, ports and airports through road and rail. The limited funding and institutional capacity, if prioritised in this manner, can yield quicker returns (in terms of economic activity), than if the priorities of each ministry are different.

The Delhi-Mumbai Industrial Corridor (DMIC) has envisaged seven such industrial nodes, along the backbone of a Dedicated Freight rail-line (DFC), encompassing seven states. The large market in the north and Nhava-Sheva Port, along with the DFC, are the defining features of DMIC. The Chennai-Bangalore Industrial Corridor (CBIC) has identified three industrial nodes that will leverage the coastline from Chennai to Krishnapatnam in order to ride on the industrial growth in Chennai and Bangalore. The Vizag-Chennai Industrial Corridor (VCIC) will add industrial nodes along the Andhra Pradesh coastline, with land connectivity to India’s interiors and sea connectivity to global production networks in ASEAN. The Mumbai-Bangalore Economic Corridor (through the ecologically sensitive Western Ghats) and the Amritsar-Kolkata Industrial Corridor (through the most populous parts of India) are also in planning stages, along with a few state level initiatives.

Delivering the prioritised sets of projects so as to reap the agglomeration benefits is challenging in the Indian context. Each component has different implementing agencies and competes with several other projects. The National Industrial Corridor Development Authority (NICDA) will have to do the challenging task of coordinating across central and state government agencies in order to give priority to the corridor projects. There are lessons in the Early Bird Projects planned in DMIC, which faced challenges while getting relevant stakeholders on board. Perhaps a corridor projects’ unit in each ministry and state governments is needed. The unit will need adequate institutional capability and empowerment as well as a separate budget. Such dedicated units, in coordination with the NICDA, can provide the priority and impetus needed to be delivered in tandem. Only then can India provide the plug-and-play readiness needed to compete with China, Taiwan or Indonesia and become a preferred manufacturing location.

Click here for a detailed assesment.

The Transfer Pricing side of things

Kunj Vaidya, Transfer Pricing Dispute Resolution Lead

Expectations from the Union Budget 2015 also included citizen aspirations that the nation, in its current state, is not ready to afford. The Finance Minister has effectively laid down all that was attainable and has left the rest to be covered in the years to come. While this gap has not appeased tax pundits, it has managed to resonate with the economists and corporates.

While there may not be any big bang reforms; there are no downsides either. The Budget has focussed on making the mortar run deep in order to facilitate future growth and development. The government has emphasised improvements to tax administration and easing the cost of doing business over short-term fiscal incentives. As for the most litigated tax matter in India, transfer pricing, the following wishes of corporates as highlighted in the recently launched India Transfer Pricing Survey report, remain unanswered:

  • Risk-based selection of cases for TP audit
  • Clarification on the application of economic adjustments
  • Retrospective application of the use of multiple-year data for benchmarking
  • Rationalising requirements under the Companies Act as well as the SEBI Listing Guidelines

That said, the government has deftly kept the promise of Acche Din alive by providing a glimpse of its repertoire. And with stable governance over the next four years, we hope to see tangible results. 

Read our Transfer Pricing Survey report here.

Reinventing modern retail

Rachna Nath, Retail and Consumer Leader, PwC India

For the second year in a row, PwC India, in collaboration with the Retailers’ Association of India (RAI) launched the Total Retail 2015 report titled Retailers and the Age of Disruption. It was launched at the Retail Leadership Summit on 11 February 2015 at the Renaissance Convention Centre, Mumbai.

Part of the PwC Global Total Retail series, our report is based on a worldwide survey that tries to understand and compare shopping behaviours and the use of different retail channels. I am pleased to announce that this year, in an expanded comprehensive survey, we covered more than 19,000 respondents in 19 countries across six continents. In India, our team obtained more than a 1,000 completed responses that have provided data to analyse and evaluate at great depth the changing retail landscape in the country.

The debate around online and offline retailing has taken a new turn. We are now witnessing disruptions driven by companies that are redefining the retail business model. Our report recognises five major waves of disruptions. Although these new strategies have had the retailers and e-tailers scrambling for the top spot, the consumer still emerges as the winner. Be it the discounting war or greater convenience offered by way of faster deliveries, the Indian consumer has never had it better.

From the retailers’ point of view, we have also outlined the future of modern retail. Will we see an amalgamation of the channels or at least collaboration to begin with between the online and offline retailers? Is discounting to win maximum customer share a viable long-term growth strategy? Join the discussion on my blogpost on LinkedIn.

For detailed insights on multichannel retailing 2015, please read our report: Total Retail 2015: Retailers and the Age of Disruption.

Indian manufacturing sector: Optimistic about the future

Bimal Tanna, Leader, Industrial Products, PwC India

The second edition of the FICCI-PwC India Manufacturing Barometer was released by Ajay Shankar, former Member Secretary, National Manufacturing Competitiveness Council, at the FICCI office in New Delhi.

The India Manufacturing Barometer 2014: Turning the Corner delves into the current sentiments of business leaders from the manufacturing sector and explores the factors they perceive will impact their businesses over the next few months and the strategies they expect to employ in order to address barriers to growth in order to make the most of the sector turning the corner.

The Indian manufacturing sector faces a defining moment in its evolutionary path. As the global economy revives, growth rates across several major economies are expected to improve. The new Indian government has also stated its intention to attract manufacturing sector investment through its Make in India campaign.

Overall, there is an increase in the level of optimism and activity as compared to the sentiments captured in the previous edition of the report.

Business leaders in the manufacturing sector are optimistic about performance of their businesses and the sector as a whole over the next 12 months. More than half the companies in the sector expect to plan major investments with research and development, new products or services introduction and facilities expansion being the three priority areas.

Concerns related to raw material and energy costs persist, though domestic demand is less of a worry than last year. Business leaders are looking to the government to rationalise taxes and duties and to invest in infrastructure improvement.

In our view, a series of short- and long-term measures will help take the manufacturing sector to the next level of growth. In the short run, the government needs to streamline regulatory processes and take meaningful confidence-building measures for investors. It has already begun this process through a number of measures aimed at labour reforms. In the long run, a modern set of laws in the areas of taxation, labour, FDI, land acquisition and environment needs to be implemented.

It's time for the biggest change since Independence


Watch some of the biggest names in Indian industry illustrate why it is time for India to take the Winning Leap.





Creating favourable conditions for private sector growth


Watch leaders from across India Inc talk about how the government can facilitate private sector growth and other key issues.


The opinions expressed in the blogs are personal.


Related Posts Plugin for WordPress, Blogger...