Digitizing Banking

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Information Technology is emerging as a huge change-maker in how people deposit, save, dispense and spend their hard-earned money. It has reduced costs for the banks and made the process automatic, fast and transparent. While J&K is almost inches away from having nearly half of the total transactions through automated systems, the new generation banking may need more people on the street than in a branch, reports Masood Hussain

People going to shrine of Dastgir Sahab in Srinagar might have seen a POS (point of sale) machine with a Wakf employee. While devotees traditionally bring in their contributions in kind and cash, the possibility is that a section of them may be carrying cards only. They can swap the card, take a receipt and make a donation. It is more transparent now and lands directly in the shrine account unlike the chicken, goats and the sacks of rice.

This is just a glimpse of the future of money movement. By early 2018, with Aadhaar identities being linked with the bank accounts across India, the ongoing movement of digitizing money matters will become a reality. J&K, by the end of Q1 of 2017 had 40 per cent of the 9012935 saving accounts linked with Aadhaar and 72 per cent with cell phones. Now it has moved a lot beyond. Now plastic cards will swap and money will be transacted. With the internet and the cell phone playing the key bridging role, the integrated systems linking the business, the banker and the customer will have a different experience of earning and spending in coming days. And stay assured, the systems will know where one earns and where the earnings go.

“It must be surprising to you that now more than 48 per cent transactions in our banks in J&K are not physical,” a senior executive of the J&K Bank said. “Clients use our diverse automated platforms to withdraw cash or transfer it.” Private sector HDFC bank that has its foundations on the IT from the outset has 80 per cent transactions through automated systems.

J&K’s merely makes one per cent of India’s population but the way it has accepted the IT systems, it is emerging distinct demography. In 2011, Census Organisation put the total population at 12.5 million. By December 2018, mobile penetration was more than 1023729GSM cell phones operated in the state. For every 100 people, Telecom Regulatory Authority of India (TRAI) statistics suggest, there are 109.19 phones. There are 13.84 million phone subscribers in Jammu and Kashmir which means it has crossed the number of people living in the state, according to TRAI that has numbers to suggest that Jammu and Kashmir hold 1.14per cent share in India’s total subscriber base.

Adapting to fast-moving technological tools has emerged as a major advantage to the banks operating in the state. Surveys suggest that eighty per cent of the population is bankable and tech-savvy too. JK Bank alone has five million-plus cards in the market.

J&K Bank controls almost two-thirds of the banking business in the state. Introducing new age banking by getting the first ATM to Srinagar goes to its credit. Its footprints remained modest.

In contrast, the HDFC Bank, the first private sector second generation bank, came with a full basket of digital solutions. Relying heavily on the centralized setup, it started catering to the new-age customer base.

J&K Bank took its own time to invest resources and energy in the game-changing future. But once it decided, it happened. The reason: it has a mass base and its clientele is all-inclusive.

“For years, we were working with quite a few POS machines and now we have deployed 12500 and these work far away from Srinagar too,” one executive said. “We believe the market still requires many thousands more because the entire market is changing.” Though the market has the capacity the market slump is preventing additional deployments. Geographic monopoly is helping the J&K Bank: if consumers’ cards and POS machines belong to the same provider, the merchant will have much-reduced costs.

Cards and Machines

Given the fact that the markets are changing, cards play a key role. They are the real currency, operating between the ATMs, POS machines and the on-line virtual shopping malls. While Debit Cards (usually referred to as ATM cards) withdraw cash from the account or pay for the purchases, the Credit Cards are billed once the purchases are over. Since all the banks have both the facilities, it is really difficult to offer even an idea of the numbers operating in the state. Give the tourist importance and strategic location of J&K, massive floating populations make it all the more difficult to assess the cards in operation at a particular point of time. “It is safe to say that more than six million cards are in operation in the state from all banks,” one nationalised bank executive said. “Possessions could be huge but this number must be active and operational with the entire banking sector.”

J&K has a vast network of ATMs which include 1217 of J&K Bank, 220 from HDFC bank and almost every other bank has its own network. The overall number could is above 4000.

JK Bank is the leading bank so it will have the highest number of debit cards: slightly more than 32 lakh. While this number has covered almost sixty per cent of the accounts, by and large, 75 per cent cards are invariably in use. “Of 25 million transactions in a month, six million are through debit cards,” one executive who oversees the digital operations of the bank said. “By an average more than Rs 2000 crore is being dispensed through debit cards a month and every month Rs 35 crore transactions take place through our POS machines using the Credit cards.”

The bank has recently started giving due attention to the Credit Card. Against merely 40 thousand cards for around two decades, it has now almost more than 150 thousand cards. Earlier, the credit card would go to a willing lot, educated, employed and must have a better credit history. Now, the market is changing, quite fast so the processes are less discriminating. Now people into agriculture sector also carry credit cards and use them.

“Most of the cards are still in various phases of distribution so the real change-making evaluation will take a bit of time. Right now, J&K bank has a yearly transaction of around Rs 271 crore using the credit cards.

In comparison, HDFC Bank and other second-generation banks have a steady business from the cards. HDFC bank has around 60 thousand dedicated credit card holders and it is distributing around 5000 fresh cards (mostly Debit) every month.

Default in credit card billing is almost half of the national average which is 18%. It is for all banks.

Apart from seeking and paying cash, cards play a key role in purchases, paying bills and fees. So the POS machine is key to the merchant banking. A few years back, HDFC Bank was a major player because its emphasis was on digital technologies. By the end of December 2015, J&K Bank had only 6100 POS machines in the market. Later, it added many thousands.

Mere numbers have triggered a major shift. While POS was essentially an urban specific facility, it has started moving to the periphery. “Right now when almost seventy per cent of the POS machines are still deployed in the cities of Srinagar and Jammu, the balance thirty per cent have moved to the peri-urban and rural market. This might not make a change but it will start changing.”

“Unlike other banks, we have a social commitment. We gave machines free of cost to the Municipality, to the Power Development Department and to various shrines where people donate,” one executive said. “While we are already in the market, availability of this facility at the utility level will make it popular.”

There is still a lot of room for deploying many thousand machines more but the problem is the markets are not looking good. The slump that coincided with the demonetisation is still intact and has actually been cemented by the adverse impact of the GST rollout. Kashmir markets were already under stress post-2014 floods and failure of tourist season in 2016 and 2017. Right now, JK Bank officials said their machines do almost three lakh transactions valuing at around Rs 100 crore, every month.

On POS machine front, there are not many players. With HDFC having 5456 POS terminals, SBI and other second-generation banks have not more than 1000 POS machines deployed in the state.

With a new scheme, NABARD is offering 60 per cent of the machine costs to take POS terminals to the bigger villages. The banking sector has identified 6311 villages for installation of as many as 12522 machines in coming days.

Mobile and the Internet

With the cell phone getting smarter on a daily basis, the mobile is the major player on the internet. While demonetisation made digital wallets like PayTM very popular, all banks subsequently created their own basket full of apps that clients are supposed to download and use. The new generation is mostly attracted to these applications in comparison to the elders who are loyal to traditional methods of transactions.

On the mobile banking front, one senior JK Bank executive said, they have two apps: Mpay and JkbBhim. “Despite internet shutdown and critical speed issues, we have half a million mobile users,” the executive said. “These apps help our clients to pay their bills, transfer cash and are in vogue even in the periphery.”

Right now only two lakh customers actively use the facility and that is because of the limitations of total value they transact. “We are taking the daily transaction from Rs 50,000 to Rs 2 lakh which will attract bigger clients,” the executive said. “We are adding the facility of virtual private address and the collect requests as well.”

This is in addition to the phone banking that banks adopted much earlier. Aimed at reducing footfalls, the customers call specific numbers to make special requests. “Earlier we used to get 400 calls a day and now we get more than 7000 calls,” one JK Bank executive said.

With 4G around, the customers are managing their bank accounts directly. “Non-financial services apart, transactions through internet banking are up and increasing,” an executive in JK Bank said. “We have moved from 116 thousand users to 335 thousand users now managing more than nine lakh accounts from their offices.” Disbursements are up: Rs 1169 crore in retail and Rs 6000 crore by 578 corporate, every month. The bank has provided internet payment gateway to 70 major customers including 27 institutions.

This is in addition to the direct benefit transfer system (DBTS) which has huge emphasis by the government, in Delhi and in Srinagar. State’s cause of urgency is the central government’s decision that in case benefits under various central sponsored schemes are not going through electronic benefit transfer (EBT) system, funding to the state will be closed. By the end of March 2017, more than 110 thousand accounts were created and validated under EBS, mostly by the J&K Bank that has twin systems in place.

(Part of the data used in this reports is from 2017 summer)

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