India on its way to digitisation

Mumbai :The India financial landscape has gone through massive changes over the past year, as major reforms such as demonetisation (wherein 86% of the currency notes in circulation were termed invalid overnight) and the introduction of a singular indirect tax called Goods and Service Tax, GST, throughout the country, have pole-vaulted digitisation of the financial economy. GST will enforce commercial entities across the economy to embrace digitisation. This opportunity will enable the banks to offer end to end digital solutions for industrial supply chains with payment, ordering, financing and reconciliation facilities.

As a result, digital payments in India boomed as India is aiming to adopt a cashless way of life and the government is encouraging people to adopt mobile banking and app-based banking through digital wallets, leveraging the existing infrastructures of NPCI, e-KYC, AADHAR, and Jan Dhan accounts. Innovative means of getting the entire nation to bank the e-way are being devised. The NPCI has set a target to touch every Indian with electronic products by 2020. Today there are 560 million unique clients who have joined the digital wave and this would grow with the banks drive to link accounts with AADHAR.

The regulator itself is spearheading innovation, with a common interface between the Reserve Bank of India and NPCI and innovation in the space is driven by NPCI. “Who could have ever thought that Mastercard and Visa could come together on a single platform with NPCI. The aggregation has helped. Frictionless payments can be linked to the Smart City project wherein AADHAR finger print can be used to board an airline, collect payments, etc,” suggested Kaku Nakhate, President & Country Head – India, Bank of America.

But if all these efforts can help India stand out when it comes to digitisation, major challenges do remain in a country where 88% of the population does not speak English and keeps higher confidence in tangible, hard cash.

India’s aggregate trade value is sizeable and has significant potential to grow further. Trade Finance would highly gain from further digitisation. Currently, India clocks a total trade value exceeding $2 trillion, of which $0.9 trillion is foreign trade. Ease of trade is a key driver of ease of doing business and India is clearly lagging behind with large margins as it only ranks 143 when it comes to trading across borders and stands in the 130th position as per the World Bank Ease of Doing Business rankings. Typically, Indian trade is confronted to 10x-25x longer trade time and costs 3-5x times higher than OECD nations.

Introduction of GST offers major opportunity to pick up overall trade digitisation. Digitisation is expected to help the country boost its exports by 5-8%. “A 10% improvement in efficiencies could yield ~$5 billion in logistics cost savings each year,” states the SWIFT-Boston Consulting Group discussion paper titled “Digital Commercial Supply Chains and Trade,” which was launched at the SWIFT India and Subcontinents Regional Conference.

Bank’s Trade processing platforms need to be enhanced through digital innovation involving end to end customer journey for trade.

Digitisation would not only fasten the movement of goods, documents and funds, but also help lenders make an informed credit decision as data would be easily available and supply chain timelines shrink. Initiatives like SWIFT gpi are also expected to further assist Indian corporates grow their overseas business by enabling them to receive enhanced payments service directly from their banks, making funds available for use on the same day, giving transparency on fees and offering end-to-end tracking of funds in real-time.

India is a major market when it comes to securities. With two equity exchanges and three commodity exchanges, it has the widest number of stocks listed, 42 stock brokers, 8-10 registrars, 2 custodians and 2 depositories. But the market still pays the price of its lack of standardisation and automation. Different data structure of the depositories, different ledger accounts for the two exchanges and an absence of standardised codes followed by asset managers are responsible for this lack of efficiency. On boarding of customers too is a hassle in both the securities and asset management spaces as regulation needs further rationalisation.

Current systems do not allow front-to-back office integration and straight-through-processing (STP) as systems don’t talk to each other and require manual intervention. Furthermore the lack of standardisation and automation is hindering the possibility of having a single view of end of day account balances. India’s market participants are ready to adopt automation but the securities market is still awaiting its Jan Dhan moment, that would allow encourage increase standardisation.

Digitisation is drastically improving customer experience, for banking, trade finance and securities. But as technology improves and proliferates, risks too are multiplying and financial institutions need to have the right systems in place to avoid unauthorised infiltration. Banks in India have been racing to digitise internal processes and offer new digital propositions to their customers. Banks have also forayed into uncharted territories such as blockchain and bitcoin. However more digital assets and new technologies means greater complexity for the banks IT systems and greater demand from cybersecurity framework for banks. The cyberattacks on the financial institutions’ environments serve as a wake-up call to industry to be more vigilant and proactive in adopting advanced cybersecurity framework. According to World Economic Forum Kaplan, Beyond Cybersecurity, 2015; there is $ 3 trillion of economic value at risk by 2020. Hence, the cyber response must evolve from control to resilience.Frauds are getting more complex and sophisticated than they were in the past. More than just a technology issue, cybercrime has to be seen from a people, processes, procedures, checks point of view. The response to these everpressing threats can only be collective, sharing information among the global financial community as mandated by SWIFT’s Customer Security Programme. The Security framework is designed to mitigate business risk drivers, control objectives with implementation guidelines and compliance measured based on customers own control designs.