Technology, when introduced in a business environment, is often disruptive. It challenges current operation processes, forces change in the organization to adapt to which there is resistance that has to be overcome. In a business environment like banking that has both public and internal stakeholders, technology-induced change is more disruptive. As long as this leads to improved customer service, the disruption is welcomed.

The first time around when IT was introduced in Banks in India, the move faced great resistance from the all-powerful Bank staff unions. The fears of the Unions got assuaged overtime and Core Banking Solutions that automated key banking internal and retail operations were successfully implemented. This leads to improved efficiency and customer services in Banks.

Banking in India, in the meanwhile, has become more and more complex. New customer services like wealth management, financial inclusion, mobile banking, international banking, money laundering tracking systems, bigger and more extensive retail and corporate lending programs, due diligence, regulatory, and risk compliances have made banking more complex.

New technologies and management practices have been deployed to service these new requirements. Vendors and innovators have measured up to these new tasks and successfully implemented new solutions.

Each complexity in banking requires a different approach. A one size fit model and a universal vendor who can support Bank IT operations are becoming increasingly more and more difficult. The Indian banking system has some unique features that are not seen in developed mature markets of the world where the top IT vendors are focused and from where they are getting most of their revenues.

Financial inclusion is one such India specific feature. This is both a social and political imperative. While priority lending directed towards farmers has always been a regulatory requirement for Public sector banks in particular and others in general, financial inclusion is much more inclusive.

Through its flagship and revolutionary Aadhar unique identification program, the government is seeking to gradually push all subsidies and payments electronically to citizens. This requires the extension of banking services to hitherto unbanked areas of the country. Given the size of the country, the costs of doing this by traditional means are prohibitive. Technology is the only option available.

Previous efforts in financial inclusion have given indifferent results. Some of the challenges to financial inclusion are:

The business case to provide financial inclusion services is not very strong

Technology challenges

Financial services aimed to provide universal coverage to all citizens especially the poorest is being aggressively pushed. As a result, a range of new technologies has come into play. The mobile revolution, local cost rural ATMs, last-mile connectivity issues, very small transaction size, numerous transactions spread across comparatively large geographies, targeting and servicing the new, less literate or illiterate customers are some technology and business challenges that are to be overcome. The latest and perhaps the most ambitious of government initiative in making direct to customer transfer using the Aadhar identification database has given further urgency to efforts to deploy effective technology in Banks.

Technology companies with great application and banking capability did not find participating in the financial inclusion servicing contracts attractive enough. Technology skills, applications, networks, last-mile connectivity solutions capability is not enough. Last-mile outreach capability was critical. The existing Business Correspondent grass-root customer interface component needs to become much more efficient than earlier. The customer base that is required to be serviced via the Aadhar platform has suddenly exponentially increased. Most top of the line Banking solution providers continues to be reluctant to participate in Financial inclusion contracts. The existing contract conditions are weighted too much against the service provider. The entire financial inclusion risk is passed on to the provider. Bank management needs to take a fresh look at the model contract documents and make them more balanced. Financial inclusion solutions and implementation require the vendors to possess the technical, business, social capability along with financial depth.

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Sudhirahluwalia, Inc