Banking in the backwaters

     Print Edition: May 30, 2010

For Tata Research Development and Design Centre, also known as Tata Innovation Labs, a subsidiary of Tata Consultancy Services (TCS), innovation entails meeting a critical need. It sometimes also means adapting a project for a totally different market than it was originally blueprinted for. For instance, how to adapt TCS' core banking solution and banking software, branded BaNCS, with customers across 80 countries, and take this solution directly to millions of unbanked Indians upcountry.

To take on the particularly hairy problem of rural banking, TCS used its robust innovation infrastructure— a combination of internal resources and strategic partners including Tata Group companies and other entities like emerging technology companies, academic institutions and others. It also looked carefully at the needs of the end users and leveraged those insights to design new solutions.

Key Challenge
To create a rural banking model that is viable against the backdrop of low-value transactions and a dispersed population.

Innovation
Branchless banking via cloud computing, which enables sharing of resources, software and information.

For banks, reaching rural India through the traditional branch banking model isn't viable because of the low value of transaction per customer and a dispersed population. There is little experience in managing remote information technology (IT) infrastructure and guaranteeing security and services. From a consumer perspective, the time spent in banking transactions set off against the opportunity cost of lost employment posed challenges to adoption of banking services in rural areas, as also did the habit of storing money at home (typically stuffed into pillow covers or under mattresses).

Still, banks could ill-afford to ignore rural India as it increasingly became a hub of economic activity. Mobile phone and TV penetration is high and rising, has made a number of people "connected" and represented a major opportunity for TCS. But that's only if the IT services major was able to deliver a product or service that is designed specifically for rural banking needs within the cost parameters that would make business and social sense.

The solution: Branchless banking using cloud computing to take banking services to the unbanked. (Cloud computing refers to Internet-based computing where delivery of services is from servers, storage and other resources served from the Web rather than on-premise assets.) TCS' financial solutions business unit had pioneered banking automation and branchless banking in India. State Bank of India was its biggest success story.

The company had an understanding of the challenges and needs of Regional Rural Banks and cooperative banks. TCS recognised that the branchless banking solution could not just be technology-driven, but ecosystem-driven, by which the products and services offered are meaningful and addresses the needs and concerns of the customer segment. For example, how does one enable repayments on a micro loan whenever the consumer wants it rather than only when an agent of the bank visits?

TCS leveraged cloud computing to take on the challenge. Today, it has 60-70 rural banks using its offerings connecting more than a 1,000 branches. Typically, a bank would be able to connect 20-30 branches in a 200-mile radius. Shared resources, software and information were provided to computers and other devices on demand. A bank's operational data could be transferred to a cloud (a server that customers and branches can connect to through the net), enabling banks to offer basic banking facilities on mobile, Internet-enabled computers and other devices.

Ease of configuration and elimination of regular maintenance helped greatly reduce the IT overheads required to get onto the platform. Granular or payper-use pricing models enabled the banks to manage the capital expenditure to operating expenditure ratio of IT investments. Banks are able to integrate with this platform rapidly (within 2-3 weeks), thereby effectively overcoming their primary barrier to adoption—their limited exposure to technology.

In a recent white paper on cloud computing, TCS' Chief Technology Officer, K. Ananth Krishnan, Vice President of the TCS Innovation Labs, Harrick Vin, and leader of the cloud computing initiative, V. Srinivasa Raghavan, wrote: "Cloud computing will prove very attractive to the enterprise IT world and specifically to IT service providers. TCS firmly believes that the business models will prove to be potentially disruptive." It is already proving its words true in banking. Ananth Krishnan told Business Today that the company is pondering whether to extend the cloud route of roll out of services to mid-sized banks, too.

And, the rural customer—how is he served? The branchless solution has a smart card or a debit card given to the account holder, containing his personal information, and a biometric handheld device operated by the bank's agents. The handheld device is small enough to carry around and has the memory and battery power to capture a full day's work. This would enable electronic financial transactions as well as full integration and seamless experience of using the mobile phone as a device for business transactions.

TCS Innovation Labs is also testing banking via a television set-top box so that TV users (and penetration of TVs is significantly higher than of computers in rural India) will get the experience of Internet banking without access to computers, but with the help of a more familiar user interface that doesn't require Internet fluency.

MONITOR'S TEN TYPES OF INNOVATIONTM FRAMEWORK: TCS

1. Networking: Leveraging different innovation capabilities existing within Tata Group and TCS co-innovation partners.

2. Core Process: The core banking platform, which is built in a manner that allows "on-the-fly" configurability bringing down both time and effort, addresses the critical adoption constraints of these smaller banks. Another option is a handheld device, which enables banks to offer services in a remote environment without electricity and telecommunication links.

3. Product Performance: Changes the price/performance paradigm for a core banking solution. Will enable branchless banking in rural India with substantial lower capex or opex for Regional Rural Banks as compared to traditional offerings.

4. Service: Facilitates rapid integration of the platform with RRBs.

5. Customer Experience: Provides the bank a relatively simple and hassle-free experience in implementing an automated solution.

Organisations that achieve breakthrough innovation usually cover at least 3-4 types of innovation included in the framework. TCS fulfils five.

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