Does banking need a more humane touch?

The only silver lining from Covid-19 is the chance for all of us to reset our lives, our social structures, and our businesses. Some implications are very clear. First, digitisation and digital adoption has significantly accelerated. Second, customer expectations have changed across the board. We now demand a different level of intimacy, customisation, and ease of use—and this will not revert in a new normal.

Now, financial services face some unique challenges. The need for good risk management often prevents the provision of credit to those who most need it and banks are unwilling to lend in times of crises. But, banks are changing around the world. Today 49% of total worldwide financial assets are held by non-bank players. In 2007, 80% of U.S. mortgages were originated by banks, today that is down to less than 50%. This is not just due to regulatory arbitrage—but also the fact that many incumbent banks have not innovated and changed fast enough—and other players are stepping up.

A makeover for banking?

In India, despite significant progress, financial inclusion remains low. And while some of this gap is being filled by both fast-moving public sector banks, like SBI, or private sector banks and fintechs/NBFCs, a resurgent India needs many more players and far greater innovation. It is a rare industry which has the luxury of telling its customers to wait in line to be served, and visiting a bank is usually an unfriendly experience. We should grab this opportunity to change.

There are so many ways to differentiate. A few examples: To begin with, let’s make financial products truly customer-friendly. Financial needs don’t always come in neat bundles like working capital or term loans. Small businesses face many different needs related to their supply chains, inventories, infrastructure, and employees. And their ability to repay varies from month to month, season to season, and not in those precise monthly instalments that we demand. Why can’t we design our financial products like any other service—available and repayable any time—on demand?

The entire branch experience needs to be transformed. Imagine if a bank branch was like an Apple Store and able to provide that kind of experience. Why does walking into a branch have to be intimidating and not a wonderful experience? The concept of customer service could change radically—in line with many online companies—that forego costs for great customer experience.

Quest for the holy grail

Financial products must also be expanded significantly to cover our life cycles. The huge demand for payday loans that have mushroomed demonstrates that people will pay for speed and flexibility. Consumers should be able to meet their financial needs as they grow and scale—be it education, holidays, weddings, medical expenses, or anything. Someone somewhere should be ready to lend for these purposes—and at a price.

And finally, we have to work towards that Holy Grail: of being able to lend to India’s unorganised sector, which represents the vast majority. This will be driven by using surrogate data, and whoever cracks this code through advanced modelling and A.I. will be sitting on a gold mine. India needs this desperately to help its MSMEs and young entrepreneurs grow. We are the third-largest startup nation in the world. But we need financing to make this movement explode across the country. This way, we will create the jobs we need.

Predictions of the death of traditional banks are vastly overblown. Many have digitised quickly and embraced technology, and are smart and very well run, and have strong risk management systems which new incumbents forget. But mediocrity can sometimes last forever. A resurgent India needs many new players and massive innovation. We should grab this opportunity.

Views are personal. The author is chairman, Clix Capital.

(This article appeared in Fortune India's January 2021 issue.)