1.
Nandan Nilekani, 2016
Indian Banking
in a time of change
1

2.
Nandan Nilekani, 2016 2
12 Trends that will shape the future of banking

3.
1 Transactions: Low Volume, High Value, High Cost to
High Volume, Low Value, Low Cost

4.
Nandan Nilekani, 2016 4
Average transaction sizes
Cheque: Rs 75,000
ECS: Rs 7,500
IMPS: Rs 8000
Credit Card Usage at POS: Rs 3000
Debit Card Usage at POS: Rs 1200
Mobile Wallet Usage: Rs 300-500
Mobile recharge: Rs 30
Source: Analysis of data from http://www.rbi.org.in, conversations

5.
Nandan Nilekani, 2016
Electronic clearing has surpassed paper clearing!
Electronic clearing (ECS, NACH,
IMPS, etc.) is growing at
50% per year.
In Q1 2015, it surpassed
paper clearing (Cheques).
Source: Analysis of data from http://www.rbi.org.in
5
RsTrillionPerQuarter

6.
Nandan Nilekani, 2016
IMPS volumes are higher than debit cards!
Source: Analysis of data from http://www.rbi.org.in 6
RsBillionPerQuarter

7.
Nandan Nilekani, 2016 7
The move from High Value Low Volume transactions to Low Value High Volume
transactions will be accompanied by lower transactions costs, and will align
market forces (customer acquisition) with social purpose (inclusion).
7

8.
2 Credentials: From proprietary to open

9.
Nandan Nilekani, 2016 9
Credentials moving from ‘proprietary’ (card + PIN
both managed by bank)
to ‘public’( Mobile phone + Aadhaar
authentication )
The phone will replace the card as the ‘What you Have’ authentication factor
Nandan Nilekani, 2016

10.
Nandan Nilekani, 2016 10
Smartphones with integrated
Aadhaar compliant Iris
recognition available for
commercial use!
Biometric smart phones enable 1-click 2-factor authentication
Nandan Nilekani, 2016

11.
3 Switching costs are going down!

12.
12Nandan Nilekani, 2016
80% of telephones have a dual sim
There is no user cost for switching a sim
Only 1 in 20new connections sold
results in a new user! The rest is churn!

13.
13
Churn will Increase
Deposits can be moved easily
Deposits Liabilities Payments
it should be possible to switch my
loan with a click.
Payments are interoperable
Nandan Nilekani, 2016
Lower Onboarding, Transaction
Costs
No Switch Costs
to User

14.
4Lending: from uniform lending rates to individual pricing of risk

15.
Nandan Nilekani, 2016 15Nandan Nilekani, 2016
Lending changing from uniform lending
ratesto individual pricing of risk
based on digital footprints.
With data from credit bureaubeing enhanced
with data from social media, mobile,
web, and other sourcesthat have more
data points than a thin credit report.

16.
Nandan Nilekani, 2016
From secured lending against assets
to lending against flowswhich lead to a better risk
assessment, based on a complete pictureof the
business, Lending basis Transaction data and Bank statement
analysis
Enables a transition from informal assets into the formal
economy.
16Nandan Nilekani, 2016

17.
5Business: From fee income to data

18.
Nandan Nilekani, 2016 18
Changing business models
Google’s software
is free, they use
data to sell Ads.
Microsoft
Sold Software

19.
Nandan Nilekani, 2016 19
Changing business models
Fintech companies will go to Free, using the data
generated to add value to their operations.
Banks rely on
Fee income.

20.
6PSU Banks - Shrinking Market Share

21.
Nandan Nilekani, 2016
Telecom PSUs lost 70% market share in 12 years
21
Telecom PSUs unable to
retain market share with
introduction of new
technology (Mobile
telephones)
PSUMarketShare(%)
Source: Analysis of data from http://www.trai.gov.in

22.
Nandan Nilekani, 2016
National airlines loss in market share
22
National Carriers lost
25%market share in
4 years
NationalCarrier
MarketShare(%)
Source: Analysis of data from http://dgca.gov..in

23.
Nandan Nilekani, 2016
PSU Banks are already losing market share
23
Source: http://www.rbi.org.in
Will the change in banking
landscape accelerate this
decline?

24.
Nandan Nilekani, 2016
Top 4 Pvt. BanksSBI
Market Capitalization - Also shrinking
24
180K Cr170K Cr
All Other PSU
Banks
Bajaj
Finance
Bajaj Finance 40K Cr > Any non-SBI PSU bank
Source: http://moneycontrol.com, as of 23rd June 2016
700K Cr
HDFC
300K Cr

25.
Nandan Nilekani, 2016
Shrinking public sector market
share is de facto privatization -
Govt. losing opportunity to make
billions of dollars of market
capitalization.
25

26.
7Merchant Models: Ready for Disruption

27.
Nandan Nilekani, 2016 27
Current merchant model
(Cards, POS, high interest on unpaid balance,
MDR for merchants ,limited outlets)
will be completely disrupted
Nandan Nilekani, 2016

28.
Nandan Nilekani, 2016 28
Cards will go as with mobile payments
Smartphones on both sides will replace POS and card
Merchant on boarding will be self-service
Universal Payment is a tipping point.
New Customer / Merchant Bundles will be created
Transaction fees will tend downwards to zero
Informal economy supplier credit will unbundle

29.
8Cashless changes everything

30.
Nandan Nilekani, 2016 30
Bank
Branches
Cash
Withdrawal
Formalization
of the
Economy
Old assets Tax
collections
Cash collection
centers become less
valuable.
Merchant current
account balances
may be impacted.
Everyone is an ATM!
The smartphone is
the bank
Self service is the
norm
Benefit and
convenience of
being in the formal
system outweighs
the alternative.
Customer ownership
based on branches,
ATMs, will be
replaced by New
assets - phone,
platforms, data,
algorithms, etc.
Tax collections etc.
will go up
Cashless implications

31.
9Interest Rates Will Converge

32.
Nandan Nilekani, 2016
25%
400-5000%
annually
1-5%
per day
Interest rates will converge
32
Today it may vary from some 9%
annually for some loans to 5% a day
from a money lender.
Easier access to formal credit will
eliminate the 'informal' systems
leading to massive economic
efficiencies.
9%
9-25%
per day
InformalBanks MFI
Nandan Nilekani, 2016

33.
10 Jan Dhan - Aadhaar - Mobile

34.
Pradhan Mantri Jan Dhan Yojana
BANKING FOR ALL
34Source: As on 2 Aug 2016, http://pmjdy.gov.in

35.
1 Billion in 5½ Years
Source: Data from http://www.uidai.gov.in 35
950 M
600 M
300 M
100 M
50 M
1038 M
A Ubiquitous Digital
Identity Infrastructure
for a digital desh.
The Aadhaar system can
authenticate 100 M
transactions per day, in
real time!

36.
The rise of smartphones
Current sales
about 25M
smartphones
per quarter
Source: Ericsson Mobility Report 36Nandan Nilekani, 2016

37.
1969 1980 1993 2001 2014 2015 2016
Ushering in a new ERA
of DIFFERENTIATED
BANKING
+2149 Years, 14 New Banks
BANK
NATIONALIZATION
New Banks
On Tap
Banking Licenses
+14
+6
+10
+2 +2
Accelerated by regulatory innovation
2nd Aug 2016

38.
11The Emergence of the India Stack

39.
Evolution of the India Stack - Built on JAM
39
2010 2011 2012 2013 2014 2015 2016
950 M
1005 M
190 M
Aadhaar
Mobile
JDY
2009
944 M
600 M
100 M
Source: Ericsson Mobility Report, PMJDY, Aadhaar Web Sites
AEPS
APB
Aadhaar
Authentication
Aadhaar
eKyc
eSign
UPI
Consent
Architecture
Digilocker
1+ B
1+ B
250+ M

40.
40
PRESENCE-LESS LAYER Aadhaar Authentication
Unique digital biometric identity
with open access of nearly a Billion
users
CONSENT LAYER Open Personal Data Store
Provides a modern privacy data
sharing framework
PAPERLESS LAYER
Aadhaar e-KYC,
E-sign, Digital Locker
Rapidly growing base of paperless
systems with billions of artifacts
CASHLESS LAYER IMPS, AEPS, APB, and UPI
Game changing electronic payment
systems and transition to cashless
economy
COMMERCE
(GSTn)
CREDIT
(RBI)
INVESTMENTS
(SEBI)
OTHERS
INDIASTACK
SKILLS
JAM Jan Dhan, Aadhaar, Mobile

41.
Aligns market goals with
social goals
No physical presence required
(reduces more costs)
Increases trust - allows a new
business architecture to emerge
Broad based, ubiquitous, inclusive
platform
Cuts Onboarding Costs
Cuts Transaction Costs
Allows Innovation
Why is the India Stack disruptive?
41

42.
12India Will Be Data Rich

43.
43
Mobile phones are the first 'Universal' product
5.2 Billion people have a mobile phone
Source: ben-evans.com Nandan Nilekani, 2016

44.
Internet penetration is increasing!
44
With 331Minternet
users, India is now the
second largest internet
market, ahead of the
USA!
Source: www.trai.gov.in
Internetusers(per100people)
Nandan Nilekani, 2016

45.
With smartphones, the country is going digital!
45

46.
46
Digital usage leave footprints, which feed new age services, ...
Over 30 data sources available to any app
through the Android permission system
Personalized services such as
news feeds, search, commerce, etc.

47.
47
Machine learning
algorithms are
improving!

48.
Nandan Nilekani, 2016 48
India will go from data poor to data rich nation in 5 Years!
Digital
Identity
Paperless
Process
Commerce
Payment
Social
Machine Learning
& Algorithms

49.
Data flows tracked digitally, providing
traceability
Quickly identify fraud, take early
action. Reduced data leakage,
improved security and privacy
Allows more data sources to be used
for lending decisions
Stronger underwriting, less
likelihood for loan defaults
Consent tokens are shared, not credentials
Reduced potential for misuse, leading
to improved security and privacy
Real Identity is verified in the process
Reduces potential fraud, and
improves the effectiveness of
credit bureaus.
Purely digital process
Instant monitoring, and reporting,
improved transparency. Regulator can
monitor defaults, risks, fraud
Electronic consent architecture
will boost data economy
49

50.
Nandan Nilekani, 2016
Impact of Trends
50

51.
Bank As A Platform
51

52.
The Bank as a new age digital platform
Customers
Platform
Service Providers
52
Product Providers
Vendors Partners
Bank provides a platform for financial transactions
Platform services include
Customer Profile
Ledger / Book Keeping
Personal Finance Management
Advisory Services
Wealth Management
Bouquet of Financial products
Own
Partners
Transactions leave digital footprints, which enrich
the customer profile!

53.
Initial
Onboarding
Simple,
Compliant,
Paperless
Digitize
Transactions
Enrich
Customer
Profile
Offer the
right product
Yours, or a
Partner's
53
Targeting
Basic research
for target
customer
Know Your Customer - Really!

54.
Every transaction gives the
platform more data about the
customer, allowing him to be
served better. This will increase
stickiness, and avoid churn
54

55.
Alternate Savings Products
55

56.
Savings - The changing scenario
56
Previously
Pool of cheap capital Now
Competition
Will Lead to
CASA used to get a large pool of
cheap capital
Accounts are easier to open, and
to move money
Interest rate deregulated
Banks competing to raise deposits
Bank account churn

57.
What Is Alternate Savings
Low Risk
Customer cannot lose money on a
savings product
Marked to Market Higher Interest Rate
Lower opex, Innovation - backed by liquid
mutual funds
Highly Liquid Products (Not always)
People can move money in and out easily
No lock in
₹
57

58.
Alternate Savings Products
58
Grounded in
behavior.
Gamified Products
Life events - marriage,
children's education
A vehicle purchase
A house purchase
Goal Directed Savings Hybrid products
Custom Credit /
Savings product based
on a farmer's annual
financial journey

59.
More Alternate Savings Products
59
Retirement Plans
Annuities
Insurance
Long Term Products
Save as little as a
few rupees a day
Micro Pensions Investment
Products
(May have risk)

60.
Alternate Lending Products
60

61.
India faces a massive credit gap
61
Most households cannot borrow easily Over 20 trillion credit gap for MSMEs
Source: World Bank Findex, IFC/Intellecap

62.
No Credible Data
Servicing Cost
Sales Cost
In today’s model, Rajni can never get a loan!
Customers with
the lowest
default rates
have the
highest interest
rates

63.
63
Surge in alternate FinTech lenders
# of new alt lenders, by founding year

64.
Alt
Lender
Traditional
lender
Origination & Underwriting
Expected additional
savings of 60%
Risk costs
Limited savings as original
savings from data analytics
Loan Servicing
15% of overall costs
Expected savings of 50%
Collection
Over 10% of overall costs
Expected savings of 30%
Alternate lenders - dramatically lower costs!
Costs
New Entrant
on India
Stack

65.
Consumer
Loans
Business
Loans
Alternate
Lending
POINT OF SALE
B2C MARKETPLACE
P2P MARKETPLACE
RECEIVABLES LOAN
TERM LOANS
LINE OF CREDIT
New entrants bring point solutions

66.
Nandan Nilekani, 2016
Lending has grown at
15% CAGR in last 7
years.
Expected to grow 5x
in next 10 years.
66
Lending is set to grow
FY09 FY16 FY26E
15% CAGR
5x in 10 years
Source: Company data, Credit Suisse Estimates

67.
Owning The Payments Inbox
67

68.
Validation & Assurance
Virtual Payment Address
Minimal Issuer/Acquirer Cost
Ubiquitous - Bank accounts
Easy Immediate Payments
Timely Notification
UPI - Unbundling payments
Push & Pull Payments
@Every one with a bank account can send
money to any bank account in India!
Real-time posting
Funds are not locked!
Immediate notifications of
the payment made
Payments can be initiated by payer or payee.
Real-time validation of the
account and balance
No need to disclose account information.
Allows account portability, enhances privacy.
Smartphone replaces card and
PoS machine!!
68

69.
Merchant enablement
69
Use India Stack for paperless, self-service
merchant on-boarding
Merchant can initiate both PULL and PUSH
transactions
Merchants with a UPI enabled app can accept
ALL customers
Low transaction costs
69
Proximity payments using ANY transmission
protocol including dynamic/static QR codes

70.
Disruption waiting to happen
70

71.
Nandan Nilekani, 2016
CustomerEngagement
Profitability
Cash
Management
Remittance
Insurance
Distribution
Fixed Deposits
Bill Payment
Savings Account
POS Terminals
Current Account
Credit Cards
Source: Company data, Credit Suisse Estimates
MFs
All banking products will be disrupted

72.
Massive market cap potential
72
$127Bn
$600Bn
Private Banks NBFCs Fintech Total Market
Cap
FY 2016 FY 2026
$41 Bn $2 Bn
Asset CAGR of 18%
and
MCAP to asset ratio of
25%
Source: Company data, Credit Suisse Estimates

73.
Banking in India is going through a significant change
This is your game!
73