Getting future-ready: HDFC Bank readies plan for digital entity

HDFC Bank is working on a plan to build a challenger digital bank in order to prepare for a future where licences for digital banks are issued. The challenger will be a purely digital bank focused on targeting a younger set of customers over their lives and careers, sources told FE.

The country’s largest private bank by assets wants the digital bank to allow people to open accounts directly without visiting a branch. “The bank has that facility within the traditional bank, but it is working on this as a new business line. It will wait for the Reserve Bank of India (RBI) to clear and review it before going ahead,” one of the sources said, requesting anonymity.

While HDFC Bank is not imminently ready to launch the bank, it is preparing for it from a strategic point of view.

An emailed request for comments sent to HDFC Bank did not elicit a response till the time of going to press.

The regulatory embargo on fresh digital launches that the RBI had imposed on HDFC Bank in December 2020 as a penal measure still remains. The bank will have to wait to launch its challenger entity until the ban is lifted. A report by PwC India defines challenger banks as tech-led neobank start-ups as well as digital-only offerings by incumbent banks.

While there is no regime for licensing of digital banks in India at present, a November 2021 discussion paper by NITI Aayog floated the idea of such a regime. There are entities operating in India which market themselves as neo-banks, but the nature of their business is akin to that of sourcing agents for established banks.

As an incumbent, HDFC Bank wants to have a business line, which is a digital-only bank, as opposed to a brick-and-mortar-supported relationship-managed bank. The bank believes, sources said, this would protect it against a future where some entity gets a licence to set up a digital bank.

The new entity will not look to offer anything new in terms of products. It will do the same things that the parent does, such as opening a savings account, giving a personal loan or issuing a credit card. Rather, it will reduce the operational cost for the bank and offer the kind of customer experience that some segments, especially millennials or Gen Z, would like.

The focus will be on the younger set of customers, who may not want relationship management to start with but as they grow in their life and career, would want wealth management, a multiplicity of products and relationship management to handhold them. “Before the bank gets there, there will be a large number of customers who need basic plain-vanilla products. There, they want to keep the cost of acquisition low, so they will use digital channels to bring them in,” a source said.

State Bank of India (SBI) and Kotak Mahindra Bank have their own pure-play digital platforms, but HDFC Bank intends to differentiate its platform from them with a focus on segmentation and customer progression along with product delivery.

HDFC Bank has added partnerships with digital direct selling agents (DSAs) to its models of customer engagement. In a post-results call with investors, HDFC Bank said that during the quarter ended December 2021, it acquired 2.4 million new liability relationships and 6.4 million such relationships during the first nine months of FY22, exhibiting a growth of 29% over the same period last year. The management said that digitisation has helped the bank broad-base its customer engagement and the focus on it will continue in the quarters ahead.

from Banking & Finance – The Financial Express https://ift.tt/gpab6ry