In many ways, the banking experience for the middle class in India is probably better than what it may be elsewhere in the world. At least, my experience with the American and European banking systems is that Indian banking in many ways is more efficient and faster. However, the enjoyment of our superior banking experience may largely be limited to the educated classes which are comfortable carrying on net-banking transactions, without ever having to step into a bank branch.
The less fortunate of our population, the illiterate and the poor – comprising about half our population – who cannot afford a smartphone, may have a different tale to tell, just as those without a smartphone, Wi-Fi, or the smarts required to get past the technological goal-posts, had their fair share of challenges getting the Covid-19 vaccinations.
Our banking sector has been stagnant when it comes to the potential that it has to make the banking experience better for all. For long, the RBI has been so preoccupied in recent years with non-performing assets (NPAs) that it has largely ignored much larger and beneficial reforms needed in the banking sector for bringing in greater ease of transactions to the customers, especially in certain specific areas.
We all know the hassles with the KYC (know your customer) requirements. Firstly, on paper, any one of the documents, namely Passport, Voter’s Identity Card, Driving Licence, Aadhaar Letter/Card, NREGA Card, or PAN Card is acceptable to meet the KYC requirement. But in reality, that’s hardly true. No bank ever goes through the process without asking for at least three of the above documents, plus an additional address proof like one’s electricity bill, etc. Often, the copies are required to be attested/self-attested.
What is more, even though KYC norms are required to be updated only once in 10 years for low-risk customers, once in eight years for medium-risk customers and once in two years only for high-risk customers, the banks cover their backsides by asking every customer to update their KYC documents every two years! And this, despite the fact that the government had introduced the Central KYC Registry as early as 2017, precisely to address this inconvenience to the customers.
But even this problem is a relatively small challenge compared to the humongous friction and inertia the customers of a bank face when they wish to move their services from their current bank to a different one for reasons of deficient product or services, or inordinately high fees and charges, low returns on savings and deposits, or ease of conducting transactions, or even high riskiness.
Products, services, their quality and costs vary hugely across banks. Would it not be in the best interest of the customers if they could avail different services with different banks, optimising their ease of transactions and costs? But this is impossible today, given that they would not only have to go through the rigmarole of the KYC all over again with every other bank, they also have to fill up innumerable forms all over again to avail the various services or products with different limits on different services, and standing payment instructions, on their various accounts and credit and debit cards, etc.
As a result, customers often continue suffering the shoddy services and high costs of a bank, unable to move to a different bank with ease. Banks, of course, are not beyond exploiting this inertia on the part of their customers.
Another category of challenges involves international transactions. Every time consumers engage in international payments (or receipts), they are baffled by currency rate movements which comprise a maze of hidden exchange rate mark-ups, exorbitant commissions, sundry delays, and terms and conditions in font size 6, indicating an obvious lack of transparency in such transactions. For too long have the consumers been hapless victims of such unnecessary and heavy costs surrounding an opaque environment.
A third category of challenge that banking customers face is the lack of uniform formats for comparing different products, services and the associated costs in different banks, to be able to take an informed call.
It is in these contexts that data portability should come in handy. While mobile number portability has become common, there seems to be little discussion afoot on seamless banking data portability, though we have the software muscle to remedy the situation.
The UK, for instance, has now made it mandatory for banks to share customer data (when requested) and data on customers’ own products and services, with third parties upon request. This is a part of a wider push toward making corporates free up access to the data they hold. Developing a comprehensive concept of “Smart Data”, that is, data that is “easily and instantly accessible” and capable of being “safely and securely transferred to third-party services” will have many advantages.
Such data portability would empower consumers at different levels. For one, they could ask their banks to share all the data pertaining to their own products, services and limits, with another bank. This would save them a considerable headache. Such portability with third parties will also help track a consumer’s usage of a particular service and charges, say commissions charged by a bank on the particular service, draw in market data from competing banks, and then let the consumer know when a lower rate becomes available in another bank.
If any thoughts along these lines as a part of digital strategy in banking are in the offing, I am unaware. Perhaps the RBI needs to set up a committee to take the banking sector to the next level, such that with a single exercise of option online or a single application offline, the entire banking data could be forwarded to another bank, or for that matter any RBI-regulated financial institution. Now, that would be ease of banking! Such a regime would call for a generalised data protection regulation, and that is precisely why it is time for the RBI to initiate the thinking along these lines.
(The writer is an academic and author of several books)
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