The advent of Covid-19 has made us all realize how significant digital transformation is. It has altered the needs of everyone, customers and institutions alike. Those who were disagreeable once are now using mobile banking apps as their key source to perform financial transactions. Whether it be for ordering groceries or transferring money, online banking has enabled customers to take charge of financial services in a simple, convenient way.
Amidst the banking industry accelerating digital transformation, the question that strikes the mind is – ‘Are cooperative banks (rural/urban) embracing digital banking?
Agreeing to the fact, any institution that doesn’t keep up with the pace of digitization may get doomed, the digital journey of cooperative banks has evolved downright. Although technological advancements are not thin on the grounds of any industry, Indian cooperatives still have a lot to catch up with high-tech resources as compared to commercial banks.
Let’s get a fix on how digitization is gaining traction in these weak spots in the financial services landscape.
Why Digitize – The Path to Pursuing Digitization
Cooperatives need to digitize to navigate the changing landscape. They may be able to offer financial services through traditional channels and brick-and-mortar locations. However, this could not help them in the future to retain valuable clients who aim for convenient and digitized processes.
Currently, the cooperatives rely on a link with their members and customers belonging to limited proximity. But, the current generation will possibly not get attracted to financial services merely with trust and relations with stakeholders.
To outline a well-defined plan, cooperatives must:
- Determine a firm objective by considering the local market, competition, and customer demands.
- Define target market rightly by including both existing and potential customers
- Assess their digital readiness and capital needs
Initiate with core banking functions like bulk payments via RTGS and digital onboarding
Advanced Initiatives: Enabling Digital Transformation in Cooperative Banks
Digitization facilitates cooperative banks with sustainable profitability. It has become essential for banks, playing a major role in providing better lending services to customers and financial inclusion.
Introduction of Video KYC
Banks have eased the mandatory KYC compliance requirement by enabling video KYC services. However, in the case of financial cooperatives, AI and automation are far-fetched as compared to fintech and banks.
To get along with the customer demands of quick, convenient processes, a few cooperatives are heading towards adopting this trend. Several Grameen banks have initiated to offer digital savings account opening via video-KYC feature.
This digital service has enabled real-time customer verification, reducing the verification time from weeks to a day. Using technologies such as facial verification, 6-digit code, AI-enabled OCR, geotagging and more, the eKYC process facilitates:
- Faster, secure identity verification
- Minimal processing time
- Seamless customer onboarding
- Error-free, highly accurate results
Issue of Contactless Cards
Contactless cards just require customers to tap cards on the machine to make payments. It doesn’t require individuals to enter a PIN, increasing the risk of stolen identities and fraudulent activities. Security concerns make cooperatives hesitant to pitch this feature.
However, taking into account the high utility, many of them are making the move towards issuing chip cards. Contactless cards enable customers to make payments at ease in seconds. It supports:
- Online and offline transactions
- Can be used at ATMs, merchant establishments, parking, and more.
Stringent Cybersecurity Framework
Technology is undeniably pathbreaking, but it comes with plenty of security and data challenges. Among a slew of issues invited by a massive drive to digital footprint, cyber risks top the list.
According to a report, India ranked third in the world, with a total of 86.63 million users experiencing data breaches till November 2021. Hackers committing malware attacks and siphoning off crores is no more considered a bizarre case.
Considering these stats as an awakening call, financial cooperatives are establishing robust cybersecurity measures. They’ve implemented a risk assessment system and strengthened the policies to defend against malware attacks. Urban cooperatives have also initiated spreading cybersecurity awareness and scheduling training sessions for bank stakeholders.
Digital Identity Verification
The ever-surging cases of data breaches, identity theft makes online identity verification and eKYC the need of the hour. To keep a track of security, mitigate risks related to malicious attacks, cooperatives are required to offer a secure digital platform for conducting financial transactions.
As cooperative banks steer towards adapting digital ID verification solutions, they can:
- Simplify the account opening process
- Prevent fraud, account takeover
- Offer enhanced user-experience
- Ensure AML/KYC compliance in real-time
- Identify red flags at the earliest
If integrated correctly, this fraud prevention feature will enable more account conversions, less drop-offs, and hence, fuel cooperatives with more capital/funds.
Credit cooperatives do not have such a financial capability to establish in-house cloud-based solutions. As a cost-effective way out, many cooperatives have adopted a hosting model. With hosting software as a service model, banks are spared the high costs needed in setting up the infrastructure.
Cloud computing is serving as a transformative digital solution that facilitates banks with ease in data analytics and data storage. It benefits the industry with utmost flexibility, enhanced agility, higher scalability to meet consumer demands, and better operational efficiency.
Access to UPI
2021 witnessed more than 3,800 crore UPI transactions amounting to Rs 73 lakh crore.
With these staggering figures, the adoption of UPI in cash-dominated rural India has marked a paradigm shift from an incipient stage to a flourishing mode. A substantial chunk of credit cooperatives has started providing UPI services to consumers. A report by NPCI states that more than 200 banks are live on UPI.
With this initiative, banks have opened extensive avenues for the consumers of rural/urban cooperatives. It has empowered them to make instantaneous payments in a simple, convenient way. This interoperable payment solution enables customers to attain the benefits of faster, cheaper fund transfer services, bill payment facilities, and more. They can perform real-time payments via apps like Google Pay, PhonePe, Paytm, or the BHIM app without any geographical boundaries.
Extend ATM, Point of Sale (PoS) & E-commerce Services
Rural cooperative entities have invested in ATM infrastructure to offer the utmost convenience to their customers. Several cooperative banks are opting for tie-ups with digitized banks such as Jana Small Finance Bank and more to offer digital infrastructure and payment services.
The Flip Side: Challenges Faced by Cooperative Banks
Cooperatives are delivering financial services to underserved populations by leveraging local knowledge and relationships. However, in-person meetings, cash dominance, and traditional methods are being challenged by digitization. They are likely to encounter the following challenges.
State, district cooperatives located in small towns often face difficulty in attracting top talent. Owing to budgetary restrictions and the absence of economies of scale, they can avail a limited talent pool to run their operations. Inability to hire or retain skilled human capital can affect the service quality and result in poor customer experience.
Frictionless processes and instant services via digital means could lead to more lending/borrowing. This could lead to over-indebtedness and therefore makes it necessary for cooperatives to consistently assess risk.
Further, this sector also has to encounter political as well as government interference as cooperatives are run by the dual control of RBI and state governments. This causes the management to limit their spending on innovation and technology. While they understand that digital shift is the key to survival, they find it a bit more expensive and challenging.
Digitization has forced cooperatives to learn, adapt & evolve while thriving the tough competition influenced by fintech and techfin. This is the time to overcome all the teething troubles and make a shift from stiff resistance. Pirimid Fintech helps banks and NBFCs in digitalizing their entire lending journey with their highly customized solutions. It enables banks and NBFCS to tap into new segments beyond any geographical boundaries. So, digitization is the need of hour for cooperative banks in the fast moving market and extreme competition.