Digital Banking in Digital India

1. Digital Banking in Digital India Sudhakar Ramasubramanian • CEO – Wealth & Online Business, Aditya Birla Financial Services Ltd. • MD – Aditya Birla Money Ltd 18 April 2016

2. Large & growing base of online/mobile users with rapid adoption offinancial services digitally Expected to double in 4 years * Based on latest available data . Source : (1) Data on Millennial population from Citi Report on Digital Finance in Asia, (2) Data on internet user population from the following sources – India –Economic Times article dated, Sep 3, 2015; China – Wall Street Journal article dated Nov 17, 2015; USA – Calculated on the basis of total population and internet penetration for USA in 2014 as per World Bank data. Mobile internet usage in India from article in Economic Times dated Sep 3, 2015(3) Data on internet user addition based on – China : CNN article dated February 4,2015; USA – calculated based on population and internet penetration data from World Bank; India – Economic times article dated Sep 3, 2015(4) Data on Digital banking penetration based on MXV Analysis

3. But we remain a Cash based economy – For Now The persistence of cash in consumer transactions Retail banking revenue pool by product category (%) Source: PWC’s “Disrupting cash: Accelerating electronic payments in India” Source: McKinsey’s “Building a digital banking business”

4. An under-served nation and with low financial inclusion • In 2015, with the Financial Inclusion Plan, 390,387 villages were covered with 14,207 branches • The number of ATMs per million population expected to increase to about 300 in 2017 from 105 in 2012 • 41% of Indian population remains unbanked • 40% remainsunbanked in urban areas • 61% remainsunbanked in rural areas • Only 14% of adult population have loan accounts • 9.5% in rural areas • 14% in urban areas • 260 million households in India • 70% households in rural areas • – 73% have no access to formal sources of credit • Share of non-institutional rural credit is as high as 44%, out of which moneylenders account for 34% Source: Bank of India’s “Financial Inclusion” & RBI

5. Traditional Banking all the way • Branch banking is more expensive than Digital, but is considered the “Core Channel” • Digital is easier to scale and cost effective, but remains an “alternate channel” for most Banks • Limited innovation till date to bring down cost of transactions by Banks • We remain a country that transacts on cheques for free while paying for NEFT / RTGS • New age payment mechanisms and digital only businesses have grown far faster than traditional Banks • But many of our Banks are yet to go digital

6. India is Changing • Demographic dividend is likely to create a large digital savvy customer segment • India’s demographic dividend well suited to switch to digital behavior • Median age to be 29 years by 2020, with 900 million in the age group of 15-60 years by 2025 • Un-penetrated or financially excluded, along with GoIinitiatives, offer natural growth opportunities • 50% of unbanked population aggressively targeted to be brought under the Banking umbrella • ~200 millionaccounts opened under PMJDY • Rs 50,000 Crores targeted to be transferred under DBT • Increasing mobile penetration and smartphone usage • 1 billion mobile subscriber base (42% in Rural), with a tele-density of 79 (Rural - 48.6 & Urban - 148) • Mobile penetration of 90% to drive financial literacy &inclusion, as players bet on mobile-based financial services • Smartphone proliferationof 50% by 2020& falling handset costs to increase acceptance, better servicing & security • Consumer behavior is changing towards rapid adoption of digitization • Markets exposed to innovative & disruptive digital-based services (e-commerce players and e-governance services) • Changing client preferences to move from pricing (discounts) to convenience and service Source: KPMG’s “Role of digital banking in furthering financial inclusion”

7. Emerging paradigms that will get stronger over next 5 years Source: BCG analysis “Productivity in Indian Banking 2014- Digital Banking”

8. Globally, Banks are making the efforts • Some of the digital trends observed globally to cater to ever-changing business dynamics and customer preferences are: • Banks have increased capital expenditure on social, mobile, analytics and cloud (SMAC) technologies • Banks are looking at phasing out legacy systems that are not agile but ensuring that core banking systems are not impacted • Big data technology capability is being nurtured and boosted to successfully tap large customer data • Investments in analytics is a focus area for most Banks as it allows a deep understanding of customer behavior, improves fraud and risk management capabilities, ensures greater compliance and enhances productivity Global players have adopted varied direct Banking Channels to better serve clients and gain competitive edge

9. And, many others too trying out different features within their Core-Banking platform

10. But still remain disrupted by Non-Bank players *Source: http://www.nfcworld.com/2016/01/25/341561/alipay-reports-65-share-of-chinas-online-payments-market/”

11. Indian Banks in digital space

12. Cash has to go • Multiple studies show that more transactions through Banking System leads to more savings by the customers. Cash in hand loses value and reduces savings • The more the money in the bank, the more the transactions • The more the banking system usage, the more the trail of money • Traditional payment and remittances are time consuming and inconvenient • We have moved from Barter to Cash many centuries ago…. • Its time to move from Cash to Digital Payments!

13. And costs should come down substantially Source: Deloitte’s “Telecom: Enabling growth and serving the masses” IT Opex& Depreciation (USD mn) Required Upfront Capex(USD mn) 100 25-45 Source: McKinsey’s “Building a digital banking business”

14. Plethora of Policy Changes favoring Inclusion and Innovation • Payment and Small Service Bank Licenses • Opening the way for innovation in the Banking space • Aadhar enabled Bank KYC • With over 1 billion Aadhar cards, KYC becomes simple • KYC Central Agency for Data Sharing • Any Bank KYC can be used for opening new Bank accounts • Unified Payments Interface • Aims to leverage over 900 million mobile phones in India for easy transactions • Takes network effect to the next level • RuPayDebit Cards • Low cost transaction handling with our own clearance mechanism • DBT through Bank Accounts • To lead to significant financial inclusionby adding balances to PMJDY accounts

15. Industry should respond with “Customer inwards” • and not “Product outwards”

16. Amazonizing Finance - Case Study: MyUniverse Mutual Fund Platform Within 10 months of launch (Feb. 2015), ZipSIP is the 7th largest MF SIP distributor in India, getting 3% market share Product Overview : One-Click Paperless Execution of SIPs

17. What the customer wants • Money Demystified • Trust and Security • Convenience and Simplicity • Ubiquity and Safety • Seamlessness across all interfaces • On-Demand Service • “At the moment” usability • Service “my need first” not “yours”

18. Future is Bright Source: FICCI’s ”Indian Banking 2020” • Increase in household income will lead to increased savings and hence the need for Banking services • Banking services will be offered via digital platform, as both, mobile subscriber base as well as internet penetration will increase substantially

19. Smartphones to become primary banking channel in 5 years Smartphone as a % of bankable population- 70% *Bankable population is population with age > 18 years Source: BCG analysis “Productivity in Indian Banking 2014- Digital Banking”

20. Banking is needed by all but the Banks are not!

21. THANK YOU