As a company, HDFC Bank has an asset quality that is unmatched by its peers. Unlike some of its peers, it has no stress on its portfolio, has a huge distribution network that is spread across the length and breadth of the country, and keeps on commanding healthy margins. No wonder, the bank’s share commands a premium, as it has consistently lived up to the expectations of its investors for a long time.
One of the major reasons for the bank’s continued success is the sustained investment in technology, which allows it to significantly automate some of its major processes. And every investment in technology is done from a point of view of scale. The bank now has more than 80% of its customer interactions occurring via digital channels. For example, from just 19% in 2007, the percentage of customer transactions via the Internet or the mobile medium has gone up to 80%.
Says Munish Mittal, CIO, HDFC Bank, “We have always been a bank of scale, and this is the single most differentiating factor in my view.” For example, almost 18 percent of RTGS of the country is processed by HDFC Bank. Even volumes registered via IMPS are bordering close to half a million a day.
Pre-empting the huge rise in e-commerce transactions many years ago, the bank has scaled its systems to match peak e-commerce sales. “We have built our systems to scale 3x, to match big billion day sales. So, we continue to be true to our DNA of ramping scalability.” To ensure security, the bank made huge investments in OTP and two factor authentication. The bank also invested in a brand new mainframe, and is probably the only bank which continues to run the card host platform on a mainframe.
HDFC Bank’s approach to automation has been to automate every process where technology can improve efficiency with minimal human intervention. One of the best examples of this approach can be seen in the personal loan segment. The bank uses an algorithm that allows it to process loans in just ten seconds. The response on the first day was so huge that the bank ended up disbursing personal loans of an average size of Rs 3 lakh a minute. The reason why HDFC Bank can do it so effortlessly, is because unlike a traditional process where a bank’s staff researches and reviews a borrower’s credit history, HDFC Bank’s algorithm consistently scans the cash flow patterns of the borrower and matches it with the credit score of the borrower. Using analytics, the bank then automatically enable processing of personal loans. When a customer clicks an offer, the details are pre-populated by the bank in the application form, and the application holder gets a sanction within ten seconds of filling the form. Explains Mittal, “Digital not only provides speed but also customer convenience and operational efficiency.”
In line with this thinking, the bank has launched a slew of products such as PayZapp, SmartBUY or the Digital Loan Against Securities. HDFC Bank is the first bank in India to completely automate the entire process of creating an overdraft facility in a separate current account for loan against shares. The bank has collaborated with NSDL to create a seamless customer experience. HDFC Bank Demat Customers can calculate their eligibility for overdraft limit against shares, and open a current account instantly. The entire process can now be completed in under 3 minutes, instead of days. This offering empowers the customers to design their own loan against shares at their convenience and avail of the facility within minutes. Customers with shares in their portfolio can leverage it when there is an urgent need for money. Similarly, PayZapp and SmartBuy offer the advantage of one-click payments wherein the customer only needs a single click to perform tasks such as recharging their mobiles, paying a friend or pay utility bills without having to share card details.
Understanding customer behavior and using it to improve market leadership is a strategy that HDFC Bank has used perfectly. For example, a clever innovation called ‘Missed Call Mobile Recharge’ allows the bank to tap into an estimated 900 million prepaid mobile customers. This is a simple but extremely effective way to recharge existing prepaid mobile connections. HDFC Bank customers can recharge their mobile by just giving a missed call on a predefined number, without the need to visit a shop, log onto a website or open an app. Further, customers can also add his family or friends to avail of the missed call mobile recharge service. To use this facility, there is no need for a data plan, which makes it useful for smaller towns and cities and in rural areas, where Internet connectivity is not reliable.
Similarly, if a customer walks in an auto dealership, they can walk out with the vehicle the same day itself. This can be done as the bank has the capability to disburse an auto loan within just 30 minutes using biometrics. A person has to just provide his Aadhaar card number and fingerprint. If a customer is found eligible, the loan is approved on the spot with minimal documentation.
Another product, PayZapp, has been created to solve the problem of high dropouts on mobile payments. PayZapp is an online payment solution, which has a feature called SmartBuy. This is a virtual mega marketplace that has every type of product available, from those that fulfill daily requirements. This features deals and offers by prominent e-commerce Portals. The most significant advantage with PayZapp is that customers do not need to put in their debit card numbers or their security codes with every purchase. Payment can be authorized using a single PIN.
Making security foolproof
HDFC Bank was a pioneer in sending an SMS when a payment transaction happened. Today, as new digital mediums have evolved, the bank is experimenting with new technologies to ensure safety of transactions. For example, the bank in a pilot with NPCI, is experimenting with location-based tracking for matching a customer’s phone location with the location of the ATM where the customer’s debit card is used for a transaction. If the customer’s phone is found far away from the physical location of the ATM, then the system can reject the transaction, as the assumption is that a customer normally has his mobile phone with him or her. If a customer agrees, then the same technology can also be used for cross-selling opportunities (such as prompting a customer with an offer from a nearby restaurant based on the location).
To ensure proper due diligence, the bank has created a contact point verification app. Explains Mittal, “When our field officer visits a customer for contact point verification, we now geotag and geo code and update the required information then and there on the mobile app. For example, in the case of a personal or an auto loan where the relationship is new, we visit the customer’s location to establish that the customer lives at the point specified in his or her application. To improve our efficiencies, we created a Contact Point Verification (CPV) app, This has helped improve our approval rates internally. So, when we say, we will grow a little better than the market, it is a culmination of all such efforts from a technology perspective.”
Innovating for Bharat
It is said that India lives in its villages, and HDFC Bank has not lost sight of the immense potential of the growth in rural and semi-urban areas. The bank already has close to 55% of its branches in semi-urban and rural areas, and the bank extensively uses technology to deliver agricultural loans within three to four working days in certain geographies. The bank has deployed 300+ micro ATMs in rural areas and over 2000 devices in the rural branches for eKYC. Additionally, an eligible farmer can avail of an enhancement to a loan in a few seconds using ATMs or mobile phones.
Another big success story is the digitization of milk cooperatives. The bank has digitized payments at over 1,200 milk cooperatives across the nation. The move is part of the bank’s Milk to Money (M2M) program, benefiting 3.2 lakh dairy farmers in 16 states. The programme aims to bring dairy farmers into the organized banking system by digitizing the supply chain, with specific and customized products targeted at satisfying their banking and financial needs. The M2M ATMs at large collection centers are equipped with cash dispensers, while smaller collection points have business correspondents who operate micro ATMs allowing dairy farmers to withdraw cash from their accounts. A credit history is also generated which helps farmers take out loans or avail other banking products.
HDFC Bank’s success with digital is due to its willingness to keep on adding self service channels. For example, the bank was one of the first banks in the world whose mobile application was available on the Apple Watch. It was one of four lenders in the world to have such an app. It was also the first bank in India to introduce a humanoid robot. The bank plans to install close to 20 humanoids at its branches in the next two years to help in addressing customer queries.
Today, the bank is looking at digitizing every process. It has also been smart enough to tieup with startups through focused initiatives. The bank has launched a Digital Innovation Summit and invited Fintech startups to showcase their technology solutions. It’s a win-win for both the bank and the startup community. The bank gets access to some of the best disruptive technologies in the market and for the startups, they get access to commercialize and promote their innovations. A case in point is Net Vigil Software, one of the shortlisted Fintech startups selected by the bank last year. This startup provides a ‘safetopay’ payment option which facilitates an offline payment mechanism. In rural India, where network connectivity is relatively poor, this innovation can greatly benefit rural consumers.
HDFC Bank has been extremely successful because the bank has been looking to play its digital game on a better and bigger scale, and with an execution that is backed with a digital culture with the active support of a CEO. The bank has always looked at learning from global digital leaders, which is now evident in its growth.