Indian banks: Big on plans, low on tech?

Pandemic aside, 2020 and 2021 have been marred by technology outages, both on a national and global scale. Even the most popular social media channels of our time – known for pioneering technology innovations – faced severe unprecedented downtime, leading to panic and a slew of meme fests. Comparatively, the outages reported by Indian companies seem less daunting. But the fact that they involved top organizations, like HDFC Bank, ICICI Bank, and SBI, strikes a graver note as it throws into perspective some of the pitfalls of following a templatized approach to upgrading technology.

The last two years have been a testament to the importance of technology adoption in an increasingly connected world. In the past as well, there have been a lot of issues projected on Indian banks and financial institutions that trace back to repeated technology failures, and inefficiencies. Minor technology glitches are the least of these concerns. More serious issues, like outages and security lapses, are alarming and require close evaluation.

Outages not only mean competitive losses but also losses on the customer front. Concerns raised in the last year were serious enough to warrant a caution by RBI Governor Shaktikanta Das, who urged banks to increase their IT investments. The RBI even imposed a ban on new digital launches on one of India’s foremost banks, when it reported multiple outages over a two-year period.

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Technology investment by Indian banks, as compared to their global peers, is startlingly low. Indian banks spend between 1.5 and 2% of their annual revenue on technology, compared with up to 10 % by their global counterparts, as per a report by PwC India. But, at the end of the day, it is not just about investing enough. Where you invest matters just as much as how much you invest.

Indian banks have been spending a lot on front-end enhancements. There has been a strong focus on UI/UX and omnichannel enhancements. Problem is, these investments have mainly been confined to:

Digital channel solutions to attract new-gen customers

User interfaces that look modern and easy to use

New-age functionality spends

In the race to building sleeker and customer-friendly interfaces, banks have been quite dismissive of the middleware and backend. The legacy infrastructure, often outdated and bug-ridden, is unable to support the demands of the upgraded front-end. This leaves banks open to serious vulnerabilities, like outages and security risks. Imagine a shiny new car that runs on a rusty, old engine.

For Indian banks to improve their technology efficiency, and avoid the embarrassing and potentially risky predicament brought on by IT issues, their IT investment needs to go up by at least a few notches.

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The following areas need emphasis:

Upgradation of the legacy backend: This does not mean a complete legacy wipeout. Interoperability will be key in the future, as different types of systems interface with each other and scale as needed.

API-driven systems: As the focus on multi-vendor architectures gains prominence, banks need to invest in APIs to keep up the seamless exchange of information with third parties, like customer apps.

Cloud adoption: Cloud platforms of today offer security and performance at par with on-premise set-ups, so many of the existing concerns are put to rest. A modular, microservices-based architecture that’s built on the cloud will be instrumental to staying modular and agile.

Specialized technology providers: Seek advice from third-party experts or SaaS providers who can guide and accelerate the digital transformation journey.

In the last few months, we have been seeing a surge in digital payments – spurred on by trends like UPI adoption. We’re repeatedly noticing how the underlying technology landscape of most banks is rendered inadequate by the demands these places on them.

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Even discounting this space, technology-wise, our banks have a lot of scaling up to do. Banks need to explore mechanisms for improving their operating efficiency through faster rollouts, centralized defect management, and so on.

But more resilient technology systems mean more than just improvement in operating efficiencies. The technology landscape is becoming complex by the minute. Banks will need to have the ability to scale while staying secure, competitive, and high-performing. If they’re not investing cautiously in technology, it is bound to perceivably throw the whole roadmap to digitalization off-track. In the future, infrastructure will be the trump card – the differentiating factor that will enable banks to win in an unforgiving and unpredictable market. The stakes are high and we have a lot of catching up to do.