HDFC Bank stock is up, reacting to the lifting of the digital embargo by the Reserve Bank of India. What does this type of approval mean and how does it impact the business?
We have faced a few outages and this has had an impact on customers. The regulator took note of that and basically told us in one line that while we have absolutely no problem with your growth plans and your strategic direction that the bank is heading in, we would like you to kind of look at So how do you invest more in infrastructure and your backbone so that we can support that growth.
Looking back, it was very good direction and advice that the regulator gave us. Of course, they also said that in the meantime, we wouldn’t allow you to do two things. One was the ban on credit cards; we have been unable to issue new credit cards to customers and at the same time all new digital initiatives that we plan to launch have been temporarily suspended until we have strengthened and demonstrated our ability to handle this type of growth.
So, in a way, it was a good time for introspection. As a bank collectively, across all businesses and technologies and digital, we have reviewed our entire architecture as part of our strategy for the next 5-10 years. We redesigned our entire transformation map and therefore launched what we call a transformation program in which we said we could become a technology-driven bank.
The motto would be for technology to become the engine and the magnet to attract customers for the bank and that is how we started our transformation. In this context, the first embargo on the issuance of credit cards was lifted last August. Since then, we have returned to our regular rates and rapid growth plans on our credit card base.
The lifting of the digital embargo on digital 2.0 effectively means that all the backend work that we would have to do is part of the transformation and everyone will see some of these changes happening over the next two to three quarters. In terms of what we did for the customer, there were a lot of changes under the hood or in the back. This is an extremely important announcement for us. I would like to express our appreciation and thanks to the RBI for pointing this out. It only made us strong.
We are a very large bank. We have our commitments and responsibility to a very large franchise of customers and in that sense this pause in our growth was for a very good cause and we are now much better prepared for the next five years.
Will the components of the digital economy in the future be different from the perspective of the customer, the company and the shareholder?
We said we would divide our strategy into three main parts; we are reinventing the entire customer experience and building new digital platforms that would propel the customer experience as far into the future. The context has already been set for five to seven years with the emergence and explosion of the digital wave.
This digital wave has brought about significant changes in the way customers interact with their principals, banks, and various other categories in virtually every industry. So there was a different need for customers in this whole digital world. It’s not that the conventional world of interacting with your principle has changed, but customer demand has increased as service providers offer products and services. I can still interact with my bank by entering a branch. I can still interact with my bank by taking a phone call and I can still interact with a bank by going to my net banking. But I may also need to transact 24/7, late at night while sitting at home or when I’m on the go on my mobile, etc., etc.
All this has broadened the type of needs and requirements that the client expects from the institution. Thus, reinventing the customer experience and creating entirely new digital platforms to improve customer value is one of the components of the strategy.
The second stage of the strategy stems from the fact that we are a large bank handling the transactions of 60 million customers and by far the market leader in most categories. We also call conventional refactors or core refactors, which means modernizing our existing infrastructure.
How important will PayZapp be in HDFC Bank’s next phase of growth? Are there any exciting initiatives we can expect in the immediate future?
An immediate change over the next two months will be the relaunch of PayZapp 2.0 on a brand new platform. Our goal is to be among the top three payment apps in the country and a significant ramp-up for PayZapp, not just through the means by which we engage and deliver holistic payments services to our existing set of 60 million customers. At the same time, PayZapp will also be an important driver for acquiring new customers using the payment channel. So that’s a key impact that you’ll see in this fiscal year with the launch of PayZapp.
Another initiative that should see the light of day soon is our plan to launch a fully digital credit card. It will again be on a fully mobile ready platform at elastic scale where customers can apply for a credit card, receive credit card approval on the fly, provision it in their PayZapp or mobile and get started to use this digital credit card.
We are going to reinvent this whole journey and see how we as a bank can provide a holistic customer experience. While obviously our core competency is to provide the customer with the loan to help fund that purchase, we can also bring our ecosystem of partners together on one platform so that from start to finish the customer can get to one place and find out the whole journey from his thought can be upgrading his car or buying a new car until the end where his car is delivered and then his financial needs are taken in charge – whether it is a loan or car insurance and also do AMC contracts it is the first automatic portal.
So, customers will go through a significantly different approach and experience when buying their four-wheelers and two-wheelers.
You also had to increase your investments that you are investing in technology at the moment?
The answer is yes. I may not be able to share the exact data because a lot of it is fluid, but over the past three years, if we had spent x, our projected spending over the next three years will be close to the double that amount that we’re going to spend on the areas we’ve been talking about. We will have to pilot all this infrastructure as well as the people by bringing new skills to the bank to manage it all in the future.