From partnering with fintech startups to helping dairy farmers, how Federal Bank is transforming into a digital-first institution

Technology has ushered in a rapid pace of change and this is very visible in the financial services industry. In such an era, a 90-year-old private bank headquartered in Kerala has kept abreast with these changes and is ready to adopt new innovations.

Federal Bank established in 1931 has always introduced technology-led services be it mobile or internet banking, UPI payments etc as it seeks to enhance the experience of its customers.

This small private bank from Kerala is now valued at Rs 17,267 crore in terms of market capitalisation, and has made a name for itself for constantly adapting to change. The company has a clear strategy in place on how it will evolve its digital strategy to transform the banking experience for its own employees as well as customers

YourStory spoke to Jithesh PV, Head of Digital Banking, Federal Bank, to understand how the bank is getting ready to carve a niche for itself in this new era of banking.

YourStory (YS): When did Federal Bank start its digital journey?

Jithesh: Federal Bank has been focusing on digital for decades now. We were among the first five banks to launch UPI payments. Around 2015, we created a centre of excellence (COE) for digital. Since 2016, we have been focused on digital migration where we are directing customers from the branch channel to digital channels.

Today, 86 percent of our transactions are happening through digital, out of which 70 percent is mobile banking. Our digital transformation has got three parts: employees, customers and open banking through partnerships with startups.

YS: What changes has Federal Bank seen under the digital strategy?

Jithesh: Today, all our internal processes are paperless, with over 100 applications for the employees. Everything is automated, be it banking transactions, connecting with branches, HR management etc. Every employee can be connected to the bank either through the laptop or mobile, with due security controls in place.

For example, prior to the lockdown, only around 800 employees of the bank's nearly 12,000 were using Microsoft Teams, but now 80 percent of the total staff are using it. Over 250 of our processes are under robotic process automation (RPA), and 80 percent of our bank accounts are opened digitally through biometric and other means. One can open an account within 10 minutes at our bank

We have been giving out new loans through video KYC, which has especially helped during the pandemic. In our mobile banking, there are 150 services available. Customers need not visit a branch and this has increased employee productivity. Now the bank has been able to bring in a lot of relationship managers for our various products.

At some of our locations, 100 percent of loan approvals are done through digital channels. At Federal Bank, we are engaging with all the latest technologies and are available on all channels - be it WhatsApp, Google, Alexa etc.

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YS: How has Federal Bank benefitted from the digital journey?

Jithesh: For banks today, customer retention depends on how digital they are, as customer experience matters the most. This also extends to customer acquisition, as we cannot depend only on a brick and mortar set up in this day and age, and have to be on every channel. Banking is closely knit with one’s day to day life using different channels, and all this should be frictionless. Over a period of time, customer interaction will become more digital.

We have made significant investments in digital literacy. In 2016, the percentage of our digital transactions stood at 40 percent. This is also helping the bank to cross-sell various services, as there are no limitations in a digital channel. All this has led to higher business for the bank. We have not added any major branches and even the 15-20 we have set up are mostly in unbanked areas.

YS: Federal Bank has had a close engagement with fintech startups. What is the idea behind such partnerships?

Jithesh: We initiated our startup launchpad in 2016 in Bengaluru, and worked with several startups as they wanted various banking advisory or consulting services, and they also wanted to partner with us for new customers. Each fintech comes with certain niche expertise.

In 2017, the senior management decided on creating an open banking network as we realised this would help the bank grow, and would be relevant for the future. So we have created an open banking system where any startups can come in and just plug into us and power their business.

At the same time, we also carefully evaluate these fintech startups based on various parameters. For example, in Gujarat, we have partnered with Digivridhi to help dairy farmers with micro ATM services and a digital channel.

Over a period of time, we will enable these 36 lakh farmers to make payments digitally. We want to create a digital footprint so that they become part of the formal banking system, and eventually be eligible for loans at lower interest rates.

We have been working with others on similar initiatives. The bank’s Open Banking platform has more than 100 APIs and 100 plus partners. Our ultimate aim is to reach out to all types of customers. In our different digital services and financial products, we have partnered with various fintechs like Paytm, Pine Labs, PayU, Zest Money etc. There are many such partnerships in the pipeline.

YS: What are the challenges you faced when implementing a digital strategy?

Jithesh: We should always make sure that security standards are the highest, especially while working with partners like startups, because, their protocols and regulatory compliance may not be the same as the banks. Thus, we need to make them aware of the various nuances of security, and how to be compliant with all the existing regulations.

Besides, we need to have the right kind of talent which is well versed with all things digital, as it requires a lot of agility and synergy. Today, we have overcome those challenges, and are pretty stable in terms of our digital team.

YS: What does the future of digital strategy look like for Federal Bank?

Jithesh: We are looking at expansion of our customer base, which will increase our business and the ability to cross-sell our services. We are looking at doubling our business in three to four years’ time. Towards this, we have to enable a frictionless, seamless and highly secure environment to enhance our customer satisfaction.

This will mean more features on mobile and internet banking, which in turn will enhance customer experience and bring down any kind of downtime. We need to understand the needs of the customer better through their various behaviour patterns.

We also plan to enhance our partnership with neobanking startups looking at different segments, categories. Our open banking platform and API stack are continuously enhanced as every partner requires something new. The whole payment infrastructure is going through a revolution, and we are excited to be part of these innovations.