Inside HDFC Bank’s Plans To Spruce Up Its Digital Offerings

Pedestrian walk past an HDFC Bank Ltd. branch in Mumbai. (Photographer: Dhiraj Singh/Bloomberg)

Inside HDFC Bank’s Plans To Spruce Up Its Digital Offerings

HDFC Bank Ltd., currently under regulatory restrictions amid frequent outages across its IT systems, is working to revamp its digital offerings and upgrade legacy IT infrastructure.

According to a person familiar with the matter, two simultaneous processes are underway. One of these is attempting to create a “digital factory”, which upgrades processes across consumer credit products and small business loans. The second, termed internally as the “enterprise factory”, is working on upgrading legacy infrastructure.

The roll-out of some of these initiatives may be subject to Reserve Bank of India’s restrictions being lifted. The regulator had stopped India’s largest private lender from issuing new credit cards and rolling out new digital programmes till the lender ensures that its systems are robust.

The bank is in continued conversation with the regulator, the person cited earlier said on the condition of anonymity, adding they hope restrictions will be lifted soon.

HDFC Bank declined to comment on the story.

The "Digital Factory"

The digital factory project is focused on small-ticket consumer credit from credit cards to personal loan credit lines.

As part of this, HDFC Bank will upgrade its credit card offering, change credit card underwriting and ensure that the entire process can be concluded on a user’s mobile phone.

For this, the bank has tied up with fintech firm Zeta, the person cited earlier said.

While there have been no public announcements about the partnership, Zeta founder Bhavin Turakhia, on social media, said that his company is working with HDFC Bank for “re-defining banking in India”.

The company provides Tachyon, a cloud-based service which enables quicker processing of financial transactions.

Zeta declined to comment.

In job postings on its website, Zeta has termed the project as “Plutus” and said the idea is to set up a “digital bank” from scratch to service HDFC Bank’s customer base of over 2.5 crore.

In a research report dated June 2, Bernstein Research said while building a digital bank within an existing bank is good, transfer of all customer data could be a time-consuming exercise.

“The bank will likely want to pilot/ launch new product SKUs on Tachyon and iterate with the team to iron out issues, before transitioning their large existing product SKUs from legacy core-banking systems,” Bernstein Research said in its report.

Zeta will be in-charge of processing transactions, managing the user interface and user experience on the credit card product, the person cited earlier said.

HDFC Bank is also reworking its credit card underwriting processes.

For this, the bank’s working with external partners to better read customer data and speed up approvals, if customers meet risk criteria. The partners are also helping the bank develop internal scores, the person cited earlier said.

For small business customers, too, a new service system will be rolled out, available across platforms.

The "Enterprise Factory"

The second big piece is upgrading existing IT systems.

As part of this, the bank is also building a new data centre in the medium term. They are also moving towards cloud-based systems.

In a recent interaction with analysts organised by Macquarie Research, HDFC Bank CEO Sashidhar Jagdishan said that the bank was on track to implement the “next big piece” on technology in the next couple of months.

Jagdishan also spoke about decoupling existing systems at the bank, in a way that an outage in one system does not affect the working of others.

“They [HDFC Bank] are already migrating applications to a cloud-based architecture and would strive to completely move towards cloud-based systems in the medium term,” Macquarie said in a report citing their conversation with Jagdishan.

According to Akshay Garkel, partner and leader-cyber at Grant Thornton Bharat, building new technology initiatives should be supported by a strong crisis management & incident response plans.

“While you may bring in a new tier of technology to improve uptime, businesses must ensure that the rubber hits the the road. That means more simulations during drills on multiple scenarios,” Garkel said. “Banks must look to implement a thorough board approved crisis and incident management framework which draws considerable assurance that there is minimum customer inconvenience during the time of actual crisis.”

HDFC Bank has given no indication, even to analysts, on what this upgrade will cost.

The lender’s other expenditure, which includes system management fees, has risen nearly three times between March 2015 and March 2020 to Rs 14,682 crore.

According to Asim Parashar, partner at PwC India, Indian banks tend to underspend on IT infrastructure.

Large Indian banks have been spending on average 2 to 4% of their revenue annually on technology enablement. In comparison large global banks have been spending in the range of 7 to 10%. Keeping in mind the growth in digital way of customer acquisition & servicing, digital payments and cyber security requirements, banks will have to rethink on their technology spend. However, These investments have to qualify the criteria of impact on customer experience, revenue growth and cost optimisation.
Asim Parashar, Partner, PwC India

Banks Look To Fintechs

HDFC Bank isn’t the only lender approaching new-age financial technology firms to build next-generation banking services.

Kerala-based Federal Bank Ltd. has tied up with Epifi, a neo-bank, to provide banking services on the Fi app. While the underlying banking service is provided by Federal Bank, Epifi manages customer acquisition, user experience and user interface through its technology services.

India’s largest lender State Bank of India has invested in Cashfree, a third-party fintech service provider, for improved digital customer acquisition.

Parashar of PwC India said banks are focused on two challenges. One is customer centricity where they can leverage and partner with fintechs to provide hyper-personalised products, services and experience, he said.

“Second is scalability, resiliency and cyber security which has become of paramount importance with exponential increase in payment transactions (24X7 availability) and also non-financial transactions,” Parashar said. “For this they will need to leverage cloud to meet the pace of digital transformation.”

Also read: HDFC Bank, SBI Card Warn Customers Of Restrictions If They Deal In Cryptocurrencies 

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