Banks enhancing the flexible nature

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Consumer financing especially becomes vital at the time of a slowdown as it encourages people to spend more. Importantly, it also makes these people likely candidates for future credit. Having seen Non Performing Assets pile up on account of corporates defaulting on loans, banks can’t get enough of retail loans. Take Yes Bank, for instance, —8% of all loans issued by the lender are NPAs because of bad loans issued to corporates.

Utilizing it to the fullest

All of this does one crucial thing—it serves as a reminder of the value the bank brings beyond just a means of transacting. While the immediate importance of this may not seem apparent, it is a hedge against an uncertain future.

Banks realize that they are moving towards a future where the friction to switch banks is gradually disappearing. Initiatives like a central Know Your Customer (KYC) registry, which enables the sharing of KYC information between institutions, will ensure customers can transfer bank accounts with ease.

Once this happens, the very thing that gave banks their edge—the current account and savings account balances—could be chipped away. Banks, therefore, have to provide a value proposition, unlike anything they’ve offered before.

Banks already know what irrelevance is like. When the government’s real-time payments system, UPI (Unified Payments Interface) was introduced, banks were slow on the uptake. Instead, UPI exploded on the backs of nimble fintechs that created slick apps that made payments through UPI intuitive. Today, UPI-based payment apps like PhonePe and Google Pay have about 100 million users between them.

Crucially, UPI made payments so simple that users had nothing to remind them that payments are moving from an underlying bank account. By the time banks got their UPI apps to the market, the race had already been run—banks’ apps figure nowhere in the payments story today.

Importance of financing

“Banks lost any control they had on the customer by losing the plot on UPI. They are now just a settlement engine. And that is a scary place to be,” said a former e-commerce executive who worked closely with banks. A scary prospect because the bank account where the money is held suddenly ceases to matter.

Festive Treats is HDFC Bank’s way of avoiding an encore of the UPI debacle. As users’ purchases now are increasingly driven by consumer finance, HDFC Bank couldn’t have picked a better time to re-assert its influence on users. “It is the moment that endears the customer to a brand. Today financing is more important than other propositions like convenience,” said the senior banker quoted above. “That puts the control of the user in the bank’s hands,” he said.

For all of this, Santhanam refused to rule out the possibility that they would partner with e-commerce companies again. Already, HDFC has reactivated its SmartBuy marketplace. SmartBuy directs buyers to retailers like Amazon or Flipkart, while HDFC card users get close to 33% discount if they buy via this channel, according to reward point experts. Festive Treats is HDFC Bank’s way of avoiding an encore of the UPI debacle. As users’ purchases now are increasingly driven by consumer finance, HDFC Bank couldn’t have picked a better time to re-assert its influence on users.

In addition, Amazon, Flipkart, and Myntra have also joined the Festive Treats bandwagon. HDFC Bank seems intent on setting the terms of engagement. And if Festive Treats is a success—which will be seen in two months when data on card spend emerges from the RBI—expect any future partnership to be considerably more equitable.

 

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