HDFC Bank Limited (HDFCBANK) Earnings Call Transcript & Summary

Hello, everyone. Welcome to MS Virtual Digital Bank Trip, this is Mr. Sumeet Kariwala, India bank's analyst at Morgan Stanley. I am glad to host the next session with HDFC Bank. We're joined by Mr. Srinivasan, who is the Chief Financial Officer of the bank. He joined the bank around 2 years back, before which we belonged to the Citi Group for almost 27 years and has held various regional and global leadership positions in diverse geographies, such as Singapore, Hong Kong, New York. We are also joined by Mr. Parag Rao. He's the country head for our cadence, consumer finance, digital banking and marketing at HDFC Bank. Mr. Rao joined the bank in 2002, and under his leadership, HDFC Bank has grown to become the market leader in cadence business and has retained this position over the years. We are also joined by Ajit Shetty, who is Vice President of Investor Relations. Please note that this session will be of 50 minutes long. We'll start with some opening remarks by the management of their digital strategy, post which we'll take some questions from investors. A standard disclaimer before we start. Please note that there are participants with discussion and likely who are not from Morgan Stanley research, and their views could differ from those of us. Without further ado, I'll hand it over to HDFC Bank management. Sri, over to you, I think so you could help us articulate the digital strategy, and then we can have Parag talk about the payments led in more detail.

All right. Okay. Perfect. Thank you, Sumeet, for this opportunity. And I also take the opportunity to thank all the participants for joining today. It is a privilege granted to us and we appreciate that. The way we perhaps will get started, Sumeet, is in order to talk about digital, we should get back to some roots in the sense that we should talk about the evolution of digital. Where we are now. Then the digital 2.0. I'll take everything a few, few minutes -- a finest couple of minutes, 2, 3 minutes each, right? Then Digital 2.0, what it means and where we are. And then we will also take this opportunity to talk about certain press notes that we have released today as it relates to our IT structure and the situation. We'll take that on right at the beginning in the opening remarks. Then we'll have Parag Rao talk about one broadly digital against certain ecosystem platform-related matters as well as the payment systems and all that. He hates all of the digitization as well as the payment processors. So he will give a business overview on those. And then we'll get back to you, Sumeet, on that, right? So that's the kind of a structure we will follow. Now in order to get the evolution context, which we have said in the past, but just to recollect in 2, 3 minutes. And this based back to maybe 2014, '15, when the senior management, MD and the team visited Silicon Valley. Met several Silicon Valley players and found out that the fintech revolution is there happening in a granular manner, and is there to stay and will be disruptive at some point in time. And so how -- that is the genesis for thinking about how we should be here, the first-class digital bank, right? And disrupt ourself rather than letting somebody handle us and tell us what to do. How do we disrupt ourselves? Play a champion challenger type of roles, which even today, I will tell you how we are playing that because the existing one, think about them as champions and then the challenger, which comes in within the bank. That price to challenge to say, why not this approach and so on. And then it transcends all the functions, all the verticals and the product groups, but we'll talk about a few. That that's the genesis of how things happen, right? And then the thought process went to defining how do we take this across and define it for implementation, then that's where the 8 customer journey definition came in, which is addressed through these customer journeys of save, pay, invest, borrow, shop, trade, insure, advice, right? So across these kind of broadly all of everything that somebody wants to do in a bank falls against these 8 customer journeys. And then how do we now make digitization across these customer journeys. That's when several things came, I'm going to touch upon 1 or 2, a few of them, which is the back based implementation that we had in 2018 was one such event in terms of trying to rethink and remodel. We were one of the first banks to have digital banking. But then the bank base was a revolution in a different sense, giving -- trying to give customer a different experience. So that was one thing, right? And then we had -- in order to get that from a lending side was the better take care of transaction type, savings accounts and so on and so forth, the card swipes. Then from a loan side, they think about the 10-second loan as one innovation journey that came about, which until today, cannot be replicated by anybody. The reason for that is there were certain ingredients to put in place. When we talk about digital, it is not about what the customer touches and feels on the outside, which is a 10-second loan, somebody feels that I touch it, I get it within 10 seconds. But it is what happens behind it. Including the digital account opening process, the DAP journey. So that means it's very, very elegant in the form of how we bring the customers in to the front end. Then the analytics engine, which the data barrels that we have, which is 1 of the oldest. And as of today, 20 years richest in the country from any bank point of view. The analytics engine that drives all of these decision-making. And to some extent, we also have AI and talk about Digital 2.2 where that is taken to a different level of scale. And that is what drives the, say, the 10-second loan. Then you've got the loan against shares or the loan against mutual funds, which is a single click. How do you get that across? then that is formed. Then we talked about the virtual relationship management. Again, which is how we cannot offer afford cost and various other logistical, we cannot afford to have the 60 million customers that we have serviced through physical RMs. And we have seen where there is an RM, there is a relationship management approach to banking, the kind of an engagement of the customer and the revenue is multiple than if you don't. And so born out of that was the virtual relationship management. Again, implemented for 5 years ago, and we're taking that also to the next scale in the Digital 2.0. But in 1.0, that was something that we started and scaled up to 6 million customers, 7 million customers operated out of that. So these are -- think about then, we've got the chat bot, the unique chat bot that gives that comfort zone, enabling customers to type in a query and get the answers and so on. And then you got the payment side, the smart hub and the the smart buy and the pay's app and so on that goes with it from a pay point of view. Then it comes to wholesale banking where through the APA process and whole source integration with various corporates, which has stood -- in the last 2 years, which has stood us very well in the last 6 months through during the COVID period or even before the COVId period, last 4 quarters where when the banks want to look for -- when the corporates want to look for banks with good amount of capital and good amount of liquidity can immediately switch and do preferred banking with us, right? And that's part of APA and whole source integration where right from lending to trade automation to your fixed automation or sitting in their office through their host process, they can simply do an FX transactions with us, right? So all of this part of the CBG corporate banking. Now on the SME SMA side, the digital processing, enabling us to bring in new customers by the day and going into deeper geographies. And I guess, as we talk about SME digital, we are also talking about how customer documentation as well as the kind of algorithms that run to analyzer, where the analyzer that determines what sort of relationship this is going to be and how do we -- cash flow based analyzer that can get the lending across to SME. So that is also part of the Digital 1.0 that we have done. And the insurance advisory that goes with it where we have advisory coming. Then it comes the CSC digitalization where we said, semi-urban and rural, and that also enables through digitisation because that diverse geography, if you start to operate like a metro or an urban type of branch in all of these places, then it's going to be exorbitant, and it's not going to be viable from a cost-to-income point of view. So the CSC with the network to the Information Technology Ministry's output of CSC, where we network and through their computer processes in the lead. And we -- about a 1 lakh of them, we have our business facilitators. More than 12,000 of them, we have already signed business correspondence, which they can do as much as a branch can do and so forth. That is part of that network of where we did Digital 1.0. Then comes -- we started many things in the digital 2.0 Phase 2 as we came into late last year and this year. Then in turn, COVID accelerated a few of this and where we went live with the instant opening, right? We had the DAP journey in 1.1 and we need to improvise more on that in the -- through the digital 2.2, the install account, which went live in April, and that was part of the sustainment of the account opening through the COVID period. And the video KYC that immediately followed the instant because naturally through the COVID period, you need certain things to complement. And the Smart Hub, which went live recently. And then there is APIs that -- API is a journey, right? You roll out a few at a time that is available for people to consume or we consume somebody else's API and take it in, right? Either way, it operates. And in the MyApps, which you have seen. Let it be the clubs of the societies, the organizations, the temples, the institutions, the hospitals, the educational kind of colleges and universities. Through the MyApp process where -- how we integrate through API as well as providing the MyApp approach to them, which is how we have integrated and operated. It is a part of the digital 2.0, which are already live and kicking and working all of these kind of digital journey. Now getting to Digital 2.0. You can think about Digital 2.0 in a few manners. A few kind of dimensions, let's call it dimensions. One is where it is enhancing and making it much more better on the existing business and facilitating that. And it has also got some back-end productivity kind of tool that comes with it, both our sales force as well as the other back end presentation on Digital 2.0. And it has got some new business, which is also a front end on new business generating that comes, right? You can think about these dimensions as Digital 2.0 on the customer experience, making the bank customer journey frictionless. For example, if there were certain applications coming in, and there were certain handoffs and it takes a day or so to process something. How do you instantly go and do these things, right? And how is that API-based approach in the front end think about Adobe as one example on the front end, right, where you can have -- hooked on through the APIS, it becomes frictionless where you can open an account if you want in a minute or 2 minutes. And the minimum amount of information because you pay a process, you bring and populate across various kind of both internal and external information comes in and goes out, right? And then there are several other applications on the customer enhancing journey in Digital 2.0, which are in the pipeline, including rural or including the kind of, call it, things like customer experience hub, where across various channels where you can try. And all of this, again, through enabling through APIs and the analytics on the underwriting capability also taken to the next stage. That's part of what I might call it about the existing one, but enhancing all of them, taking into the next stage to support because you do need -- when you want to cut the turner on time and yield that kind of a frictionless journey to the customer, you need to support all of these with the back end analytics and the AI engine supported, which is what part of the 2.0, where we are in several stages of getting them in, right? And then there are some kind of an internal workspace, employee experience, right, one app or all the sales force, unification, omnichannel experience for us, which is an RM or a virtual relationship RM or a phone banking RM or any kind of person, how do they have a single approach, look at the same customer kind of a transaction and same customer merits are available can -- customer can hop from one channel to another channel, but get the same experience because the RM at the other end is accessing the same back end experience to provide the same kind of answers and same kind of solutions. That is part of another journey that we are trying to work on, but which is the back end, right? The customer doesn't have visibility to that. It's an internal sales force visibility. Then another back end is also refurbishing and getting to the next-generation of the data warehouse because as I told you, we have a data warehouse for a long time, one of the largest and the most depth data in the country, and we are getting that to the next. And then same as the back base and flex cube getting to the next version, call it, the upgraded version of digital banking, which is the Internet banking or the mobile banking type of processors, which are enhancing what we have existing, right? Then comes the other one which Parag will talk much more detail is the building the ecosystem model. Let it be the health first or the trade first or the auto first or whatever, right, all of them and the payment kind of processes and ecosystem. So all Parag will delve deep into it, but that is the kind of another Digital 2.0 that goes into it, right? Then for all of this, the 2.0 also includes two more things. One is establishing kind of a focused organization itself to address the technology. So that means you don't burden the existing -- since we are now rethinking and reimagining the entire journey through these kind of customer experience model and taking to the next stage, then how do you bring new organic kind of a digital-only IT organization, digital bank-only IT organization type of, right? How do you drive into that aspect of it? That is part of people, enhancing skill set and bringing in more both quality and quantity, the right type that addresses and drives this. So that we look much more nimble, and we are actually delivering in a much more nimble manner because that's what is called for once you touch upon some of these technologies that I touched, the turnaround time to make changes on the fly. It has to be -- today, you think, tomorrow, it is delivered and customers is able to touch it. That's the kind of experience. So how do you build an organization also of people and processes, that is part of a Digital 2.0, too. And then the last thing is, which we talked about 3 months, 4 months ago, too, which is how do you have a bank within a bank, which means a kind of a challenger bank, which is a digital-only bank, within the overall bank. So that means the digital-only bank that the challenges the traditional bank, which is here, right? The traditional bank digital as I may be explaining Digital 1.0, Digital 2.0 is becoming much more digitized bank. But then how do you have only a kind of -- only a digital bank, that challenges even this to be always on the edge so that we are progressing. So this -- I would call this as something that is transformative, and that is why you're trying to address it in 2.0. Now the next few minutes about the kind of a press release or the note that we put out today in terms of the IT and various other reserve banks and implications on all of that, so that it can preempt some of the questions that people ask, right? You know that we have had -- unfortunately, we've had a few downtimes over the past 2 years. One, we had in November '18 and the second we've had in December '19, right? And there have been internal, external people who've been involved looking at the root cause and creating remedial action. And we are, for most part done with that. And that includes RBI looking at the root cause as soon as the incident happened and giving recommendations, and we're implementing corrective actions to overcome it. And they're all different. That means it's not a repetitive issue, but one issue that is not connected with the other, but then there are a couple of issues that we have had, which has caused downtime, right, for a few hours that has not enabled customers to do their regular transactions. Now as we were mostly done with those kind of remedial actions, and we were hoping the reserve bank will come and review it and say, okay. We have done, and if anything more, they will tell us. Then another unfortunate incident happened on November 21, where we had the power outage. It's completely different, right, from the field, a completely different matter. We have a data center, which is an outsourced facility in the sense that the facility is managed by a third party. But the processor systems are ours, right, that operates there. And then there is a state power grid, the 2 sources of power grid, 2 breaks, 1 under maintenance for the weekend. The other 1 was functional, but see. And then there is a third backup, which is the generator that had to go. The generator normally switches on to automatic, but particular they didn't switch on and then there is a mechanic. The technician who goes, which is again, part of the outsourced data center facility manager who goes. And then to switching on the switch -- there was an error in switching on, right, manual error and switching from automated to manual. That caused disruption for a few hours, where the business was there, the customers were not able to access our new transactions. So that was the pain point that triggered one more round of reserve bank review and actions and et cetera. And that is what culminated in what today we put out as broadly. One is that Digital 2.0 new business generation activities, we will not launch. And if there was anything imminent, it will not happen because I said we displayed some of those Digital 2.0 activities, they are more strategic in nature and these were temporary, these RBAs, given certain things not to do. They are temporary in nature. One is do not launch Digital 2.0 initiatives, which are business -- new business generating initiatives, right? So that means we will wait for RBA to look at it, review and approve before we get on with those things. The second one is the new card acquisition, right? Bringing on new card customers on books. So we said, wait, we don't bring any new card customers. So these were the two things. And then we'll have to review the root cause of what happened and take the remedial action, and then RBA will come and look at it and say, you seem to have taken all the actions and then say go. And this is deemed the temporary and it's written as temporary. And so we believe that in a short order, we will complete it in terms of what we need to do and we invite for another inspection and the review and thereby get us moving to this is as usual mode on, on all of these. And what it doesn't do is that all the existing customers, existing transactions, existing products, none of them get touched, which means we can have a new personal loan. We can have a new auto loan, new corporate banking customer, new corporate banking loan or SME, anything we can have. These are the two things that they've talked about that you don't bring a new car customer and you don't bring in new Digital 2.0 technology to implementation, which are business generating. The 2.0 initiatives, which are purely back end or facilitation, employee facilitation, sales forces, those are not new business generating. They are facilitation progressing more higher productivity and better management and customer experience and so on. So those are all very good. So new business is what we are talking about. And the second thing is that we continue to develop the no stoppage or prohibition to say even 2.0 don't develop, nothing like that. We continue to build up all of them. We continue to bring people into even the technology organization that I talked about, which is the next-generation of technology organization. Now do we bring -- continue to bring people to it. And we can continue to develop them, go through the UAT, test it and be ready for implementation. And then as these kind of inspections happen and they clear it, then it can go online. So that's what in a nutshell we can think about. Today morning, what we talked about. I, again, say, the next-generation of mobile and next-generation of Internet, we will hold back because that's part of 2.0, we'll hold back on that until all the inspection, et cetera. Then, but it doesn't affect any of the existing mobile banking, existing Internet customers, usage product services functionality, none of that is affected. So that is how we have deemed not material because these things are more strategic, a quarter here, a quarter there, it doesn't make a difference. And these are temporary in nature in terms of how we think about and how we overcome by taking those remedial actions. With that, maybe I will stop, and I will ask -- I will request Parag Rao to delve a little more deeper onto a few of those -- both the ecosystems and the payment processes and et cetera. And then from there, Sumeet, you can take on from there.

Yes. Yes. Am I audible?

Yes, Parag.

Yes, you are audible.

I'm audible. Okay. Good afternoon, everyone. Thank you, Sumeet and team, and thank you to all the participants. As we said, I appreciate the opportunity to speak to all of you. And thanks, Srini, for setting the context at a bank level. I'll drill down a little more into the payments business. So starting off very, very clear. As I said, we're dominant in the payment business and the endeavor is to continue being dominant in the business, including adding elements of digital. And I'll talk to you a little bit about where we're talking. There are multiple parts to our payment business, there's the entire issuing side, credit card being the largest within that. And there's a large acquiring side, again, a very strategic investment and business for the bank. There's a consumer finance like also to the entire payment business. But fundamentally, the 3 key pillars, which we are focusing on and we continue focusing on is, obviously, the ability to drive scale into the business. Payments business is about scale. And scale brings about obviously clear benefits and that you're addressing all the relevant target segments, which the bank wants to, and that strategy is in sync with our larger retail banking strategy. All also obviously also at a very -- at a P&L level, if you may, it seems -- it brings in that level of derisking because you would have a wide diversified portfolio. It also answers and addresses maybe some of the questions or the activities, which many players maybe going in the market in terms of -- maybe having a penetrate of pricing strategy in some segments in [indiscernible] scale is 1 tier here, driving vector for our strategy. Okay. That's number one. Number two, we've always maintained that, and we continue to maintain that because early on in the days of our payment business, we understood that customer engagement, I think, which Srini alluded to very strongly. Customer engagement, which means post-acquisition of the customer, what does the customer do? What does the bank do to engage him to enrich his experience, not just on the product, but on the largest suite of products, which the bank is capable of offering him. And how you deepen this engagement? How do you increase these transactions? How do you increase the value throughput on the payment platform, I think becomes extremely critical in driving a very rich portfolio in terms of the key metrics of spend, revolve, throughputs, transaction, active customers and thereby leading to, obviously, a much more richer and longer lifetime value of the customer. So portfolio management, whether it be on the issuance side, whether it be on the acquiring side and whether it'll be put together, I think remains the second very equally important pillar of driving of our growth. The third pillar, clearly is our approach to the market, which is a combination of platforms, partnerships and alliances. And this is where we sort of get into and very relevant to the current environment where you see a large number of newer players getting into the payment space beyond just the conventional banks or the processes, whether they call -- you call them fintechs or whether you call them large merchants, or PSPs, you can put in many other labels, but there are a lot of new players coming in, each one bringing a set of competencies, either in terms of UI/UX or in terms of brilliant platforms or in terms of penetration into some segments, et cetera. And so therefore, this strategy of building platforms, partnership and alliances, I think, is another extremely important leg of our growth strategy in the payment business and our continued endeavor to be dominant in that business. So that's the third leg, and I'm talking about each one of them. I think the fourth, obviously, is product. Keeping on enhancing products using digital and the second leg of that piece or the other side of the piece, which is are typically visible, is ensuring that we continue digitizing our entire back end processing, processing platform, our underwriting platforms so that you're able to deliver in a very cost-optimized manner, very seamless manner. Products and services to the vast geography through, especially the digital means, which we are talking to and also including to the partners, which we sort of handle. So these are the 4 key pillars, which we continue focusing on. Digital, as Srini talked about, whether it was Digital 1.0 or 2.0, is only helping digitize all of these activities in a new world where customers are also adopting digital as a means to transact, either acquire products or product and service or sort of continue engaging with the bank. Okay. So point #1, as I said, we are dominant and we continue remaining dominant. We have robust growth plans at a very basic level on the customer card -- sorry, issuing side, the credit cards, okay? We have very aggressive acceptance acquisition plans. During the pandemic for various reasons, obviously, we slowed down a little bit, but I think they're already back to -- as we speak, back to levels which are higher than January '20, which was pre-COVID in terms of new acquisitions. That growth engine continues to grow because we invest -- we continue investing in new acquisitions. And so therefore, that will be a continued funnel into a very large, close to INR 15 million credit card portfolio, the same approach we are doing on the debit card side, because as a bank, as you know, we are investing again in rapid acquisition, both physical and digital in the new account space. New accounts means number of debit cards, which means these are, again, payment instruments in the hands of our consumers. And so on all of the fronts, we continue investing in very large acquisitions, and we'll see the rapid growth journey happening. Like I said, we've already crossed the levels of January 2020 in terms of monthly new acquisition, and that's on an upward track. On the acceptance side, too, we've continued that, again, barring a small dip during the pre-COVID -- the lockdown phase, April to June, July, et cetera. We've once again picked up our acquisition and driven our rapid acquisition. Pairing it to the acquiring side, this is the same story. We've crossed our new acquisition, new merchant acquisition level of January. There, a significant portion of our incremental merchants are now on the app. Some of you would have you heard about the launch, which we did just a couple of weeks back in terms of SmartHub 3.0. I'll talk about that in the product section, but that is helping us to further increase our acquisition category. Mind you, I must sort of reiterate that when we source merchant, especially in the merchant space, it's not just about the merchant or a POS machine or a payment gateway or an app. Ours is a holistic bundled strategy when we go to the merchant. So when we go to the marketplace, we source not just the merchant instrument, which he transacts with, but we also source the underlying accounts, the current account and, of course, the family accounts. And so therefore, we are actually driving a merchant ecosystem, which consists of one side of the payment network range, which we're laying down. And of course, at the bottom, buttressed by a very strong and robust liability relationships. And that's always been our strategy in the merchant acquiring space. We look at the merchant recurring space as a combination of payments and liabilities and layered on top of that would be assets. And so therefore, unlike most of the other players in the industry who have moved the processor route, okay? We continue to remain invested as a bank because we -- because it's a very strategic investment for the bank, not just in terms of laying the railroad for payments and our large issuing business, but equally so in terms of -- it gives us very strong inroads into the MSME or the SME or the trader space, as you may call it, it's an very important constituent and customer segment for the bank itself. Both in terms of all the 3 areas: payments, liabilities and assets, okay? So the same, again -- once again, same, too, on the consumer finance side. We are already -- just to give you an indication, compared to last October, which was season -- this season, we did close to 2x of what we did last October. On a run rate basis, once again, we are higher than what we were in January in terms of a consumer finance rate. Our consumer finance business, which is a combination of claim loans and a lot of loans on the card business. Card business, both credit and debit. I think rides on the same rails, which are -- which the acceptance business has laid out. Most of the merchants who we deal with as a merchant acquirer are also people who offer EMI or, as I said, 6 EMI loan type of products at the point of purchase. And so therefore, in one way of looking at it, the EMI business or the consumer finance business is the asset layer I talked about which rides on top of it. It's also a very strong means of merchants being able to offer their customers more value by offering purchase plans, convenient purchase plans. There, too, as I said, investment in growth continues. So all the three are demonstrating robust growth. We continue, as I said, investing in that growth. In terms of portfolio, moving to that leg. Srini alluded to a lot of investments, which we have done for many years in terms of deep data mining, which we do, the data warehouse, depository investments in artificial intelligence, artificial investments in deep analytics, customer analytics. And we -- and because of the size of the business, when you add these skill sets with the deep rich data, which we have within our own ecosystem, I think it makes for a potent force for us to actually have micro segmented offers right down to the level of 1 merchant or 1 consumer. Understanding is a customer behavior, not just in payments, but also across the larger banking relationship, which you would have. And therefore, helps make our customer portfolio management or in other words, in lay mans terms, a customer marketing that's much more sharp and very focused. And we continue driving that. So as I said, deep understanding of analytics of customer behavior using analytics, using data, using a combination of data across multiple points in which a customer uses with us and then converting them into very sharp, focused micro segmented offers based on propensity, leveraging our merchant network to get the kind of offers, which a customer may want at his or her place of residence in their geography or online. All three put together make for a very strong and powerful strategy of customer engagement. The clear, clear focus is on how do you continue engaging the customer on a more frequent basis? How do you ensure that the customer keeps on coming back to you to use your instrument? How do you ensure that the customer keeps on deepening its relationship and enhancing its relationship with us? Becomes an extremely part of a very large focus area. That's one of the reasons why we drive probably one of the best portfolios, not just in terms of customer engagement metrics, but also in terms of credit metrics. So I won't get into that area. But the philosophy is essentially the same. Once you get a customer, engaging from day 1 throughout his life cycle and drive a lot of portfolio activities. So that's the second very important leg, which we continue. Coming to the third leg, where we applied -- I talked about partnerships, alliances, et cetera, et cetera. Clearly, in this expanding world with new partners coming in -- of the likes of -- on one side, you have the PAYTMs of the world, you have the GEOs of the world, you also have the large merchants, if we make also the Amazon and the Flip Carts of the world. You have the large fintechs, The Facebooks, the Whatsapp, Googles of the world, okay? And then you have a large number of TSVs, if you may call. So there are multiple names working, whether it's the builders of the world, whether it's the razor phase of the world. These are many new categories which are coming. Each one of them are investing, both in the physical space and in the open case but fundamentally offering platforms, offering deep insights into customer segments. There are a variety of other efficiency tools, et cetera. We clearly included as part of our growth strategy, strategic partnerships with players, players who bring to the table either 1 or more of the 2, which could be, as I said, acquisition capability, strong digital platform capability, good UI/UX capability, processing capability, segment governance. As I said, it could be combination of 1 or more of a combination of these 3. The bank brings to the table, quite obviously, a very large existing customer franchise, which is profitable, which is deeply engaged. It brings to the table, once again, a large physical distribution. It brings to the table very strong underwriting capabilities. It brings to the table very strong analytics and customer insight management. Put together, we don't believe partnering, choosing the right kind of partners, helps us, as I said, add to the growth engine, which I talked about in the first pillar. It also helps, obviously, brand salience because strong partnerships and alliances with good brands, GFC Bank being also one of the leading brands in India. I think sends a very strong message, confident message to consumers saying that here are two strong partners with strong brand values, bringing together the combined financial services and share the area in which the partner is strong in, to bring new value to the table. I think the extent of the partnership exactly is that it both mutually benefit, I think it really makes for a win-win game and we can offer them for a much more stronger target partnerships in the marketplace. So partnerships and alliances will be one more leg of our growth strategy. We are strongly convinced that it's an era of partnerships, but not just for the reasons also I told you. But also for reasons to say that classical marketing or business strategy, which is stick to your knitting. We don't know as a bank, we have our competencies. We are also clearly aware that we may not be able to emulate and be the best-in-class and many other competencies, which are required in today's business. That's where the partner is coming. If we can meld together the competencies of both the partners, I think it takes for a great win-win situation. It also -- I'd like to take -- talk to two more parts of this particular strategy platform. Platform integration, I think, has been a strategy for the bank over the last, at least 6 to 7 years. We've created brands like SmartHub, SmartBuy, Festive Treats. These are platforms and the core philosophy of this platform approach to the strategy versus isolated stand-alone product strategy is that we can bring the full suite of products and services, which the bank offers onto that one platform. That platform also -- and therefore, a customer can avail the entire suite of banking products onto that platform, and that's the philosophy if you observe in SmartHub as a platform. The platform also gives very simple, easy onboarding capability or integration capability for merchants or consumers to get onboard. And so therefore, the entry barriers are very lowered -- are lower. Third is it brings to the table a lot of the other ecosystem benefits, which we can sort of build to it, we're able to add what we call value-added services onto the platform beyond just banking services, which help the customer or the merchant, whichever be the case, actually sort of get either the best deals or enhance its own business capability. So platforms, therefore, is the philosophy, which we're sort of adopting and we'll continue seeing sort of more efforts in terms of platform integration approach to the marketplace rather than just a product approach. 2, 3 years, the names I mentioned, I think they're doing pretty well. The Festive Treats, for example, which you just now saw, again, is doing very well. We've brought together our ecosystem of merchants and issuing partners together so that customers get the best deal. And the merchants see a large number of footfalls. That's the core objective of the platform. So platforms visible. The other strategy which we are talking about, not just in the banking or in the payment space, but also across our other retail asset spaces. What we would call banking on the edge. One cache of this banking on the edge would be that if I have a merchant partner who's strong and who enjoys strong brand wins and a lot of customer footfalls, how can I enable the payment platform, which I have embedded in that merchant, let's say, to be able to offer additional banking services through the digital API route to the customers who walk in. Example, just to give an illustrative example, if the customer of buying a merchant of mine has, say, a digital POS or a touchscreen-based android POS machine, which accepts payments in all forms, whether it's wallets or tap and pay or what have you. It also offers financing facility, which is through the EMI route. But can that customer also interact at the same terminal and say, take a temporary limit enhancement on its card through the API. Depending on the type of merchant, can I offer, let's say, a fixed deposit or other such banking products at the same time? Can I offer him an extended warranty product going beyond, as I said, is payment transactions? On the same terminal, again, through APIs. So these platforms and partners, when I bring them together form a very strong base for our banking at the edge, whereby we are not just talking of just the physical 5,000, 500 sort of branches or the 12,000, 15,000 sort of ATM network. But I can actually extend banking to, let's say, 200,000 of my merchants, where -- which we enjoy significant footfall. So footfall -- and thereby extending the reach and availability of our products and services, all through the digital and API route, all through our -- and there, as I said, it's completely 0 touch. It will be practically 0 touch processing, one touch for the customer using a lot of analytics and propensity to drive that. So the platform, the partnership and the alliances approach, as I said, helps us reach out to another set of additional customers, potential customers in power line geographies or in deep segments where it's sort of sickly invested in. And so therefore, that becomes another third level important level of our strategy. Coming to the fourth level where we use digitization to sort of drive a lot of operational efficiency. Clearly, the path which I think the industry is going, not just in India, but globally, as you see, is that payments is now coming away in terms of clear scale. That sort of brings about a clear shifting, how do I say business model, if you may work also here -- so therefore, mid-scale comes the business paradigm of saying that, how do you bring about scale? Number one. How do you look at the business through, say, lower units, lower unit revenues or lower unit profit? But actually, grow your profit pools through significant and rapid buildup of scale, okay? And that's where cost and cost optimization, ensuring that there's a seamless journey, ensuring that you sort of squeeze out hops or impediments in the conventional processes which we drive, which comes into digital, we are very aggressively digitizing a large portion of our customer journey behind the scenes, which the customer not only touches, but also behind to do processing, to do remote sort of underwriting, quicker underwriting all in seconds versus the other. And that obviously drives a lot of -- two things. As I said, a lot of efficiencies. It also helps extend their products and reach, drives and become the core engine of driving the platforms, which are, for example, I talked about. Wherein that platform is then ubiquitously available to any customer, 24/7/365. Anywhere he wants in whichever form practically he chooses irrespective of. Where it's powered through sort of digital APIs at the back end, bringing in different partner offers melded in the [indiscernible]. So that's the fourth leg our very strong continued strategy to grow in the dominant space. Put together, as I said, gives us a lot of confidence that as we continue growing, we'll continue remaining dominant in this payment space. I'll pause here and sort of take it on to the next stage in case there are questions and answers on either part, what I said or Srini said. Sumeet?

Yes. Thanks a lot, Srini. Thanks a lot, Parag for your detailed opening remarks. I've got a lot of questions from investors. What I'll do is I'll bunch the question related to the press release today. And maybe I should start with that. So there are 2, 3 questions, I'll do them one by one. So first question is, have there been any data breaches as a result of such out stages?

No.

Okay. The second question is...

Because none of them are to do with that. What happened in the latest one was a power outage. So that means the systems were not available for processing, right? Because customer is trying to get in to do a transaction, the systems were not available for a few hours in this particular facility that we had 21st of November. Then the other two, which is the December '19 and November '18, it had the mobile banking was gone. People were still able to do internet banking. So if you go to your computer and log in and do, you can do. The branches were operating perfectly all right. All of the other transactions, the corporate banking transaction, all of them were perfectly okay. The mobile banking was down, December '19, November '18, for different reasons, not connected reasons, different reasons. And then the latest one was the power outage.

For it. The second question is, one is very clear with respect to what happened on power outage in November 2020. The earlier two events, what was the real issue because of which there was an outage?

In terms of technicality, perhaps, I don't know whether we want to go into which part of the hardware or the network or the security systems or whatever is the component that goes into various processes, some of them failed, right, that was the problem. And it is -- that is one of the cause. And we've tried to remediate through several processes that is redesigning some of the process workflows in terms of how the system works. And we've also added more capacity to see maybe it is the throughput and a certain kind of -- there are bottlenecks and perhaps, there will be several stages when a transaction comes in, it comes through the network, into the security layer and then hops across several layers before it goes to the servers, right? And then where the applications are hosted and customer database is available. So we have tried to solve various things to see what can be one of the causes. And there is no particular clear-cut thing, but we have analyzed through technical expertise in terms of where we need to argument capacity we have, where we need to certain version changes or upgrades that we need. We have done, right? Compatibility issues, if there are any, we resolved. So many things have been -- have happened. We are -- for both parts, we believe we are done with the November '18 or December '19 requirements to make it -- to make the remedial action to fruition, that we have done. But we need to bring people to inspect and say, yes, these were the causes, these were the action plans. But internally, we, along both the bank and along the bank's consultants, we all did. And then RBA as part of their inspection process in November '18 and December '19, have also looked at it and given remedial actions. You try these 4 things or 3 things, whatever. And we have done those things, too. So now they have to come and check it to say, yes, you've got it done. But the point is, yes, there were a couple of instances. And now when there's a third instance, sometimes it is not relevant, whether it was a, a or a b or a c that impacted. Our customers were impacted. So that is the outcome. That is what the Central bank looks at. There could be very disparate reasons that caused your 3 over a period of these 2 years, 3 instances of issues over a period of 2 years. But the point is across all of them, customers are impacted. So that is why more than a particular thing. There are different things that happen.

Okay. I'll take last one on this topic, which is how long will it take for the RBI to finish the inspection? Any timeline?

The discussion with RBA as well as the -- what we have put out in the notification tool, it's called temporary, right? It is determined to be temporary. And the temporary could be a 1 month to 3 months, I don't want to put a particular time frame to it because it is temporary in nature. And as time goes by, we believe, in a month's time that we would have done what we are supposed to do, and then invite for review and inspection. Thereby, from there on, it takes up the role of reviewing the kind of capability enhancement has happened and actions are robust. And thereby, good to go. So time will tell, but it is called temporary.

Thank you, Srini. So I think I have time for one more question, and I have it that -- I'll have that for Parag. Parag, can you talk about the credit card space and the potential disruption that can happen because of buy now, pay later, you can have some of these take times, launch credit facility under a UPI, and that's doing very well. So what kind of disruption can you see in the credit card space? And how will it [indiscernible] our management?

Okay. Fine. So buy now, pay later, which are financing products, UPI, which is, again, transaction products. I think both are welcome friends. Both are doing, I think, the right role right now in the context. And what I mean in the context of the way the payment ecosystem in India is. It's still a very small proportion of the overall consumer commerce, which happens, okay? It's growing. It's growing rapidly, but it's still a smaller proportion of what we call PCE, personal consumption expenditure. And so both the efforts of multiple players in the lending space, so smaller yet. But UPI definitely, I think, is helping expand the marketplace. What do I mean by that? There are significant large new user set of customers who have adopted or got onto payments -- electronic payments using UPI. It's a very convenient form, and I think adds off to NPCI for doing a great job in coming out with a true innovation, which is actually targeting cash, if you may call it so. It's also targeting the digitization of the smaller ticket transaction. So as you would know, UPI, the ticket sizes are significantly smaller than typical card transactions. And so it's helping digitizing that. So -- and of course, buy now, pay later is a very recent phenomena, which is going up, but both are actually helping expand the marketplace. We believe that's a good sign because, obviously, even though we are dominant in the payment space, it would be impossible or very difficult for only one player to sort of play that role of trying to expand the marketplace. India requires innovations of this nature to really expand the marketplace. Because it's preparing customers, onboarding customers onto the electronic bandwagon, which in itself, in the longer term, is a very good habit. We've also observed and very clear trends. In many of the other developing economies or other developed economies where people have onboarded themselves onto digital with small ticket sizes, small outlets, if you make also. And then as soon as they've got comfortable and expanded their menu of transactions onto that particular instrument, they've actually upgraded or migrated upwards into more evolved forms. We clearly see that also happening. We also see a situation where consumers are going to use multiple forms of payment. For some type of transactions, they may continue to use in UPI because they are very small tickets, they're convenient and the risk is lower. For certain medium type of transactions, they may end up using a debit card. For the high ticket transactions, they will continue using a credit card. So in actually, you will see that all the payment forms have grown, even if I were to remove the anomaly of the lockdown, which was, in a sense, artificial. You see actually each one growing. Obviously, UPI is growing at a much higher rate because it's expanding the market, the denominator was also pretty low. But card transactions, both credit, debit, I think, are growing very rapidly. So each one is growing at its own pace. And I think not happening in the possible future. So we don't look at it as disruption. We actually see that if there's a customer today only doing UPI, okay? We see it as an opportunity that he's a future customer amount and/or -- and therefore, it's all expanding the marketplace for us. So that's one thing. Having said this, we are a very large acquirer of UPI transactions, both on the P2P and very soon on the P2M. And so therefore, adding UPI as an incremental way of transacting is actually freezed into our acceptance strategy. Our acceptance strategy is very simple. Can I go to any merchant or potential merchant and offer him in a simple plug-and-play manner one platform, which helps him accept any payment form, which his customer chooses to pay by. And so therefore, I accept all cards, I accept all franchisees, all networks, I accept wallets, I accept UPI, et cetera, et cetera, or any other new payment from which would come in. So we are deeply engaged with many of the players in the marketplace who are large. And we acquired a lot of the transactions for many of these players in the marketplace. So UPI is also a very integral part of our growth strategy, especially in the payment space. Exactly the same logic, which is happening in the buy now, pay later space. It's essentially opening up an area, which is the unsecured small ticket size lending, which either two banks but not in -- or most financials were not in, okay? It's convenience loans available at a point and purchase available on 2 clicks of a button, et cetera. And we do have our FlexiPay product, which is actually doing very well. We are, again, riding and using that product, riding on our merchant acquiring rails, riding with a lot of our merchants who we partner with, whether it's the Mintras of the world or whether it's a PayU Naspers of the world, et cetera. And this exactly target processing. So in this space, as we do believe, more number of robust players coming in will actually expand the financing market or funding market, if you may call. So if I were to draw a parallel to although not a chain siren, but a parallel to what happens chain in an economy like Brazil, which is very similar to India. Is that there, if you see, point of purchase funding, funding is a significant higher proportion of the spend. I don't believe -- last I heard, it was close to almost 45% to 50% of of electronic spends happen are actually funded at the point of the merchant. That didn't happen overnight. Obviously, it started to close to, again, 20 years ago. But that's the growth part I see also happening in India, where products like this by buy now, pay later or card EMI, EMI on a credit card, EMI on a debit side will be drivers of funding at the point of purchase. This will help not just consumers go beyond their current cash flow, existing current cash flows to actually buy products and services, but we do believe it will be also a large driver of consumption at a retail level. And so that's about predominant happening. So that's our view on both these products, both these categories, which you talked about, Sumeet.

Got it. The moderator has allowed...

In a nutshell, we welcome these things.

Got it. The moderator has allowed me 1 or 2 more questions. So I have one more question, which is, can you discuss the implications of new umbrella entity initiative by RBR to promote retail digital payments? And how do you see it? Is it an opportunity or a threat? And there is one more question. There are some media articles that are suggesting that SBI Bank of [indiscernible] HDFC Bank and they joined application for this. Anything that you can -- you want to talk on that?

Okay. The first bit, okay. Taking on from a point I made in just this previous discussion, I think the electronic or the payment journey, electronic digital journey, I think, is only just started in India, okay? Given the kind of commerce, consumer consumption and even institutional consumption, what typically we would call B2B. I think we've only started and there's ample enough headroom to sort of grow. In that scenario, you already see NPCI is pretty big. So I think the thought process of the regulator was that given the opportunities and the headline available, not just in the -- and retail is a very large world. UPI is in some parts of the retail space, okay? But there are many other areas, I think, which have significant potential to grow, whether it is in consumer trading,whether it is in the deep geography, connecting the mundis and ensuring that everything is digitized, whether it is in remittences, et cetera. There are many other large players, et cetera, in large places and opportunities to grow, where I think the RBA is the way, it looks at it is that there is a need for having -- again, platform and infrastructure entity coming in and doing exactly the role, which say, MPCI did to expand that marketplace and drive explosive growth in many of these areas. Obviously, all of this is in the direction of what what was set out a couple of years back with demonetization, which is digital India. So I think the thought process was that there's ample enough space for maybe 1 or 2 more entities to actually offer unique disruptive is what I would call, so innovative products and platforms to drive the digital agenda of India. And I think that's where the whole genesis of NUA has come in. I think they've thrown it open to a large number of participant players in the existing ecosystem, whether it be banks or whether it be players. They put down some conditions, et cetera. And so we look at it as a very strong opportunity to grow the overall electronic fire, the digital fire, as you may call it. So you have examples in China where beyond the banks, you have the early pays and the Tencent, which single-handedly grew -- hello?

Sorry, there was some disturbance.

Yes.

Yes. So as as example, I think India is growing in a much more balanced and democratic way. And so NUA, we welcome NUA. I think it will only help grow the payment ecosystem in India and it will help, obviously, all the players. And of course, the consumers, of course, because it will drive a lot of innovation in this space. On the second question, we may not be able to any comment upon it. We are interested. We're clearly interested. We are talking to many players. There are many players who have also showed a lot of interest. But right now, it's in discussion stage.

Got it, very clear. In the interest of time, we'll have to stop here. Thanks a lot, Srini. Thanks a lot, Parag, for all your insights. Thanks, investors for dialing in.

Thank you.

Thank you. Thank you.