How HDFC disrupted itself

Aditya (Puri) decided to travel to California to take a close look at the disruptions that were being discussed.

In September 2014, Mastercard Inc., a leading global payments and technology company that connects consumers, business, merchants, issuers and governments around the world, organised the trip for Aditya, then chairperson of its advisory committee for the Asia-Pacific region.

It was one of the rare occasions when Aditya was visiting the US not to meet the investors. The agenda of the trip was to understand the changing landscape of the financial services sector. The buzz phrases those days were: ‘Silicon Valley will eat your breakfast and lunch’, ‘banks will be reduced to pipes’, ‘people won’t need banks but only banking’, and so on.

Mastercard helped Aditya link up with a few big financial technology (fintech) companies operating in the payments space, giving loan approvals faster than old-world rivals, virtual relationship management and advisory, e-shopping and building better financial products for customers.

For Aditya, the key lesson from these meetings was: These companies were not reinventing a bank, they were just riding on the platform of the banks with sophisticated APIs—a set of rules, commands, functions and objects for building software applications, popularly called apps.

As usual, Aditya did not take notes but at the end of each day (he was there for four days) he would call Sashi (using someone else’s cell phone) and tell him how the world was talking about disruption and India could not escape this wave.

“The fintechs were not in the process of transforming into financial institutions; they were riding on top of the banks, disrupting their business. Why don’t we disrupt ourselves instead of waiting to be disrupted by fintech companies? Why can’t we give a loan in 10 seconds? Why can’t we invent something to transfer money in just a click? Why can’t we reduce the friction in the banking system? Why can’t we reduce the cost to revenue ratio by 5%–7% over five–six years?”

These were his questions.

The key was not competition but collaboration and white labelling products. A white label product is a product or service produced by one company (the producer) that other companies (the marketers) rebrand to make their own.

Aditya’s ideas were evolving around one theme: If HDFC Bank was at the top in the physical space, why couldn’t it be the leader in the online space?