Volume 1 | Issue 1 - EY - US · 2017-01-18 · India Volume 1 | Issue 1 Analyzing the paradigm...

India

Volume 1 | Issue 1

Analyzing the paradigm shift from cyber security to cyber resilience

Leveraging analytics to impact business metrics and creating differentiation in a competitive world

From ideas to implementation

Cyber resilience: A new outlook on cyber security

Data analytics: Transforming businesses

Digital India

How do you become a disruptor before you become disrupted?

Ram SarvepalliLeader — Advisory Services, India and Partner — Emerging Markets Center

WelcomeFew trends have had a bigger impact on businesses than Digital, Cyber and Analytics. The disruption all three have caused is changing the very way the world works. Today, businesses, government and individuals are responding to shifts, unimaginable a few years ago.

While the biggest, and most obvious, impact of disruption has been the creation of technology and innovation-driven business models, it is also influencing public policy. With governments increasingly looking to make public services available to citizens electronically, there is a great emphasis on employing these megatrends in everyday governance.

The slew of government initiatives such as Digital India, Make in India, Smart Cities, StartUp India, among others, has led to a cascading effect on organizations ramping up their digital, cyber and analytics businesses to enable the implementation.

In this, the first edition of Performance India, a new biannual magazine from EY Advisory, we look at the impact these megatrends are having, and how we expect them to shape the future. As advisors to organizations and governments, we realise both the importance of and the interest around digital, cyber and analytics. Performance has a selection of stories from across the industry that understand and analyse this disruption, as well as offer a roadmap to the future.

From analysing the government’s ambitious Digital India project and the keys to its eventual successful implementation; looking at the large-scale use of big data and predictive analytics among Financial Services organizations; to the evolution of an organization’s defence system from cyber security to cyber resilience, each Performance article has been thoroughly researched and curated to cater to the needs of C-suite executives such as yourself.

I am sure you will enjoy reading it, and I look forward to your continued patronage.

Contents4

44

18

56

How can data analytics change the way businesses reach their customer

Case Study:Pre-paid smart metering services

4

12

Cyber resilience: A new outlook on cyber security

Case Study:Leading global IT services company

Digital India: From ideas to implementation

View from The Top – An interview with Neville Dumasia

18

14

28

Purpose led transformation in the Government and Public sector - A

paradigm shift at sub-national levels

Case study:Strengthening MSMEs

44

54

Payments in India

Case study:Leading global insurance company

56

68

31

How can data analytics change the way businesses reach their customerLeveraging analytics to impact business metrics and creating differentiation in a competitive market place.

AuthorVinay RaghunathPartner, Advisory Services, EY India

6 | Volume 1 │ Issue 1

Over the last decade, most organizations in the fragmented Indian marketplace (across industry verticals) have increasingly leveraged analytical capabilities to not just transform their business by impacting financial metrics positively but also act as significant differentiators in a complex

market-place. The Indian auto industry has been one of the first sectors to invest significantly in enabling technologies across their Route-to-Market value chain. These organizations are looking at leveraging their historical technology investments and go beyond mere dash-boarding/descriptive analytics to deploy predictive analytical capabilities that are aimed at solving key business issues in a dynamic manner.

How to judge the Analytical Maturity of the OrganizationAfter making multiple modular investments across their front-end, most companies are at various levels of implementation maturity when it comes to their technology/analytics roadmap. The following Analytical Maturity framework can help to identify the current organizational maturity level in their analytics journey and benchmark the same with others in the industry. The model consists of four levels, with each level progressively taking the company closer to being an analytical benchmark in the industry.

The Indian auto industry has been one of the

first sectors to invest significantly in enabling

technologies across their Route-to-Market value

chain

Volume 1 │ Issue 1 | 7

The first level is known as the Nascent level. In such an organisation data is largely gathered manually (primary data only) and aggregation is limited to MIS reporting. Technology is deployed in modules, which may not be integrated with company systems seamlessly. Due to this, granular market mapping is not possible as different geographies have different kinds of data. Hence, the whole process of insight generation and linkages to decision-making is people dependent.

The second level is known as the Exploratory level. Organisations falling in this category gather data in a consistent manner spanning both primary & secondary data. Technology is deployed at both clients, i.e. front-end and its customers (DMS/POS) to link systems between dealer data & company. The market or channel framework is linked to journey cycle design & market is mapped at lowest level of granularity across all geographies. In this case, insight generation and linkages to decision-making are systemized but still in a centralized environment.

Expert level is the third level of analytical maturity. Organisations classified as having expert analytical maturity have a data led approach to market/channel mapping & customer segmentation. Technology investments are initiated in mobility with significant linkages to sales force effectiveness (leveraging the descriptive analytics models while reporting and tracking). Such organisations ensure the extraction of ROI made in the technology and sales processes by seamless integration across the Route-to-Market value chain.

The last level of analytical maturity is called Benchmark level. Such an organisation is looked at as an analytical benchmark company that leverages analytics as a key differentiator in the marketplace, has the ability to quantify impact of analytics on business metrics, and ensures seamless integration of predictive and descriptive models across all levels of the organization. It also has standardized templates aimed at extracting business value from an “insight-to-action” approach, accessible to all levels of the organization.

Analytics Led Route-to-Market Business Transformation: A FrameworkThis framework spans multiple customer-facing aspects related to sales strategy, sales process, enabling technologies, analytical modeling and on-ground execution.

Key RTM business and process levers1. Micro-market mapping: Indian automobile organizations

have evolved in their approach to market segmentation and over the last few years, moved beyond a single axis view to markets (i.e., geography, population strata) to micro-markets based on multiple drivers. A granular micro-market framework enables companies to customize their investments from both a market coverage perspective and a market spend perspective. This, in turn, ensures optimal deployment of resources and money, while maintaining the focus on individual market requirements.


A micro-market can therefore, be a single street in a large town, an aggregation of multiple talukas in rural markets, or even an aggregation of multiple districts. The ability to independently service the defined micro-market on the market coverage and market spend criteria is critical to define the final market map for organization.

2. Route-to-Market Design: A granular micro-market template linked to market coverage and market investments helps define the RTM approach and operating model. Linking this micro-market template to detailed customer segmentation further fine-tunes the organization’s ability to target individual customer segments in identified micro-markets and make optimal use of limited resources.

Predictive analytics, combined with a streamlined sales planning/execution process helps direct investments and also captures regular feedback, which makes the entire operating model dynamic. For example, leveraging a micro-market and a customer propensity tool will make the entire journey cycle dynamic and efficient.

3. Product portfolio mapping (“Micro-market x Dealer/Customer x Portfolio” framework): Linking customer value proposition, micro-market purchase propensity and the current product portfolio significantly improves RTM effectiveness. Therefore, a “micro-market x Dealer/customer x portfolio” framework helps identify a portfolio map for each market/customer combination. Analytical inputs can further aid in decision-making to help companies identify the frequency and focus for each market-customer-product combination. New products can be easily tagged to the closest existing framework proxy.

4. Spend Optimization: Most Indian organizations have, over the last few years, moved beyond measuring the impact of traditional brand-oriented advertising, to now measuring most primary drivers of customer behaviour spanning advertising, direct marketing efforts, dealer promotion and distribution-related spends.

Predictive spend analytics not only helps identify response curves for individual spend elements, but also balance spend parameters to achieve maximum impact on revenue or profitability.

5. Distribution Effectiveness: Multiple channels and different customer needs pose an important question on how an organization should balance resources to cater to them. Analytics can help organizations recraft their sales force organization structure to balance resource effectiveness by measuring critical metrics related to sales force quality and effectiveness, which in turn help identify individual training needs.

Companies need to plan their push and pull strategy in order to reduce lost sales and improve revenue. The plans should percolate to each and every channel partner and the various parts of the organization must integrate data to incorporate secondary sales, and manage operations for timely stock delivery. They need to be able to predict ahead of time what would be the requirement in each market to plan their supply chain in line with the same.

6. Channel ROI Management: Organizations across industries need to leverage a data-led channel management framework to evolve from initially filling distribution gaps to actually creating a channel partner selection criteria template,


Micro-market mapping • Micro-market definition and

mapping

• Market coverage and servicing strategy

• Linkages to sales force organization structure

Route-to-market design • Customer segmentation &

buyer value mapping

• Micro-market purchase propensity

• Route/channel/outlet purchase propensity

• Linkages to journey cycle management

Descriptive modeling • Get your micro-market mapping right

• Get your route-to-market approach right

• Get your overall spend-planning right

• Performance dashboard and business metric framework spanning financial metrics, process metrics and adherence metrics

• Continuous training and capability development (multiple modes of execution spanning classroom, web and mobility based modes)

• Sustaining change through PMO framework linked to business outcomes

Product portfolio mapping • “Micro-market x retail/customer

x portfolio” framework

• Product gap analysis and linkages to portfolio customer value proposition assessment

• Portfolio purchase propensity

Spend optimization • ATL optimization (advertising

and brand spends)

• BTL Optimization (trade schemes, consumer offers, market/outlet activation)

• Distribution spends

Predictive modeling • Market/channel/outlet/product

propensity

• Forecasting and integration with JC Plans

• Predicting sensitivity of distribution metrics

• Spend analytics (S&D/BTL, MROI, DROI)

• Network ROI modeling and distributor metrics

Distribution effectiveness • Sales process & pipeline

management framework

• Sales force quality and coverage effectiveness

• Distribution network and viability assessment

Channel ROI management • Customer ROI management

• Retailer/channel acquisition/retention

• Distributor processes and infrastructure management

2

4

1

Technology enablement • Data Extraction | Data Capture

Automation | Data Quality Management

• Integration of process/analytics with existing systems (ERP, CRM, DMS, Mobility etc.)

3

Key RTM (Route-to-Market) business and process levers

1 2Analytical enablers (spanning both descriptive and predictive capabilities)

3Technology enablers and their integration with existing systems

4Performance dashboard focused on quantifiable and sustainable business metrics delivery


Illustrative analytic application areas

Key levers Models Descriptive Predictive

Micro-market mapping

Region product channel/Retail segment framework and Micro-market mapping √

Route-to-market design

Micro-market/Route purchase propensity model √

Retail/Channel purchase propensity model √

Product portfolio mapping

Product forecasting (category, company, competition) √

Spend optimization Micro-market campaign/Trade marketing input management framework √

Spend management across the region/product/channel framework √

Spend analytics and response curves (S&D/BTL, ATL) √

Scheme propensity modeling √

Distribution effectiveness

Linkage to route/outlet/DSE target setting √

Journey cycle management √

Sales officer/Dealer/Dealer sales executive business metric framework √

Distribution metrics sensitivity analysis √

Channel ROI management

Network W/C management and process integration √

Dealer network viability & ROI framework √

Data quality

Analytic tools

Unobserved Components Models

Multivariate Regression

Artificial Neural Networks

Exponential Smoothing;Moving Average

Data Analysis(OLAP)

KPIs(Top Down Measurement)

MIS/Integrated Reporting (Standardization, Wireframe)

Data Architecture(MDM, Hierarchies…) Descriptive

Predictive

Figure 1: Figure description comes here


In conclusionCompanies across industry verticals have started leveraging descriptive and predictive analytics to improve the effectiveness of their RTM operating model, with a clear intent of quantifying the large scale impact that such a framework can bring to their business. Organizations need to come forward with greater velocity to build a comprehensive analytical led business transformation operating model, which helps them, take their analytics journey forward.

derived from quantifiable business metrics. An evaluation of the channel partner across multiple metrics helps identify areas of strength and weakness, upon which companies can act.

The key to building loyalty among channel partners is to provide them with a sustainable and predictable business stream. Analytical tools can help understand the various levers that impact channel ROI, track them over time and plan interventions to improve the same.

Analytical EnablersSpectrum of statistical methods can be used to evaluate forecasting accuracy. Model sophistication and accuracy will be dependent on data maturity and quality. The higher the quality of data, the easier it will be to move from low level descriptive tools to high level predictive ones.

Technology EnablersWe have already talked about the quality of data, but for data to be used and represented based on our dynamic needs requires technology enablers & integration with current systems. Technology will be useful in many areas like Data Extraction, Data Capture Automation, Data Quality Management and even Integration of process/analytics with existing systems (ERP, CRM, DMS, Mobility etc.)

Performance DashboardFor any organisation that goes through a transformation like the one we have talked about, it is essential to close the transformation loop by setting up a performance dashboard and a business metric framework that spans financial, process & adherence metrics. In addition, capability building and continuous training is of utmost importance to ensure incubation of the overall framework. All this would be sustained by a PMO framework that links back to business outcomes.

The key to building loyalty among channel partners is to provide them with a

sustainable and predictable business stream

Case studyPre-paid smart metering services

EY helped a financial services firm in securing a project to provide pre-paid smart metering services, through an off-balance sheet financing model. EY initially assisted the client to prepare the business case and in testing the feasibility during the pilot phase. After the pilot phase, we assisted the client in setting up an SPV for the project along with designing the operating model and the process, assisting in preparing the technical framework and assistance in procurement of the other service providers to deploy the meters and coordinate with the incumbent utility for a smooth transition from post-paid electro-mechanical meters to pre-paid smart meters.

Better Questions• The client was looking to establish a pre-paid smart

metering services company to capture the nascent smart metering market in South Africa, and had to answer the question: Can success be independent of geographies if the right people and processes are employed?

Better Answers• EY assisted the client in preparing the business case and

the Master Service Agreement, which helped form the framework on which the benefits can be measured and calibrated at the initial stage.

• We also designed and implemented the program management structure to rollout meters which involved interacting and finalizing standard operating procedures with suppliers and other service providers. It helped the client set and match expectations with the government stakeholders to meet stiff timelines and overcome the resistance from consumers to move to a pre-paid utility structure.

• EY also supported the client in establishing the working style of the new organization with leading practices and EY’s own culture practices which would help the client to sustain momentum in the long term.

Better Outcomes• “As a start-up business, we have had a

rollercoaster ride and EY has not only supported us in this journey but played a significant part in actively making our business transition from an idea into a trading entity. The overall team’s flexibility and the willingness of individual consultants to not just advise on the project, but really roll up their sleeves, get involved and ‘own’ some of the difficult project issues and see them through to a successful outcome has been extremely impressive. “ – Chief Operating Officer, Special Purpose Vehicle of the Client

• EY’s ability to bring their prior experience in smart metering rollouts, their structured methodology, data analysis and problem solving through simple but efficient techniques have resulted in meeting the targets set by the client’s counterparts.

Contact us Sudhanshu GuptaExecutive Director - Advisory Services, EY [email protected]

As the IIC (Industrial, Infrastructure and Consumer) Leader for EY India Advisory, what is the overall business outlook in different sectors?

As India’s economy and consumer confidence show signs of revival, India Inc. is taking actions to capitalize on growth oppor-tunities. Companies in a wide range of sectors, especially Retail & Consumer Products, Infrastructure, Diversified Industrial Products, Healthcare & Life Sciences and Auto are expected to drive growth by expanding their product and geographic foot-print, and they are counting on increased investment in India’s domestic sectors and positive changes in government policy to further fuel growth.

Initiatives like put ‘Make in India’ have the potential to India on the world map as a manufacturing hub and give global recogni-tion to the Indian economy.

Diversified Industrial Products:

2016 will be critical for industrial products. Buffeted by a slow-down in China and the large pull back in oil and gas prices, capi-tal allocation choices will increasingly centre on an emerging set of opportunities. These opportunities include: new technologies such as the industrial internet, advanced manufacturing and the skills needed to manage embedded technology & analytics. Business conditions in the manufacturing sector continue to remain positive.

Retail & Consumer Products:

Consumer product (CP) companies face an unprecedented con-fluence of changes, like declining brand loyalty, rapidly evolving technologies, changing demographics and consumer preferenc-es, and economic uncertainty. The emergence of several small CP companies with non-traditional business models in recent years indicates that there is merit in focusing on a niche market rather than the mass market. CP companies should consider evaluating their operating structures and aim to become more responsive to the changing market.

Retailers with optimized distribution systems and enhanced supply chains will be at a competitive advantage in the coming year. While supply chain and distribution costs are not neces-sarily rising, consumers increasingly expect faster delivery—at the same price points. This pressure is due to both increased consumer demand and competition from digital retailers with lower overheads.

Neville DumasiaDeputy Advisory and IIC Advisory Leader

View from the top1

Infrastructure:

This sector is a key driver for the Indian economy. It is highly responsible for propelling India’s overall development and enjoys intense focus from the Government for initiating policies that would ensure time-bound creation of world class infrastructure. The sector is witnessing significant interest from international investors. Many international companies are keen on collabo-rating with India on infrastructure, high speed trains, renewable energy and developing smart cities.

Healthcare:

Healthcare & Life Sciences have become one of India’s largest sectors - both in terms of revenue and employment. The sector is growing at a brisk pace due to its strengthening coverage, services and increasing expenditure by public as well private players. India’s competitive advantage lies in its large pool of well-trained medical professionals and lower costs compared to its peers in Asia and Western countries.

Automobile:

The Indian automotive sector, given its potential contribution to GDP and employment, presents a significant opportunity to be one of the biggest growth drivers. The country’s key strengths, such as a large domestic consumption base, a cost competitive value chain (that includes low design, testing and validation costs, frugal engineering capabilities and low labour costs) and strategic geographical location would go a long way to develop the country as a world- class automotive manufacturing base.

Within IIC, what are the primary

Digital is undoubtedly the defining megatrend of our times. How much of a play do you see digital playing – both currently and in the future – in this segment? And how is this translating into opportunities for an organization like EY?

The real imperative in a world where ‘everything’ is digitised is that businesses need to pursue innovation to disrupt their own business model before the competition does. Without innovative strategies, companies will lose their competitive advantage. There is no time to lose, as technology change accelerates exponentially and new digital platforms and devices are emerging. Furthermore, the expectations of ‘Generation Y’ or ‘digital natives’ mean that companies must keep up with the pace of change or lose relevance.

The challenge for businesses is to face the implications of digital change: in particular, the loss of control over customer relationships, increased competition and threat of commoditisation. The need to engage digitally with suppliers, partners and employees in addition to customers is where we see an enormous opportunity.

In this ever dynamic marketplace, how is IIC Advisory planning to keep pace and provide new services and solutions toboth existing as well as potential clients?

Regulation and traceability

The manufacturing sector is facing increasing regulation and compliance measures. Everything from health and safety to waste management is surrounded in red tape. While it is undeniable some regulations are essential, others can be a massive burden to manufacturing companies – particularly when they vary from country to country.

Product development and innovation

We live in a consumer driven world where product development and innovation are moving at a lightning pace. To stay relevant, manufacturers need to be able to keep up with the pace. As companies vie to be first to market with a new concept, the temptation to compromise on quality can be huge, however manufacturers need to be stringent and avoid cutting corners.

The manufacturing skills gap:

With manufacturing slowing down and companies exiting their operations from China, India could well be a gainer. Chinese firms likewise would be interested in utilizing their built up capacity by aggressively lowering prices in their bid to remain export competitive. Although, India has a great opportunity to flourish its manufacturing prowess, it will be troubled by the skills gap. The baby boomer generation is reaching retirement age, leaving a considerable skill gap in the workforce. While firms are doing what they can to inspire a new generation of manufacturing employees and experts, there is still a considerable void.

Environmental concerns and considerations

While it is undeniably good news for the local environment and employee well-being, sustainability and environmental regulations can be expensive for manufacturing firms. Manufacturers need to be aware of these costs when outlining quarterly budgets.

2

3

Ineffective innovative capabilities:

While most industries seek to more rapidly commercialize ideas and foster a culture of innovation, they face several challenges. First, keeping up with the frantic pace of innovation to maintain near-term performance of existing categories while also building the breakthrough new businesses of the future. Second, competing against a proliferation of nimble new entrants that are unencumbered by traditional assets and have access to an ecosystem that allows them to rapidly scale. Third, creating the right conditions to build and nurture breakthrough innovation.

In this ever dynamic marketplace, how is IIC Advisory planning to keep pace and provide new services and solutions to both existing as well as potential clients?

The idea is to enable traditional services with new solutions and rapidly introduce these to solve our clients’ problems. For example, we combine our traditional Internal Audit services with that of Analytics, IT with Cybersecurity, Supply Chain with Technology. Additionally by using robotics process automation to eliminate human errors and digital services for enhanced customer engagement.

Analytics:

Big data and analytics are hot buttons for executives because of the tremendous opportunities they provide for transformational change. Analytics can help improve business performance, drive better business decisions and proactively manage risk. At EY Advisory, we apply analytics with business acumen to help solve real business problems.

Cybersecurity:

The question is not “if” but “when” your organization will be attacked. New and more complex cyber risks emerge every day, threatening significant harm to our client’s brand and bottom line. The rapid adoption of new technologies can create gaps in information security coverage. Every CEO should align the organization’s cybersecurity approach to its strategic priorities to protect the data that is vital to the business success.

Technology (Digital):

Responding to the challenges of the digital era drives many companies into large-scale transformational projects. Digital transformation programs require agile approaches to the way people interact with systems, data and technology. Our digital major program transformation brings together a comprehensive approach to help you transform your performance through technology.

View from the top

4

Customer:

Everywhere you look, technology is transforming customer experiences and expectations, and it’s happening faster all the time. In this fast-paced digital world, you need to revolutionize your customer strategy. More than new technology, you need a completely new mode of thinking that puts customer trust at the centre of the entire organization, enabling you to create customer relationships that lead to unwavering loyalty and sustainable profits.

Robotics:

The manufacturing and automotive industries were the pioneers of process automation. In these sectors, automation has transformed the shop floor and assembly line. Now automation is transforming the functions – human resource, finance, and procurement. At its core, Robotic Process Automation (RPA) is the use of software to manipulate existing application software to process a transaction or complete a process. RPA can dramatically reduce the need for people to perform high-volume IT support, workflow, remote infrastructure, and back-office processes.

RPA can dramatically reduce the need for people to perform high-volume IT support, workflow, remote infrastructure, and back-

office processes

Cyber resilienceA new outlook on cyber securityThe paradigm shift from cyber security to cyber resilience

AuthorBurgess CooperPartner, Advisory ServicesEY, India


The increased dependency on connectivity provides organizations with an opportunity to grow and innovate, at the same time exposing them to a new world of risks and making them more vulnerable to cyber-attacks. As businesses become more reliant on these connections, valued assets,

like organization and customer information are becoming increasingly accessible, and susceptible to increased cyber security threats. Organizations that face data breach may impact the privacy of millions of their customers. The effects on business itself may be huge, which not only involves direct costs like penalties and compensations but also indirect costs like reputational damage.

With increasing frequency and complexity of cyber-attacks, the cyber security strategies are shifting, while prevention is still important, it is more about how to contain the prevailing attack. The shift is towards building resiliency in the system so as to sustain any breach. Resiliency can be defined as the ability to recognize, resist and recover from deliberate / non deliberate attacks, threats or incidents. Cyber resilience in particular, is the organization’s ability to withstand cyber events due to

With increasing frequency and complexity of cyber-

attacks, the cyber security strategies are shifting, while prevention is stillimportant, it is more

about how to contain the prevailing attack

•


known and unknown threats. Some of the recent incidents that highlight the growing need of building resilience:

• │ Reduced costs and increased customer satisfaction: Customer service journey offered to consumers through various touch-points can enhance satisfaction levels.

• │ Richer differentiation: eCare portals can offer differentiated offerings to consumers and can create a “wow factor” for them.

• │ Higher brand advocacy: Operators can keep a track of the brand loyalty of their customers.

To manage these increasing threats, it is imperative for organizations to change their security posture from a ‘defensive stance’ focussed on malware prevention to a more reliable approach, a ‘cyber-resilient approach’ which focuses on not only enduring the threat but on recovering from the event with minimal disruption to business . To achieve this objective, cyber resilience requires a multidimensional approach that includes people, processes and technology. This expanded scope helps the organization to bridge the gap between IT and business and align their security investments with their true business risks thereby enabling them to become resilient.

• Enabling connectivity required for an effective implementation of IoT

• Offering services platforms and enablers in areas around developer APIs,connectivity management, standardization and security

• Developing an intelligent network system for IoTfor the development of SC

InformationSecurity

CyberSecurity

CyberResilience

•


Understanding the resilience cycle

Organizations need to establish an understanding of the ‘resilience cycle’ to help information security teams continuously build upon the experience of responding to threats:

• │ During pre-disruption, through an ability to better sense and resist security threats, including advanced capabilities to scan internal and external environments, and eliminate vulnerabilities

• │ During disruption, by reacting rapidly to sudden events that threaten the organization; leveraging non-routine leadership and mobilizing effective responses that minimize impacts

• │ During post-disruption, by absorbing shocks while continuing to achieve strategic security goals and reshaping and reconstructing the operating environment in ways that eliminate future sources of threat

ChallengesKey challenges that an organization should overcome in order to become resilient:

• │ Lack of strong and flexible governance structure – Absence of a governance structure that emphasizes on security responsibilities is one of the key challenge faced by organizations

• │ Lack of skilled personnel-Lack of a dedicated team of cyber security to protect the organization from espionage and keep the organization abreast with the latest threats.

• │ Lack of well-defined security policies and procedures- Absence of defined policies and strict action in case of non-compliance to these security policies

• │ Evolving technologies-evolving IT trend and technologies increase the complexity and cost to defend against cyber risks

• │ Lack of an agile framework for incident and risk management –to respond to security incidents quickly in a collaborated and co-ordinated manner

• │ Lack of continuous innovation to improve the security posture- lack of a robust mechanism to regularly review and benchmark against leading practices

Figure: The resilience cycle

**Source: EY AdvisoryFig: Statistics highlight that most of the organizations are still in the nascent stage of cyber resilience

Of organizations do not have a role focused on emerging technologies and their impact on cyber security. **

Of organizations claim to have a robust incident response program management function**

Of the organizations say that real time insight on cyber risk is not available. **

58%6%

37%

Lead

React

ResistAdapt

Post

-disr

uptio

n

Disruption

Pre-disruption

Reshape Sense


Drivers: key attributes that are required for successful adoption of cyber resilience• Resilient workforce - the readiness of teams enabled with

training and techniques to detect, respond to and adapt to security responses in an ever-changing security context.

• Resilient technology - organizations need techniques and tools that allow them to respond with agility and adaptability to emerging threats.

• │ Resilient processes- that apply preventive, containment and mitigation measures in day to day practices.

Road to resiliencyDespite an organization’s multiple efforts, cyber-attacks will continue to evolve. The solution is not in adopting a model that makes cybersecurity a control function but lies in embracing cyber resilience which involves aligning IT, information security and business to predicting emerging threats, protecting assets, and minimizing the damage from cyber-attacks.

Organizations need to establish an understanding of the ‘resilience cycle’ to help information security teams continuously build upon the experience of responding to threats

Figure: Cyber resilience is about managing security with a multi-dimensional approach that involves people, processes, and technology

Technology

People

Processes


Key questions that an organization needs to consider while adopting the road to resiliency • Have the critical assets been identified?

• How can an organization identify and prioritize its key threats?

• How can an organization develop the capability to quickly respond to an attack?

• If an attack is successful how can an organization respond quickly to contain the impact and recover?

• How can an organization optimally use the resources they have to protect themselves from cyber-attacks?

• How do organizations communicate about cyber resilience to the relevant stakeholders?

Organization may follow a 4D approach to gradually move towards resilience

A. Determine the underlying risks

Before formulating a strategy for resilience, it is pertinent to map out risk profile i.e. to assess the current state of the business, identify the critical assets and categorize the underlying risks. Also identify the critical vendors, partners and customers.

Further, an integrated assessment approach may be adopted that includes not only the tools, protocols and applications but also the governance structure, security framework and the end to end information processing and delivery system. This will enable organizations to overcome the conventional security control assessments which focuses on single elements (like Identity and access management (IdAM), data protection etc.) and their tactical issues and thus negates the evaluation around the larger strategic and operational aspects.

4D DetermineDesignDeliverDeliberate

Road to resilience

• Enablers • People Stages

I-Determine II-Design III-Deliver IV-Deliberate

Determine the critical information assets, their risks and dependencies of the business through an integrated assessment

Develop a plan that will make the organization resilient to cyber-attacks.

Design the internal controls, governance of the security team to achieve resilience.

Implement the roadmap for the organization which requires operational and leadership expertise.

Continuous innovation to ensure that the organization can sustain a cyber-attack

Process

Technology

Reviewing the organizations maturity level of cyber resilience.


B. Design the cyber resilience roadmap

Once the key risks are identified the organizations will need a plan to shift the emphasis from prevention to resilience.

A good resilience plan should have:

• A well-defined governance structure encompassing the roles and responsibilities of the three layers of management (strategic, tactical and operational) that will assist with remediation, communication and crisis management plans and operational strategies for various incidents.

• Should be data driven to move from a reactive to predictive approach

• Have right mix of preventative, detective and corrective controls

• Should be flexible to accommodate new data collected basis recent threats

• Should integrate business and technology and ensure that they are in-line with the company’s broader cyber resilience objective


Maturity level Foundation Intermediate Advanced

Parameters

Cyber governance structure

Roles and responsibilities are not defined with respect to cyber security

Governance structure is defined which clearly states the functions of the cyber security team.

Well defined governance structure along with leadership commitment that has a defined action plan.

Critical asset identification

The organization is still in its nascent stage of identifying its critical assets. No steps are taken to safe guard assets.

The organization has identified its critical assets and has taken appropriate measures for its protection.

Leadership has an insight of the critical assets, its location and access control rights. Regular practices are in place to protect the data.Organization has identified its dependencies on external parties and vendors.

Incident management Has adhoc incident management process.

Leadership has no clarity on who is responsible for handling security incidents.

All security incidents are reported and analysed.Process not defined for corrective action plan implementation.

Mature and proactive incident management practice. Incidents are reported, analysed and learnings from the former breaches are used to establish stronger practices.

Information security practices

Basic cyber risk management practices are documented.

Cyber security practices are documented, circulated and updated from time to time. However not implemented.

Cyber security leading practices are documented and practiced on a day to day business. Severe action is taken in case of non-compliance.


C. Deliver the new resilience framework

Once the roadmap is designed, the organization should put the plan into action. This would require:

Leadership commitment -To implement the roadmap a clear hierarchy and reporting should be defined. An actively engaged senior management team collaborating with skilled cyber workforce for implementation of the plan helps create a culture of responsibility for security.

Operational expertise -The array of operational processes may include reviewing security architecture and access rights of applications, formulating new policies on password and access rights.

D. Deliberate on ways to further improve and innovate

As the organization starts adopting the resilience approach, it is important to ensure that cyber resilience continues to provide the level of protection they need in the constantly changing ecosystem.

Once an organization has implemented the roadmap it should review their maturity level and take steps to improve it further from foundation to advanced.

Benefits of adopting a cyber-resilient framework

• │ Unified approach to managing cyber threats including leading technology practices, risk management and key stakeholders.

• │ Build, test and improve mechanisms to protect against catastrophic attacks.

• │ Maintain a state of preparedness against attacks to reduce compromise of business functions.

Thus, with the risks growing on a daily basis, the leadership need to work towards not becoming risk free, but resilient, which would eventually help the businesses to out compete their rivals. A detailed and well defined roadmap is required to transform the organization into a cyber- resilient organization.

Case Study

Leading global IT services company

EY assisted a leading global IT services provider in the transformation of its global compliance management function with an objective of creating a robust regulatory compliance management process to reduce the risks associated with a dynamic regulatory environment across the 30 countries where the company operates.

EY was retained to assist the client in enhancing its global compliance management process in 30 countries for all major compliance areas. As part of this assignment, EY assisted the client in developing a framework to monitor compliance with various federal and state regulations across 30 countries and perform independent assessment of the compliance health of the human resource (HR) function at the policy, process and transaction levels.

Case study

Leading global IT services company

Better Questions• Is building a robust compliance framework key to

organizational success?

Better AnswersEY assisted the client by performing the following activities to achieve its objectives of impactful reporting with increased efficiency and at lower costs:

• Deployed a centralized compliance framework for 30 countries listing federal and state compliance requirements and enabling the framework on Compliance Manager, EY’s compliance management tool

• Leveraged EY’s global network of lawyers to create a detailed list of the applicable laws, regulations and compliance requirements across 30 countries

• Reviewed the compliance requirements with the client’s legal and functional teams to validate applicability and relevance to business

• Conducted workshops for the client’s stakeholders to get the stakeholder’s buy-in on the compliance requirements

• Deployed EY’s Compliance Manager tool to enable centralized compliance management, improved reporting, and better control over compliance process

• Conducted compliance assessment across 30 countries for the HR function covering employment, health and safety, immigration, payroll tax, Social Security and data privacy regulations

• Providing periodic legal updates for changes in applicable regulations

Better Outcomes

• Provided end-to-end results, including compliance framework development, gap assessment, identification of critical misses and plan remediation

• Significantly improved the compliance process by clearly articulating the compliance landscape and automating the compliance process: developed a centralized compliance framework, which includes an elaborate checklist for all jurisdictions, compliance policy and manual, and EY’s Compliance Manager tool

• Supported in identifying and addressing non-compliance related risks: significant potential non-compliances with employment and labour laws were identified while conducting the compliance review

• Set up a process for sharing insightful analysis of regulatory changes on a quarterly basis and supporting in the actual deployment of the changes

Contact us

Jignesh ThakkarPartner – Advisory Services, EY [email protected]



Digital IndiaFrom ideas to implementation

Authors

Samiron GhoshalPartner & Leader, IT Advisory Services, EY India

Manoj JhaDirector, Advisory Services, EY India


Vision Digital India:a synopsis

India is standing at the cusp of a digital revolution. With the Digital India initiative, the Government has embarked on a focused journey to bring digital transformation in the lives of all its citizens. Digital India is a program to reshape the country into an empowered society and a knowledge economy by leveraging technology.

The vision of Digital India is supported by nine key pillars: the creation of a national Broadband Highway; universal access via mobile; public internet access program; e-governance; e-kranti, which focuses on value-added services such as e-education and e-healthcare; information for all; impetus to electronics manufacturing; IT for jobs, an e-skilling initiative to promote employment and industry; and early-harvest programs, which focus on the execution of projects within a short time span.

Digital India knits together several existing and new information and communications technology (ICT) programs — currently housed within various governmental ministries and departments, and further fragmented between state and central control — under a unified branding. The aim is to restructure and refocus mutually synergetic schemes and implement them in a synchronized manner. The program seeks to empower citizens with the power of the internet by creating a digital interface between them and the Government to enable electronic delivery of services and provide a host of e-governance services including health care, education and banking. This will enable inclusive growth and ensure transparency. In addition, the initiative seeks to promote growth in various sectors such as electronic services, devices and manufacturing.


Key challenges Needless to say, there are enormous challenges in achieving the Digital India vision, given the country’s size, demography and existing infrastructure. Apart from the sheer amount of resources — both capital and human — that will be required for this project, there are challenges in the extant state of infrastructure. An earlier initiative, National Optical Fibre Network (NOFN), which seeks to connect about 250,000 villages through an optical fiber network, has seen only 1% of the villages being connected so far.1

At 19% of the population, the adoption of internet in India remains a concern, along with low literacy in rural areas, multiplicity of regional languages (22 officially recognized), and poor penetration of appropriate access devices. The issues of governance of these schemes by various state and central government bodies, and the lack of a transparent and effective public-private partnership (PPP) framework also exist.2

Broadly, in our opinion, there are four focus areas for the Government:

• │Overcoming India’s last-mile challenge

• │Delivering critical services through a universal, verifiable digital identity

• │Digital Literacy: bridging the large vocational training gap

• │Structural issues and business models to successfully implement Digital India

While most of these issues have been written about in various fora, looking at the structural issues and business models to successfully implement Digital India was one of the most unexplored facets of this program.

Tackling structural issues and developing business models for Digital India1.1. Introduction

According to a Department of Electronics and Information Technology (DeiTY) estimate, INR1 trillion is needed just to fund the existing schemes under the ambit of this program.3 The achievement of the vision will need finance, expertise and intent from the private sector as well as the Government. Both will need to combine their intent and resources to build the required ecosystem.

Given the different objectives for each sector, the need will be to build effective, collaborative and sustainable business models that provide a fair return on their investment while harnessing their strengths.

01Providing internet access to all Broadband in 250,000 villages, universal phone connectivity 400,000 public internet access points Wi-Fi in 250,000 schools, all universities; public Wi-Fi

02Adoption and manufacturing of IT products/services India to be the leader in IT use in services — health, education, banking E-governance and e-services across government Net zero imports by 2020

03Empowering citizens with digital inclusion and job opportunities Digitally empowered citizens — Public cloud, internet access Digital inclusion: 17 million trained for IT, telecom and electronics jobs Job creation: 17 million direct and at least 85 million indirectIm

pact

of D

igita

l Ind

ia b

y 20

19

Estimated impact of Digital India

Source: DeiTY

1. “Government mulls Digital India programme to connect all villages,” The Economic Times, 21 August 2014.

2. http://www.internetlivestats.com/internet-users/3. DeiTY


R&D spending remains low at 0.87% of the GDP, much lower than BRIC peers such as China (1.70%) and Brazil (1.19%), and much below more developed nations such as the US (2.79%) and South Korea (3.36%).4 Attracting investment from the

private sector (global and domestic) will require improving intellectual property protection and opening the markets. It will also require taking a close relook at the way we do business and questioning some business practices.

1.2. Structural challenges

We believe there are four main challenges that require attention with regard to structural issues and business models:

• │ Unified command: Absence of a unified command and control for managing technology projects in general

• │ Selection methods: Absence of an objective, inclusive and generally prevalent methodology to select innovative solutions that focus on the end benefit rather than the technology behind it

• │ Compensation and payment: Lack of appropriate and timely compensation for the efforts of private participants in technology initiatives

• │ Change management: Behavioral change among users, technological scope changes, establishment of adequate support mechanism to ensure compliance, And lack of quality and speed in implementation by IT organizations

These challenges result in projects with missed deadlines, dissatisfied users, unhappy vendors and wasted investments. Although the malaise also afflicts projects in private enterprises, it seems to be particularly pervasive in the government sector. In 2008, Portland Business Journal remarked that various studies across several years have concluded that a staggering 65%–80% of all IT projects either fail, or fail to meet their stated objective, or run significantly late, or cost far more than planned.5 India’s statistics in this area are probably much worse.

Government projects today lack a clear command and control mechanism, particularly for technology projects. The creation of specialized CIOs at the ministry and state levels is among the first critical steps.

Given the huge investment and resources required, particular emphasis needs to be laid on creating an environment that will allow private enterprise to combine with public intent to yield optimal results.

Pillar 1 Pillar 2

Broadband highways

Universal access to

mobile connectivity

Pillar 3

Public internet access

program

Pillar 5 Pillar 7

Electronics manufacturing target net zero

imports

Pillar 8

IT for jobs

Pillar 9

Early harvest programs

Pillar 6

Information for all

eKranti — electronic delivery of services

Digital infrastruc-ture as a utility to every citizen

Governance and services on demand

Digital empower-ment of citizens

Pillar 4

E-governance: reforming

government through

Link to overarching mission of Digital India

Pillars of Digital India

1

2

3

4. “India’s technology opportunity: Transforming work, empowering people,” McKinsey Global Institute, December 2014.5. “Why do most IT projects fail? It’s not because of technology,” Portland Business Journal, http://www.bizjournals.com/portland/stories/2008/10/20/smallb4.

html?page=all, accessed 5 June 2015.


1.3. Key recommendations

The participation process for delivery of technology services under Digital India, in our opinion, needs to have the following characteristics:

• Outcome-based design

• Use relevant & latest technology

• Inclusive & Innovative

• Optimize the use of existing resources and develop a mechanism to share ideas

• Transparent & responsive.

• Compensation and economic viability for partners

• A well-designed preparatory panel, dispute resolution and user support mechanisms

The Digital India program, for the most part, will need to invite private sector participation, both in terms of investment as well as the technical expertise to build the entire platform.

The whole selection and implementation process employed by the Government and its agencies needs fresh thinking. The current policies and processes, while intending to create a level playing field and giving the best bang for the buck, are in reality causing the exact polar opposite.

• Outcome-based design

Instead of being completely focused on the details of technologies used, the Government should focus on the end results, as other similar agencies across the world have done. This tends to create a level playing field and is especially useful in a world where a variety of technology models (cloud vs. on-site, owned vs, managed) are competing, and understanding technical nuances can become very difficult. This also shifts part of the control and the risk to the service provider.


Outcome-based contracts, where customers pay for pre-agreed “outcomes” rather than for prescribed products and services, are not new, but are gaining increasing attention.

Examples:

• │ The US Government forecasts savings of a trillion dollars over the next decade due to the successful rollout of an outcome-based payment model in government health care spending. 6

• │ The World Bank, as part of a two-year review of its procurement framework, has highlighted outcome-based contracting as a key focus area to enhance procurement efficiency.

• │ The Australian Government mandates eProcurement projects on outcome-based fee only.

• Use relevant and latest technology

• Mobile-first

Mobile is the device of choice due to its higher penetration (969.9 million wireless subscribers in India as of March 2015) than the personal computer. The liberalization of the mobile sector in 1994, the adoption of pro-consumer policies by the independent telecom regulator, liberalized import policies, competition among carriers, and the entry of global majors into domestic manufacturing have created a competitive market for low-cost handsets and one of the world’s lowest calling rates.

The message for the Government is clear: make all content and applications accessible from the mobile handset as a design element.

• Open standards and open source

All technology should adhere to open standards to avoid being boxed in by proprietary standards. This will avoid vendor lock-in and prevent the Government’s dependence on a single source, making it easy for extensions and interoperability to other applications within the framework.

Open standards promote interoperability of systems and devices, which in turn helps expand the size of the market and encourages greater innovation. Interoperable standards in e-government services will help discrete services talk to each other and create a platform to be built upon.

Outcome-based contracts, where customers pay for pre-agreed “outcomes”

rather than for prescribed products and services, are not new, but are gaining

increasing attention

6. “The Trillion Dollar Price – Using outcomes-based payment to address the US healthcare financing crisis,” McKinsey& Company, February 2013.


For instance, secure credentials such as smart identity cards or digital certificates on telephones make transactions secure and reduce fraud and theft. Uniform standards for sensors, controllers and other Internet of Things devices in vehicles could facilitate the rapid adoption of intelligent transportation and logistics systems.

Similarly, the usage of technologies in conjunction with each other will create synergistic usage. For instance, in the case of precision farming, Geographical Information Systems (GIS) can be used along with big data analytical systems to provide insights on predicting crop yields or prescribing cropping patterns for farmers. Importantly, it will require various ministries and departments to collaborate and share data: in this case, the Department of Space — which creates GIS data — and the Ministries of Planning, Agriculture and Water, which own the critical data on soil conditions, water supplies and other critical inputs for farming.

• SMACi

The disruptive changes cause by Social media, Mobile, Analytics, Cloud and the Internet of Things (SMACi) is evidenced by their quick adoption by organizations worldwide. The recommendation is that the Government should adopt SMACi instead of legacy technologies to stay updated with the trends.

Digital transformation in the government / public sectorOrganizations across the world are riding the digital transformation wave to drive innovation, and the government/public sector is no exception. It has become necessary for government bodies to leverage SMACi technologies to create and nurture an effective and efficient ecosystem. Smart governments are integrating ICT in their operations across multiple domains and jurisdictions to generate sustainable public value.

Delivering public services Sharing information with citizens and ensuring quick delivery of services Effectively managing public finances and strengthening security

Improving health care systems Improving health care delivery mechanisms Expanding accessibility in remote areas

Enhancing learning environment Enhancing the teaching and learning experience Improving quality of education

Promoting sustainable living Reducing traffic congestion and improving safety Increasing energy efficiency with reduced costs

Govern

ance

and finan

ce

manag

emen

tInfrastructure

Health care Educatio

n

and sk

ill

develo

pment

Areas of digital transformation across the government/public services:

Governments are rapidly infusing new technologies into their citizen engagement practices and approaches to problem solving. They are exploring ways to leverage big data analytics to better address challenges and improve operational efficiencies and services. At the same time, social media is changing how citizens communicate, interact and mobilize, making it imperative for governments to be more responsive. Innovative governments are also shifting away from specialized agencies and discrete services toward more streamlined, citizen-centric processes.

7. TRAI- Telecom Regulatory Authority of India


04

01

02

03

Tomorrow: citizens drive public servicedelivery

04

01

02

03

Yesterday: governments deliver servicesto citizens

In its pursuit of digital transformation, the government/ public sector continues to face issues in governance such as the need for specialized infrastructure, data availability and reliability, and information security. A concerted effort across all levels of the government is required to enable technology platforms that are scalable and allow the quick creation and delivery of services.8

Countries where governments used social media for e-consultation in 2014

118 US$1.1 trillion 25,000 petabytes US$107 billion

Governments worldwide need to develop a comprehensive approach toward embracing digital transformation across their services to secure a sustainable ecosystem.

Expected value of the global smart cities market by 2019

Health care data expected to be generat-ed by social media channels by 2020

Size of the online learning industry in 2015

9

8. “UN E-Government Survey 2014,” United Nations website, http://unpan3.un.org/egovkb/Portals/egovkb/Documents/un/2014-Survey/E-Gov_Complete_Survey-2014.pdf, accessed 3 February 2015;

“Online Learning Industry Poised for $107 Billion In 2015,” Forbes website, http://www.forbes.com/sites/tjmccue/2014/08/27/online-learning-industry-poised-for-

107-billion-in-2015/, accessed 3 February 2015.

9. “UN E-Government Survey 2014,” United Nations website, http://unpan3.un.org/egovkb/Portals/egovkb/Documents/un/2014-Survey/E-Gov_Complete_Survey-2014.pdf, accessed 2 June 2015.

“Smart Cities Market worth $1,134.84 Billion by 2019,” MarketsandMarkets, http://www.marketsandmarkets.com/PressReleases/smart-cities.asp, accessed 3 June

2015.

“Healthcare IT: Top Five Digital Trends Fueling Disruption in healthcare,” Accenture, http://www.accenture.com/SiteCollectionDocuments/PDF/Accenture-Healthcare-

IT-Vision-Five-Trends-Fueling-Digital-Disruption-in-Healthcare.pdf, accessed 3 June 2015.

“Online Learning Industry Poised for $107 Billion In 2015,” Forbes, http://www.forbes.com/sites/tjmccue/2014/08/27/online-learning-industry-poised-for-107-

billion-in-2015/, accessed 3 June 2015.


• Inclusive and innovative

The current scenario supports the larger, well-capitalized and better marketed service players instead of being inclusive.

It is recommended that the overall approach be:

• │ Size-neutral: providing equal opportunities for small innovative players along with the technology giants

• │ Recommendation: limiting the applicability of the minimum equity and capital requirements in consortia bidding to only the prime bidder

• │ Technology-neutral : avoiding vendor or technology lock-in by not building overtly specific technology, and creating a broad framework of requirements along with a well-defined end result to enable various technologies to compete and be compared, hence widening the choice for the Government

• │ Risk-averse: focusing on approaches such as Service Own Operate rather than BOOM (Build Operate Own Manage) to diffuse the capital and risk appetite requirements for participants where the technical support is built in by the Application Service Provider (ASP) or by the original equipment manufacturer (OEM).


• Optimize the use of existing resources and develop a mechanism to share ideas

Government projects in India today work in relative isolation. Projects in the same area of end-use do not utilize the knowledge gained from projects elsewhere with the central or state governments.

• Recommendations:

• │ Common information repository to share details of projects and technology across state and central projects across the Digital India initiative

• │ Common infrastructure through data centers to enable sharing of communication/ computation/storage equipment

• │ Sharing of existing knowledge in terms of software code or experience across projects, and in most cases, to be made open to all the bidders for new projects in the same end–use case will create a level playing field apart from lowering costs on new projects

• │ Crowdsourcing for the best ideas around applications and utilities that could be used by the Digital India initiative by inviting an open contest:

• │ Select 500–1,000 of the most promising ideas, judged on three criteria: sustainability, impact and scalability

• │ Create an Innovation Fund of around US$200 million to fund some of these ideas and take them to the next stage

• │ Open the contest of building applications on these ideas to engineering students by making this an elective in their course; reward the best and most effective applications

• │ Build a Knowledge Hub to co-ordinate all the innovations

• Transparent and responsive

For the Government to benefit from partnering with private enterprises, there needs to be transparency. Some of the recommendations and suggestions that have been implemented are:

• │ Transparency with respect to all communication from and to the Government — including the complete responses to Requests for Proposal (RFP), technical and priced — have led to a completely level playing field and a process that is beyond any reproach. This process was followed for the State Wide Area Network set up in Himachal Pradesh.

• │ All interactions and representations with the bidders to be video graphed and recorded for complete traceability on what has been communicated and for future reference.


• │ The interaction process is completely responsive, where every piece of communication from the bidders is responded to promptly, no matter how trivial.

• Compensation and economic viability for partners

• Compensation

Compensation for the efforts of private bidders is another issue that needs to be dealt with effectively. Disconnect between beneficiaries and those who compensate the bidders for their efforts leads to issues such as incomplete and delayed payments, and unfair penalties. This causes disruption in projects, litigation and blacklisting of vendors. Ultimately, this results in increased risk and cost of capital for private players, and is factored in by higher project costs for the Government.

• Recommendations

• │ Clear and transparent guidance for collection of compensation

• │ Introduction of penal clauses for late payments

• Economic viability

By keeping vendors solvent and helping them make adequate return on their capital, the Government will have a set of competitive vendors who have the knowledge of their projects.

• Recommendation

• │ Structuring of project: Exploring methods such as Service Operate Manage rather than Build Operate Own Transfer will make it easier and less risky for smaller players to bid for and win government projects since the need for capital requirements upfront is ameliorated. Similarly, provisioning flexibility to the public services projects at the design phase in the fashion of the Managed Capacity Model for outsourcing projects will allow for changes within specific parameters without requiring new contracts to be signed. For instance a bid for an on-line government service application may include provisions for internet bandwidth that is built-in as a deliverable and is based on an overall forecasted demand, the payment is made based on actual usage within a certain tolerance.

A good example of this is the Indian Government’s e-Passport Seva project that has a built-in optional SMS service wherein applicants are informed of the exact stage in which their passports are in the entire issuance process, at a cost. This ensures that the vendor has alternative streams of revenue but does not impact the Government’s financial model.

By keeping vendors solvent and helping them make adequate

return on their capital, the Government will have a set ofcompetitive vendors who have the knowledge of their projects


• A well-designed preparatory panel, dispute resolution and user support mechanisms

The Government needs to set up a few strong support functions with the help of the private sector:

Preparatory panel

There is a need for a panel of experts to be brought in at the conceptualization stage of every project to examine the overall project design and build a set of guidelines around the following:

• │ The benefits that will accrue to the country and the ways in which people will benefit from the project. For example, instant and better information, reduction of red tape, increased transparency, reaching remote areas, etc.

• │ The technology framework, approach and standards, Service Level Agreements and Key Performance Indicators

• │ The financial framework and possibility of setting up a PPP

• │ The scope of base parameters, and possible expansion of additional projects and value-added services that can be built over this

Dispute resolution mechanism

There is a need for a panel of people selected from a pool from the Government, academia, industry and the vendors to act in the capacity of ombudsman.

This panel will seek to address the troubled projects in which there is a dispute between the Government & its contracted vendors and bring them to an agreeable settlement, prior to the arbitration and legal proceeding being initiated.

End-user support mechanism

To ensure quick adoption curve for projects, provision for onsite and physical support structure needs to be kept in mind:

• │ Direct support from OEM partner and support from ASP to be provided in technology-related contracts

• │ Need to move to Service Operate Transfer model to facilitate economic viability for the provider and to benefit the Government

• │ Customer service centers, kiosks and vendor-managed outlets could provide the required onsite support for users

There is a need for a panel of people selected from a

pool from the Government, academia, industry and the vendors to act in the capacity of ombudsman


Purpose led transformation in the Government and Public sector –A paradigm shift at sub-national levelsWith growing global unemployment, income disparities, and gaps in meeting the Millennium Development Goals, the importance of purpose-led transformations at the sub-national levels to support the national and eventually the global development goals is becoming more pronounced.

AuthorSasikumar SundaraRajan, Partner, Advisory Services, EY India


The International Labour Organisation predicts the global unemployment to rise to 212 million from the current 201 million1. The income disparities are also predicted to widen further adding to the problems of societal stability. In the recent past, major global economic events, such as the

EU economic crisis and the possibility of Japan slipping into a no-growth economic situation, has made Governments across the world re-think their developmental strategies. Although most of the poor live in middle income economies2, there is a significant number of poor in high-income countries too. Hence, it is obvious that from the communist leaders such as China to the largest democracies such as India and USA, economic development has been emerging as the theme, agnostic of the political orientation of the parties in power. To align the efforts of state and non-state actors to achieve the desired outcomes, many national and sub-national governments across the globe have developed purpose-led transformation strategies. Here, we look at some of the key principles and strategies that have been successfully adopted.

In emerging economies such as India and

Brazil, partnerships and collaborations have taken

strategic turns


The rise of Sub-National partnerships

Regardless of the state being a federation, the planning is always bottom up while the developmental directives are top driven. These developmental blocks at the sub-national level have been gaining more importance over the last decade, especially with financial autonomy being identified as one of the key drivers for development. Today, each sub-national government competes nationally and internationally for investments, resources, talent and market linkages to outpace the “growth-as-usual” scenario and move into a high-income or developed economy status.

Since the Asia-Urbs and Urb-AL European Union Cooperation Programs of the late 1990s targeted at local and regional governments to the PLATFORMA and Connective Cities in the recent years, the importance of local and regional governments to international development has been increasingly recognized.

In emerging economies such as India and Brazil, these partnerships and collaborations have taken strategic turns. For example in India, the newly formed state of Telangana has partnered with Singapore to develop a master plan for it’s new capital city. Kyoto has signed an MoU to develop Varanasi as a Smart City. Brazil has partnered with Germany to address the urban mobility challenges. The reason for these partnerships could range from working for the benefit of a similar group, to working on a common theme, to addressing a similar problem, to improving trade relations3.

The more relevant point here is what do people want? And, how can the states strategize development around these wants. Since the need of the people and the local conditions vary significantly, the strategies for development would also have to be localized at a sub-national level.


Purpose led transformation in the Government and Public sector – A paradigm shift at sub-national levels

Voice of the people and the relevance of a vision

In year 2000, following the United Nations Millennium declaration, 189 countries and more than 23 international organizations committed themselves to achieve the eight Millennium Development Goals to be achieved by 2015, namely,

1) eradicate extreme poverty and hunger

2) achieve universal primary education

3) promote gender equality

4) reduce child mortality

5) improve maternal health

6) combat AIDS, malaria and other diseases

7) ensure environmental sustainability

8) develop global partnership for development

Event post this 2015 deadline, there are unevenness and gaps in achievement4.

A global survey called “My World” across 194 countries was started in December 2014 by the United Nations to understand what people look for to make their life better. As of June 26, 2015, more than 7.5 million people had voted. The top five priorities as voted by the people across the globe were identified as

1) good education

2) better healthcare

3) better job opportunities

4) honest and responsive government

5) affordable and nutritious food

in the respective order5. This survey is a reconfirmation that the MDGs are relevant even today and there are significant efforts required to achieve them.

As mentioned by the UN Secretary General in his communication “Life of Dignity for All”, the MDG experience has clearly shown that setting global goals is a powerful way of mobilizing common action. To further provide a continuum to the efforts, the post-2015 vision of Sustainable Development Goals (SDGs) includes among the 17 goals and 169 targets, inclusive economic transformations and global partnerships.


Designing the purpose led transformation

Visions are necessary to define the purpose of actions with a goal in view to achieve. The Vision aligns the efforts with a common understanding and charts a path in line with the values and beliefs. Realistic and action oriented visions with a strong monitoring and evaluation mechanism in place have affected paradigm transformation in economies. Some of the most encouraging experiences have been observed in the way Malaysia, Ireland, China and Korea turned around their otherwise weak economic situations. Countries like China and Korea have achieved around 9 per cent growth during the last two decades (till the mid-1990s). A vision also gives insights into the developmental models that a country or state proposes to use and the strategies that it plans to adopt.

The design of a purpose led transformation framework needs to be structured with the long term Vision leading to the Transformation Areas that will help the State achieve its goals. The Transformational areas are further linked to the various key Sector Vision and Sector Strategies, with a Monitoring and Evaluation mechanism to track the progress through the KPIs and Key Projects identified for the Vision.

Understanding the drivers of transformation:

Economies across the world have progressed from being agrarian economies to more industrial and services economies. This structural shift (transformation) has been primarily due to the rising population, urbanization, growing importance of the financial sector and globalization. This structural shift is bound to continue with urbanization growing further, especially in developing countries. The demographics of the world pose challenges and opportunities in the same breath.

Vision

Transformationalareas

Sectoral visions, outcomes

Sector strategies, key projects

Vision delivery —Monitoring and evaluation, KPIs, reviews

Figure 1: Figure description comes here

The design of a purpose led transformation framework

needs to be structured with the long term Vision leading to the Transformation Areas that will help the State achieve its goals


Low

High

Scor

e <

10Sc

ore

10 to

14

Scor

e 15

Them

e do

min

ance

Healthcare Internationalrelations

Energy

Social Welfare /Assistance

Industrycompetitiveness

Live environment /Human development Economic growth

Enviornment Employment Peace & Security

Knowledgeeconomy

Social Development Good governance/Regulatory

Agriculture andfisheries sectorEducationInfrastructure Culture and

Heritage

Naturalresources

The following figure depicts the dominance of themes in the 23 visions analysed:

1. The sectors that have significant influence on the development outcomes at national or sub-national levels

The Indian sub-continent nations and the African countries enjoy a demographic dividend, while the Western economies are faced with a shortage of work age population6. While the demographic dividend prima facie seems as an advantageous position, the challenge is with the employable skills that these economies possess. Besides skilling, the economies need to create productive jobs and opportunities for gainfully employing the working age population. For this, more enterprises need to emerge; which is possible only when the economies are aligned to the needs of the world. Another important factor is the middle income trap. To ensure economies do not get stuck in the middle income trap, the population needs to have and sustain better incomes. To have better incomes, the citizens should be better educated and have the relevant skills. For the skilled talent to be absorbed there should be jobs and opportunities that compensate well. For high remunerative opportunities, the production and services should be of higher value-add through use of research, innovation and technology. Sustained growth can happen only if the efforts are aligned towards the development outcomes envisaged. This requires strong governance mechanisms and governments that are engaging with its citizenry.

Analysing successful transformation strategies of various economies:

We at EY identified 40 countries that have developed visions for broad level review. Of these, visions of 23 countries and states were selected for detailed study to learn from their experiences.

The basis for selection of countries for analysis was to have a fair representation of developed, developing and emerging nations which have in the past shown turnarounds from adverse economic conditions. It was observed that more than 70% of the countries analysed focused on industry competitiveness, economic growth and human development as the key themes for transformation. More than 68% of the countries relied on employment, environment, peace and security, governance, social development and knowledge economy for transformation. It was also observed that most of the countries identified between 5 – 9 key themes for their developmental transformation.

Finland’s commitment, even in the midst of economic crisis, to maintain public expenditure in education, R&D and innovation was key to its transformation into a Knowledge Economy. Singapore invested heavily in upgrading technical education and subsidized MNC training to raise skill levels of its workforce.


It also invested significantly in partnerships with world-leading educational institutes and developing competitiveness in trading services. Korea invested in strong education reforms and links between tertiary and employer-based training to build the necessary human capital. By building public advanced research institutes, and providing fiscal and trade incentives, it was able to get the private sector to increase their R&D spend to almost 10% of their sales. This helped Korea make a quantum leap to transform itself into a high growth economy. Malaysia envisaged that the high-income status would be best achieved through a private sector-led growth model, with the Government facilitating an environment that is conducive for stronger socio-economic growth. Northern Ireland adopted developmental strategies like stimulating innovation and creativity, improving employability, level, relevance and use of skills, competing in a global economy, encouraging business growth, and developing economic infrastructure.

Transformational areas: While the priorities of each society and the finer strategies will vary depending on local socio-economic-political conditions, the above argument clearly shows

that the purpose led transformation for any Government has to begin by choosing the transformational areas to focus on. These transformational areas are defined by the “purpose” of the vision. Depending on the challenges at hand and developmental stage of the society, the purpose may be a combination of themes such as inclusive growth, healthy and happy society, global competitiveness, knowledge driven economy, greener and smarter development, well governed institutions and engaging government, etc.

These transformational areas will further encompass within them the sectors and government departments which are most relevant to each transformation. The overarching vision and the transformational strategies provide a guiding direction to the sectorial strategies and government departments to devise their policies and action plans.

These development strategies have to be prioritized based on the premise of providing citizens with their rights, saturating the life amenities, and then focusing on transformation. However, this cannot happen in a sequential manner, but must begin simultaneously with focus areas sequentially moving ahead.

Transformation

Saturation

Rights

2015 2019 2025 2050


Figure 4: Transformational leadership for strategic Vision management

Institutionalisation of Vision management

Integration of Vision interventions in annual

plan and budget

Directional alignmentof new initiatives

with Vision

Vision Road map – Strategic Vision review

Vision performance management

Stakeholdercommunication and

Change Management

1

2

53

64

Delivering the transformation

To successfully deliver the transformation, the Governments need to have an outcome based monitoring framework. The first step towards this is identifying the outcomes, key indicators and targets. Government programs, projects and associated action plans need to be aligned to the outcomes identified under each of the transformational areas.

Governments need to integrate Vision interventions into annual planning and budgeting. Given the scale of transformation, there is a need for managing the change for effective participation of stakeholders by using the following strategies:

• │ Bringing role clarity for people and institutions participating in the change

• │ Creating a platform for participation and engagement

• │ Augment capacities of institutions

• │ Communication mechanism to apprise/update stakeholders

• │ Mechanisms for building on from lessons learnt.

Institutional structures: The vison delivery management process is complex in nature and involves triggering several initiatives in parallel while ensuring that Government does not lose sight of the larger Vision. The vision interventions involve major projects, managing resource allocation, improvement of institutional capacities towards achieving the pre-defined outcomes. This would require institutionalisation of vision management and ensure making the implementing agencies accountable.

Feedback of the key stakeholders and evaluation of results are key to providing necessary inputs to undertake course corrections and structure the way forward. Hence, periodic strategic reviews towards achieving the Vision Goals are critical.

The experience of Malaysia and Korea show that Vision management unit as well as necessary ICT systems have been found to be effective in delivering the Vision. These coupled with effective-inter departmental co-ordination, institutional structures and a transformational leadership at the top are expected to yield the necessary results.


1. World Employment and Social Outlook – Trend 2015, ILO

2. Financing for development – Post 2015; October 2013; World Bank Group

3. http://www.funduszestrukturalne.gov.pl/English/EQUAL/EQUAL+Community+Initiative++introduction/ Transnational+cooperation/

4. UN General Assembly, 68th session, October 2013

5. http://data.myworld2015.org

6. UN Population Division database, ILO LABORSTA database, EY Analysis

References:

Case study

Strengthening MSMEs

EY is assisting the Office of Development Commissioner (DC), Micro, Small and Medium Enterprises (MSMEs), Government of India, over a period of six years in designing and implementing a US$400 million, World Bank-funded project. The program seeks to modernize existing and establish new Technology Centers (TCs) that will enhance the competitiveness of MSMEs in the country. This will be achieved through an ecosystem of TCs that will improve access to technology, skills and markets for the MSME units in India.

Better Questions• India’s GDP growth decreased from 10.5% in 2010 to 5%

in 2013. The share of manufacturing in India’s GDP has stagnated at around 16%, and the sector faces challenges such as low value addition, low productivity, and less-than-desirable upscaling. India’s manufacturing sector has a key role to play in reversing these trends and returning GDP growth rates to more than 8%.

• MSMEs are the backbone of manufacturing in India. For the Government’s “Make in India” initiative to be successful, improving the competitiveness of MSMEs is crucial to enable an ecosystem of manufacturing. The Government had to answer the question: “Can ‘Make in India’ be successful without the progress of MSMEs?”

Better Answers• The Office of Development Commissioner, Ministry of

MSME, selected us through a global competitive bidding process to establish a Programme Management Unit (PMU) to design this ambitious program and provide implementation support over the next six years

• We have assisted the client in designing this program by identifying and detailing all the components, including an implementation manual and interventions to be delivered by all stakeholders. Currently, the program is in the execution phase to implement the design components, establish 15 new TCs and to upgrade existing facilities.

• Through careful designing and immaculate implementation, the Office of DC, MSME, and we plan to deliver a national ecosystem of TCs, which will significantly improve access to technology, provide skill updating, and offer advocacy support to MSMEs in industries with high growth potential.

Better Outcomes

• We are transforming the MSME ecosystem and improving the competitiveness of manufacturing MSMEs through modernization and setting up of TCs.

• Anticipated outcomes by 2020-21 include the establishment of 15 new TCs, increasing training capacity by 225%, providing support to 60,000 small businesses, wide endorsements from industry, and establishment of digital marketplaces.

Contact us

Amar ShankarPartner - Advisory Services, EY [email protected]

Payments in India The contribution of the telecommunications industry has been monumental in the process of digitization of other industries such as financial services, retail, and health care.

Authors

Fali HodiwallaPartner, Advisory Services, EY India

Dheeraj Aneja Senior Manger, Advisory Services, EY India


India is traditionally a cash-based economy, with the value of physical currency in circulation estimated to be over 11% of GDP, one of the highest among emerging economies. It is also the second largest consumer market in the world, with private consumption expected to reach US$3t by 2030 from US$1.2t in 2014 .

India is a young country and has 356m people in the 10–24 age group, the world’s highest despite a smaller population than China. By 2020, its median age will come down to 29 years. However, till date a large proportion of India’s population is unbanked and has limited access to technology-enabled financial services.

The Government of India and the central bank have laid significant emphasis on financial inclusion and making banking and payment services accessible to all. Non-bank players such as telcos (through mobile money services) and business correspondents (BCs) — entities that assist banks in providing basic banking services in rural areas — have also contributed toward financial inclusion. The significant migration of workforce from rural areas to industrial centers and large cities has driven the emergence of domestic remittance corridors. Telcos, BCs and certain prepaid payment instrument (PPI) issuers (entities authorized to offer limited payment and remittance services) have helped in making domestic remittance accessible to this migrant workforce in the country.

A large proportion of India’s population is unbanked and has limited access to technology-enabled

financial services


The payments industry is growing rapidly, driven by aspirational consumers, rising personal consumption expenditure, urbanization and electronification. Banks have traditionally played a central role in providing payments services; however, the landscape is evolving with active participation from non-banks in the electronic payments and remittance space. The key driving factors for electronification of payments in India are increasing smartphone penetration, growth in digital commerce, improvement in computer literacy, access to internet and broadband, and supporting regulations.

The infrastructure and technology supporting payments have undergone significant changes in the last five years, with multiple new-age systems getting implemented. All these critical factors put together have strengthened the payments industry and are responsible for driving growth.

The national payments infrastructure has evolved over timeInitially, the central bank built and operated traditional paper and electronic clearing systems and electronic interbank payment systems. Now, clearing systems have moved from paper-based clearing houses to centralized image-based truncation. New modes of interbank payments have evolved, offering 24x7 real time transfers. The payments infrastructure in India has evolved across three key dimensions: regulatory and government initiatives, institutional initiatives and changing consumer preferences.

Regulatory and government initiatives

To drive financial inclusion, the central bank has defined an approach for banks and BCs and monitors the progress made by them. It also authorizes PPIs to operate payment systems in the country; some of the leading telecom operators in the mobile money space offer services under the PPI license. BCs and PPIs have played an important role in driving financial inclusion and making domestic remittance accessible to a large proportion of population, especially the migrant workforce.

1. Estimated from RBI data, multiple sources2. Consumption, private, constant prices and exchange rate, US$, Oxford

Economic Global Economics Databank3. UNFPA – The Power of 1.8 billion, State of the Urban Youth, India 2012 (IRIS

Knowledge, UN HABITAT) RBI Data RBI Data RBI Data


India has also implemented EMV (Europay, MasterCard, and Visa) for better authentication and transaction security, with the development and adoption of proximity payments infrastructure (NFC/Tap & Go/RFID) currently underway.

The domestic payments body is also working on building new payment systems to bring in interoperability for bill payments and person-to-person (P2P) transfer:

The payments body is also working on an interoperable bill payments and presentment platform for billers, banks and customers. This unified platform will allow customers across banks to send and receive money through a unique identifier using a mobile phone (the unique identifier could be a mobile number, email ID or a registered virtual payments address).

Change in consumer preferenceImprovements in the payments infrastructure and internet access have led to steady growth in the adoption of electronic payments by customers. There are over 550m debit cards and over 20m credit cards in circulation. The number of POS terminals in India has grown at a CAGR of 14% over the last four years, crossing 1.12m in FY15 .

Banks have extensively promoted mobile and internet banking channels and have also incentivized the use of cards through reward programs and promotional benefits. Ease of transactions and the associated benefits have resulted in a consumer preference shift toward electronic payments. Even consumer payment solutions such as stored value wallets, promoted by non-bank players, have seen rapid consumer adoption.

Although there is significant growth in cards issuance, volume of transactions, and the number of ATMs and bank accounts, the market for payments is under-penetrated. For instance, India has a much lower POS density than other similar economies.

The usage and adoption of digital channels by customers and merchants will further drive growth in digital transaction volumes.

A recent government initiative under the Prime Minister’s financial inclusion drive has been very successful, resulting in over 175m new accounts for unbanked customers and issuance of over 150m debit cards in the last 12 months.

To further improve financial inclusion in India, the central bank has given in-principle approval to 11 players to offer differentiated banking services in the country as “payments banks”. Payments banks have been conceptualized to address the basic banking (bank accounts) and remittance requirements of the under-banked customers; however, they are not permitted to lend.

Supportive regulations and government efforts such as these have been instrumental in increasing banking penetration and making payments services accessible to the erstwhile unbanked population.

Institutional initiatives

A domestic payments body was incorporated in 2008, which now operates major payments systems in India. It is the primary institutional driver for development of payments infrastructure in the country. Over the last five years, there have been substantial technology-led developments. Some of the notable implementations of new-age payment systems brought in by the payments body are as follows:

1. │ Domestic card scheme of India

2. │ 24x7x365 real time interbank payment system for retail payments

3. │ Automated clearing house

4. │ Interbank image-based check truncation

5. │ Direct benefit transfers for government-to-person (G2P) subsidy payments

4. RBI Data


Growth in card transactions

20 mn Credit Cards

Debit Cards

(For debit cards, ATM cash withdrawals have not been considered)

328979

534 743

1,244

955

1,557

1,213

1,923

FY 12 FY 13 FY 14 FY 15 FY 12 FY 13 FY 14 FY 15

322

469399

619512

808

619

Cebit Cards

Card transactions (mn) Card spend volume (INR bn)553 mn Debit cards

Debit Cards Cebit Cards

Transactions are increasingly becoming digitalThere has been a steady growth in card spends and wire transfer volumes over the last three years, and at the same time, the total checks processed in the country (both in value and volume terms) have declined. In fact, in FY14–15, for the first time, electronic transactions surpassed traditional paper-based transactions. This shift is prevalent in both corporate and retail segments. Analytics applications across Insurance Policy Life Cycle

With the increasing adoption of non-cash modes of transaction by customers, the issuance, activation, transactions and volumes for both credit and debit cards have significantly grown over the last four years.

Mobile Banking

20 mn Credit Cards

Mobile Banking

Mobile banking and 24x7 real-time payments volumes have increased significantly in last 2 years

95

96224

1,035

582

FY 12 FY 13 FY 12 FY 13

15

172

78

IMPS

Transactions (mn) Transaction volume (INR bn)

553 mn Debit cards

Mobile Banking IMPS

The market for retail payments is beginning to revolve around mobile phones, considering the convenience, speed of transactions and ease of access they offer. Mobile banking and relatively new 24x7x365 interbank payments have gained significant customer traction over the last two years.

5. RBI Payment System Indicator6. RBI Payment System Indicator


The phenomenal growth of digital commerce over the last five years in India has been another critical driver for electronic payments, especially card transactions. With transactions turning digital, the role of non-bank players is also becoming important in the industry.

The services of non-bank players have evolved over time from peripheral banking technology or outsourcing services, to more consumer- and merchant-centric services such as online payments, mobile POS, digital wallets, bill payments and domestic remittance. They have created a niche for themselves in the overall payments value chain. Payments as a sector has seen significant deal activity in India, with interest from both early stage and later stage investors, Indian as well as global. Well-funded payments players are aggressively acquiring customers and merchants in a highly competitive market to build large transacting ecosystems.

Non-banks have carved out a niche in the payments marketWith the rapid growth of online and mobile commerce and increasing adoption of digital channels, the role of non-bank payment service providers has gained importance in the payments value chain.

Payment intermediaries specialize in providing services to online merchants by enabling them to accept payments from multiple modes (cards, wallets, bank accounts etc.). They have become pivotal to e-commerce. Some of these players have extensively focused on technology to improve transaction success rates, simplified merchant onboarding and built superior user interfaces. New age payment intermediaries have also integrated stored value and stored credential wallets as a part of their core offering.

PPIs licensed by RBI have developed two distinct set-of-use cases: providing assisted services and offering digital stored value wallets. Assisted services primarily cater to the under-banked population, typically for domestic remittance requirements, while digital stored value wallets cater to the urban tech-savvy customers.

With the growth in the debit and credit cards issued base, there is a requirement of a well-networked acceptance infrastructure. Mobile POS service providers and third party acquirers are focusing on providing cost-efficient POS acceptance solutions to merchants.

The phenomenal growth of digital commerce over the last

five years in India has been another critical driver for

electronic payments, especially card transactions


Some important categories of payment service providers in India are listed below:

Paymentintermediaries

• Provide services to enable online merchants to accept payments through multiple options – Credit cards/debit cards/bank accounts

• Some also offer stored credential wallets for consumers

(Competitive space with 4–5 large players; low entry barrier)

PPIs

Merchant acquiring

• Provide services to enable customers to load money into prepaid wallets and pay for multiple services, such as telecom recharge, bill payments, cabs, ecommerce and remittance to bank accounts

Differentiated use cases have evolved in this space:

• Digital wallets: A completely online and mobile-based model

• Assisted model: A physical network of outlets and agents created by telcos and some other players to assist customers to transact for domestic remittance and other basic services such as bill payments, ticketing and recharges

(Relatively higher entry barrier due to the regulatory approvals required; however, there are

multiple players in the market)

• Mobile POS service providers enable small merchants to accept card payments at a low upfront cost through mobile plug-in devices

• Third party acquirers offer cost efficient value added services to merchants, such as multi-bank acquiring and EMI processing

(Less competitive; low-margin business)


Digital prepaid wallet operators have gained widespread adoption in recent times and have built a substantial consumer base. It is estimated that the two leading digital wallet operators in the country together have over 117m stored value wallet accounts.

Wallets started with basic services such as telecom recharge and bill payments but are now available as payment options on most popular online merchants. The next focus area for wallet companies is creating a physical acceptance infrastructure at brick and mortar retailers for wallet payments.

Wallets providers have simplified the transaction experience and combined it with multiple promotional offers to gain traction. Due to a sizeable customer base, wallets can potentially drive transaction volumes at merchants and, as a result, major e-commerce merchants in India have partnered with leading wallet players.

Growth in wallet transactions

Transaction value (INR bn)

10

FY 13 FY 14 FY 15

29

82

Transactions (mn)

33 108 255

7. RBI Payment system indicator8. Source: Market insights


• │ For a global cab aggregator that was not allowed to accept card payments in India because of regulatory reasons, a leading digital wallet provided the solution. Since then, digital wallets have become the preferred mode of cashless payment for many cab service providers.

• │ Similarly, for other app-based urban logistic services such as food delivery, quick service restaurants and grocery delivery, digital wallets have become the preferred payment option

The convergence of digital technology with payments is transforming the way people and businesses transact. Mobiles have become the centerpiece of consumer payments innovation and the primary form factor for transactions.

Banks are forced to rethink their payments strategyThe rapid adoption, scale-up and increase in the utilization of digital wallets by their own customers have made banks re-think their retail payments approach. As a result, they have tweaked their digital strategy, and are actively focusing toward youth and tech savvy customers.

Large private and public sector banks have clearly taken the lead in payments product and platform innovation. Banks are rolling out their own wallets as well and providing additional services such as social media banking (accessing bank account through social media), specific consumer apps for enabling P2P and person-to-merchant (P2M) payments, and linking of bank accounts to wallets.

As more and more transactions go mobile, banks will face stiff competition from mobile wallets. Innovation and focus on digital strategy will be critical for banks in the retail payments space.

But the challenges still remainDespite all the growth drivers of the payments industry in India, there are challenges to be addressed by the stakeholders. A large proportion of India’s population is not financially literate and does not have access to formal banking services. The challenges that the payments industry faces today can be viewed across three dimensions: business and operating models, consumer and market dynamics.

• │ Most non-bank payment service providers are in the early stage of business maturity, with an evolving operating model. At the same time, the long-term profitability of certain models is yet to be ascertained.

• │ On the consumer side, there is still a strong preference for traditional modes of transaction, especially cash. Digital payments, cards, and acceptance infrastructure at merchants are largely an urban phenomena, and there is a huge urban–rural divide to be bridged.

• │ The non-bank payments market is very competitively priced, with leading players competing for the same set of customers. As a result, the cost of customer acquisition is increasing. There are also significant pricing pressures in the market. In the future, these factors may lead to consolidation or exit of some players from their respective segments/subsegments.

As the industry matures, it is imperative for the key stakeholders to address these challenges to ensure growth in customer base, transaction volumes and business profitability.

Although most banks provided basic services such as telecom recharge and bill payments through mobile banking apps, digital wallets players have taken away the major chunk of this business


In ConclusionThe Indian market is characterized by extensive use of cash, presenting tremendous growth opportunity for banks and other players in the digital payments market. Payments is a high-growth market and is expected to continue on the same trajectory for years to come. The regulatory environment will be supportive for payments growth, and institutional initiatives coupled with innovations from banks and payment service providers will drive future growth of the industry. The success of financial inclusion efforts and newly licensed payments banks will be important parameters to track that can potentially introduce large sections of the under-banked population to formal banking and payments services.

The role of non-bank players is expected to grow, through innovative products and solutions and superior services. In a hyper competitive market, banks will have to focus on innovation across the retail payments value chain and will compete with non-banks in the share of consumer transactions. There will be significant emphasis from all industry players on digital and mobile platforms.

The next wave of payments growth will be driven by product innovation in consumer and merchant payments. It will be supported by institutional initiatives such as interoperable bill payments system, innovation in retail payment systems and inclusion of unbanked customers into the formal banking system.

Considerations for new entrantsIndia represents a huge untapped opportunity for new entrants in the payments space. On the one hand online and electronic transaction volumes are increasing year on year, while on the other the POS terminal density (ratio to population) is extremely low. However, the market dynamics are such that traditional payment solutions may not be applicable in the Indian context; hence, innovation in products and solutions is the key.

• │ The market is highly price-sensitive and fairly competitive in most segments and subsegments, and payment service providers operate a low-margin high-volume pricing strategy. Product innovation along with better consumer and merchant services are the key success factors in this market.

• │ For new entrants and investors, acquisitions and strategic alliances can be explored as viable market entry options; however, there has to be a long-term strategy.

We believe that the payments industry is poised to grow and there is significant potential to be unlocked in the areas less explored and under-penetrated. However, the industry may see consolidation, M&As, and exit of some players in the medium to long term.


Case study

Leading global insurance company


EY assisted a global insurance company transform its Group Audit (GA) function from over a three year period from 2014 to 2016, resulting in an improved assurance level and efficiency through the following activities:

• Co-source partner for delivering GA’s annual Audit Plan

• Partnered with GA leadership in transformational projects related to audit standards and procedures, operational enablement and improvising Audit Committee reporting

• Performing independent Quality Assurance Review on sample audits and assisting in governance reporting to stakeholders

• Provided PMO support for the transformation projects and to administer co-source audits across various countries


Better Questions• The client required support in transforming its Internal Audit function and co-source support with an

objective of improving quality of internal audits in a cost effective manner• How could we help the client achieve the dual objective of improving results while cutting costs?

Better Answers• Conducting workshops with Group Audit (GA) leadership to establish Operating model• Setting-up a dedicated Project Management Office (PMO) and provided PMO support to administer the

initiation and monitoring of internal audits• Providing assistance as co-sourced partner in delivering client’s 2014 Audit Plan. • Conducting internal audits across various countries and various competencies including Actuarial,

Underwriting, Claims, IT, Data Analytics, Forensic, Risk, Legal & Compliance, etc. 30% of the audit hours delivered offshore from India.

• Effective use of Data Analytics across audits to increase sample coverage and generate deeper risk & control insight and integrated audits effectively addressing IT risks

• SMR involvement on audits to provide industry insights and technical inputs • Performing Quality Assurance Review for sample audits offshore accessing audit work papers online

and performing interviews over phone and video calls. • Assisting GA leadership by publishing monthly governance reports and preparation of Audit Committee

papers• Managing the PMO for transformation projects at GA and provided support to GA leadership in

development of their audit delivery model and various tools to improve efficiency, effectiveness of reporting and standardisation of audit delivery globally, revamp of the Professional Practice Framework, resource capacity management model and capability development framework.

Better Outcomes

• Deployment of optimal mix of onshore and off-shore resources and reduction in average cost per hour with the help of an innovative operating model

• Improvement in delivery discipline and reduction in audit cycle time with a dedicated Project Management Office

• Impactful reporting and contribution to learnings and development of client audit staff with the use of SMRs on audits

• Impactful observations with pervasive and effective data analytics• Significant findings based on Independent Quality Assurance Review on sample audits• Support with drafting reports and presentations to Local Boards/Audit Committee (AC)/ Group

AC • Quality enhancement and talent development through Transformation support.

Contact us

Rohan Sachdev

Global Insurance Emerging Markets Leader, Partner & Leader - Financial Services,Advisory Partner - Advisory [email protected]


Contacts

If you wish to contribute to Performanceor comment on the articles published,please contact us via this email:

• [email protected]

Performance India team

Guru MalladiSiva PrasadArjun SenLina Gokarn

Design, layout and style

Deepesh TK



Readmore articles on

the web portal about the subjects

discussed in current and past issues of

Performance

OrderPerformance and subscribe to our newsletter

Downloadthe Performance app

Searchfor articles by business enabler, industry or language

If you would like to subscribe to Performance or read any of the content online, please visit www.ey.com/performance.

The right resources to help you grow your business


You can now read Performance on your mobile devices, which means, of course, you get additional insights from authors and commentators.

The Performance app allows us to bring you an interactive element to the articles and case studies in Performance journal.

For example:

Listento authors give additional insight into their thinking behind some of the innovative ideas they discuss

Watchauthors and experts give their opinions on the topics discussed

Hearadditional perspectives from some of those we’ve interviewed

Follow Performance on Twitter @EY_Performance

Notes

Ernst & Young LLPEY | Assurance | Tax | Transactions | Advisory

About EY

EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities.

EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com.

Ernst & Young LLP is one of the Indian client serving member firms of EYGM Limited. For more information about our organization, please visit www.ey.com/in.

Ernst & Young LLP is a Limited Liability Partnership, registered under the Limited Liability Partnership Act, 2008 in India, having its registered office at 22 Camac Street, 3rd Floor, Block C, Kolkata - 700016

© 2016 Ernst & Young LLP. Published in India. All Rights Reserved. EYIN1610-099

ED None

This publication contains information in summary form and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgment. Neither Ernst & Young LLP nor any other member of the global Ernst & Young organization can accept any responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication. On any specific matter, reference should be made to the appropriate advisor.

DTK

Date post:	04-Jun-2020
Category:	Documents
Upload:	others
View:	1 times
Download:	0 times