Getting into digital was never meant to be a gamble. As the digital momentum takes flight, large established Indian firms have done right in embracing newer technologies such as smart Optical Character Recognition (OCR), AI, machine learning and Robotic Process Automation (RPA) to help address some on-ground challenges like data collection, validation and processing. However, Indian banks and non-banking finance companies (NBFCs) have not seen the full benefit of digital investments materialize into a stellar bottom-line.

In a story of mixed results and missed opportunities, the promised profit from digital operations remains elusive. Firms are struggling to get digital transformation projects to yield the desired profitability. How can Indian banks and NBFCs get organized around these modernization efforts so that success looks more certain than it is now?

Equipped with digital transformation roadmaps, Indian banks and NBFCs delivered a slew of digital changes, especially at the front-end. They have organized their resources around a radically improved front-end customer experience. New digital banking propositions, unified payment interface, digital marketing promotions – these are a few of the many programs that banks have focused on to generate a robust digital environment for Indian customers. Yet, these early wins are supplanted by the firms' struggle to build scale at a lower operating cost.

Application of digital changes to servicing, collections and other operational processes should naturally have yielded net bottom line benefits. However, an analysis of key operating ratios shows underperformance on efficiency improvement. This is most evident in the cost-to-income ratios which have remained flat over the years. Costs to average assets across the years also yielded a similar scenario.

The root of the issue stems in operating cost structure. A common scenario in India is one where banks and NBFCs, pushed hard to use technology to provide better experience for customers, encountered cost overruns. Transformation budgets were underestimated, with early technologies now at risk of obsolescence in a rapidly changing landscape while growth-focused upstarts triggered a period of aggressive digital marketing expansion that pushed competing incumbents' online spending far afield.

Firms can adopt a structured approach to truly reimagine new digital processes and operating models of back-end activities for a digital world. The hidden opportunity lies in creating a digital-leveraged model to physical operations, thereby altering channel economics and setting organizations on a path to scale at lower marginal cost. When rationalized, digitally-leveraged organizations can reduce operating costs by 20-35%.

In adopting new key initiatives to make life easier at the back-end, banks and NBFCs in India may finally realize the early promise of digital investments.