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Digital Journey: Increasing adoption of IT and telecom by BFSI segment

April 27, 2016

Digital Journey: Increasing adoption of ...
The health of a country’s economy is reflected largely in the status of its banking, financial services and insurance (BFSI) industry. The BFSI segment both fuels and is fuelled by economic growth. The banking industry in India has undergone a huge transformation from the days of dominance of state-controlled banks to the emergence of large private banks that have fuelled competition. It is now looking at experimenting with new models of banking in the form of payments banks and small finance banks.

For an industry that is undergoing rapid transition, it is imperative to focus on enhancing operational efficiencies in order to survive in a changing milieu. A robust information technology (IT) and telecom set-up can be of immense importance in this regard. BFSI, in fact, is one of the foremost industries that has benefited from telecom and IT. While the BFSI industry pre-dates telecom and IT, its survival and growth now critically hinge on the latter. Thus, it has increased its spending on IT and telecom infrastructure. As per a report by Gartner, Indian banking and securities companies were expected to spend Rs 536 billion on IT products and services in 2015, an increase of 15 per cent over the Rs 466 billion spent in 2014. This includes spending by financial institutions on internal IT, hardware, software, external IT services, and telecommunications.

A look at the key technology trends in the BFSI industry…

Early adoption of digitisation

The BFSI industry began its digital journey with private sector banks moving up the technology value chain to differentiate themselves from public sector banks. Increasing competition made the latter follow suit, making the BFSI industry one of the foremost industries to adopt IT and telecom to digitise its daily operations. IT has evolved and enabled the industry in many domains such as customer service, enhanced product delivery, cross-sell, multi-channel real-time transaction processing, minimal transaction costs and increased operational efficiency, thereby impacting overall profitability and productivity in the sector.

Typically, BFSI firms use an application called core banking solutions (CBS), which gives flexibility to consumers to operate an account from any branch regardless of the branch where they maintain their account. This is done by automating the entire core banking functions across entities, languages and currencies. Today, CBS has expanded to include internet and mobile banking. Apart from providing flexibility, CBS helps financial institutions introduce new products with ease.

The biggest example of digitisation in the BFSI industry is the widespread use of ATMs and credit/debit cards for making payments, which has transformed the habits of Indian consumers. From being a cash-dominated economy, the country has started to slowly move towards cashless payments. Realising the advantages offered by the integration of technology in day-to-day operations, BFSI players have now started providing IT-enabled banking services like electronic funds transfers, electronic clearance services, internet banking, mobile banking, point-of-sale terminals (kiosk banking), and electronic data exchange.

The landscape has now evolved to an extent where payments, fund transfers, remittances, trading and claims settlements are taking place online or through mobile devices. This shift has been enabled by the industry’s willingness to adopt technological solutions to meet consumer requirements.

Adoption of cloud

Enterprises across all verticals are slowly warming up to the idea of using the cloud. This holds true especially for the BFSI industry. The cloud offers immense advantages. It generates cost savings by eliminating the need to maintain large physical data centres. Most vendors today offer cloud as pay-as-you-go service, giving enterprises additional flexibility. Further, cloud services enable enterprises to scale up their resources as per the changing customer needs and requirements.

The BFSI industry generates immense amount of data on a daily basis, which has to be accessible anywhere, anytime to the consumer as well as the enterprise. Banks can ensure this by using cloud-hosted solutions. Similar interest is being seen among financial trading firms, most of whom have moved their operations online. This has helped boost customer confidence in trading (as they are able to access real-time data) and, in turn, increased trading volumes. Cloud has been an enabler in this regard. Insurance firms, too, see cloud as a critical enabler that can help them reduce their costs and bring in more operational efficiencies.

While most discussions on adopting the cloud currently revolve around its ability to reduce IT costs, it is essential that enterprises see beyond this trait and discover use cases of cloud that suit their needs the best to drive further uptake of cloud. Industry experts, however, believe that banks will continue to invest in both traditional technologies as well as cloud to catch up with the changing customer behaviour.

Digital consumer

In India, smartphone usage is on the rise and the trend is expected to continue with smartphone sales expected to exhibit double digit growth in 2016. Increased smartphone usage has led to drastic changes in consumer behaviour as users prefer smartphones as a medium to make transactions. To adapt to such behaviour changes, banks and insurance companies have begun targeting consumers by integrating mobile-based offerings in their services. Some banks have gone a step beyond and started integrating social networking sites into their portfolio. For instance, ICICI Bank has launched a Twitter-based banking service that allows a user to transfer money to anyone in the country who has a Twitter account. The bank was also the first to launch an application for carrying out transactions using a Facebook account.

Insurance companies, too, have taken to this digital revolution by arming their employees with mobile devices and tablets, which enable surveyors to instantly capture images, fill in the necessary information and immediately sync information to a central server to process an insurance claim. This improves transparency and reduces the settlement time.

Going forward, BFSI enterprises are expected to focus more on differentiating themselves in terms of various digital offerings and products rather than opening more branches to reach out to customers.

Security concerns

With the BFSI industry having digitised its records and taken to the cloud to store consumer data, concerns surrounding the privacy and security of data have grown. The way enterprises handle and protect sensitive data is increasingly becoming an important component of their brand and overall reputation.

BFSI enterprises are at foremost risk from cyberattacks. With the rising number of online transactions, the threat of customer data theft has risen manifold. Recognising these risks, the banking industry has taken several initiatives in the area of cyber security and data protection. Governments and regulators have also introduced mandatory guidelines and protocols for data security and privacy. Going forward, customer expectations and concerns about security and privacy will drive further investments in security solutions by BFSI enterprises.

The way forward

Clearly, the BFSI industry cannot exist in its present form without a robust IT and telecom blueprint. Customer awareness and engagement have increased over the past decade and they are now demanding sophisticated new digital products that can fulfil their requirements. The industry, thus, needs to constantly stay on a path of transition to a digital ecosystem and deploy new technologies as a strategic tool to meet this demand.

The BFSI industry is also expected to play a critical role in enabling the government’s goal of Digital India. Many government services are now being delivered online and are being linked to a customer’s bank account, for instance the LPG subsidy. To ensure that the industry is ready for this challenge, greater deployment of technology will be required.

Meanwhile, the government is driving financial inclusion. This is evident in the new payments bank licences that were granted last year. This is expected to significantly alter the banking landscape in the years to come. By licensing telecom companies to become banks, India has joined the shortlist of countries that have tried to put in place a proactive framework to encourage innovation in payments and banking. These new players, most of which are telecom companies, are expected to leverage technology to drive their entry into the market. Therefore, the traditional banks will be forced to innovate on their customer strategy and deploy IT and telecom solutions not only to target customers better, but also to bring in greater enterprise-level efficiencies.

 
 

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