The banking, financial services and insurance (BFSI) sector has been leveraging information and communications technology (ICT) solutions to modernise core business operations and drive operational efficiency. As per industry reports, the Indian BFSI sector’s total spending on IT stood at around $10 billion in 2019.
With new-age technologies such as artificial intelligence (AI), internet of things (IoT), blockchain and cloud solutions, the industry has transitioned from traditional banking methods to more personalised banking with a focus on customised offerings. However, with this technological uptake, the sector has also become a key target for cyberattacks, which need to be addressed.
The immediate learnings from the current Covid-19 situation will only expedite the adoption of new-age ICT solutions for the digitalisation and optimisation of a bank’s back-end and front-end operations, making them more efficient and effective.
A look at the key ICT applications changing the face of the BFSI industry…
Enterprises in the BFSI sector are leveraging AI to balance the need for privacy and security with personalisation and engagement. From enhanced customer service and fraud detection and prevention to compliance and risk monitoring, AI has helped banks gain better control and predictability over user behaviour. According to the International Data Corporation (IDC), banks are expected to spend $14.5 billion on AI by 2024, mostly on initiatives such as fraud analysis and investigation.
- Enriching customer experience in banking: While Indian banks have explored the use of AI, they have primarily focused on enhancing customer experience by adding chatbots. Some of the known banking-related AI chatbots are the State Bank of India’s (SBI) SBI Intelligent Assistant (SIA), HDFC Bank’s Electronic Virtual Assistant (EVA) and ICICI Bank’s iPal. Banks are now looking at deploying context-sensitive AI solutions to enable advanced and adaptive real-time monitoring of their payment networks. In August 2020, Visa Inc. developed a more advanced AI system that can approve or decline credit and debit transactions on behalf of banks when their own networks are down. Amidst the lockdown, SBI was driving downloads for its digital banking platform YONO, YONO Lite, SBI Quick, BHIM SBI Pay, and other online apps by leveraging conversational AI and conversational marketing via Facebook Messenger.
- Better insurance claim management: For insurance firms, AI has emerged as a critical enabler that can help in fraud detection or claim management. For instance, IFFCO Tokio General Insurance leverages AI for image processing to analyse the extent of damage to a vehicle, which helps it to generate a list of repairable and replaceable parts. Moreover, the company has automated claim settlements aided by AI. At present, of all the quick claim settlements that IFFCO does for personal cars, 33 per cent are through AI. In August 2020, Mumbai-based Universal Sompo General Insurance introduced an AI-powered virtual agent to settle its motor insurance claims. Meanwhile, Kotak Life Insurance is working on analytics-based marketing communications and AI-based fraud analysis. Walking on similar lines, Max Life Insurance is trying to reduce the distance with its customers by using AI through chatbots.
Transforming to digital with IoT
As more devices obtain digital interfaces, digital payments are transcending the realm of personal computers and smartphones. The IoT infrastructure facilitating the transmission of data across consumers, financial institutions, and commercial businesses is now being called the “bank of things”. While it is still in its infancy, the growing adoption of smart devices is expected to trigger its exponential growth, going forward. According to a study by Absolute Market Insights, IoT-based banking and financial services will increase at a compound annual growth rate of 55.3 per cent between 2019 and 2027.
- Expanded range of services beyond banking: IoT holds tremendous potential to benefit banks and customers alike. Data from sensors and beacons can allow bank managers to optimise a branch’s capacity management. Some banks have also used IoT to engage with customers beyond traditional paradigms. For instance, banks in the US began using IoT initiatives to encourage customers to stay fit by granting bonuses and financial rewards for reaching fitness targets. By leveraging IoT, banks can analyse the usage of ATMs in specific areas and increase/decrease the installation of ATMs based on usage data.
- Mitigating risk in insurance: In the insurance industry, IoT can play a major role in providing usage-based insurance products. By using real-time data about personal behaviour, insurance firms can fine-tune coverage to potentially add or eliminate certain risk clauses. In India, Bajaj Allianz General Insurance Company uses IoT devices to gain insights into customer well-being. This enables Bajaj Allianz to offer better insurance services.
Counting on cloud
BFSI enterprises are leveraging cloud-hosted solutions to store the massive amount of data generated across the value chain. Through the cloud, banks can leverage an asset-light, low-cost operating model that enables them to outsource various non-core activities. Besides, cloud computing secures transactions by integrating all the services of the bank system, and thus reduces time and effort on the part of the customer.
Some of the major players in the sector are already collaborating with technology companies to implement cloud computing in their systems. In August 2020, Shivaami Cloud Services and ICICI Bank announced their industry first collaboration to launch cloud-based products bundled with transaction banking API solutions in India. Recently, HDFC Bank announced a strategic partnership with Adobe to provide personalised digital services through Adobe Experience Cloud (AEC).
The insurance industry is witnessing an increasing shift towards cloud-based point-of-sale (PoS) systems, which offer several advantages over traditional PoS systems. In January 2020, Bajaj Allianz General Insurance moved its insurance administration system to the cloud using the TCS BaNCS platform developed by Tata Consultancy Services (TCS). All lines of its businesses, operations and sales channels are monitored and controlled via this cloud-enabled core system.
Blockchain securing operations
One of its early adopters, the BFSI sector now has matured users of blockchain. Besides making the banking process more secure, blockchain can play a significant role in facilitating cross-border payments, digital identity management, clearing and settlement, the letter of credit process, and loan syndication. As per industry estimates, blockchain has the capability to reduce costs for banks by up to $20 billion per annum by 2022. Blockchain brings in transparency, particularly in niche services such as trade finance and supply chain finance, considerably minimising instances of fraud.
Recognising these benefits, banks have started exploring opportunities in the blockchain space. For instance, Axis Bank has been using blockchain to provide inward remittances to retail customers in the Gulf and in Singapore. The bank has partnered with RAKBANK in the UAE and Standard Chartered Bank in Singapore. At present, Yes Bank is using invoice financing blockchain. Further, ICICI Bank is trying a specific blockchain technology for trade finance, remittances and close wallet transactions. Meanwhile, DCB Bank, in partnership with Infosys, uses blockchain smart contract, which provides a consolidated summary of an individual’s transactions across financial institutions and provides a single view of the certificates available. In 2019, JP Morgan initiated a blockchain-based interbank information network in seven Indian banks, comprising private and public sector entities, to make global exchange of financial information more secure.
Covid-19 as an inflection point
The Covid-19 disruption has brought a slew of opportunities for the BFSI sector. Most banks are at various stages of their digital transformation journey, which, prior to the pandemic, was in most cases limited to a customer-facing digital layer. According to industry experts, the pandemic has done in just five months what would otherwise have taken five to ten years to achieve for India’s digital payments ecosystem. Post the pandemic, it is expected that banks will continue the move away from traditional forms of banking.
Amidst the lockdown, Bajaj Allianz Life Insurance Company adapted to the emerging demands and introduced its policy-related services through digital touchpoints, allowing customers to easily connect with the company. To this end, it is using the BOING chatbot, the Life Assist mobile app and a customer portal. Meanwhile, Kotak witnessed an increase in the adoption of new digital platforms such as WhatsApp Banking and the AI-backed Keya voicebot. Tata AIA Life Insurance moved its major operations internally and on to digital platforms. According to ICICI Prudential Life Insurance, during the first quarter of the financial year 2021, about 400,000 transactions took place with the help of AI/machine learning and robotic process automation.
The way forward
Clearly, digitalisation in the BFSI sector is set to increase as enterprises become more technologically empowered. However, cybersecurity remains a key hurdle in stepping up ICT adoption in the sector. To address this, enterprises have started using prescriptive approaches to strengthen cybersecurity. In this regard, intelligence-driven measures, including the use of AI and blockchain to augment authentication methods, can prove to be industry game changers.
By Shikha Swaroop