The digitalisation journey of India’s banking, financial services and insurance (BFSI) sector is characterised by several factors such as robust technological advancements, the rise of mobile banking, the need for customer-centric hyper-personalised solutions, as well as regulatory requirements such as open banking, and upgradation of legacy systems. Financial institutions are exploring digital solutions and technologies to optimise operations, improve customer experience and enhance data security. A look at key technologies transforming the Indian BFSI sector…
Artificial intelligence
Artificial intelligence (AI) is significantly transforming the BFSI sector. According to a PwC report, 90 per cent of the respondents felt that AI and generative AI (Gen AI) are the top technology enablers for innovation in the fintech sector, while an EY study finds that 78 per cent of the Indian financial institutions surveyed have either implemented GenAI or have plans to deploy it over the next few months.
AI and machine learning (ML) are pivotal in detecting threats in real time and preventing breaches through historical data analysis and strengthening decision-making within the sector. For instance, Aditya Birla Sun Life Insurance leverages AI/ML for fraud detection and underwriting, ensuring more secure and accurate financial processes.
In contrast, GenAI refines credit scoring to enhance lending decisions. It also supports essential banking procedures such as know-your-customer (KYC) and enhances customer management. In practice, AI-driven tools such as chatbots, adopted by HDFC Bank, State Bank of India (SBI) and ICICI Bank, have enhanced customer service by providing 24/7 assistance. Many insurance companies also rely on AI to streamline their daily operations. Bajaj Allianz’s “Insurance Samjho” simplifies insurance processes, while Finvasia’s “Shoonya” helps investors optimise their portfolios, demonstrating how AI is driving efficiency and innovation across the BFSI sector.
Going forward, the contribution of AI to India’s BFSI sector is expected to grow at a CAGR of 28.2 per cent, from $7.39 billion in 2022 to $42.09 billion in 2029.
Cloud computing
Cloud computing offers on-demand network access to resources such as networks, servers, storage, applications and services with minimal management effort. In the BFSI sector, this technology provides software and data accessibility through web browsers, enabling anywhere, and anytime data access, supporting business continuity. It significantly benefits the sector by streamlining operations and improving service delivery. Banks now offer various mobile applications for services such as online banking, balance checks and fund transfers. Migrating these applications to the cloud reduces the complexity of connecting them to internal servers, making the process more efficient.
Further, smaller and cooperative banks with limited IT resources can benefit by adopting cloud-based core banking systems (CBSs) and compete with larger banks, while ensuring robust security measures. Cloud adoption also accelerates innovation, offering digital solutions and personalised experiences that enhance customer satisfaction in areas such as claims management, underwriting and customer enrolment, while lowering operational expenses.
Taking cognisance of these benefits, the government and the industry alike are promoting cloud adoption. The government has recently promulgated the MeghRaj programme and the EASE (enhanced access and service excellence) reforms to encourage banks to switch to cloud.
Meanwhile, an IDC report suggests that 80 per cent of the corporate banks in India will move their operations to the cloud by the year end. Currently, Max Life Insurance, for example, has migrated its mission-critical database workloads to Oracle Exadata Database Service, hosted on Oracle Cloud Infrastructure (OCI). Similarly, cloud solutions are being leveraged by Kotak Mahindra Life Insurance, Axis Bank, RBL Bank, ICICI Lombard and others to improve their operational efficiency and data centre performance.
Big data
Big data is significantly enhancing the BFSI sector by improving fraud detection, enabling personalised services and optimising risk management. By analysing vast amounts of data, banks can detect unusual activities and prevent fraud, which is a critical concern in the industry. This data-driven approach also helps financial institutions better understand customer preferences, allowing them to design targeted marketing campaigns and offer personalised products.
In the areas of lending and insurance, big data aids banks in risk assessment by analysing borrowers’ financial behaviour, thereby minimising risks in loan processing. Furthermore, big data analytics drives customer engagement by delivering real-time insights, which enable better product recommendations, upselling and cross-selling opportunities. It empowers financial institutions to improve operational efficiency, manage compliance, monitor non-performing assets and adopt a more strategic planning. Additionally, by analysing spending patterns and social media activities, big data creates new revenue streams and enhances customer experiences.
API and open banking
Application programming interface (API) and open banking in the BFSI sector enable seamless data exchange and integration between banks and customers, simplifying transactions such as payments and fund transfers without manual input. Furthermore, APIs enable instant payments by allowing third parties to process transactions directly from bank accounts, eliminating the need for card details or debit mandates.
API and open banking solutions also provide real-time access to financial data, which helps lenders assess risk and transaction history, resulting in quicker loan approvals and more accurate credit scoring. Additionally, customers benefit from real-time account updates. Open banking also fosters deeper collaboration between banks and external platforms, integrating with fintech and other systems to enhance processes such as faster mortgage application approvals. This collaboration allows banks to concentrate on back-end service development, while partners deliver end-user solutions. Moreover, APIs and open banking are improving peer-to-peer (P2P) transactions, e-commerce payments, personal finance management and investment services.
APIs also enhance insurance by enabling providers to offer personalised policies based on financial data and improve fraud detection through transaction pattern analysis. Streamlined claims processing is another advantage, as open banking allows for faster identity verification and claim approvals.
In India, the Unified Payments Interface (UPI), which leverages open API architecture, has been quite a success story as nearly four out of five transactions in FY 2024 were conducted through UPI according to the Reserve Bank of India (RBI). Further, ORF expects UPI to grow to Rs 542.7 trillion in value terms in 2030-31, fuelling the growth of API.
Robotic process automation
Robotic process automation (RPA) plays a crucial role in mortgage loan processing, insurance issuance and risk management by integrating data from multiple legacy systems. This integration reduces data handling efforts and processing time, while improving accuracy in assessing loan risks. In fintech, RPA accelerates processes such as purchase order creation and approval, eliminating manual errors and boosting efficiency. Additionally, it automates daily transaction tracking, providing real-time insights into profits and losses. For example, ICICI Bank leverages RPA to handle millions of transactions daily, enhancing its operations, while HDFC Bank
has reduced its loan processing time and increased productivity.
Blockchain/Decentralised finance (DeFi)
By operating on a single ledger system, blockchain enables banks to automate processes, minimise errors and eliminate redundant efforts, while providing real-time and encrypted updates. It also prevents frauds by accurately tracking client histories. Additionally, blockchain allows banks to issue tokenised assets, facilitating faster settlements, enabling fractional ownership and ensuring easier transferability. The technology also brings significant benefits to international payments and P2P remittances by reducing costs and processing times. For instance, the SBI has been leveraging JP Morgan’s blockchain technology to expedite overseas transactions. Similarly, the Federal Bank became the first Indian bank to execute a cross-border trade transaction using WaveBL’s blockchain-based electronic bill of lading, streamlining trade finance processes, while saving both time and cost.
Meanwhile, DeFi is gaining traction, particularly in the case of crypto currencies, as it allows operating on a P2P model that eliminates the need for intermediaries using blockchain technology and smart contracts. In the banking and insurance sectors, smart contracts are increasingly used for processes such as loan agreements, dividend payments and insurance claim processing.
However, despite its growing influence, DeFi remains a relatively new concept. It also raises questions owing to the volatility and lack of accountability associated with crypto currency. According to a report by RBI, global regulatory bodies and multilateral organisations are closely examining DeFi developments to assess their potential impact on asset markets and global financial stability.
The way forward
Technological advancements are playing an integral role in shaping the BFSI sector. Several new technologies such as Gen-AI, RPA, etc., which have made inroads in the sector, will grow in prominence in the coming years. That said, there will be an urgent need to modernise the infrastructure and manage costs to benefit from these technologies. BFSI organisations would need to develop a strategic mindset to excel in the ever-dynamic landscape, ensuring robust risk management and enhanced customer satisfaction.
