Banking in India is poised to undergo a transformation with the implementation of advanced technologies such as artificial intelligence (AI), machine learning (ML), blockchain and robotics. A look at how these emerging technologies are transforming the banking, financial services and insurance (BFSI) sector…
AI and cognitive technologies
A growing number of businesses are using AI, which is redefining the entire BFSI ecosystem in a major way. As the amount of automation and dynamic systems increa­se, AI aids in decision-making enhances customer experience and improves operational efficiency for businesses. Another benefit is that it provides strategic supervision for extracting the most value from data, which is more important now than ever, owing to the flood of data coming in from a wide range of sources. Cognitive analytics, meanwhile, is the new-age technology that facilitates information discovery and data-driven decision-making across all industries.
As a data goldmine, the BFSI industry is the ideal environment for cognitive analytics and AI. With the help of a combination of predictive analytics, ML and deep learning, cognitive systems may derive significant insights from un­structured data (business data and industry reports). Banks utilise this information to provide tailored services for clients and in­crease customer engagement with bran­ds. For instance, Kotak Mahindra uses a smart AI-enabled chatbot named Keya, which is quick and available to answer banking queries round the clock, to power millions of Kotak customers. The voice bot comes integrated with Kotak’s phone banking help­line and augments the traditional inter­active voice response system. Simi­la­rly, the State Bank of India (SBI) has em­ployed SBI Intelli­gent Assis­tant or SIA, an AI-powered sm­art chat assistant, which addresses customer enquiries instantly and helps them with everyday banking tasks. Other AI as­sis­tants include Electronic Vir­tual Assis­tant/EVA (HDFC’s chatbot), AXAA (Axis Bank’s interactive voice res­pon­se system), Assisted Digital Interac­ti­on/ADI (Bank of Baroda’s chatbot) and Abhi (Andhra Bank’s AI-powered bot) that interact with customers on a daily basis.
Big data analytics
With today’s data-driven insights, companies are able to deliver intelligent customer engagement. Technology and digitisation have transformed BFSI organisations by providing them with real-time actionable insights to make informed decisions, creating competitive advantages and elevating customer experience. Addi­tio­nally, banks can now more easily share potential products, upsells, cross-sells and strategic planning with their customers. Analytics gives banks the ability to market more effectively. It can also be very effective in ensuring optimal performance, and in making crucial decisions when the timing is important, in risk function areas such as risk, compliance, fraud, NPA monitoring and calculating value at risk.
The adoption rate of data analytics among the largest banking firms in India is 74.5 per cent as of 2021. At $88.5 million, private sector banks have the highest average annual analytics budget per company, followed by e-commerce enterprises at $50 million. ICICI Bank, Flipkart and HDFC Bank have the largest analytics units among Indian firms, while Myntra, Flipkart and Bharti Airtel have the highest analytics penetration.
Blockchain
While blockchain technology is still a relatively new innovation, it is already having a profound impact on business and financial services. Santander, a global bank, predicts that by 2022, blockchain-based systems will be in a position to save banks $15 billion to $20 billion a year. Blockchain technology is helping banks in India solve a big issue that has plagued traditional ban­king for years – handling letters of cre­dit, GST invoices and e-way bills. It has the potential to disrupt the banking and fi­nancial markets, according to the Re­se­rve Bank of India.
Indian BFSI players such as Axis Bank and ICICI Bank have shown a keen interest in experimenting with blockchain techno­logy. Through its “Thought Fac­to­ry” initiative, Axis Bank is exploring new block­chain use cases in collaboration with start-ups. Moreover, a consortium of 11 public sector banks – including India’s largest bank, SBI – has formed a company called Indian Banks’ Blockchain Infra­struc­­ture Company Private Limited, un­der which the first steps of this transformational process will be undertaken. The move is ex­pected to eliminate paperwork, reduce transaction processing time and pro­vide a secure environment. Further­mo­re, it could be a boon for medium-, small- and micro-si­zed enterprises.
Robotic process automation
With the rise of the digital economy, banks are having to process increasing am­ou­nts of unstructured data. This includes not just banking transaction data, but behavioural data as well, which could help banks to better serve their customers. Through a combination of cognitive and robotic processes, bankers can now understand customer behaviour and make quicker judgements at greater scales, ensuring higher quality. Furthermore, smart virtual assistants today provide important information, handle transactions and assist customers. Robo­pro­ce­ssing automates repetitive tasks by all­o­wing bots to handle them without human intervention, thus improving user experience. Additionally, it reduces errors and enables bank employees to deal with more intricate queries and provide better customer service.
Through robotic process automation (RPA), companies have improved custo­mer experience by digitalising turnaround times and reducing inbound calls. Axis Bank and Deutsche Bank have also been in the news for implementing RPA to automate business processes. The implementation of RPA has resulted in a 60 per cent reduction in process execution times at banks such as HDFC Bank and ICICI Bank. This tech­nology is disrupting how banks function, and adoption is expected to increase by 65 per cent over the next five years.
API platforms
A financial application programming in­ter­face (API) is one of the most important technologies in digital banking. APIs connect with applications and enable interactions, transactions, payments and information sharing. Banks are working with fintech companies today to build API platforms through which they can offer customers and third-party service providers flexible and personalised experiences via the banking stack. Banking API platforms are designed to work with APIs that in­ter­face between the back-end execution of banks and the front-end experiences provided by either banks themselves or third parties. This allows the banks to experime­nt with new technologies such as blo­ck­chain and adopt completely new business models and use cases at very low costs, such as enabling salary advances. Addi­tio­nally, APIs prepare banks’ systems for the future. Kotak Mahindra, YES Bank and HDFC Bank have already im­plemented this technology.
Cloud computing
Cloud computing is another technological advancement that is revolutionising the banking industry. It has tremendous uti­lity in streamlining and cutting business costs for financial service organisations. Hy­brid cloud services are being used to derive business value directly from em­er­ging technologies to ensure business continuity. Banks can lower data storage costs throu­gh cloud-based services, which en­able them to save on capital and operating expenditures while ensuring customer data is protected. Cloud computing also facilitates safe online payments, digital money transfers, wallet payments, etc. YES Bank is a pioneer of cloud-based ban­­­king services such as payments and on­line account opening.
Challenges
Recent high-profile breaches have highlighted security as one of the biggest challenges facing the banking industry, as well as a major concern for bank and credit union customers. Due to the persistent rise in cyberattacks during and after the Covid outbreak, most banking and financial services organisations and their corresponding back-end operations have gone digital. As technology grows, new threats such as malicious cyberattacks, phishing, malware, and bots targeting banking and financial systems are emerging.
In response to this new digital workforce, most financial institutions, including banks, have begun using multiple applications – some of which are unauthenticated, including renowned videoconferencing solutions – that have led to privacy issues and ransomware attacks. In order to protect sensitive customers, financial institutions should invest in the latest technology-driven security measures, such as address verification service, end-to-end encryption and biometric authentication.
The way ahead
Adoption is one of the most crucial factors in driving the penetration of digital services. It is heartening to see the country’s po­sitive trajectory on this front. This trajectory has also been shaped by certain broad events. For example, the adoption of digital payments has increased following de­monetisation. In the Covid-19 lockdown, a similar trend was observed. The Aa­d­haar Enabled Payment System was used by postal service professionals to ass­ist people in withdrawing cash from their homes during the peak of the Covid outbreak. It is during such times that the te­ch­nological capabilities of financial institutions become most influential in determining the market trend.
These are some of the key transformations that the BFSI sector has recently un­dergone. As a result, the second largest po­pulation of the world is rapidly digitising.