The banking, financial services and insurance (BFSI) sector has been stepping up its adoption of information and communications technology (ICT) solutions to modernise core business operations and drive operational efficiency. This has enabled enterprises in the industry to deliver a more nuanced and personalised experience, in line with customers’ changing needs. Digital payment platforms, big data analytics-based solutions and machine learning tools have now become the norm in the sector. Going forward, the next wave of technological transformation will be driven by disruptive technologies such as blockchain and artificial intelligence (AI), which have already started making inroads in the sector.

A look at the key ICT applications being adopted by organisations in the BFSI space…

Going digital

The BFSI industry has been rapidly undertaking digitalisation with the advent of new technologies and the government’s digital push. An increasing number of enterprises are moving towards digital platforms to simplify business operations and enable cost reduction. The digitalisation of banking operations has made it easier and faster for banks to maintain and retrieve important documents. Further, the adoption of mobile banking applications has enabled customers to perform tasks like checking their account balance, conducting monetary transactions and paying bills at the click of a button. All major banks in the country including the State Bank of India, Kotak Mahindra Bank, ICICI Bank, Axis Bank and HDFC Bank are now offering their own mobile banking applications with unique features that enable in-app bill payments, transaction enquiries as well as traditional banking services. Some banks, including Kotak Mahindra Bank and Saraswat Cooperative Bank, have introduced WhatsApp banking services to help customers receive updates or avail of services via the WhatsApp messaging platform.

Recently, seven banks – Kotak Mahindra Bank, Yes Bank, IDFC Bank, Axis Bank, Central Bank, Bank of Baroda and Punjab National Bank – adopted the National Payments Corporation of India’s digital platform, which will allow customers to give standing instructions to banks online, authorising them to make recurring payments for a wide range of services. These include payments to insurance companies and mutual fund schemes. Earlier, the process of activating standing instructions to banks involved a paper-based authorisation by customers under the electronic clearing services system.

Role of IoT

The use of internet of things (IoT) allows BFSI enterprises to offer a personalised experience to customers, generate more cross-sell opportunities, and innovate and devise better ways to improve risk management. The most common IoT application is tracking customers through connected digital or wearable devices. By analysing the data collected through these devices, banks can anticipate the needs of customers, and offer solutions and advice to help them take sound and smart financial decisions. This can help increase customer loyalty and thus bring in more business. Further, by leveraging IoT, banks can analyse the usage of ATMs in specific areas and increase/decrease the installation of ATMs based on usage data. IoT can also be used by financial institutions for on-premise and supply chain monitoring, which involves tracking customer experience at the BFSI company’s stores, branches and offices, and for tracking product/service operations (such as production, warehouse operations and other processes).

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. Meanwhile, asset and wealth management companies can use IoT to help businesses and consumers make investment decisions and undertake asset allocation based on behaviours, personal choices and geographic considerations.

Adoption of cloud and big data analytics

The BFSI industry generates large amounts of data, on a daily basis, which should be accessible to consumers anywhere, any time. This can be ensured through cloud-hosted solutions. Cloud computing offers banks an asset-light, low-cost operating model that enables them to outsource various non-core activities. Some of the major banks in India are already collaborating with technology companies for implementing cloud computing in their systems. The banking areas best suited for cloud computing are delivery channels, customer relationship management, client sales and servicing, and payments. However, data privacy remains a concern and many banks prefer private clouds over public clouds for data storage.

Insurance firms, too, see the cloud as a critical enabler that can help them reduce costs and enhance operational efficiencies. Cloud-based solutions are making inroads into the payments space too. There is an increasing shift towards cloud-based point-of-sale (PoS) systems, which offer several advantages over traditional PoS systems. These include secure transmission and storage of sensitive credit card data, guaranteed system uptime and service availability, and an offline option in the event of a network failure.

The BFSI sector is turning to big data analytics to improve efficiency, customer acquisition and retention, and create omni-channel platforms. In recent years, risk analytics has found many takers among BFSI enterprises. Further, many Indian banks are using analytics across a multitude of functions, including managing customer relationships, reducing credit losses and non-performing assets (NPAs), countering fraud/money laundering, managing risks and mapping networks. The insurance sector is also using big data analytics to assess risks, avoid fraudulent claims and underwrite risks.

Leveraging AI

AI has started playing a significant role in redefining banking operations across private as well as public sector banks. There are many use cases for AI in this space. Banks can use the technology to identify suspicious activities based on transaction history and the behaviour of individual customers. Further, AI can be used to develop automated chat systems called chatbots, which simulate human chats without any human intervention. SBI is currently using an AI-based solution to scan the cameras installed in its branches and capture the facial expressions of customers to assess and report the level of customer satisfaction. The bank has also launched SIA, an AI-powered chat assistant, which addresses customers’ enquiries instantly and helps them with everyday banking tasks just like a bank representative. HDFC Bank has also developed an AI-based chatbot called Eva. According to the bank, Eva can assimilate knowledge from thousands of sources and provide simple answers in less than 0.4 seconds. Axis Bank has also launched an AI and natural language processing-enabled conversational banking application to help consumers with financial and non-financial transactions, answer frequently asked questions, and contact the bank for loans and other products.

Securing operations through blockchain

While the use of ICT solutions has enabled BFSI enterprises to enhance business efficiency, these have also exposed the sector to cybersecurity threats. In this regard, blockchain technology has emerged as a key tool for securing operations. Apart from making the general 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 syndication of loans. It can also reduce the cost of online transactions while simultaneously increasing authenticity and security. As per industry estimates, blockchain has the capability to reduce costs for banks by up to $20 billion per annum by 2022.

Recognising these benefits, a number of Indian banks have started exploring opportunities in the blockchain arena. ICICI Bank has emerged as one of the first banks in the country to use blockchain for a safe and secure paperless trade process. This process is being used for the exchange and authentication of overseas transactions and international trade documents. The bank is processing all overseas transactions between India and Canada via blockchain on a daily basis and has processed Canadian $32 million so far using this platform. The switch to blockchain has helped the bank in reducing the turnaround time of trade cycles, leading to better management of cash flows and inventories.

The way forward

Going forward, the BFSI industry’s tryst with digitalisation will continue as enterprises become far more technologically empowered. The need to ensure the security of the entire connected banking ecosystem will become increasingly vital to gain customer trust and move upwards on the technology trajectory. To this end, emerging technologies such as AI and blockchain can prove to be industry game changers. s

Kuhu Singh Abbhi