New Technology in Banking21/07/2020
The world has entered what some regard as an era of ‘Digital Darwinism‘, a time where technology and society are evolving faster than many organizations can adapt to the changes. The emergence of the digital five forces, Social, Mobile, Analytics, Cloud and Internet of Things (IoT) is creating new and valuable sources of business information, ways to interpret data and the means to do so cost-effectively. The value of digital in India is huge; as per a study by the World Economic Forum just four digital initiatives could unlock US$ 1.2 trillion of value for the Indian industry and society over the next decade, representing about 40percent of national GDP in 2015.
It was only in late 1990s that some private sector banks introduced non-branch banking services through use of information technology. Initially transactions on internet banking were viewed as insecure. However, internet banking witnessed growth in 2000s owing to initiatives taken by the government, the RBI, falling internet costs and increased awareness. Online banking has enhanced customer satisfaction by providing anywhere anytime banking and benefitted banks through cost savings and increased penetration.
In last few years, the Indian banking sector has realised the need of digital technologies and is rapidly moving to embrace digital banking. They are making considerable investment in creating digital infrastructure in order to offer various solutions like mobile banking, e-wallets and virtual cards, etc. The key innovations in Digital banking are Digital-only/Virtual Banking, Biometric Technology, Artificial Intelligence, Blockchain Technology, Bitcoin and Robotics to mention few.
Digital-only bank provides end-to-end services through digital platforms like mobile, tablets and internet. It is paperless, branchless and signature-less banking offering 24*7 services to its customers. In India, the digital-only banking is based on Aadhaar infrastructure. The digital-only banks offer various services like account opening, term deposits, loans as well as financial products like insurance and mutual fund. While digital banking is simple and cost effective, there are still security risks. The pace of growth in digital-only banks will depend on their ability to address security concerns. Innovations like Biometric technology allows the person to be identified uniquely by evaluating one or more distinguishing biological traits like face, hand, retina, voice and ear features. The use of biometric authentication can eliminate the requirement of multiple passwords and PIN codes. The Indian banking sector is also gradually adopting biometric authentication to provide simple and secure banking experience to its customers.
Artificial Intelligence (AI) can provide quick and personalized services by dealing with each customer and focusing on their specific requirements. It can be used to collect information, automatically build models based on that information, inference and communicate in natural way. In India, only large banks are currently seeking to introduce AI in their services. The key components of AI are machine learning, computer vision, natural language progression and natural language generation. Indian banks are likely to use AI like machine learning to re-engineer back office processes. Robotics is a technology that mimics the actions of human performing simple rule-based processes. The use of robotics in the Indian banking sector though not yet widespread, is expected to gain ground in the coming years. Robotics is expected to automate processes which are repetitive, rule based and require less human judgement. Also, being scalable and cost effective, it could help automate processes with high transaction volumes. Presently, some Indian banks have started deploying robots to answer customer queries related to banking transactions, demat account, locker facility, fixed deposit, loan, etc. Apart from humanoid robots providing customer service, software robots are also getting deployed in functions such as retail banking operations, agri-business, trade & forex, treasury and human resource management to name a few.
Globally, banks are seeking to use block chain technology (BCT) for operations such as money transfer, record keeping and other back-end functions. Block chain technology can be used in banking activities like secure document management, reporting, payments, treasury & securities and trade finance. Banking industry can benefit from block chain technology as it helps in fraud prevention, increasing the resilience of the bank’s IT infrastructure and also increases transparency of processes. Besides these advantages BCT is also cost efficient and provides auditability & provenance. Bitcoin is the decentralised digital currency as well as the decentralized peer-to-peer payment network that is powered by its users with no central authority. In India, the RBI hasn’t yet authorized use of bitcoins and issued a press release on Feb 1, 2017, cautioning the users, holders and traders of bitcoins about the potential financial, operational, legal, customer protection and security related risks. Despite this, bitcoin exchange platforms like BTCX India, Coinsecure, Unocoin and Zebpay have been developed in India.
Other upcoming technologies
Apart from these technologies, there are many other technologies which Indian banks could harness in future. Banks can use google glass technology to locate the nearest bank branch/ ATM, check account balances and use video conferencing for technical support. Augmented Reality (AR) app is integration of digital information with the user’s environment in the real world. In India, AR mobile app has been launched by a bank which lists all dining destinations, property lists, and shopping centres, bank ATMs, branches etc with real life pictures along with distance and directions. Installing Bluetooth beacons at bank branches could allow banks to integrate physical and mobile channels to provide effective communication. Although the adoption of beacon technology by Indian banks is very less, it is expected to increase going forward with many Indian companies engaging in beacon technology and growing smart phone users. Indian banks are yet to experience extensive adoption of many technologies, however, significant investments and developing dedicated teams to test these technologies is a positive sign.
7 Ways Digital Disruption Is Shaping The Indian Banking Sector
Remember the days when long queues for withdrawal and depositing money at banks were the norm?
How opening a bank account was a lengthy procedure and getting loan approval was complex in nature.
However, over time, emerging technologies have brought about a complete transformation in banking methods and experiences.
Advanced technologies like Artificial Intelligence (AI) and Machine Learning (ML) have made its presence felt in all walks of life with the ability to help the user innovate. With the banking sector becoming an active adapter of AI and ML technologies, it is exploring and implementing these technologies in new ways to enhance customer experience and increase the efficiency of operations.
According to a report published by PwC in 2017, the global spending in artificial intelligence has touched $5.1 billion. Having a robust technological ecosystem as its backbone and a huge market base with low penetration of financial services (FS), the Indian FinTech market holds immense potential.
Here are 7 ways in which AI and ML are shaping the banking industry:
Fraud Detection and Prevention
According to RBI’s Annual Report, bank frauds accounted a loss of Rs 71,543 crore in 2018-19. Digital frauds constitute a significant threat that plague financial institutions. Machine learning solutions can track and analyse spending patterns, location, client behaviour, to detect anomalies and alert the customer at the earliest to reduce frauds. There are ML models that help in creating behaviour profiles of each user basis the way the users interact.
Further, new transactions can be compared with the base profile, which will help banks authenticate and prevent frauds in case of any differences.
Anti-Money Laundering (AML)
Financial institutions and the government are continually exploring new ways to fight money launderers and several anti-money laundering policies have been built to curb laundering. The timely detection of laundering activities is the most challenging aspect of the implementation of an efficient AML program.
A financial institution must monitor their customers’ deposits and other transactions to ensure they aren’t part of a money-laundering scheme. AML solutions enabled with AI and Ml technologies can help replace the manual process with real-time automated insights. Real-time screening and automated processing of vast amounts of personal data for better KYC reviews help in the context of customers’ profile and transaction history thus giving a better picture of their regulatory compliance while helping ascertain overall risk. Also, identification of intricate patterns via ML algorithms help in reducing the number of false positives without compromising regulatory obligations.
Customer experience is an integral part of each industry. With the world going completely digital, today’s generation expect a digital experience. AI provides a personalised experience for the clients on IVR, mobile banking, internet banking and email communication. These services can range from sending alerts about unusual activities, information on third-party services, tailored relevant offers, information on their spending activities and encouraging direct debits of bill payments.
Banks and financial institutions are laden with big-data, which is mostly unstructured. AI-based solutions help banks wade through this data to analyse and build operational efficiencies. AI and ML solutions help in suggesting offers to customers on new products on their preferred channel, mobile app, SMS or email and can be triggered based on their locations too. It also enables in engaging with customers across devices or screens for accumulating and analysing their data and predicts their requirements to suggest better products that they might need in the near future.
According to a Credit Suisse report, the mobile payments market in India is projected to reach $1 trillion by 2022. Regardless of the rise in the number of platforms that enable businesses to offer online payment experience to their customers, there is still a long way ahead for it to be penetrated and accepted in the tier-II and tier-III cities. AI and ML-based solutions have transformed the payments landscape by enabling safe, swift and secure onboarding and payment systems across devices and services.
Robo-advisors are digital platforms that provide automated, algorithm driven investment services with little to no human supervision. While initially, they depend on the information that the user provides but with time-based on machine learning, the solution learns and evolves to provide more trustworthy and intelligent services. AI enabled Robo-advisors can provide more contextual services by considering multi-dimensional perspectives of risk appetite, returns expectations, investment goals and product analysis.
AI also enables credit companies to extend credit based on the clients’ profile from market data (rating agencies) and internal credit policy. It can help in generating pre-approved offers for specific customers. AI and Robotics Process Automation (RPA) can also proactively confirm KYC inputs, thus reducing the time to onboard a customer.
AI and ML’s disruption in finance is increasing exponentially, and it will have a more significant economic impact than ever. Right from enhancing customer experience to extending investment opportunities, to preventing fraud and mitigating investment risks, these technologies do not just have the potential to revolutionise the industry but also to improve the financial health of millions of people in the country.