The years 2020 & 2021 have offered numerous pleasant surprises despite being extremely challenging with the huge disruption and chaos. Our increasing dependencies and investment in digital technology are paying off and have offered the benefit of keeping businesses going and productivity levels high during the pandemic.
On the other hand, non-digital businesses may be accumulating huge losses. It may therefore be beneficial for businesses to adopt a digital approach from front to back with no physical intervention.
Banks & Financial Institutions (FIs) today are focusing heavily on the use of digital technology to enhance their business opportunities, operational risk monitoring and management capabilities. According to a Deloitte study, MasterCard reported more than 40% growth in contactless transactions globally during the pandemic. Here we are emphasizing some of the key trends disrupting the whole ecosystem that are also creating new business models:
- Strong Foundation (Architecture) is the key
The BFSI sector is now moving away from the rigid monolithic set-up of systems and platforms to a more flexible, agile, light Microservices-based Architecture which helps drive scalability, responsiveness and uniform customer experience across touch points. This makes the architecture ready to connect to anything, anywhere (with a need to coexist and cooperate) – Enterprise Databases, Data Warehouses, Cloud Services, B2B & B2C Connections, Bring-Your-Own-Device (BYOD) Connections, Third-party ‘Big Data’ Sources & IoT.
- Startups and FinTech are key challengers and also collaborators
Banks and other FIs must be able to deliver an easy-to-navigate, seamless, uniform and personalized experience that is truly digital. This is what differentiates Fintech from traditional players. At the heart of any Fintech is the heavy use of data-driven analytics and hyper-personalization. Fintech has offered alternative business models to traditional players – Accounts, Payments, Loans, Wealth Services, Financial Management, Digital Advisory etc. at a faster pace and cheaper price.
FinTech startups have certainly disrupted the BFSI market dynamics for the incumbents. By forming a strategic alliance with the startups, incumbents can offer their users the ideal speed, security and efficiency. Banks and FIs are required to upgrade their way of doing things. Digitalization is inevitable. Banking will continue even if banks cease to exist.
- Open Banking
Customers are choosing to explore newer ways to bank at their convenience. This trend is leading to growth in the open banking space. API banking accelerates processing times, reduces go-to-market cycles, and improves decision-making and responsiveness. Open Banking is leading to data monetization and socio-economic upliftment.
- RPA & AI
Robotic Process Automation (RPA) tools are being widely used for a long time now. However, with the addition of AI, the automation space is further accelerating time-consuming tasks such as insurance claims processing, policy administrations, card processing. Hyper automation is driving manual tasks and processes are getting replaced by super-intelligent bots and further reducing operational risks and improving effective decision making.
The AI/ML capabilities adopted by Fintechs are responsible for further disruption. The most common usage continues to be understanding of social and emotional intelligence, natural language processing, ICR/OCR capability for data extraction, logical reasoning, identification of patterns and self-supervised learning leading to a reduction in attrition, fraud, risks and further in effectively offering personalized, contextual services. Self-driving cars and IoT devices ordering vegetables, making payments etc. seem to be the trend going forward.
There are mixed views on the adoption of Blockchain. There was an initial hype and it is settling down with more practical and effective usage of Blockchain. Organizations are coming together and creating an ecosystem that is effectively driving various use cases, most common being, Trade Finance, KYC, Legal Contract Management, and Digital Payments. Blockchain usage ensures the security of information, making it easier for banks to detect fraud and eliminate risks. Blockchain will be a gamechanger in the near future as we see the potential to reduce operational costs while improving efficiencies.
- Cloud as a preferred infrastructure
Cloud usage and acceptability has grown many folds in the last few years. The debate on the security of cloud usage may be coming to an end. With the advent of cloud solutions such as AWS, GCP, Azure and the possibility of hosting a private or public cloud system, many traditional financial institutions have started to migrate a sizable portion of their data to digital formats. One of the main advantages for financial institutions using the cloud is storing and keeping track of large data sets that are used for verification of transactions. This makes them agile and fast-paced. This also widens their reach to various markets in the most remote locations. The collection and storing of a large data set leads to the effective usage of Big Data Analytics. Increased usage of cloud-based software-as-a-service (SaaS) applications for business processes that might be considered non-core, such as CRM, HR, and financial accounting will further gain acceptance in areas such as consumer payments, credit scoring etc.
- Going digital brings security concerns
Cybersecurity threats and risks are coming as we see disruption due to digital technologies. The typical approach to risk and controls is not effective anymore given the nature and incidence of cyber risk is unique and changing every day. The potential sources of cyber threats and the attack footprint are impossible to eliminate, requiring organizations to be nimble in their approach to cybersecurity. Hence, advanced analytics, real-time monitoring, AI and other tools are used to detect potential threats and stop them before they strike. Higher usage of third-party vendors, sophisticated and complex technologies, cross-border data exchanges will only increase the cybersecurity risks.
Regulators across various financial systems are keenly watching and slowly relaxing norms and controls around the usage of digital technology, and further disruption is around the corner. Wait and watch this space!