Digital as the medium of choice
It is the digital ecosystems across the world that have transformed the way consumers discover, evaluate and purchase goods and services. With over 692 million active internet users[W1], India is one of the fastest-growing digital consumer markets in the world. Enabled by the increased penetration of low-cost smartphones, and high-speed internet connectivity, Indian consumers have strongly embraced digital technologies across different sectors. The banking sector has witnessed a plethora of changes in the way customers transact and manage their finances, with increasing number of transactions moving online or on the mobile. The new-age consumers who have grown up with smartphones and data, are increasingly expecting financial services to be as smooth as ordering their favourite meal online, while at the same time being as safe and secure as traditional payment modes. In today’s world with evolving consumer behaviours, the age-old concept of traditional banking has completely been overhauled with the rise of digital banking. There are a lot of conversations on digital banking with a number of new-age fintech companies using this term very actively.
Simply put, digital banking means banking done through digital platforms like the web and internet-enabled systems like mobile devices, and is based on automating conventional banking processes through the usage of new-age technologies. Over the last decade, the Indian banking landscape has witnessed a dramatic shift in customer’s preference towards digital
channels. While demonetization in 2016 acted as a catalyst in accelerating the customer adoption for online and mobile banking, the pandemic further propelled the growth trajectory at a never-seen-before pace. Also, the payment revolution that has emerged with the innovation of Unified Payments Interface (UPI) has taken India well ahead of what the West has been trying to accomplish. These disruptions have enabled the growth of fintech startups and new-age banks that are bringing digital-first financial products across payments, lending, investment, and insurance domains.
The technology-driven change is so pervasive that the tables have turned – earlier finance ruled the world but now technology is increasingly defining the rules. Technology and data are the new power centers that have given rise to new-age banking- one that is enabling financial services to be personalized, frictionless and ubiquitous across devices and applications. Traditional banks are updating their legacy systems with increased focus on offering need- based solutions that are cost-effective while reducing the delivery turnaround time. This is being made possible through the use of new-age technologies like artificial intelligence, machine learning and blockchain.
Technology as the driving force
Artificial intelligence has become very important for the world we live in – with brands leveraging AI-powered algorithms to deliver highly-tailored recommendations of digital content so as to suit the needs and preferences of a specific customer. E-commerce companies are driving personalization at scale by using AI engines to analyze customer behaviours and offer highly personalized recommendations at the right time and through the right channel. In this AI- powered digital era, banks also need to focus on offering experiences that are intelligent, personalized and truly omnichannel. After an era of proofs of concept, adoption of AI technologies by banks has moved from select use-cases to wide scale deployment across
multiple layers of the organization. In fact, as per a McKinsey report[W2] , AI technologies could potentially deliver up to $1 trillion of additional value for global banking each year.
New-age banks and fintechs are following a holistic AI strategy across front office as well as the back-office processes. Some of the key use cases of AI include streamlining of the customer authentication and authorization process via biometrics and facial scanning, deepening of the customer relationships through conversational bots and voice assistants, and providing personalized recommendations and insights. AI is also being leveraged to support Know-Your- Customer (KYC) regulatory checks by scanning and processing documents through machine vision and natural language processing. On the back-end, AI is being widely used to support credit decision making and real-time transaction analysis for fraud detection and risk monitoring.
The AI technologies being most commonly used in the financial services industry are robotic process automation for structured operational tasks, virtual assistants for customer service and machine learning algorithms for credit underwriting and risk management. To stay ahead of the competition and remain relevant, incumbent banks will need to deploy these technologies across all levels of the organization to increase profits, drive personalization at scale and deliver
a truly omnichannel experience.
Blockchain is another technology that has the potential to fundamentally transform and positively impact the banking industry. Since times immemorial, old-fashioned ledgers have been used by bookkeepers to maintain the record of business transactions. Blockchain can be thought of as a digital and distributed transaction ledger – one that is accurate, immutable and updated in real-time. The decentralized nature of this distributed ledger technology promotes greater safety and transparency in banking transactions. Blockchain has the potential to enable cross-border transactions in near-real time, and can also contribute a lot towards ensuring better security of the customer’s personal and financial data. This new-age technology is now reaching the stage of wider adoption, and is ready to unleash its full potential. Financial services companies across the globe continue to explore the new opportunities blockchain can offer to
drive greater efficiency in banking.
While technology is an enabler, it cannot automatically solve the traditional pain points and challenges in the banking industry. In this era of ever-increasing range of consumer choices, financial organizations would need to be aligned to customer behavior and in some ways be able to predict how the behavior is expected to change. There is a need for increased collaboration between banks and fintechs so as to deliver best-in-class, safe, secure and seamless banking experience to a larger and more diverse ecosystem of consumers.
With a collaborative effort by all the players in the financial ecosystem, digital banking is poised to become one of the most inclusive drivers of India’s sustainable growth in the coming times.