Traditional entry barriers faced by new players in the banking and financial services industry have long disappeared due to the emergence of new business models and technologies. At the meeting point of such technologies and business models, a revolution led by FinTech is underway and it is creating a new value chain by enabling financial institutions to derive opportunities out of modern disruptive environments.
Today, banks and financial institutions are increasingly working with disruptive technologies and startups to survive the changing times, and thrive in it. With radical changes expected in the scale, scope, and complexity of customer demands as well as the banking services available, tools such as SMAC (Social, Mobile, Analytics and Cloud) are providing banks with the means to reach more customers than ever before. Financial inclusion has become a key focus area for the central government, so several beneficial regulatory policies have also added greater impetus to the FinTech revolution.
“Customer engagement and overall experience are two crucial factors measuring business success, and they can be perfected by implementing AI to study historical data with regards to customer habits and preferences.”
The biggest companies across the world today are successful because of how they leverage data. To ensure competitiveness in today’s digital world, a bank should strategize its business models by efficiently making use of insights from data (historical as well as recent). Tech behemoths such as Google, Apple, and Facebook have entered the financial offerings space; meanwhile, banks have started deploying technologies to boost their services.
As the lines between tech giants and FinTechs blur, accessibility, convenience, and personalization become critical to ensure success. Customers love FinTech solutions for ease of use, cost- and time- efficiency, improved user experience, and new features with cutting-edge technology.
The evolving business models of banks and financial institutions
FinTech is now driving an evolution in the existing business and operation models of banks, helping them cut down overheads. This is resulting in a pull model that targets customers irrespective of location. With technology eradicating physical boundaries, banks and financial institutions have also been able to supplement and boost services such as customer acquisition, online shopping, travel/entertainment services and more. This has led to the rise of AI-driven marketplaces where customers and banks are interacting in ways never seen before.
The Global FinTech Report 2017 by PwC states that 82% of incumbents expect to increase FinTech partnerships in the next three to five years. In this context, the pursuit of customer centricity has become a key priority for all concerned parties. As millennials become the key demographic around the world for all industries, financial institutions also need to evolve to cater to their needs. All this has led to improvement of performance, user experience, and customization capabilities of the products and banking services today.
“It is inevitable that soon facial recognition, voice recognition, and natural language processing will enter the equation and provide a boost to the banking revolution that is already underway. At the heart of all this advancement is machine learning.”
AI: Machine learning for improved personal banking
We are experiencing a digital shift in all walks of life. As we progress, AI will ultimately drive this shift with the ultimate goal of improving customer engagement and overall experience. These are two crucial factors measuring business success, and they can be perfected by implementing AI to study historical data with regards to customer habits and preferences. These actionable insights into the evolving new-age customer enable the service provider to differentiate themselves from competition.
Conversational AI plays a key role here. What initially began as a simple customer response system has become a dynamic virtual assistant that every leading bank is implementing. Examples such as HDFC OnChat and EVA, SBI InTouch, YES mPower, YES Pay Bot and Digibank are just a few notable examples. They all play a critical yet simple role – understand customer queries of varying complexities and respond appropriately. The inbuilt AI in these cases can mimic human interactions and provide assistance in carrying out different processes related to account management, funds transfer, bill payment, and much more in real-time.
It is inevitable that soon facial recognition, voice recognition, and natural language processing will enter the equation and provide a boost to the banking revolution that is already underway. At the heart of all this advancement is machine learning. Thanks to the ocean of data generated by widespread app usage the world over, AI based systems have plenty of references to learn from.
A Capgemini report indicates that about 9 out of 10 Indian companies say that AI has actually created new jobs. A majority of these jobs are admittedly at the senior managerial level, but it is nonetheless an impact that many did not see coming. With plenty of new services and new features being made possible by AI, the scope for job creation in the financial sector is immense. On a strategic level, AI enables the deployment of technology to better serve customers, enhance performance, and boost revenue, but the human capital impact cannot be understated.
“India is proceeding at breakneck speeds when it comes to market maturity and the adoption of digital payment solutions. A major reason for this is India’s large smartphone user base that is bigger than that of most countries.”
UPI: Open data sharing for a digital banking future
Another key evolution being driven by FinTech innovations and partnerships in India is the UPI (Unified Payments Interface) real-time payment system. Developed by the NPCI (National Payments Corporation of India) to propel India towards a cashless economy, UPI enables users to instantly transfer funds between bank accounts on a mobile platform. In fact, since its launch in August 2016, the value of UPI transactions had risen to INR 27 billion by May 2017. Currently, no other nation can boast of a payment solution as well designed as UPI, and India leads the world when it comes to UPI payment processes.
India is proceeding at breakneck speeds when it comes to market maturity and the adoption of digital payment solutions. A major reason for this is India’s large smartphone user base that is bigger than that of most countries. The government’s push for a digitized, cashless economy has also lent an air of inevitability to this.
UPI clearly benefits everyone – users and merchants. Not only is it a simple, fast, and effective way to transfer money between different parties, it is highly dependent on smartphone usage and adoption. With more than 440 million smartphone users projected in India by 2022 according to Statista, this has a great future. A key advantage of UPI is that a user can operate all their bank accounts through one single app, an unbeatable benefit that will soon convince anyone who has ever faced the issue of too many apps on their phone. While UPI was met with some skepticism initially, banks and financial institutions have realized that it will not necessarily replace mobile wallets or netbanking; it will only supplement existing payment operations.
Already, leading tech companies have joined the list of UPI-enabled service providers in the country. Initially only the BHIM (Bharat Interface for Money) app supplied UPI transactions, but now players such as Google Tez, WhatsApp, Paytm, Airtel Payments Bank, PhonePe and many more have also joined the lengthy queue. Apple Pay is also expected soon in India, and it won’t be a surprise to find that UPI will be their preferred payment interface.
“As the lines between tech giants and FinTechs blur, accessibility, convenience, and personalization become critical to ensure success.”
Ultimately, FinTech is designed to develop and deliver a better user experience for all parties. Disruption is often viewed as bad. But, FinTech companies are leveraging disruptions to capitalize on new opportunities. FinTech resolves long-standing business problems, reaches underbanked people and countries for financial inclusion, and offers an unbeatable degree of transparency. By giving insights into data that was always there, FinTech has revolutionized the banking and financial services industry completely.
The author is Executive Director, i-exceed.
Disclaimer: This article is published as part of the IDG Contributor Network. The views expressed in this article are solely those of the contributing authors and not of IDG Media and its editor(s).