New developments fuel new avenues.
Innovation in the technology space is not something new and the Finance Industry has always been at the forefront, embracing new developments & findings and rightly turning them into opportunities.
The Industry, while leveraging opportunities provided by the changing technology landscape, always kept the customer at the centre of strategy, retraining its foresight and using the possibilities for various other aspects, such as Back Office Process augmentation, Customer Touch Point automation, Risk mitigation, Cost optimization, Profit maximization, Churning meaningful data concerning customers or profitability of products offered so far and so forth.
How is new landscape helping the BFSI & Fintech Industry
Globally, BFSI sector is by far the biggest segment investing in technology to open new vistas for itself, and India is not any different. In the domestic market, proliferation is often led by Private Players and is followed by more traditional incumbents, though more passively.
(All throughout this blog, BFSI as a term is used for Banks, Insurance Companies, AMCs and NBFCs. While the thoughts shared touch all these entities, experience shared here is more relevant to Banking Industry.)
The advent of newer technologies and customer related data that has been made available from agencies such as bureaus has enormously improved the way BFSI players are functioning now. Cost of operations (including the cost of acquisition & retention) has come down, the productivity of front end staff has gone up and channels have become more potent with certainty in information flowing in both directions. Players (Banks, Insurance firms, AMCs, NBFCs & other shadow players) have used almost every tool that is available to drive efficiencies and how.
Collaboration with newer entrants such as Fintech has also made the space fiercely competitive. BFSI players are toying with small niche entrants to draw value and use the capability to address a specific, even a standalone need. For example, a firm providing expertise in reading documents, another that provides chatbots or one with specialization in using robotics for process automation extend enormous value to the player wishing to automate a process or offer a new service to its customers.
Where are these technologies and tools deployed:
Front-end channel websites
AI, ML, UI/UX, OCR & ICR, video interaction, Chatbots & Robotics. The offering also necessitates cross-platform integration using APIs and plugin. At the same time, this needs substantial investment in securing the framework. Up time and scalability are prerequisites to seasonal demands generated by E-commerce sites, ones that warrant a robust strategy to be in place.
Front-end channel mobile
AI, ML, UI/UX, Mobility, Geo tagging, IOT, Social Media footprint, Bio metric & video interaction. Since the endpoint device is with the customer or user, AI and ML tools, along with other smart solutions need to work in tandem to provide a secure environment. UI and UX is the biggest challenge and often becomes a point for the Success or failure of a solution.
Back office (Acquisition)
Bureau scores, Social Media Scores, OCR and ICR, Digitization, Robotics & Bio metric; deployed mainly for Retail Asset (Personal, Consumer, Vehicle, House Improvement) and Liability business, Credit Cards Issuance, Credit Card transaction acquiring, Business loans, Housing Loans and third-party products such as Insurance & Mutual funds.
Back office (Processing)
Digitization, ML, Integration with Front End channels such as Web application and Mobile apps, Enterprise workflow as BPM tools, Robotics, OCR & ICR, Blockchain & Collaboration with agencies such as Central Bank (Reserve Bank of India), NSDL, NPCI etc; deployed for Account Opening (asset & liability), Cash Management, Payments, Trade Finance Operations, Treasury, Audit and Finance Control areas.
Mid office (Risk assessment & mitigation)
ML, AI, Robotics, Cross-platform information processing & smart reporting tools.
On the customer-facing application or interaction, the new tools have provided a scintillating experience across the segments while back end has generated enormous data that further opens avenues for data mining and strategizing products and services to meet customer changing needs.
The biggest game changer, however, is mobility which has transformed the customer-bank (or institution) interaction. Do-it-yourself and instant gratification are the philosophies behind banks pushing the products to the customer while customer are more than satisfied to have it all under his or her control. The changing landscape of payment systems, which provide 24/7 transaction facility, have made application usage as exciting as a social media app such as Twitter or Facebook. Walking to a physical bank branch is a passé for the millennial!
UI and UX have played the most critical role here. While cobbling together the transaction abilities on channels is not a far cry, providing a superior seamless experience on Websites or Mobile Applications can be a tricky and daunting task. “More is less v/s Less is more” is the permanent conundrum facing banks wishing to create a next-generation platform. The customer, who is also a social media user, having a pleasant experience of UI/UX, expects a similar kind of experience. Banks are engaging with specialized firms who provide expertise in creating a similar Experience on the platforms they offer their customers.
But is there too much and too many?
Having said that, never in history were we faced with a situation when the entire ecosystem came to reel under the impact of so many new developments, that buzzwords like Digital Transformation, Mobility, UI/UX, API, Cloud, AI, ML, AR, VR, MR, IoT, Blockchain, Sandboxing, etc seemed bigger than the Industry itself. If that was not enough, mushrooming of lean but not mean, Fintech has turned this exciting space to a near warzone. So new are some of these developments that few of these words are not even in the MS Word dictionary for it to even suggest a spell check.
Such is the overwhelming need created to deploy these technological marvels, as they are often dubbed as, that fast-moving retail segment of commercial banking are experimenting with anything that promises to create a differentiator for the organization. Be it voice-enabled Mobile Banking Platforms, Geotagged messaging and dynamic offers, bio metric authorization, multi-layered authorization, in-app shopping experience, vendor products offerings in collaboration with Social Media giants, digital client acquisition both for retail liability and asset business, AI enabled customer front-end, ML enabled customer data and analytics offer heady mix of options.
Challenges faced by CIOs
In a race to offer more and more to the customer and also deploy some of these technology tools internally in the organization to optimize cost and improve efficiency, the CIO is saddled with a long list of projects arising out of a never-ending wish list. While customer-facing changes always take priority, other projects too come with a massive, if not equal, amount of push.
Typical challenges faced by CIOs (order could be different for an individual organization);
1) Cost justification
3) Vendor reliability
4) Technology reliability
5) Resource allocation
6) Insource v/s Outsource
9) Less core, more satellite
11) Increasing technology foot prints
Product teams, especially in pursuit of offering more and more digital products, are increasingly open to experimenting with new & promising products. Such projects are often run by product teams directly with aggressive timelines. The flow of transactions or interaction is mostly being enabled through APIs. Technology teams have to constantly ensure that integration of such offerings does not add vulnerability in the environment or ecosystem.
The cost of these projects is also an issue, as most of the time neither the product nor the business team is sure of usage of the new offering. In a zeal to be “The First” to offer a particular product or service, the cost aspect is often overlooked.
Talking about cost, also from my personal experience, CIO’s often face the issue of the overall cost of the solution. A major cost of the solution deployed is the hardware component. Banks are required to not only create an optimum production environment, they often need to create an effective DR (Disaster Recovery) mechanism, which almost doubles the cost of deployment. Cloud (AWS, Azure, Google etc) vendors provide reasonably good options to host a solution in a short term.
Smaller vendors with newer technology that is not tested exhaustively, adds a component of uncertainty that requires higher vigil; an area that again needs the engagement of CIO. Sustenance is another aspect that needs the attention of the technology team as most of these solution providers may not have a proven track record for lack of history. Supporting a solution provided by a company that no longer exists is a nightmare for CIO.
The deployment strategy for new & niche solutions also needs constant calibration. CIOs should deliberate and discuss options like On-Premises, Cloud, Outsourced with the vendor as a hosted solution.
CISO (Chief Information Security Officer) needs to play an active & independent role to ensure that the solutions deployed are safe and do no compromise customers or the bank’s data. CISO is expected to engage with various firms providing services that test and validate the solutions being deployed.
Consider appointing a Digital Officer
BFSI is now at a stage where Banks are transforming themselves into Fintech and Fintech wants to provide Banking services. For example, WeChat today is one of the biggest Payment Aggregators, with its Mobile Wallet and a model that will challenge traditional banks with non-bank lending becoming a norm. With over a billion users, WeChat is considered a serious competitor to Visa, Master, and Amex network. Back home, NBFCs have queered the pitch of traditional banks with massive growth in Retail Asset segment through Lean and Mean structured products to create a massive customer base. Social Media savvy customers, especially the millennials, are opting for alternatives.
Banks face a daunting task of maintaining Banking Environments with Social Media experience on cutting-edge platforms while adhering to compliance and governance guidelines of the Central Bank. Banks must identify and appoint a Chief Digital Officer (CDO) who should focus purely on customer engagement on Social Media platforms and also take the responsibility of offering near “Social Media Experience” to the bank’s customer.
The Bank’s digital product and technology strategy needs to be run jointly by CDO, CIO & Head of Product to address all aspects of Cost, Time to Market, Sustenance and Viability.