The impact of the COVID-19 pandemic on the banking and financial services industry is yet to manifest in its entirety. While the early stages of the pandemic brought about a fundamental shift in the way in which the industry functions and serves its customers, most businesses resorted to new-age digital technologies to navigate this disruption.
Many of the established players are embracing technologies that come naturally to fintech plays. What are these technologies? And how are they impacting the banking landscape?
Artificial Intelligence [AI]
The lure of AI is massive, with a promise of cost savings of $447 billion by 2023. This, combined with AI’s potential of speeding everything from customer onboarding to loan approvals, makes it a critical component of banks’ efforts to take on highly nimble fintech players.
Deployment of chatbots and robots in customer service is the most apparent application of AI. The technology is also used for ‘reading’ loan-related and other documents. More advanced applications being rolled out include those that help with lending decisions, preventing and detecting fraud and bespoke financial advice with Robo-advisors. AI also sits at the heart of other technologies such as big data analytics, robotic process automation and voice interfaces.
According to The Harvard Business Review, Blockchain would be as disruptive for banking as the internet was to media. It offers banks faster, reliable and secure two-way communication and settlement in real-time. One big benefit of this is the reduction of transaction costs courtesy elimination of intermediaries. The other is speed—settlements that took one-three days can be done within seconds. Tools such as ‘smart contracts’ that are self-executing contracts based on blockchain could help automate manual processes underpinning compliance to claims processing to distributing to contents of a will. Manual data reconciliation for bank ledgers may also get eliminated thanks to the technology. In short, the smart contract could radically change the way information and money are exchanged.
The banking industry generates an enormous amount of data. It is then no surprise that it is one of the top spenders in big data and business analytics solutions, according to the IDC Semiannual Big Data and Analytics Spending Guide. How effectively it processes that data to extract actionable insights and make business decisions will key to staying competitive in the future.
Big data has applications across a range of functions: it helps improve customer segmentation, thus allowing banks to have more relevant offerings for customers; it sits at the heart of personalized marketing; it can be used for fraud detection and risk and compliance management.
Robotic Process Automation (RPA)
Banks are using RPA to deploy customer service chatbots to deal with low-priority queries. This allows them to free up human customer agents to deal with the high-priority concerns. In general, RPA helps save labor and operational costs, minimize errors and reduce processing time.
Cloud computing is critical to making anytime, anywhere customer service possible. Secure online payments, digital wallets, and online transfers—all become easier with Cloud. Further, scaling up services becomes a lot easier and faster
Much of banking’s infrastructure is closed and monolithic. That makes changes required to launch new products cumbersome and personalized offerings are nearly impossible. Banks need to be much more responsive if they are to be competitive. That will lead to increased adoption of lighter and flexible microservices architecture.
In the past five-odd years, the emergence of fintech has threatened the established order in the banking and finance industry. Long-established banks still enjoy the trust of the customers, which is a major advantage. But customer behavior is changing—and the pandemic accelerated that change. People stopped going to ATMs, and digital wallets took off. Specialist lending firms—such as those focused on housing or car finance—that were conceived to serve customers digitally, gained ground. Insurance and mutual funds services aggregators increased their market share.
In short, universal banks are seeing smaller, nimble players chipping away at some of their most profitable parts of the business. Banks have a short window to leverage the above-mentioned technologies to digitally transform themselves and stay relevant.
Visionet is a leading digital technology solutions provider for the BFSI and Residential Mortgage industry. We are passionate to deliver exceptional business outcomes to our clients leveraging deep industry expertise and proprietary mortgage technology products. We post our views on mortgage technology and industry updates through this blog.