The banking and financial services industry is increasingly focusing on innovation in preparation for a technology-driven future. The major trends driving these innovations include the significant role of AI and robotics, which are bringing about digital transformation and collaboration with fintech. Banks and financial institutions are poised to redefine themselves as agile technology companies to suit customer preferences, demographics, and lifestyle changes.
The Covid 19 pandemic forced banks and financial institutions to re-look at technology strategies and reinforce branchless/ digital banking while offering seamless services to their customers. They had to change the definition of financial inclusion and redefine customer relationships. However, the most important factor, which highlighted the performance of banks in 2021 and has paved the road for the industry’s growth in the future, is capitalizing on technology investments and creating value.
Let us look at the major trends that are driving financial markets in India.
With the pandemic, the Indian economy endured an intense disruption and is gradually picking up momentum with an expected growth of 6.5 % in the fiscal year 2022-23. The economy continues to grow with higher FDI flows, and India getting placed among the top attractive destinations for international investors.
The Reserve Bank of India (RBI) has also stressed financial inclusion and digital banking models, and further regulations are being placed, requiring banks to be more regulatory-sensitive.
Big Techs in the lending space have gained a foothold, operating directly or in partnership with regulated financial entities, which has posed competition for banks and raised the need for further consumer protection.
The RBI has been working on regulating banking and lending processes by implementing technical and compliance standards and ensuring a quicker economic revival.
During the pandemic, banks and financial institutions stressed the importance of anticipating customer needs and expectations. It became clear that becoming a customer-centric and customer-first organization would ensure survival in the market, retain existing customers, and grow the market. Banks will focus on moving from solely providing transaction-focused services to value-driven advisory services for customers, which will help them build long-lasting relationships with their customers.
Banks will have to train and upskill their relationship managers for them to be able to provide the right advisory services. The huge wealth of data that banks possess internally needs to be used intelligently to understand customers and their preferences better.
Banks and financial institutions will be leveraging the right technology and solutions to collect internal data efficiently while maintaining safety and security. This will help banks customize their advisory services for customers, offer the right advice, and have a relationship beyond a transactional-based.
The fintech ecosystem has seen a huge upward trend, with India becoming the third-largest fintech ecosystem globally. With the rise of fintech companies, Buy Now Pay Later (BNPL) has revolutionized the banking ecosystem in India, where banks extend the necessary credit in interest-free or spaced-out interest-bearing installments to their consumers.
The financial industry is focusing on digitization and the adoption of new and emerging technologies to bring in operational efficiencies, enhance speed-to-market, and deliver exceptional customer experiences.
Banks are already cutting down on the cost of branches to invest in self-service digital channels, with mobile and online banking becoming popular among customers. Digital wearable devices allow banks to offer targeted services to customers.
Countries across the world are working on a regulatory approach to data sharing across sectors. With the number of fintech companies growing, India’s financial and demographic landscape has changed over the last few years, bringing in digital transformation.
India recently introduced an account aggregation framework to facilitate financial data sharing and seamless user access to data. According to government data, digital transactions grew by close to 90% in the three years from FY19 to FY21, primarily led by UPI. The value of digital payments in India is expected to grow three-fold to touch $1 trillion by the financial year 2026.
Banks and financial institutions are reshaping the financial services landscape. They are seeking to leverage the opportunities presented by digital, either by using the technologies in-house or by partnering with FinTech companies. What was competition earlier, is today a normal bank-FinTech partnership providing marketing, administration, loan servicing, or other services with tech-enabled banking products. Banks also enjoy the advantages of bank-FinTech partnerships, like access to assets and customers.
While the need for banks to adopt full-fledged digitization increases, they also have to reduce costs and keep operating margins healthy. As new regulatory requirements and data protection laws add additional strains on resources, emerging technologies such as AI and robotics are helping banks meet their needs efficiently.
Banks are using AI to power chatbots and provide round-the-clock, agile customer service. With technology taking care of critical functions like anti-fraud and regulatory compliance, banks are benefitting from optimizing costs while improving operations. Technologies such as Robotic Process Automation (RPA) and machine learning (ML) are helping banks replace labor-intensive, manual workflows with highly reliable, cost-effective, and efficient operations.
These technologies are triggering innovations such as biometric-based authentications, and voice commerce, which have a huge impact on the industry's employees.
Technologies like blockchain are bringing in revolution and shaking up the foundations of traditional business models with peer-to-peer lending, smart contracts, and digital payments, eliminating intermediaries and speeding up underlying processes. Blockchain is expected to save USD 20 Billion in annual operating costs for the BFS industry, encouraging more banks to deploy the technology in commercial production.
Besides blockchain, cryptocurrencies like Bitcoin, Ethereum, and Ripple are slowly gaining prominence giving rise to new regulations with the industry appearing to head toward a rebirth.
As banks try to keep abreast of impactful developments, they need to leverage technology and transform themselves with speed and agility for their future strategies to survive the next revolution, which will secure them a place in the technologically advanced future.