Technology is reinventing everything around us. The world is now entering an era of ‘Digital Darwinism’, a stage where various technologies are emerging faster than the adaptability speed of organisations. Amidst this transformation, the banking and financial sector is also aligning itself with the emergence of digital forces, leading to the creation of new ways interpreting data and the means to do so cost-effectively, writes Rashi Aditi Ghosh of Elets News Network (ENN).
EVOLUTION OF TECHNOLOGY IN THE BFSI SECTOR
In the late 1990s, implementation of information technology helped some private sector lenders across the country in unveiling non-branch banking services. Initially, internet banking was presumed to be an insecure option for a transaction by the users. However, the particular mode of banking witnessed a whopping growth in the 2000s due to the initiatives taken by the government and the Reserve Bank of India (RBI), in a bid to popularise it. The cost of online transactions was also dropped significantly. The mode that earlier received negative reviews from the users, enhanced level of customer satisfaction gradually, by ensuring the benefits of banking anytime anywhere. It helped the users in performing all the important banking formalities without even visiting the bank branch.
Ankur Gupta, Principal Secretary, Department of Electronics & Information Technology and Elections, Government of Haryana says, “Technology has indeed transformed banking but I still feel that there are a lot of areas requiring intervention when it comes to offering convenient options for consumers. Today, if you want to lodge a theft complaint or want to put up a service request, you will be made to call the customer care service. The customer care service rather than helping you out with your problem will keep you waiting for a long time, transferring your call from one department to other. It is important to offer better and hassle-free customer service options to the consumers much prior to implementing world-class technologies.” In the last few decades, the banking sector in India realised the rising significance of digital technologies and the urgent need to embrace the same for streamlining their services. The sector is making considerable investments in a bid to create digital infrastructure so that it can offer better solutions pertaining to mobile banking, e-wallets and virtual cards, etc. To name a few, Digital-only/ Virtual Banking, Biometric Technology, Artificial Intelligence, Blockchain Technology, Bitcoin and Robotics are key innovations in the digital banking segment.
LR Ramchandran, CGM, Financial Inclusion & Banking Technology, NABARD says, “Banking is not an easy operation; it is a very complex activity. Digital transactions might look an easy activity but it involves a lot of touch points as far as cybersecurity measures are concerned. The sector has undergone a massive change. Banking activities that earlier needed human intervention, are now handled by machines. When technology was introduced in banking and operations started witnessing paradigm shift, the Reserve Bank of India (RBI) took several transformative measures to reinvent the entire banking industry and took it to the digital platform, at the same time ensuring safety and security.”
Padma Jaiswal, Secretary, Department of Information Technology, Government of Puducherry says, “The complete Banking, Financial Services and Insurance (BFSI) sector has undergone massive changes due to technology. The sector is now extended to a lot of new segments apart from the financial genre as information technology is opening up new vistas for the industry. From urban to rural, banked to underbanked, BFSI industry is offering a bouquet of services that suit the requirements of all the consumers.”
WHAT IS FINTECH?
FinTech, an abbreviated term used to describe technology that proposes an improvement in the delivery and usage of financial services. It is utilised to help companies in better management of financial operations, processes and lives by utilising specialised software and algorithms that are used on computers and, increasingly, smartphones. In the 21st century, FinTech was initially applied to resolve the back-end systems of established financial institutions. Since then fintech has been expanded to ensure financial literacy as well as streamlining the wealth management, lending and borrowing, retail banking, fundraising, money transfers/payments, investment management and more. The role and the significance of FinTech have now escalated to a greater extent in India and its landscape in the country can now be classified into three broad categories: payments, financial products and services, and other general-purpose technologies.
According to B Raj Kumar, Deputy Chief Executive, Indian Banks’ Association, “Earlier we used to define eras into BC and AD but in recent times we now perceive it as BT (Before Technology) and AD (After Technology). I represent the BT era and I am privileged to witness this entire transformation in banking in alignment with technology in India. Today, we cannot imagine a human being without a smartphone. This change is huge and I am thankful that I could witness both the eras. Technology has now given you the power of convenience. It also helps you in controlling the number of frauds associated with your cards and bank accounts. You can choose to maintain a low balance in your particular card and then transfer the required amount to it through mobile banking whenever you need it.
KEY TECHNOLOGIES TAKING INNOVATION AHEAD
In the digital era, there are several technologies that helped to ensure innovation across the sector. But in India’s context, three developments proved to the milestones. These innovations were the gamut of significant developments that we witness around us today. They are namely Core Banking Solutions, Immediate Payment Service, and Aadhaar.
CORE BANKING SOLUTIONS
Core Banking Solution (CBS) is one of the most important and nodal systematic changes that completely transformed the way we see banking transactions today. It is a process where all information regarding the transactions and accounts, and the business of the bank are hosted via a single centralised database.
IMMEDIATE PAYMENT SERVICE (IMPS)
Launched in 2010, the Immediate Payment Service or the IMPS was developed by National Payments Corporation of India (NPCI). The system facilitates immediate fund transfer from one account to another. Prior to the launch of IMPS, fund transfers were scheduled as per the bank operation hours, settlement hours, national holidays, etc. This innovation, after its implementation, is helping customers to transfer funds anytime immediately.
Unified Payments Interface (UPI) is one of the products based on this particular infrastructure. According to Rajagopal Devara, Principal Secretary, Department of Finance (Reforms), Government of Maharashtra, “Innovation in terms of technology is taking us back to the olden times. Earlier, thumb impression was the only source of authentication and today also we rely on thumb impression for the final layer of verification. While a lot of things are getting obsolete, technology is reinventing a lot by transforming the older ones into a new advanced version. Smartphones, for example, have replaced several devices such as watches, music players etc.” AADHAAR Aadhaar, the national identity project to bring all citizens under a single identification system, was envisioned as the foundation of numerous services by the government. As a part of the project, detailed information about individuals was collected, such as biometric details, residential details, banking data, etc. The aim was to interconnect all services availed by the individual through a common factor: Aadhaar. In the banking and financial services space, Aadhaar is being used in multiple ways to promote financial inclusion and reduce the frictions in transacting.
Bipin Ramesh Khot, Assistant Director General, UIDAI, Government of India says, “Maintaining data privacy in the digital world is very difficult. For ensuring data security and in a bid to eliminate bogus identities, the concept of Aadhaar was brought into life. For getting an Aadhaar card, a person is asked to submit several details from date of birth, fingerprints, Irish details and lot more. The Unique Identification Authority of India (UIDAI) has kept a mandate for so many verifications just to ensure that a person’s duplicate or bogus data does not enter the system.”
In the past few decades, there have been some wide-ranging changes that have altered the very design of the banking system. A segment of experts opines these technological changes are making the banking business model obsolete. Many experts believe that the tech-driven revolution is indeed a significant step for the entire BFSI industry but it definitely has its own disadvantages as well. It is, therefore, important to analyse the fitment of the technology implemented and put the security measures in place prior to its usage.