The last decade was an era of heightened Internet penetration driving digitization. The focus was on getting banking and other services to the fingertips and the doorsteps of customers. It was the decade of mobility, a decade that saw the biggest transformation in the way business models changed and participants in the financial services industry evolved.
We are now in what is called the “PostDigital Era” or “Industry 4.0” and that is saying something.
The way forward seems to be even more exciting and challenging in many ways as the change is quicker and the impact larger. With the way the industry is evolving, it would be naïve to think that the existing digital initiatives are good enough.
To remain relevant, financial institutions must evolve as fast as the Fintech and the other participants are changing for the better. For that, it is crucial to understand the key trends impacting the financial services industry. Following are some of the trends established based on the industry pattern:
- Data Analytics, AI, Machine Learning and IoT
Data is at the epicentre of banking innovation. Banks produce and retain an immense amount of data about their customers which can be leveraged in many ways. Banks have access to the income and spending pattern of their customers. By mining and contextualizing transaction, account, and customer data, it is possible to make a holistic assessment of a customer. This leads to the realization that banks should be rethinking their product and marketing strategy, leveraging insights they have on their customers.
The combined power of Data Analytics, AI, ML and IoT (“DAMI”quartet) has the potential to transform Banking and Financial Services. All through the customer journey, starting from onboarding through to customer exit there are many opportunities to use various aspects of “DAMI”.
Across organizations and irrespective of size, every customer interaction, starting from when a customer gets on boarded has the potential to be improved through the application of customer insights and digital techniques. Peer data analysis and available industry data can be used to identify the right product for a client. This can improve positive outcomes and brings down the customer acquisition cost for financial institutions.
New-age lenders such as Capital Float, Zest Money, etc. have been using data analytics and AI as key pillars of their credit appraisal process. These companies use extensive data analytics to offer faster loans to clients based on analysis of diverse data sources that go well beyond what the customer provides as part of their loan application. And it makes the overall customer experience much more efficient.
AML is another area banks can do better through advanced data analytics. Technologies today can help identify transactions that don’t fit within the AML norms of the bank via complex multi-dimensional data analysis. While banks always did AML monitoring, this approach to determine suspicious transactions is a critical leap. Take for instance Canada’s Scotia Bank, which is now able to process hundreds of data points via complex analytics instead of the 20 to 30 data points that were earlier considered relevant.
Chatbots are making huge inroads in the customer service space and are today usually driven by context-driven AI. As a technology, this has the potential to significantly improve consumer experience by overlaying insights gained on customers via advanced analytics.
- The power of customizations to a segment of one
Customer behavior is strongly correlated with demographics and it is essential for the banks and other institutions to factor this into their propositions. Customers are becoming more demanding in what they expect from their banks and financial partners and institutions must plan for the rise of Gen Z. These are customers who are quite happy to dabble in technology and increasingly demand that products be customized as per their preferences. The retail industry in the B2C segment has indeed driven the need for customization meant for a segment of one. Take for example a superstore that offers an immense variety of dress options, colours and fits, further allows for customers to experience virtually a fitting, experience the feel and look of a product if they were to try it on, and make fitting adjustments, all via VR.
This kind of experience will increasingly be demanded even in financial services. Personalization is one of the important keys to customer engagement, especially with Gen Z segments. But, this aspect is, of course, tricky for several reasons. Data Privacy and personalization are in some manner or form an oxymoron; these don’t necessarily go hand-in-hand.
How much should you be infringing into the personal data of a consumer without making it bothersome is something financial institutions need to understand. For instance, let’s consider a bank that provides an app that gathers card or account usage data by accessing alert messages that the customer receives on their mobile phones, and can do fine-grained profiling of clients based on this data. While the bank can push targeted offers to such customers based on these transaction patterns, the experience is bound to leave a feeling of intrusion with the customer. An alternate approach that can be adopted is to build out coarse-grained profiles or personas based on data that the bank already has, and be able to map customers to these personas and then based on these coarser profiles, assess their level of openness to fine-grained profiling, and use this insight to design and offer more personalized interactions.
Another area is around Chatbots for customer servicing, and such technologies offer great potential for personalization and more and more institutions are innovating in this area. When a client accesses a Client Service Manager, he or she expects to be treated in a personalized fashion and is also willing to offer a reasonable amount of detail related to their needs or to the issue under discussion. Building intelligent interactive systems that can mimic human interaction and grasp customer needs and issues efficiently would be very beneficial. This area is seeing significant activity and in a few years’ time, one may witness a serious disruption in customer service functions where except for complex needs or cases there will be no need for in-person engagement.
Secure financial services will become the greatest differentiator
India has around 451 million monthly active internet users, making it the second-largest internet user base in the world. Growth in data access and availability of smartphones has resulted in a hyper-connectedworld with the network of connections growing at unprecedented rates. As they grow, they challenge the world with new and complex risks that get uncovered in new manners. But, the fact is that, even as controls are built more areas of vulnerability open up. Technology has opened a new paradigm of a never-ending need to manage risk and to be one step ahead of cyber-criminals. Cyber-criminals are now also tending to use AI to attack systems and hence it tends to be a cat-and-mouse game when it comes to protecting the franchise.
Customers place a high degree of faith in their financial service providers by believing that their money is safe in their hands, and this trust is at the core of their relationship. This leaves banks and financial services providers no choice but to be ahead of the game.
As per a recent Ernst &Young research report, malware, phishing and disruptive cyber-attacks are the top three concerns in terms of cybersecurity for most organizations. Financial services providers need to focus on putting in place robust mechanisms to mitigate these threats and to ensure the safety of their organization and their customers.
There are some roadblocks that need to be crossed to ensure a greater level of control on cybercrimes. The primary issue is the lack of collaboration and under-reporting. The legal framework and policing structures also need to change fast enough to keep pace with rapidly evolving cyber-crime. The Indian government understands the importance of these threats and various measures are being undertaken to create a more cohesive approach to combat cybercrime. To further strengthen the response, banks and financial services companies can consider creating a platform for industry-wide co-operation for countering cybercrime.
- Distributed Ledger
The issues encountered in recent years with the alleged usage of cryptocurrency for illegal activities,as also the speculation-led value spikes did not work well for pushing its adoption further. But, blockchain, the underlying base for cryptocurrency technology, has thrown open avenues for a lot of innovation especially in the areas of trade, payments, identity management, reconciliations etc.
Blockchain applications are evolving fast and highly likely to change business models across many of these areas. Distributed ledger technology is envisaged to enable a far more autonomous and transparent global business structure.
Views expressed in this article are the personal opinion of Harish Prasad, Head – Banking Solutions APMEA, FIS.