India has achieved widespread technology adoption across all age groups and demographics. The next crucial step is to use this foundation to create sustainable and exportable IP, leveraging our intellectual capital. Moving beyond manufacturing to focus on intellectual innovation will be a game- changer for India, shared Mahesh Ramamoorthy,
Chief Information Officer, YES Bank, in an exclusive interaction with Dr. Ravi Gupta, Founder & CEO, Elets Technomedia and Editor-in-Chief, The Banking & Finance Post Magazine. Edited Excerpts:
As a seasoned professional in the banking sector, having transitioned to work with global technology companies in the BFSI sector, how have you observed the sector’s evolution over the past decade? What changes do you anticipate in the next five years, and what emerging trends do you foresee?
In the last five years, there has been significant change in the adoption of technology within the banking sector. Notably, the evolution of payment systems, including UPI, NFTs, RTGS, and NCH, has revolutionised how transactions are conducted. IMPS has transitioned to UPI, marking a substantial shift in transaction methods. The advent of digital public infrastructure, such as Aadhaar, PAN, GST, and ITR, along with the introduction of account aggregators, has driven banks to embrace digital transformation. This shift encompasses enhancing digital experiences, improving onboarding and servicing processes, and leveraging digital public infrastructure to streamline operations and enhance customer experiences.
Moreover, the adoption of new-age technology has been well-received by banks, leading to increased competition in providing superior customer experiences and faster services. Another significant development is the realisation of the importance of data. As major data holders, banks are now actively exploring ways to utilise their data through enterprise data warehouses and analytical engines, creating intelligence for management reporting, product pricing, and cross-selling and upselling strategies. These three areas represent significant shifts that the banking ecosystem has effectively adopted for the benefit of customers.
UPI is making transactions easier for customers. However, it also raises concerns about fraud, as many citizens lack experience dealing with cyber fraud. How are banks addressing these concerns and what measures are they considering to protect customers from fraud? What steps are being taken to minimise the risk of customers being duped?
As digital transactions become more prevalent among people of all ages, the associated risks have significantly increased. One major concern is the general lack of knowledge on how to safeguard one’s assets, such as mobile phones, which are essentially conduits for financial transactions. This gap in knowledge has contributed to a rise in fraudulent activities.
Banks, recognising their accountability for fraud within their ecosystems, have started implementing real-time, near-instantaneous risk management practices. These measures extend beyond mere transaction monitoring to include collaboration with telecom operators and other data sources to detect SIM tampering and other suspicious activities, ensuring the integrity of the originating entry.
Although comprehensive digital risk management is still evolving, the fact that banks are beginning to adopt advanced technological solutions to mitigate these risks is promising.
While I don’t anticipate a dramatic decrease in fraud immediately, I foresee better control over it.
Crucially, education remains paramount. Many people fall victim to fraud because they are unaware of the permissions they grant or the actions they take on their mobile devices. Therefore, financial institutions must focus on simplifying the user experience and enhancing education around digital security.
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Implementing measures such as two-factor authentication and damage limitation protocols— where a potential compromise does not lead to a complete draining of accounts—are essential. Although the rapid adoption of systems like UPI has its downsides, I am optimistic that the integration of modern risk management practices will lead to better control and security in the future.
What are your throughts aorund the current hype surrounding AI, which is now prevalent across all sectors and aspects of society, with various applications having both positive and negative impacts. How will AI technology affect the BFSI sector overall, both from a banker’s perspective and in terms of customer experience?
I foresee the advent of AI significantly enhancing customer experiences and data utilisation for better interactions. For instance, generative AI, which is currently a hot topic, can facilitate the creation of highly specific, real-time targeted marketing campaigns based on customer behavior data. This technology allows for more precise customer engagement.
Additionally, generative AI can greatly assist branch service personnel or contact center agents by enabling them to answer customer queries more effectively. By analysing and understanding vast amounts of documentation, AI can suggest relevant solutions even if the agent is unfamiliar with the product.
In the realm of credit processes, generative AI has the potential to drastically reduce the time required for credit appraisals from several days to just 30-40 minutes, thus improving customer experiences and operational efficiencies. This could lead to dramatic changes in the sector.
Currently, banks are in the proof-of-concept phase for various AI applications, exploring new use cases. However, a significant challenge remains in understanding and mitigating the risks associated with data misuse. Once these concerns are addressed, AI and generative AI are expected to become integral to the services offered by banks and financial institutions.
The implementation of Aadhaar and India Stack has significantly boosted technology adoption in the BFSI sector, leading to substantial transformation. What are the next steps? With increasing discussions about Digital Public Infrastructure (DPI) and digital public goods, how will the BFSI sector utilize these concepts, and how will they further strengthen the industry?
Digital public infrastructure has been instrumental for a vast country like ours, with the government making significant strides in its availability. Moving forward, the crucial aspect is managing the vast amount of information being captured. The government, along with the RBI and other regulators, is working on creating platforms and networks that will analyse this data and address the needs of institutions capable of fulfilling them.
For example, in the MSME sector, the ability to aggregate and manage data through an open marketplace overseen by a central body can create an ecosystem where banks are informed about potential loan opportunities. This data, being readily available and well-organised, will enable banks to process and evaluate loan applications efficiently, significantly changing the landscape.
With the account aggregator framework, and the integration of Aadhaar and PAN, the BFSI sector stands to benefit greatly. The synergy of these platforms, centered around financial institutions, is poised to drive substantial advancements. While we are in the early stages of adoption, the integration of ONC, which connects suppliers and buyers within a common network, supported by OKEN’s infrastructure, and orchestrated by entities like RBI’s Innovation Hub, will position early-adopter banks to lead the way in offering small to medium-sized loans. This will be a significant shift, leveraging scoring and other data-driven insights to transform the sector.
There have been concerns about the relatively light regulation in the FinTech sector. How do FinTech companies collaborate with banks—are they considered friends or frenemies? With recent regulatory impacts observed, how do you see the FinTech sector navigating these regulations and collaborating with banks, and what is your perspective on the overall growth of FinTech in India?
In my view, FinTech companies now have the opportunity to innovate significantly on the front end, creating highly specialized and deep customer experiences in specific areas. For instance, some FinTechs focus on personal loans, while others concentrate on salary advances. These companies deliver exceptional customer experiences in their niches, whereas banks typically offer a broad range of products but may have limited reach.
If banks can collaborate with FinTechs, allowing FinTechs to manage customer interactions on the front end under strict guidelines and compliance. In contrast, banks handle data privacy and security, we can achieve the best of both worlds. It is unrealistic to expect banks or financial institutions to provide all services independently; those days are behind us.
Active collaboration and co-creation, with a strong emphasis on compliance and regulation, particularly data privacy, will be the winning strategy. Data privacy is the cornerstone of everything we do and cannot be compromised. Effective co-creation will enhance service delivery. I believe many organisations are starting to move in this direction, and those that can quickly implement this collaborative approach will likely be very successful.
A decade ago, there was significant discussion about rural areas’ lack of bank accounts. The government implemented numerous initiatives, such as the Jan Dhan accounts, leading to substantial improvements in financial inclusion scores. However, what are the distinct needs of rural versus urban areas in the banking sector? Are banks giving equal consideration to the rural market and developing products specifically tailored to rural needs, as they do for the urban sector?
From my perspective, major cities have become saturated, leading to fewer retail opportunities. However, Tier 3 and Tier 4 areas present significant potential. With increased mobile penetration, numerous FinTech companies are operating in niche areas, particularly AgriTech firms that provide substantial benefits to farmers. These companies offer marketplaces for farmers, advising on when to sow seeds, manage crops, harvest, and where to procure seeds, effectively aggregating valuable information.
Banks are now recognising the potential of collaborating with such companies to enhance their distribution capabilities in rural areas. This collaboration benefits banks on both the liability and asset sides. By partnering with FinTech or AgriTech firms, banks can facilitate lending and attract small deposits from farmers, linking these to purchases and payables, thus creating a connected ecosystem.
Banks are increasingly working with companies in various niche fields, not just AgriTech, to extend their reach. Traditional banking models, such as the business correspondent model, are evolving. Banks are exploring innovative ways to sell and integrate insurance and other financial products, leading to significant shifts in their approach to rural markets.
You have experience with a global payment company and have observed developments in the global payments and banking sectors. How do you view India’s position relative to the global banking sector in terms of technology adoption, customer experience, ease of doing business with banks, regulations, and the overall landscape?
I am a proud Indian, and I believe India has made remarkable strides in technology and cloud adoption. This transformation is evident in UPI, digital public infrastructure, and advancements in various sectors. I firmly believe India is ahead of many developed countries in leveraging technology to serve a vast population.
However, we have lagged in investing in innovation to create intellectual properties (IPs). With the advent of generative AI and data, there is a tremendous opportunity to develop valuable IPs. This will be a key differentiator in the coming decade.
India has achieved widespread technology adoption across all age groups and demographics. The next crucial step is to use this foundation to create sustainable and exportable IP, leveraging our intellectual capital. Moving beyond manufacturing to focus on intellectual innovation will be a game-changer for India. I am confident in the current trajectory and believe this focus will ensure our sustained growth year after year.
Since you mentioned IP, can you think of any intellectual property from any sector that exemplifies Indian innovation and has the potential to expand globally, becoming a significant international opportunity?
While many examples come to mind, I’d highlight innovation in the medical field as particularly noteworthy. India has a robust medical ecosystem with excellent doctors; medical tourism is a significant industry. However, enhancing research and developing IP-based capabilities to improve treatment outcomes across various diseases could be transformative. Patenting such innovations and making them widely available would be a game changer.
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We can also look at examples like self-driving cars and next-generation fuels. Although India has seen a surge in electric vehicle adoption, the question remains whether EVs fit us best. There are emerging opportunities in new technologies that we may not fully explore or fund yet.
Additionally, sectors like food and agriculture present vast opportunities. Creating IP doesn’t just mean developing software; it involves creating intellectual property that can revolutionise sectors like health, food, or others and can be adopted and sold globally. Focusing on developing such IP and leveraging our intellectual capital will be a powerful strategy for sustainable growth, giving us a competitive edge in the global market.
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