Its Time For Technological Transformation In Banking Sector

Very few individuals would contend the power that technology has in molding the worldwide economy. However, while certain businesses have been on the main edge of this shift, banks and financial organisations have lingered behind.

Although the banking sector has adopted some of digitisation such as net banking, digital transactions, digital a/c opening, etc, experts believe that the sector is still lacking to to adopt techbological transformation.

BW Businessworld had a detailed conversation on it with P Venkatesh, Director & Co-founder Maveric Systems. Edited Excerpts:

In the age of growing technology, what more transformation could be brought to the banking sector?

Banking is at the core of all business since, without money and its movement from one party to another, transactions are incomplete. The drivers that keep banking at the forefront of adopting technology are:

i. E-commerce or online business that provides the ease, range and depth and customer information in the manner they need and fulfilment at great speed; younger population who are digital savvy want the same experience from banking as well.

ii. The maturity of the new age technologies such as cloud, AI, ML and NLP; healthcare, pharmaceuticals and telecom are leading the way in harnessing these in an organised manner; banking is trying to match them and should be effectively there.

iii. Changes being brought in banking, partly by the regulatory and partly by market forces such as digital assets namely NFT, crypto, CBDC and the metaverse; large banks have moved in, given their experience with handling regulators as well as scale and are keen to set right the balance in their favour in payments in this arena.

iv. Demographic and gender compositional change is also forcing banks to think of ways in which they could be handled differently and in a manner that would attract them to their fold vis-à-vis fintech.

As technology also brings some risks with reward, what suggestions would you give for safe and secure banking?

Banking is a traditional business that has been reinventing itself to suit the evolving business landscape, customers' needs, and regulatory environment. Most banks today are led by seasoned leaders who have spent almost three decades in various aspects of banking and are well experienced in navigating these.

Typically, banks look to improve their fundamentals using newer technology. They could fall under:

• Maximising revenue through better underwriting of risks or better analytics of existing and prospective customers or existing or new products using AI, ML and NLP engines.

• Minimising costs, especially since most of the banks have cost to income ratio of over 55% through automation using STP or RPA or workflow or integration to their own or third-party systems through APIs or by moving to the cloud.

• The regulatory text scanning and converting them to structured data have improved both in their quality and timeliness. It is now a question of integrating those into the various systems that rely on them and adding on the alerts and notifications to improve performance.

They would need to keep the newer technologies on the fringes unless they are proven to be enterprise-grade before integrating them with their core platform.

Do you think the technology for cyber security needs to be modified?

Imagine what would be the response to the technologies that are being deployed in defence and police networks to improve safety.

As online transactions rise, the ground attracts a new breed of fraudsters. Some are hackers with specialised technical skills on the underlying technology, while others deploy inventive methods suited for online to trick the uninformed into committing mistakes.

Preventive technologies have evolved quite well. These include identity and access management, authentication and biometrics and other forms of recognition.

The surveillance technology is still not robust to warn or prevent such crimes. If traditional crime managers such as police join forces with technologists, then perhaps this can improve. Also, it is not enough that banks do their part, the customers have to believe and invest in security on their end on their devices whether laptops, mobile, tablets or whatever.

There has to be constant education for online users. It would be good, to begin with by having centres that can help customers with online access across banks. The consumers can then learn the best practices before they graduate to transact on their own. The regulators have to pick up this task and institute good online and classroom-based education centres across the country for this purpose.

Would RBI CBDCs add on a good banking development?

Central Bank Digital Currency (CBDC) from RBI is a good move. However, this needs an enabling environment for digital assets. We are in the early stages of establishing the regulatory framework and the infrastructure and institutions to govern them. 

In any event, this is a good start. In the shorter term, it may not have much of an impact on banking. Its evolutions would determine the future impact on banking.