The Role of Technology in the BFSI Sector

Soniya Khanna

06 Jul, 2023

Whether it is through mobile banking or through digital modes of payment, digital technologies have played a crucial role in transforming the Banking and Financial Services Industry (BFSI) in India and across the world. In this article, we shall take a look at the next-gen technologies that are gradually transforming the BFSI sector.  

Adoption of technology in the BFSI sector

A market report concluded that the overall value of digital payments is expected to grow at a CAGR of 12.7% over 2016-19 and report from Mckinsey points that the adoption of technology in this sector is expected to reduce the operating costs by 30-40% across domains.

Since the past few years, Indian banking industry began embracing technologies such as Artificial Intelligence, Machine Learning and Blockchain with a view to leverage existing data, to expand products and services and to revolutionize the customer experience.

When it comes to India, the government has not shied away from taking initiatives to promote large scale adoption of technology. With a host of initiatives, the adoption of technology in this sector has been given a boost. Although banking sector is still to realize the true potential of technology, it has begun to implement technology that can change the face of BFSI sector^[1] forever.

What are the technologies that can transform the BFSI sector?

The following next-generation technologies can transform this sector:

• Artificial Intelligence and Machine Learning

As per the Accenture report on banking technology, a significant amount of bankers from India believe that Artificial Intelligence technology shall work along with human agents as well.  AI driven chatbots can converse just like humans and can also respond to customer queries quite intelligently. Even the banking customers prefer talking to a chatbot before speaking to customer service agent. Chatbots have attracted the attention of firms across industries and are seen as a means to create differentiation in a crowded landscape. 

AI and Machine Learning have immense potential in detection of financial fraud. It can identify any fraudulent data patterns in new transactions. AI based algorithms offer a high level of accuracy in validating credit risk models that determine banks’ profitability.

• Blockchain

AI technologies have been in the scene for some time now, but blockchain has come out as an exciting digital technology in the last few years and is poised to change the way banking is done. With Blockchain-based banking, banks can process payments at faster pace and more importantly accurately. The use of blockchain can reduce transactional costs and lead to the development of new banking products and services that can yield new lines of revenue.

• Cloud technology

As the volume of customer data increases, banks are immensely keen on boosting their digital capabilities in handling this data with enhanced security and agility. It is where cloud-based technologies and platforms can make the difference. With the adoption of cloud computing services, one can extract deeper insights from customer data with the use of data analysis and storage tools.

With cloud technology, banks can improve on their bank revenues, client service and overall efficiency apart from reducing operating costs. The cloud technology will certainly make it easier for banks to respond to changing customers requirements and scale its computing resources in tune with customer needs.

• Mobile banking technologies

Mobile banking has been there for some years now. However, with more development in mobile technology, customers will gravitate towards their mobile phones to do banking transactions. Apart from the increased use of mobile wallets for making digital payments, there have been other developments in the form of mobile biometrics, P2P payments and voice-based searches.

• Robotic Process Automation

With Robotic Process Automation, banks and financial institutions can create pre-programmed processes that can self-learn from extant data patterns and business decisions. It can reduce their overall administrative costs by half while still improving the quality and agility of the banking process.

For the banking sector, Robotic Process Automation can also simplify compliances by generating auditor reports automatically and maintaining details of the automated processes. Robotic Process Automation, along with cognitive automation, can help banks deal with the problem of future that is data overload.

Up-gradation of ATMs

The experience of banking industry witnessed a massive change after the introduction of ATMs. With ATMs, customers have been able to withdraw cash with ease from anywhere and at any time. It allowed them to withdraw money without having to wait for the banks to open. If the introduction of ATMs was not enough, these ATMs were upgraded, which meant that these machines could be operated contactless.

There are two major benefits of using upgraded ATMs:

• Security

Upgraded ATMs would mean customers will not require carrying their cards to ATMs. It will eliminate the chance of card getting stolen. It would also help in avoiding another fraud called card skimming or card cloning, thereby ensuring more protection.

• Avoid hacking of ATMs

Remembering ATM passwords and pins have been quite a task. With the upgrade, customers will no longer require remembering their password or pin numbers.

How customers would be impacted by induction of technology in the BFSI sector?

Customers will be the biggest gainers in the adoption of technology in BFSI sector.

Technological addition would mean the following for banking customers:

• Reduced bank visits

Few years ago, when an individual wanted to know his or her account balance, they required waiting in the bank queues of their respective bank branches. However, with technology adoption in banking, it has become quite easy, and an individual can access their bank accounts from anywhere and at anytime. 

• Quick Transactions

Money transactions have become quick, and any form of bill can be paid unlike earlier where a cheque had to be given to make a purchase and then the waiting game. With the introduction of plastic cards (credit/debit cards), online banking has eased up, and one can pay bills very easily. There is another amazing feature for online banking to pay bills; a standing instruction can be given to the bank for the payment that needs to go out every month. Therefore banks will transfer funds automatically from your account without being notified.

• Customer service

With technology customer service has improved a great deal and is expected to improve further. The role of Chatbots in customer service has been noteworthy and its ability to provide efficient customer service 24*7 has benefitted customers. Through chatbots, banks have well-understood customers’ needs and then provide customers with additional services.

• Fraud detection

Before banking and financial sector was equipped with modern technologies, it was relatively tougher to detect fraud. Then after some years, technology was used, and the system could detect fraudulent transactions. Then after the invention of AI in banking and finance industry, fraud detection has never been easier than before.

BFSI sector technology trends in 2020

The biggest BFSI technology trends that will take this sector forward are as follows:

• Fintech

Financial institutions should be able to provide a seamless digital platform. The prospect of fintech market looks promising. Data-driven analytics and hyper-personalization are the themes that lie at the core of Fintech. Fintech start-ups have disrupted the dynamics of the BFSI market. Banks and financial services providers are required to upgrade their way of doing things. Embracing digital technology is the way to achieve accelerated growth.  

• Automation and AI

These two are maturing in the BFSI domain. Earlier the domain did not enjoy success in its efforts of automation, the future can be different than this. According to McKinsey, after the second wave of automation and AI in the sector, about 20% of work across banking would be performed by machines.

• Cybersecurity and Financial frauds

Digitization of BFSI sector would mean increase in cyber threats. It would require a proactive approach from BFSI enterprises. They should form a cybersecurity roadmap that will help them to probe the vulnerable area and seal those areas. Organizations can also hire cybersecurity teams that can mitigate the threat.

Conclusion

Read our article:Digital Payments Transactions Increase during Covid-19