Technology Induced Changes in the Banking Sector

A number of industrial reforms that were already well underway have been accelerated by the COVID-19 epidemic and the banking sector isn’t left out. 

The application of technology in the financial sector is one area that has experienced significant innovation in recent years. With an ever-changing corporate and consumer emphasis, the new buzzword “FinTech” is being ingrained in the industry, and with it, greater choice and an enhanced user experience are becoming the norm. 

This piece will focus on the impact of technology on the banking sector, and digital adoption, 5G capable devices, increasing awareness about various digital initiatives have led to a fundamental shift in the way we perceive banks and banking. Let us dwell deeper to ascertain these changes in detail. 

Fin-Tech Lending   

The number of individuals who do not have access to banks is one of the most overtly discussed financial inclusion insights today. Due to their reliance on cash and inability to acquire credit or loans, a significant section of the society is left out from the traditional banking framework.  

Additionally, they deal with high transaction costs while handling their finances, and traditional financial institutions frequently treat them unfairly. 

Fintech lending helps lenders make quick and more informed lending decisions by leveraging technology and APIs.  

Several business models within fintech lending, including peer-to-peer lending, mortgages, business loans. 

• Peer to peer lending – This process involves connecting people who need money with the ones who want to lend, in exchange the fintech organization collects a commission. 
• Mortgages – Some fintech leverage technology to improve the lending process and themselves provide the entire loan amount.  
• Business loans –Small businesses need capital to grow but are not eligible due to the higher perceived risk from traditional banking organizations. This is where fintech lending comes into help. 

Neo Banking  

Neo banks are financial institutions that focus on the digital world and provide banking services like checking accounts and debit cards without having a physical site. Neo bank and fintech bank are terms that are frequently used interchangeably. Neo banks provide financial services in a customer-focused, digital-only style with the goal of streamlining the banking process. 

Our banking practices have evolved along with technology. The banking sector has seen more competition in recent years because of smaller, digital-only institutions. 

Unlike the conventional banking practice where clients wait in banks for a long time, neo banks make things easier. Apart from distributing paychecks early to their customers through online platforms, they also lower the cost of their services. 

Neo-banks are able to offer customized solutions like – 

• Co-branded credit cards for working professional.  Partner with an airline/chain of restaurants 
• Higher Education loan to students based on their internet searches.  
• Joint-home loans for couples based on their individual credit scores.  

Bancassurance  

The bancassurance concept is still relevant to meet the comprehensive demands of clients as consumer financial needs become more complicated. The ability of banks and insurers to work together, broaden their clientele, and cross-sell their services, however, can occasionally be limited by compartmentalized operations and onerous sales and compliance procedures. 

Since many users of financial services are adopting digital channels, banks and insurers must strengthen their collaborations so that they can respond to consumer demands together and harness their knowledge of customers, products, and technology to transform how they serve their shared clientele. 

Leveraging data from the mobile banking apps has enabled the bank to understand customer behavior. Bancassurance has been leveraging AI, machine learning, deep learning, artificial neural networks, blockchain and IoT. This has enabled the sector to shift from detecting and repairing work to predicting and preventing mode.  

Major Changes in bancassurance sector due to AI: 

• Firms are able to predict a human’s usual city of residence by using data from every source including geo-location. Premiums can be lower if you stay in low polluted city as compared to a highly polluted one. Time you spend in each city can define your premiums. 
• By leveraging activity tracker wearables, the companies are fine-tuning the premiums to make them more competitive. 

AI Customer Service   

Customer service is perhaps the area where FinTech is having the most impact on the banking and financial industries. A strong customer service staff used to be essential for any business dealing in finance. Any activity involving the management of money or financial affairs requires qualified personnel who can aid individuals and solve difficulties. 

However, using chatbots to connect with clients has quickly become the standard. While an AI that develops and becomes smarter seems a nice idea, in practice it isn’t human, and its adoption is sure to put humans out of their jobs. 

Business Intelligence Banking 

Before recently, the only financial data that could be gathered was basic customer data like name, address, and transaction history. Business intelligence involves turning large amounts of data into useful information. 

Business intelligence aims to make data more accessible and innovative so that it may be utilized to inform important business decisions. 

As a result of their own mobile applications, online portals, and other digital resources, financial institutions now have access to enormous amounts of priceless, first-party client data. 

Business intelligence in banking is the use of analytics tools to produce interactive data visualizations that end users for banks and financial service providers may build on desktop computers.  

A uniform aggregation of data is a necessity if you want to apply business intelligence techniques to your advantage. Because of this, companies are using software tools like Power Bi, Tableau and Domo to swiftly comprehend, examine, and evaluate large data. 

Predictive Banking 

The capacity to accurately anticipate the future has long been prized. People have pursued it throughout human history, using every tool and discipline at their disposal to achieve it, from the scientific to the paranormal. 

Finally, it appears that we’re as near to future understanding as we’ll ever be, helped by machine learning and big data. 

For banks, predictive data analytics may be very helpful in identifying possible dangers and possibilities. For instance, a bank may utilize predictive analytics to foresee probable shifts in market circumstances that could have an effect on its operations, such as changes in the regulatory environment or interest rate variations.  

This can assist the bank in risk management that is proactive and resource allocation choices that are well-informed. 

Advanced Data Protection  

Concerns about data privacy are of the utmost importance for businesses in the financial and healthcare industries. 

A compromise of the sensitive data that banks and other financial organizations handle about their clients might have serious repercussions.  

Data privacy issues are continuing to spread as we rely more and more on the cloud to store information and handle financial transactions online. 

In order to safeguard their data, banks must ensure that their systems adhere to the highest encryption requirements. For instance, with a well-developed banking app, even if someone manages to intercept your data, they won’t be able to view anything you do on the app.  

Financial institutions are therefore advised to use reliable encryption methods such as Transport Layer Security (TLS) and Advanced encryption standard (AES). 

Conclusion 

Financial institutions have a crucial necessity to keep up with the constantly evolving digital transformation process as one of the top service businesses. 

I advise starting this journey by ensuring that all leaders and decision-makers at your organization acknowledge the significance of this shift. It will be extremely challenging to accomplish these changes without a shared commitment and support. 

How can Indium help? 

Indium has been helping leading BFSI organizations enhance their business potential with customized digital solutions. Indium has a large team of skilled engineers with deep domain expertise in Cloud Technology, AI & Analytics, Web & Mobile App development and so on.

To know more about the services we offer, write to [email protected].