Way Forward for the BFSI Sector
Ramanan Venkata, CEO - India and South Asia, Intellect Design Arena Ltd, 0
The Deputy Governor of RBI recently emphasized the imperative for banks to bolster their investments in technology and security. Despite the widespread adoption of digital transactions, facilitated by advancements such as UPI, the banking landscape is necessitating a shift in categorization from traditional literacy distinctions to the differentiation between digital literacy and digital illiteracy.
A notable trend is the increasing engagement of people from diverse demographics, including the elderly, in digital banking transactions. Consequently, the focus for banks extends beyond merely providing technological comfort to ensuring the robust security of investments and savings.
The influx of fintechs, while offering conveniences such as customer onboarding, has raised concerns around effective execution of regulatory requirements, particularly in KYC. Regulators are responding assertively to address noncompliance issues associated with these fintechs. Banks, especially those reliant on fintech for customer onboarding, are facing potential impacts. They now seek technology service providers - that offer enterprise-grade solutions, to maintain the convenience, originally provided by fintechs, while adhering to regulatory standards.
The evolving landscape also emphasizes on additional investment, heightened security measures and the identification of suitable technology partners. These partners should enable banks to deliver a technological platform that ensures convenience for end consumers.
Addressing the scalability of transactions is another pivotal aspect, akin to the challenges faced by railway ticketing websites in the past. The concept of transactions per second is crucial for banking applications to handle simultaneous user interactions seamlessly.
The parallel drawn with social media platforms like Facebook, Instagram and WhatsApp underscores the importance of a user-friendly experience in banking. This requires the ability to manage large transaction volumes efficiently, similar to the preference for a seamless transaction process in e-commerce platforms.
Balancing control and experience emerges as a critical consideration for the banking sector. The necessity to offer a streamlined transaction process while maintaining stringent controls is where technology players, equipped with enterprise-grade solutions, become indispensable for the industry, beyond the role traditionally played by fintechs.
This globally scalable architecture adheres to the MACH framework, where ‘M’ signifies microservices, ‘A’ denotes APIs, ‘C’ represents cloud, and ‘H’ stands for headless. On the other hand, Intellect's architecture aligns with eMACH.ai, where the ‘e’ is for events, and ‘AI’ encompasses the artificial intelligence component. To elaborate on events, consider a scenario where withdrawing money at an ATM prompts an SMS notification confirming the transaction. Here, the act of withdrawal constitutes an event, while the SMS confirmation is an action linked to that event. Timeliness is crucial, as delays could lead to customer dissatisfaction and potential complaints.
The banking industry operates in waves of technological evolution. Initially, in the 70s and 80s, advanced markets like the US relied on mainframe systems for core banking functions, essentially for record-keeping. Today, the process has transformed into rapid, millisecond transactions facilitated by cloud architecture. The significant shift is evident burgeoning digital transactions, where even small payments constitute
individual transactions. This surge in transaction frequency necessitates scalable, composable, and contextual technology, encapsulated in what we call the fifth wave of banking technology.
While many Indian banks have implemented a digital layer around their historical core banking solutions, the need for evolution persists. Currently, most banks use digital wrappers to enable digital transactions, but the core infrastructure often remains historical. It's crucial for banks to move towards a dual-core approach before transitioning to a completely new architecture. This evolution is imperative to meet the demands of the modern banking landscape characterized by heightened digital interactions and the need for scalable, responsive technology.
So, today's focus revolves around the technological advancements in the banking sector, particularly the fifth wave of banktech. Initially, retail customer transaction stood out as a critical need for Indian banks.
Today, we've successfully navigated through the retail banking transformation. Banks are strategically eyeing niche products like cash management and wealth services, while private and public sector banks modernize or upgrade their legacy systems.
This transition prompts us to explore the post-core banking modernization trends, especially in the aftermath of mergers for public sector banks. The question arises: Is there a continuing wave of core banking product adoption in India, or are there specific products or platforms gaining prominence?
Addressing this, I believe all Indian banks, whether private or public, must prioritize upgrading their core infrastructure. The existing core systems, albeit accompanied by digital wrappers, fall short in handling the current transaction volumes. Migration to a core built on modern architecture, like MACH architecture, becomes imperative. Global MNC banks have already embarked on this journey.
Now, shifting to the user experience – whenever we log into our bank accounts, be it Citibank, ICICI, or HDFC, we're presented with predefined solutions like four-wheeler loans, home loans, and credit cards. While these offerings cater to retail customers, the real challenge lies in providing tailored services to Small and Medium-sized Enterprises (SMEs).
Currently, SMEs face redundant processes, submitting the same documents for various financial services. The solution lies in building comprehensive relationships with SMEs where banks can offer services tailored to their specific needs, streamline the process and eliminate the need for repetitive documentation.
Access to formal finance for SMEs is crucial for the economic growth of a country, and technology can bridge this gap. Core transformation alone won't suffice; a dual-core approach, complemented by newer surround systems like SME and wealth management, needs to be integrated into the banking architecture.
Given technology’s rapid evolution, particularly in the generative AI sector, it's clear that banking will undergo a significant transformation. The focus areas for AI are around enhancement of customer service, improvement in operational efficiency, employee efficiency improvement, and creativity.
However, it's important to note that with great power comes great responsibility. The potential misuse of AI, as highlighted by regulatory bodies, stresses the need for socially responsible practices in AI training.
Looking ahead to 2030, I envision most banks and financial institutions becoming completely digital enterprises. The incorporation of generative AI will propel some aspects of their operations into cognitive enterprises. In essence, by 2030, the banking sector will likely be shaped by the amalgamation of technology and cognitive capabilities, paving the way for a highly efficient and dynamic industry.
Our Prime Minister, Shri Narendra Modi launched 'Viksit Bharat @2047: Voice of Youth’ where the vision encompasses various aspects of development, including economic growth and good governance. I believe that the banking sector can work proactively with government initiatives and play a key role in bringing about growth and realizing this vision.
While many Indian banks have implemented a digital layer around their historical core banking solutions, the need for evolution persists. Currently, most banks use digital wrappers to enable digital transactions, but the core infrastructure often remains historical. It's crucial for banks to move towards a dual-core approach before transitioning to a completely new architecture. This evolution is imperative to meet the demands of the modern banking landscape characterized by heightened digital interactions and the need for scalable, responsive technology.
So, today's focus revolves around the technological advancements in the banking sector, particularly the fifth wave of banktech. Initially, retail customer transaction stood out as a critical need for Indian banks.
Balancing control and experience emerges as a critical consideration for the banking sector.
Today, we've successfully navigated through the retail banking transformation. Banks are strategically eyeing niche products like cash management and wealth services, while private and public sector banks modernize or upgrade their legacy systems.
This transition prompts us to explore the post-core banking modernization trends, especially in the aftermath of mergers for public sector banks. The question arises: Is there a continuing wave of core banking product adoption in India, or are there specific products or platforms gaining prominence?
Addressing this, I believe all Indian banks, whether private or public, must prioritize upgrading their core infrastructure. The existing core systems, albeit accompanied by digital wrappers, fall short in handling the current transaction volumes. Migration to a core built on modern architecture, like MACH architecture, becomes imperative. Global MNC banks have already embarked on this journey.
Now, shifting to the user experience – whenever we log into our bank accounts, be it Citibank, ICICI, or HDFC, we're presented with predefined solutions like four-wheeler loans, home loans, and credit cards. While these offerings cater to retail customers, the real challenge lies in providing tailored services to Small and Medium-sized Enterprises (SMEs).
Currently, SMEs face redundant processes, submitting the same documents for various financial services. The solution lies in building comprehensive relationships with SMEs where banks can offer services tailored to their specific needs, streamline the process and eliminate the need for repetitive documentation.
Access to formal finance for SMEs is crucial for the economic growth of a country, and technology can bridge this gap. Core transformation alone won't suffice; a dual-core approach, complemented by newer surround systems like SME and wealth management, needs to be integrated into the banking architecture.
Given technology’s rapid evolution, particularly in the generative AI sector, it's clear that banking will undergo a significant transformation. The focus areas for AI are around enhancement of customer service, improvement in operational efficiency, employee efficiency improvement, and creativity.
However, it's important to note that with great power comes great responsibility. The potential misuse of AI, as highlighted by regulatory bodies, stresses the need for socially responsible practices in AI training.
Looking ahead to 2030, I envision most banks and financial institutions becoming completely digital enterprises. The incorporation of generative AI will propel some aspects of their operations into cognitive enterprises. In essence, by 2030, the banking sector will likely be shaped by the amalgamation of technology and cognitive capabilities, paving the way for a highly efficient and dynamic industry.
Our Prime Minister, Shri Narendra Modi launched 'Viksit Bharat @2047: Voice of Youth’ where the vision encompasses various aspects of development, including economic growth and good governance. I believe that the banking sector can work proactively with government initiatives and play a key role in bringing about growth and realizing this vision.