The FinTech Disruption
FinTech is now driving an evolution in the existing business and operation models of banks. As a result, FinTech offerings are helping banks in cutting down overhead costs
Traditional entry barriers faced by new players in the banking and financial services industry have long disappeared due to the emergence of new business models and technologies. At the meeting point of such technologies and business models, a revolution led by FinTech is underway and it is creating a new value chain by enabling financial institutions to derive opportunities out of modern disruptive environments.
These days, banks and financial institutions are increasingly working with disruptive technologies and startups to not just survive the changing times, but thrive in it. With radical changes expected in the scale, scope, and complexity of customer demands as well
as the banking services available, tools such as SMAC (Social, Mobile, Analytics and Cloud) are providing banks with the means to reach more customers than ever before. Financial inclusion has become a key focus area for the central government, so several beneficial regulatory policies have also added greater impetus to the FinTech revolution.
The biggest companies across the world today are successful because of how they leverage data. To ensure competitiveness in today’s digital world, a bank should strategize its business models by efficiently making use of insights from data (historical as well as recent). Tech behemoths such as Google, Apple, and Facebook have entered the financial offerings space; meanwhile, banks have started deploying technologies to boost their services. So, as the lines between tech giants and FinTechs blur, accessibility, convenience, and personalization become critical to ensure success. Here are some of the reasons why customers love and choose FinTech solutions: Ease of use Cost and time efficient Improved user experience New features that uses cutting-edge technology
THE EVOLVING BUSINESS MODELS OF BANKS AND FINANCIAL INSTITUTIONS
FinTech is now driving an evolution in the existing business and operation models of banks. As a result, FinTech offerings are helping banks in cutting down overhead costs this is resulting in a pull model that targets customers irrespective of location. With the eradication of physical boundaries, banks and financial institutions have also been able to supplement and boost services such as customer acquisition, online shopping, travel/ entertainment services and more, with technology. This has led to the rise of AI-driven marketplaces where customers and banks are interacting in ways never seen before.
The Global FinTech Report 2017 by PwC states that 82% of incumbents expect to increase FinTech partnerships in the next three to five years. In this context, the pursuit of customer centricity has become a key priority for all concerned parties. This pursuit is also enabled by the rising expectations that customers now have of their banks to meet the excellent design and service quality provided by some of the world’s biggest tech companies. Moreover, as millennials become the key demographic around the world for all industries, financial institutions also need to evolve to cater to their needs. All this has led to changes in the improvement of performance, user experience, and customization capabilities of the products and banking services today.
AI: MACHINE LEARNING FOR IMPROVED PERSONAL BANKING
We are experiencing a digital shift in all walks of life and as we progress, AI will ultimately drive this shift with the ultimate goal of improving customer engagement and overall experience. These are two crucial factors of measurement of business success and they can be perfected by implementing AI to study historical data with regards to customer habits and preferences. The information thus gained can offer service providers actionable insights into the evolving new-age customer in order to differentiate themselves from competing service providers.
Conversational AI plays a key role here. What initially began as a simple customer response system has become a dynamic virtual assistant that every leading bank is implementing. Examples such as HDFC OnChat and EVA, SBI InTouch, YES mPower, YES Pay Bot and Digibank are just a few notable examples and they all play a critical yet simple role – understand customer queries of varying complexities and respond appropriately. The inbuilt AI in these cases can mimic human interactions and provide assistance in carrying out different processes related to account management, funds transfer, bill payment, and much more in real-time.
It is inevitable that soon facial recognition, voice recognition, and natural language processing will enter the equation and provide a boost to the banking revolution that is already underway. At the heart of all this advancement is machine learning. Thanks to the ocean of data generated by widespread app usage the world over, AI based systems have plenty of references to learn from in order to deliver correctly. Not only does this enable them to offer contextual offerings for their customers, it also sets them up to successfully conduct complex transactions in real-time.
A Capgemini report indicates that about 9 out of 10 Indian companies say that AI has actually created new jobs. A majority of these jobs are admittedly at the senior
managerial level, but it is nonetheless an impact that many did not see coming. With plenty of new services and new features being made possible by AI, the scope for job creation in the financial sector is immense. On a strategic level, AI enables the deployment of technology to better serve customers, enhance performance, and boost revenue, but the human capital impact cannot be understated.
UPI: OPEN DATA SHARING FOR A DIGITAL BANKING FUTURE
Another key evolution being driven by FinTech innovations and partnerships in India is the UPI (Unified Payments Interface) real-time payment system. Developed by the NPCI (National Payments Corporation of India) to propel India towards a cashless economy, UPI enables users to instantly transfer funds between bank accounts on a mobile platform. In fact, since its launch in August 2016, the value of UPI transactions had risen to INR 27 billion by May 2017. Currently, no other nation can boast of a payment solution as well designed as UPI, and India leads the world when it comes to UPI payment processes.
India is proceeding at breakneck speeds when it comes to market maturity and the adoption of digital payment solutions. A major reason for this is India’s large smartphone user base that is bigger than that of most countries. But it is also the propensity to use, displayed by this user base that is encouraging the widespread adoption of UPI payments by leading service providers and technology companies. The government’s push for a digitized economy and a cashless one has also lent an air of inevitability to this.
UPI clearly benefits everyone – users and merchants. Not only is it a simple, fast, and effective way to transfer money between different parties, it is highly dependent on smartphone usage and adoption. With more than 440 million smartphone users projected in India by 2022 according to Statista, this is something that has no dearth of in India. A key advantage of UPI is that a user can operate all their bank accounts through one single app, an unbeatable benefit that will soon convince anyone who has ever faced the issue of too many apps on their phone or the issue of storage space running out. While UPI was met with some skepticism initially, banks and financial institutions have realized that it will not necessarily replace mobile wallets or netbanking; it will only supplement existing payment operations.
Already, leading tech companies have joined the list of UPI-enabled service providers in the country. Initially only the BHIM (Bharat Interface for Money) app supplied UPI transactions, but now players such as Google Tez, WhatsApp, Paytm, Airtel Payments Bank, PhonePe and many more have also joined the lengthy queue. Apple Pay is also expected soon in India, and it won’t be a surprise to find that UPI will be their preferred payment interface.
Ultimately, FinTech is designed to develop and deliver a better user experience for all parties. Disruption is often viewed as a bad thing, but in this scenario, FinTech companies are leveraging disruptions to capitalize on new opportunities. FinTech resolves long-standing business problems, reaches underbanked people and countries for financial inclusion, and offers an unbeatable degree of transparency. By giving insights into data that was always there, FinTech has revolutionized the banking and financial services industry completely..