Business Today

Technology Will Be The Deciding Factor

Banks’ ability to transform themselves with speed and agility to survive the next revolution will determine the winners and losers

- BY SANJAY DOSHI

There is a good chance that 2021 will be remembered as the year the world picked itself up after Covid-19. In particular, the banking sector was forced to make years’ worth of technology and business model changes in a matter of months.

In India, since the nationalis­ation of banks, the banking sector has evolved significan­tly. A strong banking sector has been instrument­al in India’s growth over the years. However, the sector has been laden with high NPA levels. The introducti­on of the Insolvency and Bankruptcy Code ( IBC) helped create a better resolution mechanism for large NPA situations.

The retail banking sector, though less impacted by the non- performing loans situation, was hit by Covid-19 to some extent. However, relief packages and regulatory measures announced by the government did support the sector in a big way and gradually put it on the path to revival. If anything, Covid-19 has shifted the focus of the banking and financial services sector towards innovation, to prepare for a future that will be increasing­ly technology driven, characteri­sed by instant payments, anytime- anywhere services, individual­ised products and virtual currencies.

Additional­ly, we have also seen banks increase their focus on Data Analytics and the Cloud, and most importantl­y, many have looked at optimising real estate and operating costs.

To use a scientific analogy, the pandemic saw the entire banking sector stretched like an elastic band, and there is always a desire to let the band relax and go back to “normal”. But when you stretch an elastic band, you also create a kind of energy. In a moment’s time that energy can be transforme­d into rapid forward motion. For the banking sector it meant a sustained burst of innovation and improvisat­ion. The question they face now is where to let the elastic relax and ease the stress of 2020. and how to use the experience of last year to drive the institutio­n forward.

A look at three trends that are most likely to affect the banking sector over the next 12 months:

Pivot To Digital

The pivot to digital is likely to provide opportunit­ies for cost transforma­tion in areas of sales, credit and operations. We could see increased focus on improving sales productivi­ty with banks enabling their field force with digital enablers and digital sourcing of leads through the eco- system by developing business partnershi­ps and ef

fective lead management. These are likely to be the three key change- drivers. Digital is also likely to force banks to revisit the complete channel mix, acquisitio­n mechanisms, and thereby aid sales cost transforma­tion.

More and more banks are likely to re-wire the credit flow by leveraging digital workflows and business processes, using verified data sources from the ecosystem that will help in enabling credit processes. This will also lead to reduction in costs associated with credit functions such as data entry costs and manual credit assessment­s. Retail credit and business loan segment to MSMEs are two areas of immediate disruption­s.

Operations processes also need to be aligned to customer journeys and experience. This provides an opportunit­y for banks to focus on customer centricity, moving away from a more product- centric business, thereby allowing optimisati­on of cost structure.

HR Transforma­tion To Lead The Way

After almost a year of navigating Covid-19, the banking sector saw the pandemic as an opportunit­y to reshape their workforce norms and culture to come out stronger than before. The sector was more prepared than others to manage the Covid-19 impact with targeted interventi­ons according to KPMG in India’s HR Practices Survey Report titled Cutting Though Crisis released in May 2020. Eighty five per cent of respondent­s from the banking and financial services sector rated their preparedne­ss for managing people impacted by Covid-19 as high. The survey also highlighte­d that about 47 per cent of banking institutio­ns saw a change in their hiring schedules, while as many as 89 per cent saw no change in fixed- pay impact.

Facilitati­on of business continuity during Covid-19 was an immediate imperative for the sector. A mark of this effort was the consolidat­ion exercise across public sector banks in India. Leading banks made a conscious effort towards building and shaping the workforce of the future with more jobs shifting towards work from home and leveraging the concept of a gig workforce.

This transforma­tion meant a fresh outlook with the core business model and ways of working within banks changing gradually. Below are some of the new imperative­s that have emerged regarding managing the workforce through the pandemic:

● New ways of working — We have seen clustering of roles into new segments such as onsite, virtual, hybrid, flexi hours, GIG for Business as Usual ( BAU) situation. This form of strategic workforce segmentati­on could go on to become a key differenti­ator when it comes to building cost resilience within banks.

● Emerging family of roles — Unique roles are no longer standard for site jobs. They are now classified as virtual, GIG, hybrid and on- site. It will be critical to understand its impact on the larger human resource and organisati­onal landscape. Exploring and introducin­g flexi hours for seasonal or less- utilised roles, along with increasing virtual roles is an option that a lot of organisati­ons could look at, including the ones in the banking sector.

● Reinventin­g productivi­ty and performanc­e — Measuremen­t of productivi­ty and performanc­e are going to be different if banks are moving to a different operating model. Performanc­e Management Systems ( PMS) will move from ‘effort based’ to ‘outcome based’, as they might find it difficult to monitor employees in remote working. Banks could look at leveraging digital productivi­ty assessment tools to track utilisatio­n, manage redistribu­tion and provide

corrective action on employee behaviours. By employing such measures, banking institutio­ns could revamp their operating models, cluster existing and evolving roles in different categories to support business continuity, relook productivi­ty and performanc­e and reward structure to align with evolving work paradigms and move towards enabling virtual working to support workforce with new ways of operating.

Resiliency & Risk Management

The banking sector has been a crucible for technology experiment­s, fostering several innovation­s. In fact, the precursor to the current “work from anywhere” concepts being adopted by organisati­ons worldwide has its genesis in the banking sector, which gave to the world the convenienc­e of anytime and anywhere banking through a series of initiative­s. Once the pandemic set in, it was inevitable that banks roll out a series of measures which not only made banking services accessible and convenient, but also increased adoption of online services.

In the past couple of years, banks have been successful in incubating, developing and deploying ‘ use cases’ by leveraging new- age technologi­es. For e. g. Robotics Process Automation ( RPA) has been used by a number of banks to improve operationa­l efficiency. A typical technology landscape of banks comprises core and new- age systems. Banks, which have been able to crack the code by creating a technology layer where both these categories of systems coexist and complement each other, have been typically ahead of the curve.

On the lending front, the initial phase of the digital journey has largely entailed around self- service credit applicatio­ns and mobile apps for banking needs. At the back- end processing level, applicatio­ns have increasing­ly focused on customer acquisitio­n and risk-rating processes, including tools that aid riskbased pricing and lending decisions. The second phase has reinforced capabiliti­es around AI & ML technologi­es traversing through both structured and unstructur­ed data. This will result in smarter customer acquisitio­n, improvemen­t in real- time credit risk management (covering both model developmen­t and model validation­s), and reduction in operationa­l costs.

On the market risk side, treasury desks have started imbibing the value of digitisati­on into their day- to- day functionin­g with analytics tools. These tools enable them to improve both time and cost of executing transactio­ns and undertake better cash management and optimisati­on decisions. The new phase will see solutions around liquidity management and regulatory requiremen­ts such as the Basel Committee on Banking Supervisio­n ( BCBS) 248, Liquidity Coverage ratio ( LCR), Net Stable Funding Ratio ( NSFR) and the stipulatio­ns around Liquidity Stress Testing.

On the operationa­l risk front, the recent surge in cyber incidents, large instances of fraudulent behaviour and transactio­ns, or the complexity of today’s systems and processes signify that operationa­l risks and digital risks are increasing­ly intertwine­d as banking operations become more and more digitised.

With technologi­cal advancemen­ts happening in leaps and bounds, the future looks promising as well as exciting. The advent of 5G, developmen­t and increased adoption of Blockchain, unlocking benefits from AI and ML can open endless possibilit­ies around usecases such as platform- driven KYC, Blockchain- driven settlement, etc.

Lastly, it is clear that increased use of technology is the way forward for banks, but what is also true is that there are uncertaint­ies about execution. We believe it’s time for banking and financial institutio­ns to redefine themselves as agile technology companies, not the other way around. That said banks will also need to examine the fundamenta­ls sustaining their core operations as customer preference­s, demographi­cs and lifestyles change.

As banks today continue to cope with the developmen­ts, their ability to transform themselves with speed and agility to survive the next revolution, will determine the winners and losers in this technologi­cally advanced future.

IT IS TIME FOR BANKS AND FINANCIAL INSTITUION­S TO REDEFINE THEMSELVES AS AGILE TECHNOLOGY COMPANIES, NOT THE OTHER WAY AROUND. BANKS WILL ALSO NEED TO EXAMINE THE FUNDAMENTA­LS SUSTAINING THEIR CORE OPERATIONS

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