Harish Prasad heads the Banking Solutions business for FIS in the AP-MEA region. He is actively involved with Financial Institutions across the region on adopting innovative new capabilities. He is a veteran of the Banking technology industry in India and has extensive experience working with building technology ground up for banks, as well as with establishing alternate delivery models such as SaaS.
The COVID-19 pandemic has delivered an economic shock which is truly unprecedented. The connected world that we had become meant that the impacts of these shocks are being felt globally, irrespective of the state of infections on the ground, across every market. Looking ahead and beyond the immediate crisis, B2C businesses globally will see the impact of changing consumer behaviour and it is widely expected that discretionary consumer spends will come under pressure, and in turn, impact many B2B businesses.
The impact to FinTech will be driven by the nature of the service they offer and the upstream and downstream impacts of COVID-19, for example, COVID-19 has had a dramatic and adverse impact on Lending FinTech for instance as the stressed business environment puts their portfolio at risk while the moratoriums cause a huge liquidity crunch. Payment FinTechs have been a mixed bag as the drop-in overall business activity triggered has caused large drops in volumes, some have benefited by the move away from the use of currency. In general, Fintech whose revenue models depended on disrupting conventional operating models via digitization will see long term benefits as the world re-defines their choices.
Uncertain demand environment is also impacting many FinTech investment plans and is forcing a zero-base re-evaluation of these investments considering the realities of the new business environment. Their focus will likely be on preserving business viability in a reduced demand environment and forcing down operating costs to minimize damage and to get through these unprecedented times.
Technological Disruptions in Banking
It is quite evident from recent history that advances in infrastructure (exponential increase in computing power and capacity, mobile technology, data connectivity etc.) and new technologies drive the disruption of how banks engage with and service customers, as well improvements to internal processes and operating models. The spread and impact of these advances are very broad and affect most facets of financial services. Specifically, in the area of banking solutions, there has been tremendous disruption via the applications of analytics and AI (A), business model innovation (B), cloud technology capabilities (C) and digital engagement (D). Without getting into specifics, innovations in Banking can mostly be correlated to these ABCD factors, and every banking institution is applying these across their enterprise to get and stay ahead of the competition.
Data is wealth waiting to be monetized for organizations today, and advances in Analytics and AI are driving innovations hitherto unseen across product processing cycles – be it in customer support, Compliance or Fraud detection. Secondly, banks see they can no longer sustain operating models that have them work in isolation and are evolving upstream and downstream partner business models, be it with FinTech or with service partners, and increasingly offering what we call as “Banking as a Service”. Thirdly, Cloud platforms are today enabling easy access to a vast set of advanced technologies that were too far-fetched and expensive for organizations to adopt, and this is levelling the field today. Lastly, we are seeing a wave of digitization that has transformed how consumers access banking services, driven by the trend of convenience becoming paramount.
The advent of the Gen-Z who are so entrenched in the Social media ecosystem is leading Banks to re-look at their models of customer engagement and working on transforming customer experience and to make Banking becomes seamless and just another facet of “living”.
Blockchain: Future of Financial Industry
AI is a key factor of disruption having a broad-based impact on Financial Services. Blockchain, on the other hand, has had a bit of a bumpy ride through the hype-cycle as financial institutions initially struggled to find meaningful applications of the technology. The biggest application of blockchain was, of course, crypto-currency and it has been a true roller-coaster ride for Crypto on the back of multiple headwinds across regulatory push-back to the more practical issues of lack of broad-based acceptance as a medium of value. But I believe we are reaching a point today where the applications of blockchain that continue to see investments and activity are those around a mature and well thought through set of use cases that cover Crypto-currencies, Global real-time Payments, Trade and Supply Chain, Smart Contracts and Reg-tech. These seem to be where the most traction and to believe these will see increasing adoption of Blockchain-based innovation.
The premise of Blockchain has been its ability to drive better efficiency, speed up processes and lower risks across the various applications it has been used for. Blockchain technology can dramatically improve settlement processes through the universal and real-time nature of updates, speed up processes by eliminating the need for manual reconciliation and providing instantaneous global visibility, and lower risks through inherent immutability and transparency in its design. In effect, all of these go towards enabling the overall Financial Services system work more efficiently and reduce the cost of products and services to customers and deliver a lot more value at lower price points and customers eventually will see the benefits of these innovations.
The Indian financial services industry has had a rather patchy record of adopting Blockchain. We are largely still in an experimental phase and adoption has evidently been mainly around a. Global payments (e.g. RippleNet or Stellar participation by a few banks) b. Some pilots around adopting Blockchain in Trade finance use-cases and c. Identity and KYC related experiments. Interestingly, the experimentation on Blockchain use in other sectors especially around the Government has been more promising. I believe adoption will improve gradually in the financial service area but will largely be led by global trends as opposed to India-specific trends. Large scale adoption will need industry-wide acceptance to establish Blockchain-based “rails” in specific areas.
Fintech Trends to Look Out For
Cloud, AI, IoT and 5G look very promising and while AI is already seeing widespread adoption as we discussed earlier, applications of IoT and 5G will pick up over the next few years as these technologies mature and see higher adoption and consumption. These are technologies that have the potential to drive significant change to customer engagement and experience, and I expect these will lead to transformative change in time in this area.
Your car reminding you via a voice message that your insurance renewal is due and giving you a visual comparison of insurance quotes on your car’s entertainment unit screen, and you concluding the renewal with a verbal instruction to pay the insurer using a preferred credit-card – all while driving your car – that’s the kind of transformative convenience that these technologies can drive, and we will see a lot more of these emerge!
A Piece of Advice
Banking solutions will continue to evolve fast to leverage advances in technologies – be it Cloud, AI or IoT and 5G. Every solution provider needs to critically review and align their offerings to exploit these advances and build in the benefits that these can deliver, into their propositions. Not doing so will soon make many of these providers irrelevant in an increasingly complex and competitive world. Fin-Techs that are looking to use the advantage of a level-playing technology field should press home their advantage and lead by innovation, and this will bring benefits to the industry overall and to end-consumers. (As told to the Editor)