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Banking Development Takes a Tech Turn

October 10, 2017 - Manoo Panthiruvelil Jacob Principal Consultant, Infosys Finacle

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Computer Science has developed by leaps and bounds over the past decade. With every passing year, computing speed has been increasing at a phenomenal pace. About 15 years ago, we could not have imagined handheld Internet devices. Bill Gates, in his 1997 book titled Business@Speed of Thought, predicted about 15 Internet and software-based ideas, that includes Internet-based handheld devices, automated price comparison services, constant video feeds, and travel booking websites that doled out offers. Thanks to Apple’s Steve Jobs, for their innovative iPhone with a memorable launch in June 2007, Internet-on-device is now hygiene with almost every individual using it. Gates must indeed be happy to witness so many of his predictions come true.
Over the past few years, there have been rapid developments in wearable devices as well, with high speed computing capabilities, such as Apple Watch and Microsoft HoloLens. These devices provide mobile phone or tablet-like capabilities – chatting, browsing, financial transactions and can also be used to monitor various health parameters such as heart rate, physical exertion and sleep patterns. They are undergoing miniaturization to the extent that they could be implantable in the near future and may provide augmented virtual reality. A leading British science magazine ‘How It Works’ reports that by 2045, scientists will develop the capability to link neocortex of the brain with the Cloud through Wi-Fi, allowing us the ability to multiply our intelligence. Sounds like science fiction? Even the Internet and Internet-based handheld devices were science fiction decades back.

  • Technology development in banking sector
    Banking being a customer-facing business, any innovation that helps to enhance customer experience will need to be quickly embraced. Disruptive innovations in computing technology are creating value to range of services offered by banks and enables remote banking operations possible. Mobile Banking Apps are classic examples for this.
    Digital Banking is becoming vital for banks to offer diverse tools to customers and enable them to make smarter decisions. Even bank’s internal processes are undergoing transformation. Bots or software robots are helping banks to automating routine tasks and run processes without any error or monitoring. This coupled with Artificial Intelligence (AI) powered by machine learning, natural language processing and cognitive computing, can enable banks to handle complex tasks that are difficult to be managed by human beings.
    Augmented Reality (AR) is another area, which is generating interest among financial institutions. Citibank, Santander Bank and Paypal have done extensive proof-of-concept using Microsoft HoloLens, Google Glass and other AR devices. Some of the use cases being tested includes banking transactions, investment banking, ATM locator, location based merchant offers and tracking of customers in an area. With location-based-services, sensor capability and AR application, even smartphones can be turned into virtual display devices.
    Of-late, crypto-currencies or digital currencies have been gaining prominence in financial transactions, alongside fiat currencies. Making headway during 2009 with Bitcoin following the financial market collapse, they envision a shared, decentralized and peer-to-peer network, which is free from any centralized sovereign regulatory mechanism – A path breaking development for value transfer. And they have partially succeeded, as demonstrated by Bitcoin, Ethereum, Ripple and Litecoin. However, banks and financial regulators are not very comfortable with this idea, as they would not be able to control them. Further, these currencies do not provide information on real identity of the person transacting on the network and are in the limelight for wrong reasons, the recent ones linked to Wannacry and Petya ransomware attack. Though banks and regulators are not supportive of crypto-currencies, their underlying technology, that is the blockchain framework, is gaining great traction with financial services and other industries. Hundreds of use-cases are being piloted by banks and regulators across the world in areas such as payments, trade finance, KYC/AML, syndicated lending and many others.
  • Challenges in the journey ahead
    The advancement of technology in banking sector has its advantages and challenges. A major issue emerging in recent years is the firewalling of banking data and protecting them from digital hackers. Banks are investing heavily in continuously improving security technology.
    The other major issue is regulatory compliance. Over the years, banks have come under increased scrutiny by local/global regulatory bodies and increased capital requirements. The ever-changing compliance framework is putting huge pressure on banking compliance and profitability. In comparison, technology companies and fintechs are not subject to the same norms and enjoy huge operational advantage.
    Disruptive ideas are a greater threat to the banking sector than technology changes. Banks are facing innovation threats from technology companies and fintechs such as Google, Apple, Alibaba, Affirm and LendingClub, who have introduced banking services in payments and lending, mostly peer-to-peer. These have the potential to dent the income sources of major banks. Technology companies are also enhancing their capabilities in areas of financial planning, investments and bill payments, which were dominated by banks earlier. Many more futuristic services are expected to follow from technology companies with efficient models. Realizing the opportunity, some of the leading banks have started engaging with fintechs for futuristic services.
    Social media is another area which is changing the face of many industries, with its sheer reach and participation. For example, Facebook with about 1.4 billion active users, is making its presence felt in banking arena as well, by offering payments and investments through them. Sometime back they had signed agreements with American and European news organizations for direct publication of news, undermining the very existence of print and broadcast media.
  • The way forward
    The banking sector is set to undergo a dramatic shift in the near future with technological development. The quest for new applications and solutions will continue to trigger further disruptions, as it had happened in the past. However, this time it is the speed, spread and disruptive nature of innovations, primarily driven by software technology that is a differentiating factor.

Manoo Panthiruvelil Jacob

Principal Consultant, Infosys Finacle

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