Banking in the Future
Blog: NASSCOM Official Blog
Banking has not evolved as fast as the customer. The advancement in the Indian banking system can be classified into three different phases.
- The pre-independence phase, i.e., before 1947
- After independence phase, i.e. from 1947 to 1991
- The LPG (1991) era and beyond, i.e. 1991 and beyond
Post-independence, nationalization was a significant step in the banking sector, and it helped improve people’s confidence in the system. In 1991 The government opened up the economy and invited foreign and private investors to invest in India. This move marked the entry of private players in the banking sector. The RBI provided a license to Kotak Mahindra Bank in 2001 and Yes Bank in 2004. After nearly a decade, the third round of licensing took place. The RBI in 2013-14, allowed a license for IDFC Bank and Bandhan Bank. Soon after this came the payments bank license (6 companies got active here) and the small bank license (around 10 companies got active here)
From a consumer perspective in the last decade, internet access and smartphones have become prevalent, progress and productivity improvements have led to higher disposable incomes, nuclear families, urban population and easy access to information. Banking, however, has not followed the same curve in customer experience. Public sector banks still function like the 1980s. The branch experience reeks of apathy and internet banking is clunky due to lack of investments into technology and processes.
The regulator has also moved fast ( in the world of glacial pace of regulations) support digital banking services. Startups have partnered with banks, insurance companies, NBFC to deliver a comprehensive range of solutions to users. Investors have supported with capital to build out these companies, discover business models and drive user acquisition.
In India, we are still in the early adopter stage where the millennials (the digital natives) have taken to using banking apps apps. GenXers are still experimenting with these platforms. All the consumer startups in the fintech space are actively engaged in market creation and have seen expenditures not only in tech but also in marketing. The process of building trust in the ecosystem has taken time ( and a huge amount of money). The time is ripe to now launch platforms which can unify these services on a single app.
Here what it may look like in the future
Fintechs and banks moved beyond the mental model of banking and now focus on the success and welfare of its customers. Simplicity, ease of use and customized experiences are the core concepts of banking user experience today. Trust is built on the back of transparency, security and easy of operations.
Consumers and banks are driving demand for products and services that interact with them in real-time consequently, real-time payments to vendors, merchants, corporates and other users progressed from being the “new norm” to becoming the “expected norm” in banking. Whether it’s freezing your card when it’s lost or providing you with analytics on where your money is going, customers can now take these actions from their mobile apps. The banks also provide resources that teach about money management and emphasize the ability to save which in turns builds a sense of security for the users. Advanced Chatbots and WhatApp enabled services respond to more complex queries besides the usual push notifications to remind you to pay bills.
Financial products have been replaced by context-relevant finance. For example, a wide array of credit cards available earlier is now replaced by a provision of credit in the relevant context for consumers fuelled by a deeper understanding of consumer needs and application of behavioural data to model price for risk.
Using AI for Intelligent engagement and actionable insights
Banks systems combine transaction and customer data with external sources of data and deliver a unified view of the customer along with actionable insights.– all powered by seamless user experience. Banks are aiming to anticipate customer needs, and ultimately capture what is coveted most — primary ownership of that customer relationship. AI has become indiscernible by consumers in areas such as front office chatbots and fraud detection.
Customers no longer need to carry their driver’s license or PAN card, filling out forms will be rare. Users will be identified using facial recognition or voice matching. AI will be used to make experiences seamless.
Many banks have actively addressed a top concern consumers have when choosing mobile banks- security. The fear of data breach has increased the demand for services that keep users’ data secure – allowing consumers to place holds on credit or debit cards, schedule travel alerts, and file and review card transaction disputes are some successful security banking features. User Growth will put immense pressure on security systems and processes.
Mobile has become the standard platform for financial interactions. Because of this, the corresponding increase in the attack surface that fraudsters will have access to has gotten worse. Successful banks have baked security right from the beginning and not bolted on at the end.
Successful mobile banks have focussed on money management features that help users cut spending and grow savings. Offering savings tools and financial wellness scores, comprehensive view of assets and liabilities and even pension.
Lifestyle bundles have been created for households that provide a single monthly payment to cover banking, energy, water, mobile bills, health and streaming in a bundle with the aim to simplify monthly living expenses. Regulation ( more of this below) allows a consent mechanism for a bank to bundle requisite services and provides a household transparency of their consumption across key categories.
Regulations & Open Banking
The forward-looking EU legislation PSD2 which required banks to open access to a customer’s data and information, if authorised, got through a few years back. As a result, open banking has taken off in full earnest. Customers are now able to access all financial services in one place – whether they are looking for a loan, a mortgage, or to pay their bills. When buying something online the consumer will not be redirected to Paypal in order to pay through them.
Banking in the future looks more open, more transparent, more ambitious. Most importantly, it lies in the hands of the customer. Any financial services provider looking to make it in the future must embrace this truth, and use all the digital and technological tools at their disposal to make their offering as customer-centric as possible only then will they be able to truly grow.
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