Whenever you were wrongly charged on your credit card, you typically called up the bank call centre and complained. After a bit of a haggle and luck, you manage to get the charges reversed.
While this leaves a bad taste in your mouth as a customer, for a bank this is not such a good customer experience either. Banks often take action after such incidents happen. However, things have changed dramatically now.
Citi, one of the world’s biggest bank, is now using big data analytics to retain customers or acquire them through predictive modeling. Citi uses an algorithm that pores over transactional records to spot anomalies and corrects them before they are noticed.
There are three things that are fundamentally ushering in the impact on the way financial services are now being delivered.
1. The falling cost of computing power
We all know how devices are getting smaller and smarter. A revolution of sorts is underway when it comes to getting smart. Some years ago, ‘embedded systems’ was the term used commonly. It meant a technology that allows one device to talk to another. It is astonishing that nobody speaks of that anymore. Today, everyone talks about ‘a smarter planet’ or an ecosystem that enhances productivity in life.
This is possible because devices are getting cheaper as well as smarter. A smart phone today is several times more powerful than a mainframe computer was a couple of decades ago. No wonder then your bank is now in your pocket through an app on your phone.
2. Big data
Every action that you make on your mobile app is recorded. It is part of zillions of bytes of data stored for every bank customer in the world. The data is used to create patterns of usage. So it remembers the cash you withdraw each time you walk into an ATM. They also know that you utilize your reward points. They promote more ideas for you to earn more reward points. Your bank knows more about your spending habits and preferred transactions than ever before as a result of the mobile phone.
3. Smart algorithm
The falling cost of computing and big data, when combined with smart algorithms, creates a powerful tool for banks or non-banks to exploit. An algorithm is a software program that reads data and throws out relevant information like in a search engine. The logic requires parameters that suit your business.
For example, Royal Bank of Scotland in UK recently created a new data strategy called ‘Personology’. The bank combed the massive financial transaction data of customers. They identified areas where clients were paying for services to third-party vendors that were already free with their bank account. These were services like mobile phone insurance or emergency breakdown assistance.
The bank sent out messages to account holders. The initial worry was that customers could opt for third-party vendors over the bank services. However, most customers switched off the third-party service and continued with the bank.
What is happening in India
New companies are cropping up all over India to redesign the financial services processes.
A significant impact is felt on payment services, lending services, customer interaction, wealth management and brokerage businesses.
Startups were earlier considered disruptive in this space. However, existing players like large banks seem to be collaborating with many of them to enhance their customer experience.
“Large banks are tapping into the start-up ecosystem to incubate and create alliances on a variety of platforms such as wallets, investment intermediation, online client acquisition. They are not only developing platforms for such start-ups to thrive, but are also beginning to invest in such platforms,” said a report by KPMG on Fintech in June 2016.
There are primarily seven odd Fintech themes, the report argues.
These include next generation payments, peer-to-peer lending, bank in a box, financial inclusion, blockchain, robo-advisory and security and biometrics.
India is witnessing a significant investment in payments solutions. The KPMG report states that the unified payment interface could allow large and small players to boost payment transactions through mobile phones and apps. It is widely expected to move India to a predominantly cashless society. Major banks like ICICI Bank, Axis Bank have introduced such systems.
Blockchain is expected to make it easy to verify transactions in a networked world. In India, there is very limited progress on blockchain. A number of major IT players in India are piloting projects that implement blockchain in financial processes, the KPMG report observed.
Financial inclusion tops the government agenda in India. The presence of over a 100 crore Aadhaar accounts along with 100 crore mobile phone owners opens a significant opportunity in financial inclusion.
Peer-to-peer lending is not actively gaining ground as it is in places like UK, US and Hong Kong and Singapore.
A lot of the smart technology prowess actually converges into artificial intelligence. In the financial services space, this could emerge as an impactful development.
Here are some things that could happen as a result of the innovation in artificial intelligence:
• You would soon be advised on your banking related queries by a robo assistant.
• When you use your banking or a loan app, you are most likely to be guided by a robo-agent to fill up your form or make use of your online access.
• Your investments in various financial instruments would be handled by a robo-advisory app.
• When you reach your bank for queries on your loans or service updates, a robo-advisor may guide you and sort your query.
• Your loan application would be read by a machine or a robo-officer who will cross-check your ability to repay the loan with other data and take an automated call. This is already happening in many developed markets.
There are many more situations that could be handled by artificial intelligence. This is the impact technology can have on you as a consumer.
For managers in the financial services business, this could be the calling to enhance productivity by a factor that was unheard of before. For years, as a financial services provider, you looked up for a cost-efficient way to tap retail customers or the ‘last mile connectivity’. You created a budget and exhausted it in just reaching out to the people in new cities or towns or in rural markets. However, it is possible now to reach out to a target group that you know has the capability to utilize services you offer. If it gets competitive here, you can use further technology to identify new customers in a new geography or a market by simply combing data of customer behavior.
Many argue that technology may replace human beings. The scale of transformation is likely to be unprecedented. An important factor to note here is that there is no single hardware like a sophisticated computer or a smart phone or revolutionary software driving this change. It is not just the cheap computing ability on its own that is making this change.
Simply procuring cheaper devices will not do the job. Getting just the software right will not help. Producing a volume of data that nobody can read would not help either. Your role as a manager will involve doing multiple tasks in putting things together. They need to be woven together into a vision for growing the business.
At the end of the day, technology is just an enabler for better productivity and better living.
Blog post by Rakesh Bhatt – Chief Operating Officer, Bajaj Finserv