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By Manav Jeet
The financial services industry is changing everyday due to the digital revolution. Credit: rawpixel on Unsplash
The fusion of technology into financial services has created a major disruption of the traditional business models followed by banking and financial service organizations. These industries are now foreseeing a paradigm shift of regular operations, which will challenge them to keep up with the innovative initiatives in order to retain their market share in the economy.
Over the last few years, there has been a new wave taking over regular banking processes. Services revolving around funds transfer, investment advice, and know your customer (KYC) documentation are being replaced by technologically advanced systems. This transformation promises to alter banking for bankers and customers as banks are actively trying to involve advanced fintech developments into regular financial operations. Some of these developments are blockchain technology, robo-advisory services, UPI 2.0 and Artificial Intelligence.
Blockchain technology is the linkage of records (or blocks) that are secured through cryptography. It has a decentralized nature of information storage that prevents hacking and compromise of data.
Within banking, it is used to record transaction details internally and store data that supports back-end operations. Once an institution receives documentation from a customer and saves it digitally within the blockchain, that information becomes accessible by other institutions. For customers, this means that they no longer need to provide KYC documents repeatedly.
Banks are exploring the usage of blockchain in routine financial services which will provide simultaneous access to multiple parties at once with minimal risk. As blockchain is an anonymous virtual ledger, it is not vulnerable to external manipulations and is a very secure data storage medium. The algorithms behind this technology largely minimize human dependency. Blockchain technology can also be used for the application of smart contracts which can automatically execute certain functions once the required criteria is met. It is no surprise that blockchains are being considered even for trading securities. This technology reduces the risk of errors and fraud and is also the best and most upgraded way to reduce intermediary costs.
Unified Payments Interface, initially introduced in 2016, is soon being upgraded and launched by the National Payments Corporation of India, as UPI 2.0. This smarter version of the interface will now support secure merchant transactions along with peer-to-peer payments. Other features such as bill payment options, biometric authentication, and Aadhar linked transfers have been designed. This will benefit merchants, consumers, and banks in smoother transaction processing.
Robo-advisors use robotics to provide wealth management and investment advice. Robo-advisory services function on mathematical algorithms that generate financial advice based on consumer preferences. This means that human intervention is no longer required to get customized investment advice.
To keep up with this innovation, banks are now considering coming up with their own robo-advisors. This will result in time efficiency arising from the digital allocation and optimization of financial assets. Furthermore, automated investments are free from human error and contribute towards professional asset management with precision.
The application of artificial intelligence to existing operations is beginning to uproot the existing practices of the financial industries. AI attributes human knowledge to digital technologies to overcome speed limitations. While human beings have restrictive speeds and capabilities for performing a task, this attribute is limitless in computers.
Further, AI contributes to better record identification and quicker processing of transactions through data analysis. This mechanism helps provide tailor-made services to customers based on their past preferences. This means that consumers will no longer need to provide their details every time they need banking services
Traditional banks, FinTech organizations, and digital lenders are beginning to collaborate with one another as this is the most sustainable path to long-term growth. The alliance will create a balanced situation which will replace redundant processes, manage fund requirements, and encourage a healthy financial ecosystem. Simultaneously, this will also lead to a vast improvement of customer experience as well as a drastic reduction of operational costs. The right balance between the human mind and artificial will help digital technologies shape the future of banking and vastly upgrade the way financial services operate today.
Manav Jeet is Managing Director and CEO, Rubique.