Tag: digital financial services

Digital banking: Tapping the power of cloud to empower financial institutions

Personal Finance

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Rajashekara Maiya, vice-president, global head – Business Consulting, Infosys Finacle

By Srinath Srinivasan

The dependence on digital financial services during the Covid-19 pandemic has led the BFSI segment to accelerate the digital transformation process. In the coming days, more enterprises, small, medium and large, are expected to come into the ambit of digital financial services forcing financial institutions and fintech companies to prepare for the inevitable demand explosion.

“Leveraging advanced technologies such as deep analytics and machine learning will empower banks with a more sound understanding of customers and their preferences,” says Rajashekara Maiya, vice-president, global head – Business Consulting, Infosys Finacle. “Learning from the past interactions with the end-user and their actions, banks can build adaptive solutions and drive contextual engagements.” Finacle is a core banking product developed by Infosys that provides universal digital banking functionality to banks.

Today Maiya and his team focus on helping banks build new business designs to bridge the divide between the digital and physical worlds and embed banking into their business processes seamlessly. This includes comprehensive digitisation of businesses through the full stack modernisation of digital engines, engagement and experiences systems, powering digital-only banks, supporting a bank-in-a-bank strategy where incumbent players are setting up distinct digital entities, helping fintechs offer banking services (for example, PayTM), helping non-financial institutions (such as India Post) to offer banking products, aiding multiple telcos who are launching banking services, and even an insurance company.

In order to provide digital transformation, Finacle has invested in cloud native offerings, co-innovating with seven clients to create a pilot blockchain based network to process trade finance transactions, expanding coverage for RESTful APIs to enable ease of collaboration with customers, partners and fintechs, co-innovating with large and fintech partners, embedding advanced analytics and AI in its solution suite, and leveraging Robotic Process Automation and cognitive automation.

The cloud native digital solution suite helps traditional (ING, DBS, Emirates NBD) and emerging financial institutions (Marcus by Goldman Sachs, Digi bank by DBS, Paytm) address digital engagement, omnichannel banking, origination, digital product development (core banking, payments, cash management, wealth management), analytics, artificial intelligence, and blockchain requirements of financial institutions to drive business excellence. According to Maiya, banks in over 100 countries rely on Finacle to service more than a billion consumers and 1.3 billion accounts.

Finacle is also doubling down on the current opportunities to implement blockchain. “Banking industry is expected to account for 30% of total blockchain spending through 2023, if not beyond,” says Maiya. Finacle has launched several deep domain solutions in partnership with banks including Remittances, Payments, KYC, Trade Finance, Digital identity management. “More than 17 banks are part of our network and actively piloting the solutions we provide. The key differentiator for our solutions is that these are built in a ledger agnostic manner and can work on any major blockchain technology, for example, Corda, Ethereum, Bitcoin or Hyperledger,” he says.

Are bank employees ready for these new technologies? “Banks will do well in setting up multidisciplinary programmes to maintain their talent pipeline,” says Maiya. “They will need to map competencies across functions to identify skill gaps and bridge those employing a combination of tools, technological enablers, and on-demand contextual learning platforms.” He predicts business process synergies between the workforce and machines will gain momentum.

With new technologies comes the ability of institutions to handle cybersecurity. “Mission-critical infrastructure tests, remote defense capabilities, centralised user administration, transaction authorisations, best practices for remote and secure working, AI, and other technology augmented fraud management techniques will be some of the key trends banks will prioritise,” says Maiya.

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Covid-19 to boost digital financial services growth; SBI, large private banks to benefit: Moody’s

Banking & Finance

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The coronavirus pandemic will accelerate growth of digital financial services, benefiting State Bank of India (SBI) and large private sector banks, according to Moody’s Investors Service.

The coronavirus outbreak and restrictions on physical contact will further boost demand for online financial services, making it more imperative for banks to accelerate digitalisation, the global credit rating agency said in a report.

“Yet only SBI and a small number of large private sector banks have the resources to effectively capitalise on the growing preferences for digital services among consumers and businesses.

Also read: RBI proposes 24×7 helpline for digital payment services

“Except for SBI, public sector banks generally have limited financial capacity to invest in technology because of weak asset quality and profitability. Small private sector banks lack resources to invest heavily in digitalisation,” Moody’s said in the report.

This means that digitalisation will help SBI maintain its leadership and large private sector banks gain market share on the other state-owned peers, which will increasingly face challenges in acquiring and retaining customers, particularly individuals and MSMEs, as they become accustomed to digital services, said the agency.

“While public sector banks have larger shares in loans and deposits than private sector lenders, HDFC Bank, ICICI and Axis along with SBI, dominate digital payments.

“This segment is at the core of banks’ retail banking strategies because digital payments not only help banks retain brand recognition but also increase customer engagement and create cross-selling opportunities, which can lead to growth in revenue per customer,” the report said.

Digital financial services: Rapid growth

Moody’s said digital financial services are rapidly growing in India. It observed that the Government’s efforts to boost financial inclusion and make the economy less dependent on cash have driven growth in the use of digital financial services, particularly electronic payments.

The Reserve Bank of India’s (RBI) Digital Payments Index (DPI), which was constructed with March 2018 as the base period — DPI score for March 2018 is set at 100 — DPI for March 2019 and March 2020 stood at 153.47 and 207.84 respectively, indicating appreciable growth.

Also read: RBI sets up working group to identify risks posed by unregulated digital lending

“Further, the regulator estimates that the number of digital transactions will jump to 87 billion in 2021 from about 40 billion in 2020. Already, the number of digital payments increased by more than seven times from 2015 to 2020, according to data from the RBI,” the report said.

India has a number of factors favourable for the further development of digital financial services, including a large and growing middle class population and a well-established digital identification system, via the Aadhaar, an increasing penetration of smartphones and high-speed internet.

MSME lending

The agency underscored that one segment with abundant growth potential is digital lending to small businesses, many of which have difficulty borrowing from banks because they have limited financial records and lack proper documentation.

Given that micro, small and medium enterprises (MSMEs) have relied on informal lenders at interest rates as high as 30 per cent-35 per cent, almost twice as high as rates charged by banks, Moody’s said this has created an opportunity for digital lenders to target the unmet demand for financing among MSMEs.

Alternative lending is the second-most funded and one of the fastest-growing segments of fintechs in India. The country now has more than 300 lending start-ups, it added.

Moody’s observed that for MSMEs, digital lenders can be attractive because they can process loan applications faster than banks. Digital lenders can use identification information gathered via Aadhar and bank accounts.

Also, they use artificial intelligence, machine learning and big data to assess MSMEs’ earnings and cash flow, and build models for credit scoring that do not solely depend on formal records.

However, a focus on riskier customer segments, nascent underwriting models and a lack of customer histories can lead to larger loan losses for digital lenders than incumbent banks in the initial stages.

At the same time, fintech firms are increasingly collaborating with traditional non-banking financial companies (NBFCs) in lending to MSMEs to benefit from the latter’s loan collection channels.

Fintech sector: attracting foreign interest

Reflecting the growth potential of India’s fintech sector, it is attracting capital from global venture capital companies. In the past six years, fintech start-ups have raised about $10 billion in capital funding, the report said.

In 2019 alone, more than 200 companies raised about $3.2 billion. In addition to venture capital firms, Amazon.com Inc. and Facebook have invested in the sector, while Singapore’s DBS Bank Ltd has created a digital bank in India, says the report.

In addition, global incubators and accelerators, Startupbootcamp, Barclays Rise and Swiss Re InsurTech, have rolled out programs in India.

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