As fintech disrupts the banking industry, Indian lenders have been quick to embrace new ideas
In July, the Reserve Bank of India (RBI) set up an inter-regulatory working group to study issues relating to financial technology (fintech) and digital banking in the country. The aim is to understand major fintech innovations and developments and how the markets—the financial sector in particular—are adopting new delivery channels, products and technologies.
The initiative comes in the backdrop of various Indian banks testing out newer technologies in both the corporate and retail banking space, either independently or with the help of fintech companies.
Here are five major technologies that banks have either launched, or in various testing stages, and are likely to disrupt how banking is done:
Blockchain is a digital ledger software code. Essentially, it’s a record keeping technology, but the difference is that the recording happens on consensus, which is built into the system itself. Since blockchain is a decentralised ledger, all system members can access stored information. Though the blockchain technology emerged from cryptocurrency, Bitcoin, it is not restricted to bitcoins or even to the financial sector. Consulting firm PwC estimates that around 700 companies are exploring the use of blockchain, of which 150 are in the fintech space and 25 likely to emerge as leaders.
Globally, banks such as UBS AG, ABN AMRO Bank NV and Deutsche Bank AG are trying to find ways to use blockchain technology in daily banking. In India, Axis Bank Ltd, ICICI Bank Ltd and Kotak Mahindra Bank Ltd are also looking at blockchain technology. Banks see a possibility to use blockchain technology in trade finance and remittance space.
“We see a possibility to use blockchain for cross-border remittance and funds transfer in banking. We are right now in the testing phase,” said Deepak Sharma, chief digital officer, Kotak Mahindra Bank. However, blockchain-based applications can’t work in isolation and require a network to come together.
In the artificial intelligence (AI) space, chatbots seem to have more takers when it comes to banking. Chatbots are computer programs that can imitate conversation with people using artificial intelligence. “A few examples where artificial intelligence can be used are for authentication, access, security, interpersonal recognition, virtual personal teller assistants and smart advisors,” said Rajiv Anand, executive director, Axis Bank. For instance, questions like ‘How much balance is there in my account?’, ‘How to load money from a wallet?’ or ‘How to change my address?’ can be answered with the help of a chatbot. Banks such as HDFC Bank Ltd and Kotak Mahindra Bank are looking to introduce chatbot-based technology into customer service. In April this year, DBS Bank Ltd launched a banking app in India with in-built artificial intelligence. Currently, fintech companies such as niki.ai are also developing AI-based chatbot apps and working as an enabler for the banks.
Financial institutions are considered one of the most vulnerable to cyber-attacks, especially with increasing digitisation. Since securing an account with a powerful authentication tool is one of the important steps, banks globally are working on technologies capable of using a customer’s unique characteristics for identity authentication. Banks and financial institutions across the globe are experimenting with biometrics for security and authentication purposes. For instance, vein authentication in Japan and monitoring of heartbeats in Canada has been tested for identification purposes to allow banking transactions.
Currently, some Indian banks are using fingerprint recognition, voice recognition and iris recognition for identification purposes. Large commercial banks such as ICICI Bank, HDFC Bank and Kotak Mahindra Bank are right now in the testing phase. Smaller banks such as DCB Bank Ltd have already launched fingerprint-based ATM cash withdrawal using the Aadhaar enabled platform.
Open application programming interfaces (APIs), too, are gaining traction in banking. Open API basically allows data to be accessible for use to larger institutions. The government has mandated an open API policy for five programmes: Aadhaar, e-KYC, e-Sign, proposed privacy-protected data sharing and the Unified Payments Interface (UPI). Many commercial banks are in various stages of using Aadhaar and e-KYC and offering products linked to it to their customers. For instance, Aadhaar-enabled biometric authentication is being used to open bank accounts.
UPI, the most ambitious project of the National Payments Corp. of India (NPCI), is now available for transaction. Since the system uses a single identifier, it eliminates the need to exchange sensitive information such as bank account numbers during a financial transaction. The objective of a unified system is to offer architecture and a set of standard APIs to facilitate the next generation online immediate payments.
In the last couple of years, the payments and transaction space has been changing with banks and e-wallet companies focusing on newer technologies. Banks are increasingly adopting technologies that can make transactions easier. Some of the major payment options that banks are betting on include virtual cards, sound waves, quick response (QR) codes and near field communication (NFC).
Virtual cards are cards that are saved in your mobile phone—you don’t need to carry a physical card. Axis Bank is looking to roll out these products soon. Banks are also testing the technology of using sound waves from the phone. To complete a transaction, the sound wave generates digital information, which is carried to another phone. It is similar to sending a picture or video using Bluetooth, except that you can’t make a monetary transaction. NFC-enabled cards allow you to transact without having to insert or swipe a card. You just have to wave your card near the terminal and the payment is made. Another technology is QR code. It is a machine-readable code, in a black and white matrix and can be read by a smartphone. Using this QR code, you can make the payment.
All these technologies are still work in progress for the banking sector. According to a June Credit Suisse report onDigital banking in India, while India may follow other developed markets in terms of impact from digital payments, there are many outcomes which could be unique to India, such as cost of transactions coming down to zero. The best customer interfaces (read apps) could own the customer.