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 technology
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.
Artificial intelligence
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.
Biometrics
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 API
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.
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.
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