Business Today

Plugging Into The Future

Banks are joining hands with fintech companies to provide new services to customers.
twitter-logoAnand Adhikari | Print Edition: June 17, 2018
Plugging Into The Future

The banking industry that has all along been straightjacketed in its deposit and loan processes is now boldly trying out financial technology or fintech companies for innovative solutions. Whether by choice or threat of its own existence in the new emerging banking landscape, banks are racing ahead to allow third-party developers, fintech and technology companies to connect with them. The solutions include artificial intelligence, machine learning, software robotics, natural language processing, fraud prevention and HR solutions among others. Big private banks are taking a lead, while public sector banks (PSBs) with the possible exception of State Bank of India and Bank of Baroda are still laggards.

Hundreds of fintechs in the value-added space (VAS) have partnerships with banks to improve their analytic capabilities, improve operational efficiencies, target new customers, improve credit standards and speed up decision-making. This saves banks from making huge capital investments in new technologies and converts the capex model to an opex model. In a digital world, there are newer areas emerging where fintechs can add value for banks. A recent McKinsey report - Asia's Digital Banking Race - summed up areas where traditional banks have to match steps in the fast changing digital space. It says, "Incumbent banks will have to scale up capabilities in four areas - digital marketing for customer acquisition and engagement, value generation through digitally active customers, judicious use of customer data to provide a differentiated proposition and embedding banking in customers daily lives for seamless transactions."

To take advantage of breakthrough technologies, banks have to open up systems. Today large private banks are not very comfortable in allowing fintechs access to their customer database. Similarly, most PSBs have to switch to API (application program interface) banking to allowing plugging in by fintechs to their core banking system. Many PSBs are not prepared to take the digital plunge. Most senior managements in PSBs have been associated with the legacy side of things and are not comfortable in opening up systems.

The biggest fear relates to security thanks to a spate of cyber attacks globally where billions of dollars have been withdrawn. The Nirav Modi fraud shows how systems within a bank are not connected with core banking or lack of reconciliation. The other issue relates to privacy. The bank data of any customer is very sensitive. Any breach of customer data has reputational risk for banks. However, banks have to build firewalls to address security and privacy issues even as they expand their digital network with hundreds of fintech companies. That's the future.


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