Only a handful no. of industries have had the long history and stability which the financial services industry has enjoyed. Financial Institutions (FIs) depend on the deep-rooted trust of their customers. However, in recent times, it has become more & more imperative for this sector to evolve with changing times, in order to remain relevant. The industry has been in the process of letting go of some of its traditional methods and looking at new and innovative ways to make life easier for customers, and in turn, survive. FIs are figuring out how they can be prepared for the new ways of the world. A digital transformation is no longer an option, but a necessity.
We have started seeing progress on some fronts. A lot still remains to be done. Some key areas where investments are deemed to bring in fruitful results include:
Offering best-in-class Customer Experience by leveraging Fintechs – In order for FIs to offer instant services at low cost while increasing speed to market, traditional methods need to be challenged. Banks & other institutions will only be able to move the needle if they think outside their traditional boundary lines. Which involves leveraging Financial technology providers for various micro-services like credit scoring, KYC, payments, etc.
Personalized Digital Lending - Alternative data sets and models for enhanced underwriting are the need of the hour, which can propel FIs into offering bespoke lending products. Small ticket loans, Peer-to-Peer (P2P) or Peer-to-Business (P2B) lending models will offer investors better returns by giving their money to pre-approved and vetted borrowers, and provide impulse buy mechanisms (Buy Now Pay Later – BNPL) to enable customers to buy quickly.
These loans can typically be underwritten at 0% interest so that almost anything can be purchased outright with the option to pay in installments. How will money be made, some might ask. By sharing customer data with the original equipment manufacturer (OEMs), as they will benefit the most from the increased affordability of these devices. Combining this with
algorithms that will determine customer demographics ensures highly customized marketing offers. Sharing of customers’ data can be thought of as the interest on the loan.
“He’s the ONE” inclusive & secure model of banking - ‘Neo’banking – not to be confused with Digital banking (Digital Banks are only an online-only subsidiary of an established player). With significantly leaner business models and superior technologies at their disposal, Neobanks can provide ease and efficacy in services, such as seamless account creation, round-the-clock customer service supported by chatbots, near real-time cross-border payments, and artificial
intelligence (AI) and machine learning (ML)-enabled automated accounting, budgeting, and other services. Neobanks could be the answer to providing a financially inclusive environment to the 190mn unbanked customers in India alone.
Be OPEN and generate income from Data-as-a-Service – to provide an improved customer experience, new revenue streams, and a sustainable service model, especially for underserved markets, FIs will need to embrace open banking/open finance, enabling third-party providers to have open data access from both banks and non-banks. Through Open Banking, consumers can be offered novel banking and investment products based on far more detailed data analysis
than exists at present; fintech companies who design and build these products can see the use of their products increase, and their profit margins alongside this; even banks can benefit, because even in the most open models it is banks who still act as the gatekeepers, deciding which third parties have access to consumer data, and what they need to do to access.
Decentralize using Distributed Ledger Technology (DLT)/Blockchain - By providing a ledger that nobody administers, a blockchain could provide specific financial services — like payments or securitization — without the need for a bank. It could also help FIs establish better governance and standards around data sharing and collaboration. FI’s either have the option of embracing these technologies or be swept away, because of their ability to turn the traditional banking
industry on its head while enabling new business models.
Be Ready for Digital Money & Crypto-Assets – they are coming. Time may be running out for banks to avoid being disrupted by cryptocurrency-oriented competitors. Digital currencies are already soaking up more and more money from the traditional monetary system and directly attacking the traditional revenue streams of banks and taking business away from them. Regardless, banks actually get an opportunity to enter this field, acquire the first-mover benefit, and win the extensive edges that accompany any differentiated and profitable offering. Due to their histories in securing their clients' resources, these banks are regularly trusted. Cryptocurrencies can assist them with boosting their seriousness in the present progressively advanced business climate. The initial step is to raise their own mindfulness: to investigate how
digital forms of money can assist them with drawing in new customers and keep their current customers from moving ceaselessly."