Role of emerging technologies in Banking Operations

Role of Emerging Technologies in Banking Operations Page 1
MICRO Research Paper Presentation
On
Role of Emerging Technologies in Banking Operations
By:
Prashanth Ravada
January 2020

Banking has undergone significant changes over the last few decades. Until recently, Customers
had a strong emotional connect with their banks that lasted for years. They visited their branch
regularly and in many cases, the relationship between the banker and customer went way beyond
a formal banker-client relationship. Now, over the years and with the introduction of technology,
banks have migrated their customers to alternative banking channels such as Internet, Mobile,
Telephone, and ATM. Further, with the emergence of New Digital Technologies including
Artificial Intelligence (AI), the Internet of Things (IoT), Blockchain, Open Banking Platforms
with Application Program Interfaces (APIs) and Robotic Process Automation (RPA) and
platforms, has added flavor to and had a significant impact on the financial services industry with
advanced data analytics allowing for personalized delivery of banking services being delivered
through digital channels and leaving banks with little choice, but to adopt Digital Platforms.
In last few years, the Indian banking sector has undergone a paradigm shift and has realized the
need of digital technologies and is rapidly moving to embrace digital banking. The adoption of
Core Banking Solutions (CBS) in 2002 has set the ball rolling for the incorporation of
sophisticated technological processes in the banking sector. With the coming of the digital age
after 2011, technological integration has raised a notch higher to enable a seamless customer
experience. Accordingly, Banks are making considerable investment in creating digital
infrastructure in order to offer various solutions like mobile banking, e-wallets and virtual cards,
etc. The key innovations in Digital banking are Digital-Wallets /Virtual Banking, Biometric
Technology, Artificial Intelligence, Blockchain Technology, Robotics to mention few with the
potential to increase efficiency, decrease costs and enhance customer experience.

Digital Transformation, as a means of integration of digitalization into every area of banking
leading to fundamental changes in how the financial institutes operate and deliver value to their
customers. Banks which are undertaking these transformations are able to reduce costs with
streamlined processes and help provide with a more hassle-free and engaging customer
experience.
Customer Experience, Operational Process and Business Models are the key pillars on which
banks has based its digital transformation plans. An increased understanding of the Customer has
helped banks design and enhances its customer experience through explore of social media and
analytics-based segmentation techniques to understand what can possibly satisfy the customer.
With increased understanding about the target segment, these are utilizing the marketing budgets
more effectively to promote their brand and thus able to sustain increased topline revenues.
Customer contact points are major factors that influenced Customer Satisfaction. To a great
extent, banks have been able to optimize their channels and deliver superior service via digital
and new self –service channels. While transformation in customer experience is most easily
visible, an otherwise sound transformation plan could fall in the absence of a strong Business and
Operating Model.
Technology has often been seen as a necessary evil of doing business. With the add of
“Digital” Technology offerings in place, it’s now being a potential tool, for to consider wide
range of business strategic objectives to be achieved as easily as priorities change.
“Digital” enhances the value of Banking.

Recent Trends in Banking: There are several trends making a strong impact on the digital
banking space. Some of these trends are relatively mature, whereas a few recent developments
still have fairly low penetration or usage among banks.
Trends Recent Trends in Banking: All Roads Lead to Digital
Mobile Banking
In emerging markets such as China and India, the penetration of mobile
banking is stronger as compared to developed markets. Most banks today
offer mobile banking, ranging from basic mobile applications to more
sophisticated apps comprised of unique value added services and features
- such as social media integration and augmented reality.
Social Media
New disruptive technologies are now being used by banks to integrate
social media into banking services, ranging from payments, transfers to
even utilizing it for calculating credit scores and lending decisions.
Biometrics
Banks are now increasingly using voice biometrics, facial recognition,
vein recognition, finger-print scanning and iris scans as authentication
tools to enhance security platforms and address identity theft-related
challenges. Biometrics is considered a serious contender to replace
passwords in the future.
Cloud
The use of cloud to process banking transactions is expected to attain a
80% global market share by 2020 with offer of huge advantages in terms
of cost and scalability. Banks can offer an enhanced customer experience
by leveraging cloud computing tools and integrating cloud with their
digital offerings.
Personal Finance
Mgmt.
Personal financial management applications have evolved from basic
tools to more advanced and automated platforms that leverage big data,
analytics, behavioral research and other technologies to automate and
digitize personal financial management. Banks are offering these value-
added services to enhance engagement levels with customers.
Contextual
Banking
Contextual Banking / Omni-channel banking that provides a consistent
banking experience to customers across multiple channels is becoming
key to success. It is a world of seamless banking where financial offers
come to the customers at the place and time of need. In addition to
allowing banks to offer regular promotions, Contextual offers present the
opportunity to strengthen Customer relationships through cross selling.

Digital Wallet
Digital wallet is a mature digital banking technology, with strong usage
and penetration among customers. Wallets are frequently used to conduct
small transactions by customers across the globe. The market is expected
to grow 70% on a CAGR basis in the next 5 years.
P2P Lending &
Payments
P2P and other alternative digital lending platforms have garnered
attention in the last several years, due to an increased volume of funding
and owing to shorter turnaround times in loan disbursal, innovative credit
appraisal methods and improved lending rates.
Blockchain
Blockchain, or distributed ledger technology, is expected to transform the
entire financial services space - be it back-end banking operations, trade
finance and lending, payments or insurance. This technology uses
cryptography and a formidable protocol for recording transactions to
achieve a level of security that establishes trust among participants.
Wearable’s
Wearables are being evaluated by banks as a new interaction and
authentication medium. With increasing penetration among consumers,
wearables are poised to become a mainstream digital banking application.
Banks in India are developing and deploying ‘software robotics’ that emulate human actions
to automate and perform repetitive and high volume tasks, to save on time and human errors.
Such automation is foreseen to be effecting significant improvements by reducing response
time and increasing accuracy and productivity.
Robots with the ability to respond to queries across various
relevant subjects have slowly stated featuring in select bank
branches on experimental basis. The realization of such high
levels of automation marks a significant stride in productive
transformation in the offing.

Role of Emerging Technologies and Present day Applications, in Banking Operations and
Compliance.
# 1.Natural Language Processing (NLP) for KYC verification
Banks can also monitor customers for KYC compliance requirements by using NLP and can
even apply it to customer interactions to analyze and identify policy deviations, if any.
# 2. Blockchain Integration: Crypto currency frenzy over the past two years is how most people
got introduced to the Blockchain. Aside from using crypto currencies for private and fast online
transactions, Blockchain provides a transparent, secure, immutable and reliable ledger to
document contracts, transactions, money transfers and record keeping. It creates a clear and
tamper-proof digital ‘paper’ trail, the technology that helps wipe out the need for a physical one.
It serves as a kind of decentralized digital ledger, subsequently reducing the price of processing
transactions drastically. Innovations such as Blockchain Bonds, blockchain clearing, and
settlement systems have already been used to make intra-bank and inter-bank transactions
cheaper and faster with saving the bank billions in transaction costs as well as reducing the
number of inefficiencies in the system.
Present day application in Financial Institutions comprising of
Monetary Transactions Data Transactions Digital Assets Data Exchange
1. Digital Payments 1. KYC 1. Smart Contracts 1. Healthcare
2. Micro Payments 2. Voting 2. Smart Property 2. Government
3. Remittance 3. Cloud Storage 3. P2P Lending 3. Energy
(NLP) is a subfield of Linguistics, Computer Science,
Information Engineering, and Artificial Intelligence
concerned with the interactions between computers
and human (natural) languages, in particular how to
program computers to process and analyze large
amounts of natural language data. Usage of NLP is
envisaged to process legislations as well compliance
requirements and then compare them with internal
policy requirements to appraise banks and FIs of any
changes to legislations.

# 3. Augmented Reality and Virtual Reality (AR-VR) to promoting Financial Inclusion and
Support Training Needs.
The benefits of face-to-face interaction are already being incorporated into Augmented Reality
and Virtual Reality solutions there by enabled face-to-face communication be done on a mobile
phone, home computer, or television set etc..and hence, the need for banks/ financial institutions
to continue to support a massive brick-and-mortar presence could be drastically reduced in
Urban & Semi Urban Geographies dominated by (Gen X & Y) populations and there by promote
Virtual Bank Branches and aid for promote of Financial Inclusion in Semi Urban, Rural and
Remote Areas at lower costs.
With AR, the users can feel an interactive and an engaging experience by computer generated
images, sound and data, Consumer banking as an absolute personal experience. The solutions
based on AR not only improve customer services from the core but also transform the overall
experiences of the customers. Augmented Reality also facilitates in decision making and data
visualization by reducing paper work along with AI-driven chat bots with voice recognition
features been able to support most banking queries, with 24/7/365 access benefits afforded the
consumer and significant cost savings being the driving force for the banking industry.
Banks can use a VR experience to train their employees (simulations, role plays, etc.) on
compliance norms. In this context, Bank of Kuwait leveraged VR to train its employees on
‘branch of the future’ requirements.

tolerance and disaster recover. One can easily avail pay-as-you-go pricing by paying the cloud
provider as per the usage, making it easy for individual customers or businesses to use the cloud.
In the banking industry, cloud computing is used in promoting safe online payments, digital
money transfers, wallets, etc.
# 5. Big Data Analytics (BD) for Superior Risk Reporting and Asset Management: In
addition to traditional financial data collection, new data sources such as mobile banking and the
Internet of Things (IoT) provided an additional layer of data gathering. Combined with Artificial
Intelligence, BD analytics utilize large amounts of old and new data (structured and unstructured
data) to discover hidden patterns for better risk management and fraud detection. New insights
from big data improved the understanding of customer behaviors and helping banks to create
better and more customized products and services. This technology has undoubtedly put all the
banking data i.e. debit/credit card transactions, ATM withdrawals, money transfer, etc. to make
informed and take real time business decisions and process it effectively to gain valuable
information that is needed to stay competitive in the future.
Example: Axis Bank, India’s third-largest private sector bank has implemented SAS Analytics
(Statistical Analysis System) a Business Intelligence tool that facilitates analyses, reporting, data
mining, and predictive modeling with the help of powerful visualizations and interactive
dashboards had made substantial progress in terms of returning big business value to the
organization.
# 4. Cloud Computing: One of the fastest growing technologies
and latest trend of the banking industry that has made 24/7
Customer Service possible providing any time service to
Customers. This further enhanced the performance of financial
institutions and scale-up services more quickly and thereby
helping Customers pay only for the services they need as well
enabling banks to control costs with gain of higher level of data
protection, fault

Example: AI-based start-up optimizing the loan collection process for FS lenders. An
innovative startup has automated the loan collection process by using AI to modulate the
communication of lenders with their borrowers. By using an AI-powered decision engine, it has
automated the loan collection process, making it easy, hassle-free and cost-effective for lenders.
This system closely monitors customers’ profiles and analyses their past transaction behavior to
send customized email and SMS communication on payments due to borrowers at specific time
intervals to boost chances of repayment. Personalized modulated content-based communication
holds the potential to improve the performance of lenders’ asset books and reduce borrowers’
defaults.
Building sophisticated Early Warning Systems (EWS) for NPA prevention and developing
‘smart collections’ strategies to optimize loan recoveries
AI helps banks to analyze their Big Data to improve existing solutions and make better decisions.
A more recent AI trend is to use its cognitive abilities to go through a large amount of
unstructured text and data to generate more insights and to learn natural language. A more
intelligent AI chatbot or virtual assistant can take over repetitive “low-value” operations, such as
performing small amount transactions, explaining financial products and providing basic
# 7. Machine Learning (ML) is a subset of Artificial Intelligence (AI) that allows computers to
“learn” from data without explicit programming from humans. In financial services, it can
transform business processes related to customer service, personal finance, fraud and risk
management. Today, machine learning has come to play an integral role in many phases of the
financial ecosystem, from approving loans, credit scores, to managing assets, to assessing risks.
# 6. Artificial Intelligence (AI) helps banks to analyze
their Big Data to improve existing solutions and make
better decisions. A more recent AI trend is to use its
cognitive abilities to go through a large amount of
unstructured text and data to generate more insights and
to learn natural language. A more intelligent AI Chabot
or virtual assistant can take over repetitive “low-value”
operations, such as performing small amount
transactions, explaining financial products and providing
basic financial advice to customers and there by removes
all human errors and doubles the efficiency, speed and
accuracy thereby enhancing customer experience and
promotes customer retention.

financial advice to customers and there by removes all human errors and doubles the efficiency,
speed and accuracy. The amalgamation of banking with AI can give customer experience an
unimaginable twist that can bring a lot of customer satisfaction and retention.
Banks have started using AI-powered EWS systems to help predict potential delinquencies at an
early stage and proactively manage credit risk exposures. By using advanced analytics to mine
both external and internal sources of information on borrowers with a focus on lead indicators as
opposed to lag indicators, borrowers’ propensity to default could be predicted, and proactive
measures could be taken to address it. In addition, EWS systems could facilitate real-time
sharing of this information via interactive dashboards, intelligence reports, etc., to key internal
stakeholders for taking the required curative steps to prevent asset slippages to NPAs. Advanced
analytics is playing a key role not only in NPA prediction, but also in optimization of other
downstream value chain activities, such as borrowers’ collections and delinquency resolution. AI
based ‘smart collections’ strategies are being adopted to suggest tailored actions to recovery
agents to optimize recovery of defaulted amounts.
Market regulators are leveraging advanced technologies for AML/CFT and fraud detection
Example: The Monetary Authority of Singapore (MAS) is exploring the usage of ML
techniques to identify higher risk transactions from the ‘suspicious transactions’ filings by the
regulated entities. Due to the defensive nature of these filings, investigation of suspicious
transactions is fraught with numerous false positives, leading to huge delays. By using ML
techniques, market regulators can identify only those transactions that merit additional scrutiny,
and uncover complex patterns related to money laundering, thus both saving time and improving
the accuracy of AML/CFT detection.

# 8. Regulatory Technology (RegTech)
# 9. Biometric Technologies: Often seen as scientific authentication method that provides an
additional layer of security to digital banking customers, as they use physically unique features
of an individual, including fingerprints, face, voice, retina, and other forms of recognition to
enhance security and identity verification. With more smart devices equipped with better sensors,
banks are able to safeguard their users, prevent cyber crimes, and identity theft better than ever.
Example:
 UIDAI (Unique Identification Authority of India) uses fingerprints / iris as one of the
means to issue AADHAAR numbers.
 Kotak Mahindra Bank’s, 811 Zero Balance Digital Savings a/c can be opened instantly
with the help of AADHAAR and Pan Card though online mode.
# 10. Application Programming Interface (APIs): Through open APIs, banks give not only
users but also partners more transparency and access to banking data and encourage the creation
of new value chains and services. Baking-as-a-Platform (BaaP), seen as the next Open API
model, allows banks to provide curated third-party different financial services and products to
customers. It allows banks to retain control of customer data and ensure the quality of services
provided on their platform.
Example: Axis Bank being a pioneer in the adoption of Unified Payments Interface (UPI) offers
standard APIs with a robust network and disaster recovery management. Had tailor made
multiple products to scatter different merchants needs comprising QR Code based payments with
partners include - Google, Razor Pay, Pay U, etc. SDK- In app Integration, a software
development kit provided by the Bank to the merchant to be integrated with the merchant’s app.
All P2P and P2M functionalities such as – Fund transfers, Account and UPI ID registration, QR
code generation, QR code scanning, Intent and other NPCI compliances – are available in this kit
with partners include – Uber, Amazon, etc.
RegTech is one of the fastest areas of growth in
global technology, working to improve the way
compliance is managed. Most RegTechs are
services and tools using Big Data and Cloud
Computing to enhance a company’s ability to
monitor report and comply with regulatory
requirements. These startups use AI and
predictive analytics to automate compliance
tasks, reduce risk fraud, perfect authentication
and identity management. As global banking
regulations become ever complex, RegTechs
help banks to increase transparency and
consistency, while lowering the cost of
compliance.

# 11. Robotic Process Automation (RPA) for Operational efficiencies combines Robotic
Automation with AI to automate human activities for banking. This includes Data Entry,
Customer Service, KYC process, Accounts Payable, Loan Processing, Fraud detection, General
Ledger Reporting, Deposits, Underwriter Support etc., there by revolutionized the banking
industry by enabling them to complete back-end tasks more accurately and efficiently without
completely overhauling existing operating systems and thereby giving employees sufficient time
to spend more on complex tasks, while artificial intelligence technology handles back-end
operations with overall impact of improved operating costs and error rate.
Key Benefits of RPA
Example: Axis Bank and ICICI has implemented RPA and Cognitive technologies to reduce
operational costs and lower response time to customer queries and both banks reported reduction
in response time by about 60%, with a 100% improvement in accuracy.

Combination of Emerging Technologies to add greater value to Banking Institutions
Key Performance
Indicator
Combination Enhanced Value Proposition
Reduced cost and
agile process
Blockchain +
AI
Blockchain can help enhance core banking by elimination
the need to manage multiple databases and reconciliation
structures, hence reducing IT infrastructure cost. The
entire process could be automated and smoothly integrated
with other application using AI
Security
Biometic +
Robotics
Biometric can help secure highly confidential environment
with stringent access controls further secured with
robotics so as to mitigate chances of human error
Customer
experience
AI +
Biometrics
While AI can help analysis customer data better, leading
to targeted marketing and customized product offering at
the bank's end, biometrics can help save time during
authentication and hence, provide a pleasant experience at
the customer's end.
Transparency
Blockchain +
Biometrics
Blockchain allows distribution, verification and record
keeping of transaction information, efficiently and
effectively. Couple with biometrics for customer
authentication, the entire transaction journey could be
made fraud proof, it can also help address AML issues.
Innovation
Innovation
Centre +
Blockchain
Various cases of Blockchain in areas of payments,
settlement of currencies, different types of transactions,
AML,KYC, regulatory reporting etc. are already being
tested in innovation centers set up by financial institutions,
hence helping them explore new opportunities that
blockchain technology has to offer.

Summary
The impact of new digital technologies is being felt across the entire banking value chain,
impacting the competitive structure and the ways people bank. More than ever, the transaction-
based component of banking is being commoditized, with differentiation achieved through the
personalized experiences provided by the Customer.
While the cost structure of delivery will need to be minimized, winners will be those firms that
can bring together the new digital technologies in a way similar to what Customers experience
from non-financial firms. This will become increasingly important as the financial needs of
digital generation expand with age.
With the introduction of new technologies, the face of the banking industry has changed
tremendously over the years. Now, the banking process is much faster than ever before and more
reliable with the emerging technologies. The customer relationship with banks has not only
improved, but the number of the customer base has also increased because of the benefits it is
extending. While banks deal with rising demands, increasing flexibility needs, new
demographics, etc., technologies come into action to deliver efficient customer experiences.
Organizational culture around innovation and change will determine the leaders, with the
Customer being the ultimate winner. In the end, the banking ecosystem will most likely expand
significantly to include both traditional and non-traditional financial services. This expansion
will lead to greater competition (and cooperation) between existing and new players.
Despite the shift to digital technologies, a
human touch will still be highly desirable for
both Customers, Banks and Financial
Institutions. Its opined that, “A well-thought-
out framework will be necessary to determine
the right balance between Human and
Machine Intelligence,” as opposed to an
overnight change in the way people do their
banking, the channels organizations deliver
financial solutions, and the organizations that
are competing for business, there will be
incremental changes based on the investment
required and value received.

 IBS Intelligence, Intelligent Operations in the Banking Industry,
https://www.gieom.com/wp-content/uploads/2018/12/Whitepaper_Gieom-Intelligence-
Operations-in-Banking.pdf
 Banking Tech, Convergence of RPA and AI: the changing landscape in banking
compliance,https://www.bankingtech.com/2018/05/convergence-of-rpa-and-ai-the-
changing-landscape-in-banking-compliance/
 Financial Inclusion: Challenges and Opportunities (Remarks by Dr. D.Subbarao,
Governor, Reserve Bank of India at the Bankers’ Club in Kolkata on December 9, 2009)
 The Financial Stability Board (FSB), Artificial intelligence and machine learning in
financial services report, 2017
 https://www.nielsen.com/in/en/press-room/2018/average-indian-smartphone-user-spends-
4x-time-on-online-activities-as-compared-to-offline-activities.html
 https://letstalkpayments.com/wp-content/uploads/2015/07/Blockchain-Usecases-and-
Startups.png
Web sites
 https://home.kpmg
 www.pwc.in
 www.infosys.com
 www2.deloitte.com
 www.axisbank.com
 www.icicibank.com
 www.forbesindia.com
 www.robosoftin.com
 www.capital-banking.com
 www.biometricupdate.com
 www.infosecurity-magazine.com
 www.genpact.com
 www.banktech.com
 www.biometrics.gov
 General Websearch
References

Role of emerging technologies in Banking Operations

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