While the country’s BFSI sector is finally transforming smoothly, the majority of unbanked rural villages still need a big technological nudge.

The Banking, Financial Services and Insurance (BFSI) sector in India is gradually shedding its hesitation towards digitalization—a far cry from its earlier days of caution over progress when technology adoption was taking place worldwide.

To get an idea of how this delayed transformation is taking shape, and also understand the remaining hurdles that need to be overcome, DigiconAsia interviewed one of the leading digital transformation figures in the country, who has been tracking IoT and AI trends extensively.

Jaya Vaidhyanathan is the Chief Executive Officer of BCT Digital, a global technology company specializing in digital transformation, predictive analytics and IoT. Armed with her domain expertise and clear understanding of India’s BFSI industry, Vaidhyanathan shares her insider viewpoints here.

DigiconAsia: The Indian BFSI sector has finally started digital transformation. Could you tell us about the latest advancements in the domain?

Jaya Vaidhyanathan, Chief Executive Officer, BCT Digital

Jaya Vaidhyanathan (JV): Technology enablement has been a huge part of this evolution. The pandemic has certainly accelerated the pace. India ranks first globally in real-time payments, with 30 billion transactions (amounting to over INR 3 lakh billion) just the last year.

  • We have chatbots fueled by cognitive technologies helping customers who are unable to physically visit the bank. These bots are far more intelligent, advanced and responsive than they were before.
  • Banks that are functioning at a fraction of their employee strength due to pandemic restrictions are increasingly opting for robotic process automation to improve the efficiency of their repetitive, transactional processes.
  • Indian financial institutions are shedding their earlier hesitancy towards cloud adoption and are actively pursuing cloud infrastructure to keep operations resilient, while optimizing cost-to-income ratio.
  • Any security concerns related to digitalization, particularly cloud solutions, are being addressed by an increasing focus on state-of-the-art cybersecurity and risk management solutions.
  • In the face of consumerization, banking is becoming easier and more customer-friendly for end-users. A case in point would be the new-found interest in voice authentication, instead of the conventional OTP/password combination.
  • AI, ML and predictive analytics are being used to not just substitute humans, but also move into the realm beyond human cognizance.
  • Blockchain technology is being used for Know-Your-Customer (KYC) operations.
  • Augmented Reality (AR) will soon mimic the customer experience of a physical branch visit.

We have yet to realize the potential of massive advances in API banking platforms, deep neural learning networks and quantum computing, which will shape the future of banking.

DigiconAsia: Despite government initiatives in recent times millions of Indian citizens are still unbanked and underbanked. How can technology be utilized to boost financial inclusion?

JV: In a country like India, financial inclusion remains a major challenge. It appears that only about 5% of our 6 lakh villages have bank branches, leaving a chunk of the population unbanked. A combination of factors has stunted the penetration of banking services among India’s underserved.

  • Lack of access: Apart from the inaccessibility of banks, for India’s rural poor, adequate and affordable access to internet services remains unattainable. With the advent of economical high-speed 4G services, things have improved, and with the emergence of 5G, we expect a total transformation. The Digital India initiative of providing broadband internet access to 250,000 villages should be the right step in this direction, along with digital skilling.
  • Lack of data: This has been a chicken-and-egg problem. People do not have bank accounts, which is why they do not have past transactional data. This, in turn, is the reason why banks have been unable to offer them banking facilities. With added impetus from the government, the availability of data for pattern analysis and path-breaking fintech innovations, this scenario is gradually changing for the better
  • Lack of infrastructure: Provision of digital lockers to enable storing of original documents and records at the grassroots level and payment banks will go a long way towards financial inclusion.

DigiconAsia: Can you cite some technologies and use cases that can boost financial inclusion, especially for micro, small and medium enterprises in India?

JV: India’s fintech sector, in combination with a positive stimulus from the government, has been making strides in ensuring India’s underserved have access to a structured and disciplined financial system. The JAM Yojana (Jan Dhan-Aadhaar-Mobile trinity) by the government is noteworthy in this regard. Another example is the video KYC initiative that has made account opening a fully-digital activity, revolutionizing the road to financial inclusion while delivering cost efficiencies.

Numerous fintech players and non-banking financial companies (NBFCs), including FINO PayTech, CreditAccess Grameen, and Bandhan Bank, which focus on financial inclusion in a profitable manner, deserve mention. Through their efforts, individuals, MSMEs and sole proprietorships that previously relied on unorganized money lenders and their usurious interest rates can now apply for express loans that are approved within an hour. Further enhancements in the form of special loans and moratoriums to mitigate pandemic-induced stress on borrowers have further strengthened the equation.

Fintech innovations, like mobile wallets, which have integrated off-the-grid customers and vendors, are also making a splash. The fact that people can now use the latest technology unified payment interfaces (UPIs) for day-to-day financial transactions is a big achievement.

With fintech technologies also eyeing the previously unmet needs of the underprivileged sector (e.g., micro loans and remittances), we are seeing stronger results than ever.

DigiconAsia: What kind of digital transformation efforts are needed to make India a cashless economy in the near future?

JV: Unbanked and underserved customers exist primarily due to mismatches in the supply and demand of financial services. The supply side of the chain needs more novel initiatives from fintech players and the government, to drum up the momentum and drive adoption. The push for this is getting stronger every day.

One step in the right direction that comes to mind is the Reserve Bank of India’s recent recommendation to allow large NBFCs to be eligible to become banks. I see great potential in this move; it could even encourage large businesses to penetrate the masses using their vast channel networks. 

The positive effects of these advancements have spilled to the demand side as well. Fintech has fueled easy banking trends, by marrying advanced technologies like AI/ML to the consumer psyche. This has been instrumental in dispelling deep-rooted myths, distrust and hesitancy around banking adoption.

Two extremely intuitive examples of the pull factor involve the use of virtual reality/gamification to educate the masses on financial awareness, and the use of technology to deliver on-the-spot support to those who need it, such as talking ATMs and robots guiding senior citizens in branches.

DigiconAsia: How does one effectively employ technology for risk and fraud detection, besides regulatory compliance?

JV: With increasing BFSI digitalization, the risk of fraud is on the rise. But the explosion of digital data also becomes a wonderful opportunity to mitigate risk. For example, the data gathered from corporate and retail borrowers could facilitate robust and secure lending. This data, when used in conjunction with AI, can help bankers to model diverse scenarios and predict outcomes accurately.

Vehicle loans, for instance, are now much more secure for lenders, as GPS and toll data can be used to track assets in real time. Credit monitoring is another area where having access to big data and individual data can help. In conventional banking, applicants with no past credit history were denied loans. Today, AI promotes informed and smart lending practices through data extracted from various touch points, like the applicants’ utility bill payment history and spending habits traceable through card activity and social media.  These technologies can prove to be highly effective for banks to mitigate risks and fortify their decision-making processes, all the while ushering in next-generation banking experiences that benefit customers.