The year 2020 threw a wrench into many plans and predictions with the sudden outbreak of COVID-19, which unsettled every human being on this planet. Digital transformation came to the rescue at such an unprecedented time. Banking, being one of the core sectors for socio-economic development, expedited adoption of digital technologies on priority as the lockdown hit.
2020: Five years’ worth of digital transformation in five months
Many public, private and even cooperative banks that cater to customers who are not digitally savvy, rushed to meet the demands of their business and customers in the new normal. Within five months, the banking industry witnessed digitalisation that it had not seen in the last five years. Fintech firms went into overdrive to support the rapid adoption of technology by financial institutions in response to the pandemic. For instance, introducing video-based KYC has made it possible to onboard customers virtually, increase customer satisfaction, retain customers and reduce acquisition costs for banks. As 2021 dawns, it will be the year when banks will start reaping the results of the digital transformation journeys started in 2020.
The rise of ‘Hybrid Banking’
The idea of ‘Neo Banks’, which are online-only banks with no physical branches, had gained traction in 2020. Neo-banks provide financial inclusivity, competitive pricing, and transparency of personal finances. In India, due to the Reserve Bank of India (RBI) not allowing a fully digital bank yet, neo-banks have been partnering with traditional banks to help them seamlessly acquire customers. Therefore, pure-play Neo banks, in the genuine sense, still do not exist. The likes of Niyo or Razorpay support traditional banks with contactless, digital services.
What we rather see taking off in 2021 is ‘Hybrid Banking’. With the pandemic, customers who preferred traditional banking have become more open to the idea of new-age banking. Modern customers, who preferred a completely digital experience, now demand better services and more products. Fintechs in 2021 will enable both traditionalists and modern customers to get the best of both worlds, whereas banks enjoy greater customer satisfaction, cost savings and higher productivity. In 2021, banks that take advantage of the efficiency, flexibility and convenience of digital banking while harvesting the benefits of personalization, relationships and in-person experience that digital self-service cannot provide, will succeed. With the new hybrid model, the key for smart banks will be to find the right balance, which can news24nationificantly increase their bottom line.
New players on the horizon
2021 will see the entry of several new players into the banking ecosystem. The recommendation by the Reserve Bank of India’s (RBI) working group on permitting corporate ownership in private banks will drive a new era in Indian banking. Aditya Birla group and Tata Sons that already have non-banking financial company (NBFC) arms bigger than many medium-sized banks will be keen to take up the opportunity. Along with larger players, the sector will also see the emergence of smaller Fintech players, offering advanced digital banking solutions. Blockchain and Artificial Intelligence (AI), which have been buzzwords for a few years now, will become mainstream. The virtual banking ecosystem will explode with hi-tech digital initiatives that new and existing players will introduce. This will spell growth for areas usually neglected by the banking operations and a huge step towards financial inclusivity.
Newer technology initiatives
Impactful initiatives such as combating loan frauds, cyber crimes, voice recognition for customers, video interactions with banks. will see a whole new horizon in 2021. New Fintech players offering AI solutions will help financial institutions move past credit scores based on credit repayment history and utilise alternate data instead. Sources of alternate data include Google reviews/ score of a business, repayment of utility bills by individuals, mobile wallets, grocery buying habits, psychometrics and more. People with no credit repayment history who are diligent with their daily financial obligations will no longer be rejected for bank loans. AI will enable smarter lending.
The transparency and security of Blockchain will benefit customers by eliminating manual processes and considerably reducing the time of transactions. The shift to blockchain will increase banks’ reach to small and medium enterprises.
Open Credit Enablement Network (OCEN), a credit protocol infrastructure that will democratise the lending ecosystem and further innovation. Account aggregators will use OCEN in their applications to mediate between lenders and marketplaces and provide credit to small and micro-enterprises, who usually find credit inaccessible.
The last word
2020 has been a year that nobody expected. It forced businesses to get out of the comfort zones, learn and evolve. 2021 is the time to implement those leanings. There’s no question that it is going to be an exciting year, one we hope will set new landmarks for the banking ecosystem.
(The writer is co-founder & CEO, Decimal Technologies)