Digital Transformation Trends Transforming the BFSI Industry in 2022
Over the last couple of years, digital technologies have been transforming the BFSI industry globally. Banking, Insurance, and Financial Services enterprises have leveraged virtual platforms to reach and engage a wider set of customers on a comprehensive aspect. The challenge that BFSI enterprises have been facing is substantial as they are functioning in a competitive environment where there is a surge in the number of new players, an increase in cost pressures, and where quick action and response have become the need of the hour. This has compelled enterprises to modernize their technology function to brace digitization of their business’s front and back ends. Additionally, the pandemic has been putting enormous pressure on technology capabilities which necessitates the enterprises to foresee and arm themselves for the next normal through an augmented shift to virtual channels.
Here’s a look at the technology trends in Banking and Financial Services in 2022:
Most banks are moving towards cloud-based banking. This is because it brings scalability, security, and resilience making it easier to meet customer demands. IDC’s latest report reveals that Indian banks are projected to spend over US$1 billion by 2025 on public cloud initiatives. Although multi-cloud, wherein more than one cloud service provider is used and hybrid cloud, wherein a mix of public and private cloud services are used, both of these are well understood and being implemented in the financial sector. Cloud services are cheaper to implement the project based on other technologies like blockchain, AI, etc. In addition, many organizations also make use of cloud services to meet their environmental and social governance commitments.
Artificial Intelligence and Machine Learning
AI and ML have been at the top trends in digital adoption in many industries because they serve important purposes.AI helps with external fraud detection. Trained AI applications can identify patterns and implement measures to eliminate fraud. For eg, AI systems can detect activities related to the opening of fraudulent bank accounts or execution of a fake transaction. It can also help monitor internal threats resulting in the prevention of data theft and abuse. AI also helps with determining the creditworthiness of clients. AI and ML can automate the banking processes and facilitate better customer services as well.
Robotic Process Automation
With Robotic Process Automation (RPA), the banking and financial services industry is demanding the use of intelligent automation to drive efficiency, remove repetitions, and improve customer satisfaction by providing fast and efficient services. RPA mimics human actions to extract more data and navigate digital systems, and this level of automation is invaluable to the BFSI sector as it automates workflow, reduces errors and speeds up digital transformation. RPA has diverse functions and can streamline customer service and operations, across various industries, from end to end. According to a recent report, RPA could preserve financial associations as much as 75% in cost savings.
The financial sector is using data analytics to provide customers with more personalized products. Customers are willing to share their data as long as they see some value from it. As we move forward, banks must be cautious of what data they ask from their customers and also safeguard it properly. With help of data analytics companies can identify patterns that help to identify untapped sales and cross-sell opportunities, or even metrics around operational data, which leads to direct revenue impact.
Blockchains are basically databases that are distributed with no one person having overall control. There are also encrypted and governed by consensus. These characteristics make blockchain greatly disruptive e in the financial sector. Financial services have been piloting blockchain projects for some time now with some projects being in general use. Some banks have used blockchain to settle foreign exchange trades. Some banks also allow transactions based on cryptocurrencies. Blockchain was initially limited to cryptocurrencies and digital money. In 2022, we can expect to see more innovative use of this technology.
Most of us prefer making payments using our mobile devices these days rather than using credit/debit cards. There are over six billion mobile phones in the world today, and of the world’s 1.7 billion unbanked citizens, 66% own mobile phones. Naturally, mobile devices are a key target for banking and financial services organizations. It is also cheaper for the banks to provide services through mobile rather than going for brick-and-mortar branches. Also, mobile banking provides financial institutions with an always-on connection providing them with a wealth of customer data to understand their behavior and target them with related products.
There is a rise in financial services being offered by nonbanking firms. A large number of organizations like tech giants and logistic firms are embedding a lot of banking and financial services in their product offerings. Customers are more interested in getting rewards and discounts through them. They are not fixed on sticking with traditional banks. In fact, 27% of global consumers use neo banks, and 40% report using financial apps outside of their primary banking app. Many leading retailers have integrated Buy Now Pay Later payment options on their platforms. These are particularly attractive to customers.
Including chatbots provides a very high ROI. A chatbot can play an important role in improving prompt customer service. Through chatbots, customers can make balance inquiries, access mini statements, do fund transfers, etc. Voice-based transactions are becoming more popular with customers hence more and more banks are offering services on a voice interface. Four minutes per transaction is being saved by making use of financial chatbots. Chatbots also afford banks to receive customer feedback easily.
These trends are reshaping financial services. Even Fintech startups are able to compete with larger organizations because of the level-field created by the adoption of these digital trends. There lies a massive potential for banks to fill gaps to meet their customer expectation. Organizations need to keep pace with these trends and lay the foundation for their next generation of customers as well as the future of their business.