Banking Automation To Digitalization

Sourabh Tiwari, CIO, Overseas Infrastructure AllianceDigitalisation is the process of converting analogue signal into digital format that can be understood by computer systems. In business, it means converting information into digital form. In banking, it means having customer related information, request, processing and related movement of data digitally rather than manual paper based stock and flow. Digital bank varies from aggregate of apps and tablets, a paperless bank to a bank with all processes and products digitised, five essential features are designed and created upon a digital core infrastructure, created outreach through physical and digital access, geared to digital with human contacts through network, innate knowledge of the customer with data aggregated across access points, digital being considered as a culture rather than as a project. Digitalisation is the application of technology to ensure seamless end to end processing of banking transactions initiated by the client, ensuring maximum utility, to the client in terms of availability, usefulness and cost to the bank in terms of reduced operating cost, zero errors, improve customer service, scalability, risk management, robust information system and enhanced services. This encourages banks to accelerate the automation into digitalisation process and explore innovation.

Computerisation of the operations of the banks in India commenced in the 1980s only for ledger maintenance through advanced ledger posting machines (ALPM) to facilitate the customer facing branch activities. In the late 80s, concept of total bank automation (TBA) came into vogue, front office automation only. This affected hardware and network cost reduction. Later, few new private sector banks came into existence with full automation model. Therefore, concept of linking the branches through core banking solution was adopted with various challenges like legacy customer data and format, different processed and non-compatible systems. RBI nudged banks to achieve progress in automation and complete connectivity with all branches over the years.

There are limited number of core banking platforms in India-Finacle designed by Infosys, Flex-cube of Oracle, BaNCS designed by TCS are the major CBS platforms, though some in-house developed solutions too. This facilitated RBI's decision to have macro-view of an automated data flow of reports in structured format straight from the bank's computer system without any mutual intervention to RBI's system. This rapid automation helped banks to have better control over the internal processes, accounting errors and improved customer services and operational cost.

The Institute for Development and Research in Banking Technology established Indian Financial Network (INFINET) as the nationwide communication backbones for banks and financial institutions spread across the country by 2000. Banks opened alternative channels for service delivery- ATMs, phone banking, internet banking etc. In short, account with a branch means account with a bank, centralised bank-neutral. The Indian Banking Association is working out the methodology for portability of accounts across banks which will allow customers to move seamlessly between banks without having to change their account numbers. Add-on, increased presence on social media such as Facebook, LinkedIn, Twitter etc. Parallels, banks developed systems to enrich the MIS, risk management monitoring, ALM & payment system etc. taking care of back end operations included interbank connectivity. It can be easily visualised that these are steps taking advantage of available technology to offer the existing services in a better ways from customers, banks and regulatory perspectives.

FinTech Scenario
Once the entire processes within the
bank were automated, the creative mind started exploring the technology further. Technology not only supported banks but also started inventing disruptive innovations broadly called FinTech. (Emerging technological innovations in the financial service sector). RBI setup a working group (WG) in 2016 to do some thin like "guess the future" when it started, also to look into report on the granular aspects of FinTech implications for the financial sector so as to review and reorient appropriately the regulatory framework and respond to the dynamics of the rapidly evolving FinTech scenario. The term FinTech and Digital are being used as though synonyms now. It means the digital banking progress is expected to be guided by FinTech innovations in future. NPIC established alerts of international banking network operators (like VISA), international payment systems (like SWIFT). Its unified payments interface (UPI) is unique global because it enables request or sending money using account number+ IFSC code, virtual payments, QR code etc. Besides the traditional commercial banks, payment banks, method of funds movements between persons or entities, electronic payment systems like NEFT/RTGS have revolutionised & routine the payment within India. These developments coincided well with the government's initiative of digital Indian and financial inclusion. The trio of Jandhan accounts, aadhaar, mobile widened financial inclusions.

Digital Villages
Further banks adopted entire villages to digitise angle, 100 percent financial inclusion and digitalisation of retail and commercial payments, banking transactions are achieved; converting to cashless society and credit facilities. A holistic approach to development of rural India was envisaged through the digital banking route. The first village was Akodara (Gujarat) pledged to transform 600+ villages into digital villages and so on.

Robot, AI & Analytics
Introduction of Robotics in customer facing situations for better performance than human officials. New Robot customer care executive named Mitra (Canara offered) answered over 500 frequently asked customer queries in Kannada and security guard in the night. Robot customer care executive Lakshmi (City Union offered) offered details about accounts, interest rates, loans etc. in English and carriers out an average of 30-40 customers' interaction a day and answered about 150 questions.

I-Pal (ICICI offered) offers help on FAQs, paying bills, fund transfers, recharge etc. features. EVA (HDFC offered) launched to provide conversational experience to customers including access to products and processes details, charges, branch data etc. Yes-Tag Chabot apps & Yes-mPower system (Yes Bank offered) to seamlessly engage in chat banking on messaging platforms including Facebook and Twitter. Chabot (SBI offered) aimed to handle customer queries and guide customers through retail products and services. The bank is looking at AI solutions based on speech recognition. Bank have started for APIs/open banking solution to connect third party and help from financial planning to choosing products across banks, in anticipation of possible regulatory clearance. A handful of banks have implemented Block chain- distributed ledger technology for trade finance and remittances to the customers. Also, involved with crowd funding platforms like TReDS (trade receivables discounting system).

Bank have started using AI and analytics in big way such as preliminary CRM packages (customer behaviour, expenditure patterns, internet bank accessing and non-transactional related data's) to support and enhance customer experience, business prospect, employee productivity and create risk management models. There are internal systems to assist the sales team, HR, monitoring and credit appraisal.

Customer data breach, cyber- attack, hacking of trading accounts, siphoning of funds are major risk for Information technology world. IOT i.e. many devices like TV, washing machines networked on the same internet provider's effect weak points on the internet for the hackers. After all, overall security depends on the link. RBI also report that developments in increasing digitalisation in banking present regulatory and supervisory challenges too. Due to increase in the channels for provision of finance, both from the banks and non-banks like platform based lending. It also affect bank business models, which in turn could undermine their overall business strategies. The rise of FinTech may leads to fundamentally different bank risk profiles. There is difficulty of regulating an evolving technology with different use cases, monitoring activities outside the regulated sector, and identifying and monitoring new risks arising from the technology. Many of international standard bodies like BCBS, FSB, CPMI, WBG, FIN etc. have just started taking steps to actively monitor FinTech developments. Task force has been setup to identify, assess the risks arising from the digitalisation of finance with a focus on the impact of financial technology on banks business models, the provision of finance and systematic risk as well as associated supervisory challenges. World Bank Group (WBG) is actively participating with all the above bodies.

Most banks make it a point to describe the digital initiatives taken by them, including the success or progress in expanding the channels, products, innovative internal and customer facing services offered etc. in the annual reports. Add-on, describes the advanced application of technology to make the banking digital & transformation lives. (Taking India to new heights) Thus in the days when the performance under core banking is under stress, this helps in demonstrating the positive steps taken by the banks in the digital area. After all digital transformation will also help the bank in improving financial performance ultimately.