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When Speed Will Be Of The Essence

With a QR code in everybody’s pocket, enhanced data mining abilities, predictive banking and speed of delivery will distinguish the winners from the also-rans

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Rest assured that banks are morphing into technological service providers that will be compared to other service providers such as Ubers and Amazons where you can conduct multiple transactions, cross-border payments, investments, and insurance, all in a few seconds, where predictive delivery of banking products will reign supreme.

Financial services will transform itself from a utility model to a seamless service provider, if banks and financial services companies invest heavily in technology that is. It may not seem far away that financial services will be much like plug-and-play models. But is such a tectonic shift happening?

Let’s roll back. In its heyday, financial services made money from information asymmetry and tardiness in the process. Banks, on their part, reduced the problem of, say, transmitting money from one place to another. Banks relied on information arbitrage and were lending because people like you and me do not know whom to lend money to, or how to recover it, for instance.  

“In the information economy, two transformational changes are beginning to play a big role in the way business is being conducted. First, the government effort in improving digital identity and the payments infrastructure has meant that process friction has reduced considerably. Second,  greater digital access, increased volumes of data and information, and the democratisation of such information has resulted in a substantially reduced information asymmetry between providers and buyers of financial services. The impact of this has been reducing margins for participating institutions,” says Anand Natarajan, chief operating officer, Reliance Capital.

“The future of financial services will no longer be about serving a product. It will be about anticipating and solving for a consumer need, and providing a seamless and differentiating customer experience and about keeping an active engagement with the consumer” notes Natarajan

Increasing commoditisation 
In future, with more information available, transparency reigns about what rate you can demand for a product. Fintech aggregators are making that available. You can compare prices for a policy or a loan. Transaction friction has been smoothened. All this will be the game-changer for banking and financial services.

Uday Kotak, vice chairman and managing director, Kotak Mahindra Bank, recently asked Nandan Nilekani, non-executive chairman of Infosys Technologies, “If Google or Amazon decided to become a bank, how do people like us play?” Kotak also alluded to a view that banks had become utilities.

Nilekani replied that, in general, internet companies refrain from turning into regulated entities. But he underscored the importance of technology in financial servcies. “There’s significant public infrastructure such as UPI,” Nilekani said He noted also that banks are at the centre of payments. “We have a most modern and elegant payment system; simultaneously, we have the strength and robustness of the banking arena.”

Because banks are a regulated entity in India and because they own the payments ecosystem, banking services may not be disrupted. Banking, though, will increasingly turn digital; therefore, fintech partnerships will turn out par for the course. Hence, in the digital world, financial services will be increasingly compared to other tech service providers such as Uber and Amazon.

You will see financial services increasingly focusing on need rather than providing a one-shelf solution like a personal loan. With a wealth of information, banking products will be increasingly commoditized. You will be enabled to pick financial-service products off the shelf or move from one product to another in a jiffy.

So, what will distinguish banking and financial services? One monumental feature: Customer Experience. “The future of financial services will no longer be about serving a product. It will be about serving a need and providing an experience that a customer can appreciate and about keeping an ongoing engagement going,” notes Natarajan.

Banks will increase adopt fintech services to tap new markets, new security systems, and to split various functions in the financial services back-end. Increasingly, fintech companies will not go over financial institutions, but will continue to challenge the norms that financial institutions operate under. Banks will have to respond to and integrate the disruptions. Which means that financial institutions will turn out more fintech partnerships. As the reach and delivery of financial services widens thanks to the arrival of technology and fintech providers, banking and financial services margins will shrink, and scale and size will be paramount.

“The future of financial services is technology-based delivery with a humane approach. I believe the debate is no longer about whether to rely on technology or focus on building a brick & mortar presence. Today, it is about how to acquire and service customers through a ‘phygital’ approach, which integrates both physical and digital aspects,” says Paresh Rajde, founder and chairman, Suvidhaa Infoserve, a financial-services provider.

For example, financial services will be increasingly integrated and bundled along with other products as is happening today with loans instantly made available when you purchase products online. Banks on their parts will have acquired customers at very low costs.

You will increasingly see fintechs partnering with banks and financial services to acquire customers, create faster need-based solutions. Analytics and data will reign supreme. The products will be driven by how well one manages, controls and leverages data.

Financial services will increasingly become predictive. No longer can use ask people, “Give me your income statement,” or 10 pieces of data. Financial services will have to mine data, create a persona and predict behaviors. It will not only serve banks and financial institutions in creating a frictionless process, but also enhance user experience.

Telematics will increasingly be used to monitor and predict events and progress. Banks will and financial institutions will have to rely on IOT, machine learning, and develop algorithms that will make the user experience smooth. For instance, Reliance General Insurance is building a database of all types of accidents and damage to cars. In a few years, the firm will be able to visually assess the damage to a car in case of an accident, and process a claim within seconds.
Within financial services, back-ends will be like assembly lines, and seamless digital use will become the norm. Corporate lending, however, will be difficult, but monitoring these projects will become real time.
 
Banks will have to gear up and invest in predictive analytics and artificial intelligence to bump up services and fraud detection. If it seems that financial services will never be the same again, that will surely be.


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