Technology And The Changing Face Of Financial Services

Praveen Sinha, MD, PinCapPraveen's experience across different sectors and recent work has made him emerge as a prominent business leader, and is considered as a turnaround specialist in energy efficiency start-ups

Since the advent of modern-day capitalism, one aspect of business that has dominated the minds of every decision maker in every organisation across the globe has been profitability or to be precise `How to increase Profitability'. During the nascent stages of technology taking over our lives, this was primarily achieved by either focusing on increasing the sales force thereby increasing the top-line or by controlling the expenses that reduce the bottom line or both. However, since the start of the current century, the entire paradigm has moved from getting humans to do more to getting technology to do more, better & with fewer humans. Particularly since the commoditization of technology by way of smartphones (everyone walking around is carrying a super intelligent computing device), the way Technology has changed the way businesses are run & managed or for the matter even conceptualized has undergone a fundamental change.

In the beginning, technology replaced mundane everyday tasks by providing simple automation tools brining in efficiencies in process & improvement in productivity. As the graph of technological advancements became steeper, computing power & storage capacity becoming easily accessible at low cost, businesses started getting access or capabilities to collect ever increasing data on human interactions but many not knowing how or what to do with that data. Subsequent advancement in Data Science & Machine learning led to businesses acquiring tremendous capabilities to not only synthesize large data sets but also glean deep insights into basic tenets of human behaviour thus enabling them to design their every interaction in line with their target customer.

In the more recent past, one domain that has seen high levels of activity, particularly from the investor community, has been fintech ­ the convergence of technology with the world of Finance. Tradition-ally, finance has been a transaction-based business. But given the immense opportunities that technology opens, the world of finance has embraced it with open hands & technology has become the DNA of the thought process in board rooms globally. This can be witnessed as a global phenomenon today in way 1000s of new age finance companies who have & are building core business models with technology at its core rather than capital.

Perhaps the most important phenomenon has been the advent of blockchain technology as it impacts & if successful, completely changes one fundamental tenet of finance that is currency or in a more meaningful sense ­ `the medium of exchange'. Having gone through its own cycle of being looked upon as another tech fad to something that is destined to fail acquiring its evangelists to scepticism to excitement everywhere to early industry applications & adoption to now global institutions each trying out their owns POCs to make it a mainstay in at least some facet of their technology infra.

Customer Service
A key area which has seen massive disruption in the way customers are served, new as well as existing, is customer service. In less than a decade, chatbots have virtually taken over many of the tasks that were
traditionally supposed to be performed by a trained customer service executive. It would be difficult to imagine any financial institution to be not using Bots to manage at least certain customer service functions end to end. Given an AI system evolves and only gets smarter the more it interacts with its constituents, the only direction this trend seems to be going in seems upwards.

Online Banking
Gone are the days when people would need to a visit a branch to withdraw money, transfer funds from one place to another. Internet & Mobile banking has virtually become a bank branch where almost any task can be performed & things are getting intelligent by the day.

Fraud Detection
The investigation and identification of frauds has always been a mammoth challenge for Financial Institutions. However, new age technology tools have moved the exercise from post event to a preevent investigation where these tools help to ascertain the probability of someone defaulting before even the fraud being committed. What's better penalise or prevent ­ the answer is clearly in favour of prevent. Given all this can be done at speed humans cannot match, institutions with this capability have got unmatched leverage to beat competition & grow faster than everybody.

A key area which has seen massive disruption in the way customers are served, new as well as existing, is customer service

Credit Scoring
Credit Scoring has been the bedrock of any lending decision. The credit scorecard has evolved over the years but restricted or ready access finance for huge populations across the globe, particularly in emerging & under developed economies, as credit scores were primarily developed based on banking behaviour. Given these economies had cash as primary transaction medium, these populations had unreliable credit history & hence fewer opportunities for future credit. Also, the data has been built over decades hence for people with recent access to banking are likely to take at least a few years before they develop enough credit history for a score. However, technology combined with behavioural science, advanced statistical tools has again massively disrupted the way credit underwriting is done. Today, companies like Lind sell work on alternative data sets like social media profiling, analysing mobile phone usage patterns & other personal attributes to arrive at a propensity to default and their solutions have helped institutions lend to people who hitherto did not have access to finance within acceptable bands of default probability.

Other newer areas where we have seen a paradigm change due to FINTECH are Lending (Borrowing), Global money transfers, Payments, and Banking.

Lending (Borrowing)
Peer-2-Peer platforms, Digital lending, harnessing the power of big data to take underwriting decisions are few of success stories of adopting the power of technology in the world of finance. Lending club, a 10-year-old FINTECH has lent over $38 billion through its platform which easily rivals many established banks in terms of growth & annual disbursals.

These Fintech companies have reduced the time to close a commercial transaction with the customer from days to hours and in some cases even minutes. This is has resulted in huge savings in terms of reduced man-power requirements, high productivity, better compliance & overall an enriching experience for the customer.

Most of these new age companies have completely taken the process digital with minimal human interaction, at least at the customer end thus eliminating elements of judgement, negligence, and others replacing them with robust technological algorithms by providing a seamless experience & little chances of error.

Technology based World
It may seem all is positive with technology replacing humans. At some levels, the introduction of technology at these vital touch points in the business chain has also created friction primarily due to its nascent stage in terms of advancement of such applications in business. As such, these frictions are opportunities for future developments that will deal with more complexity & use advancements such as Machine learning, neural networks to create human like experiences at the psychological level. This would then create an experience as real as a human-to-human interaction without the customer ever knowing that the one serving him is a machine.

It has also been believed by many that technology will progress to a point where it becomes more efficient than the people who made them. And the real problem with that would be that a very compelling case would be made for a world based on machines. They're smarter, faster, less prone to mistakes and much more economically viable.

Do we really need such a world is not the real question! It's inevitable. The real question is `Are we ready for such a world'.