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Future of banking and financial services

The world of finance has become highly commoditized. As far as banking and financial services sector is concerned, interest rate and repayment form the backbone of structured finance, whereas all other financial services are its variants. The statement may sound simplistic, but in order to win the hearts of customers, simplicity is important.

If this is the case, then the relevance of traditional management models of leadership viz. product leadership, cost leadership, process leadership that lead to better service standards are already passé. One thing that will redefine banking and shape the future of banking and financial services is enriched customer experiences through Experiential Leadership. Products can get customers for a brand but great experiences get them brand ambassadors.

All major giants who paved their way through success like Google over Yahoo, Amazon and Alibaba over Walmart, social media companies like Facebook and Twitter over print media focused on customer experience. Although information always existed, merchandize was all pervasive and communication was always abound, but what worked for these companies was the way they fixated on delivering an enhanced experience using digital medium to their customers.

So, to top it up, future of banking and financial services will be Experiential Banking that has customer experience at its core. New age technologies will become enablers for this and the platforms over which such experiences are created and delivered will be the key. Banks that safely manage a customer’s financial life cycle and growth will take precedence.

Financial service companies that will help the customer in taking wiser money management decisions and make them wealthier will rule the roost. Ultimately Experience, Growth and Optimization (EGO) will be the goal and not Finance, Assured Returns, Insurance or Liquidity (FAIL) and Advisory, Growth and Economics (AGE) will be the mainstay.

New age technologies will give shape to experiential leadership
From technological point of view, the world is going mobile. India has witnessed the fastest 4G rollout in the world and 5G, FTTH and 7G are already in the offing. It’s going to be a wireless world wherein AI, AR & VR, holographic imaging along with 3D printing are going to be the next frontiers to deliver experience, goods and services.

Digital identity will form the backbone of digital world – be it financial or otherwise. Advancements in biometrics, blockchain and conversational interfaces (BBC) powered by NLP and AI will ensure safety, security and serenity.

Social media is becoming all pervasive and brands need to be where its users are. Social media based comprehensive banking channels will emerge, virtual assistants will take a lead which will be followed by app – based banking and commerce due to enhanced capabilities like NFC and IoT enabled smart phones and various household & commercial devices.

It is estimated that by 2025, there will be more than 50 billion IoT enabled devices which will interact with each other over virtual networks and drive invisible and connected commerce taking a major load off the human mind.

Technologies like QR code, image processing (remote cheque deposit, photo bill payment and selfie account opening) and voice assistants like Amazon’s Alexa, Google Assistant and Apple’s Siri will drive the virtual experience.

As blockchain gains ground and hopefully, lives to its promise of security and scalability, more B2B, (trade finance), C2B (remittance), cross-border commerce (B2C & B2B) use cases will add to a mobile world. Settlement will be backed by real – time payment and settlements systems like IMPS, UPI and blockchain as the platform. More and more businesses will leverage it, as working capital management – a lifeline of any business – will dramatically improve.

Trusted networks like blockchain forums, money transfer platforms like UPI and improvement in credit scoring via big data will gain currency and will improve the overall ability to assess creditworthiness, intent to pay and calculate cost of collections electronically on mobile devices.

As the wireless technologies improve further, holographic banking backed by image authentication technologies and facial recognition capabilities will let people interact with each other virtually and will become the mother of all mobility applications.

Robo advisory will be key
With algorithms and computing power breaking new grounds, a seamless and unbiased advisory will emerge, which can take care of any biases, pre conceived notions or rigidity in portfolio management and make customers in charge of their own financial well-being.

Banks which will be able to take advantage and bring in robo-advisory as core to financial planning and growth, will be revered by customers and change the dynamics of management expenses and optimized returns. A true ‘democratization’ of financial services will take place where advisory and financial planning services will be available for every customer – powered by technology!

SMEs will exponentially multiply
SMEs which are becoming extremely important as corporate banking turns increasingly competitive, is where a lot of action is going to happen. Given the spirit of entrepreneurship, improving business environment (ease of doing business) and reforms being taken up, will be the key pillar of any bank’s asset business. Psychometrics, Artificial Intelligence & Machine Learning and edge computing becoming viable, will help in not only assessing creditworthiness of SMEs but will also help in gauging the intent to pay.

Tech giants are not going to take over just now
It’s said that big tech companies will become financial powerhouses is little too early to say. As their focus, in their respective core areas thereby gaining mass, momentum and scale, is what has made them what they are. If they are going to expand in other areas, e-commerce, supply chain efficiency, warehouse management via robotics will be the areas they would expand first.

Lending money to finance purchases, in my mind, is not so attractive an area as credit appraisal, risk management, collections require great depth, experience and physical infrastructure.

Digital payments for sure is an area, where they can step in and facilitate fast exchange of value like Google Tez, Whatsapp and wallets in India are doing. But this will be more for a finite value and not big tickets which go through banks, NBFCs and international networks like; Swift, Visa/Master, and possibly cross border remittance via blockchain applications.

Commercial banking will leverage technology further
On the commercial banking side, with IoT gaining ground, invisible and connected payments will be one area, where a partnership of big tech companies and BFSI companies will flourish as both will be able to complement each other. Smart cities which are being promoted, will soon become the norm and here is where not only individual homes, but smart/intelligent buildings, offices, manufacturing premises, warehouses and delivery mediums will interact with BFSI and ensure a smooth transfer of value from consumer to financial entities to manufactures, to logistics providers and finally to end supplier of original materials.

Advances in knowledge databases, access improvement to databases and smart manthan of data lakes (the smart information repositories to simplify it) will equip BFSI with ability to better assess the rapidly changing business environment and customer mind-set. Edge and Quantum computing with far advanced modelling techniques will facilitate real time opportunity spotting and risk management.

Social will be the front foot
Social networks, despite all being said about them, will spread their influence. Collective bargaining and deals may gain ground with power rapidly shifting to consumers. If BFSI, can leverage social networks – a very rich source of information about one’s end customer, whether corporate or an individual – they will do very well for themselves.

There will be three key facets to it; Engagement, Engineering and Execution. Since technology is making people independent quite early in their life (cost to information is practically zero, earning money digitally is becoming easier and it’s possible to build and run companies with literally few people), engaging with such independent people, who will network via social networks more, will become the key. So a presence on social networks, of the brand, organization and its people, will be the key things and it is happening already.

Social Networks can be mined to unimagined depths by engineering its wealth of information to help connect to customers beyond explicit needs and that can become a strategic opportunity to customize structured financial products and services for an individual or for an entity. The reach which will be unprecedented right down to an individual will separate organizations from a dash runner to a marathoner which will last a life time.

As is said, planning is half the battle but execution is winning the war. The power of social analytics, contextual marketing coupled with locational access, social digital platforms and technologies will provide the Hammer of GoD to nail both tactical and strategic opportunities.

New age ecosystems will evolve
The Fintech and start up ecosystem will evolve and become even more granular right down to an individual and organizations will strive to not only benefit just by financing them, but also by enabling such ecosystem players to grow into SMEs and possibly some of them into giants. Banks will forge a friendship, bring in paternal and maternal characteristics and will serve as mentors to such players. This is happening as I write, be it seed fund providers, venture capitalist or private equity investors and Banks are not far behind. Since they can engage holistically having a financial muscle, a very savvy and large customer base and being perceived as the trust holders of entire ecosystems, they have an opportunity and even HDFC Bank has set up a fund to build a 360 degree relationships with Fintech and start ups and that I call inclusive banking for budding and wannabee entrepreneurs.

A wealth of academia is out there and by reaching out to academia, research institutions and on-premise incubators, an organization can have a wealth of talent at its disposal, without having any on their payroll.

Such partnerships will transfer domain expertise to them (academia) and they in turn will transfer innovative, intellectual and enterprising capital to the organization. One such initiative is HDFC Bank’s Industry Academia Program, where more than 60 institutes, accelerators and incubators are on board already. An example of this partnership is conversational banking being developed in collaboration with industry academia, where they work on research, technology interface and consumer experience.

New and deeper partnerships will be forged
There are some models where retail commerce (in store) is evolving with banking and insurance products being sold and serviced at retail outlets. Tesco, for example, runs a financial model in its store to educate and provide financial products and services to its customers quite successfully. Such is being experimented in India too and I can see that in future retail commerce and banking/insurance will forge mutually beneficial partnership to conquer the last mile as the scope to grow one’s infrastructure is governed by diminishing margin of utility.

Banks, NBFC and insurance companies already have a tie up with retail chains, franchise and business correspondents, serving as extended delivery platform, without stretching the financial and captive human capital investment too far. The benefits are already being seen in the exponential growth of consumer durable financing, two wheelers financing, peer to peer lending (in collaboration with fintechs).

Building internal digital capabilities will be a strategic objective
Having said all about external world, I would like to quote Paulo Coelho, “if you can conquer yourself, you can conquer the world”. Therefore organizations will look inward more and will build internal digital capabilities to let customers have an everlasting experience, which will translate into them being brand ambassadors of the organization, setting off a viral effect which will give a momentum to organization scale, profitability and experiential leadership. This would be hard to match by anyone in the next decade, if executed properly.

Therefore, a Centre of Digital Excellence or CoDE, will need to be conceptualized within the organization and it should become embodiment of the One Organization spirit. The focus should be on implementing digital transformation within the organization to harness its digital potential and empower employees to amplify the reach of its digital initiatives and dramatically improve customer engagement and increase customer servicing capabilities of the organization in years to come.

CoDE Hackathons and partner collaboration solutions. The industry is competitive and grappling to provide the best of the experience to its customers. In such a scenario, it is necessary to collaborate with the best of the solution providers in the industry. CoDE Hackathons is one such initiative where start-ups, individuals and ITeS companies compete to solve emerging digital use cases.

Security will be the key focus area.
Last but not the least, for banking in the next decade, without an iota of hitch, security will be paramount as in the digital world, people and their interactions will be determined by binary digits. Therefore, identification, authentication and authoriza­tion will become extremely crucial. Advances in genetic engineering will drive biometrics to identify and authenticate an individual. biometrics, blockchain, AI, psychometrics and edge computing will focus on fixing any lose ends, determining the probability of fraud and will suggest and enact proactive measures rather than solving frauds after they happen. Since digital is all pervasive, a single mistake can be catastrophic. Therefore anticipating and implementing measures (AIM) proactively and not reactively, will be a key thing for banking in next decade.

Banking in the next decade – ADAM reincarnated
As I conclude, banking in the next decade will be Adam’s re-incarnation – Agile, Digital, Assured, and Maverick. To quote, – The SHAPE of banking in the next decade – will not be about borrowing, lending and collections but about – Social, Holistic (one stop shop), Advisory, Partnership, and Evolution.
The views expressed are strictly personal in nature and do not reflect organisation thinking.

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