Dr Chiragra Chakrabarty : “A more intelligent approach to banking will be the new normal“
Digital transformation is reshaping the banking sector and will do so for years to come. Cutting-edge technologies such as artificial intelligence and robotics, cloud computing, distributed ledger technologies, big data are being adopted at an increasing pace everywhere from client-facing activities to the mid- and deep into the Back-office. Dr Chiragra Chakrabarty, founder and director of katic consulting, give us an overview of the need of technologies in the banking industry.
The global coronavirus pandemic has accelerated the shift towards the digital realm in the banking sector all throughout the world. How do you see this digital transformation going in Mauritius?
Are we keeping pace?
Covid-19 is the greatest challenge the banking industry has faced in decades. It has impacted banks’ revenues and profits due to the behaviour of their customers and through heavier demands on their technology infrastructure. The banking industry and IT industry were pushing for digitalization from long time but that push was not enough to get the momentum of digitalisation, which it has got in 2020. As it is always said, “necessity is the mother of all inventions”.
Covid-19 has made digital transformation more relevant and urgent than before. Opportunities that bank expected to have years to prepare for are quickly approaching and previously slow-growing pain points are being pushed to the surface. To meet these challenges, banks are having to innovate, reinvent and redefine themselves.
Mauritius banking industry is doing extremely well in this regard, especially on payment system. In terms of payments, MCB’s Juice has been really successful during the lockdown and now also. As per the data, on the post-Covid situation, interestingly, online payment transactions are sustained at the levels they had reached during the lockdown, showing that people are getting used to e-commerce in Mauritius. This shows that people are confident and can easily use the payment system, which is very important. Another part of digitalisation is the automation of banking operations, and hence its process. Banks in Mauritius are gearing up for these activities.
Very recently, we saw Absa Mauritius launch Abby, a personal digital banker designed to help customers with their banking transactions and queries at a branch. This is a big step in Mauritius banking world. Other banks are working in the digitalization of their process. Few big banks of Mauritius are working big time on digitalization and they have been successful in this journey. Few banks are lacking and they need to gear up for this as they do not have any other options. There are challenges in this journey, for example, the high cost of such technological changes, technical know-how risk and regulation. All banks need to do a brainstorm internally and design a digitalization strategy.
For decades, banks have only competed with one another, on the same terms. As an industry not very used to change, the banking sector is currently undergoing a radical transformation – in terms of digitization, personalization, going mobile, etc. “Go digital and be digital” is the slogan that drives most banks today. What are the key promising areas where digital advances could revolutionise the banking industry?
According to me, ‘customised banking’ is one area where it can be revolutionised by using data and technology. Now, the same products and services are produced and released, in bulk, to all customers via a series of preselected, existing channels. This approach does not account for customer’s individual preferences – not ideal to ensure customer satisfaction or customer adoption rates. If effective segmentation, targeting and tracking is done by collating data from various sources, and analysing it to create actionable insights, it may do wonders. Big data is the engine that drives all of these efforts so banks must get comfortable with understanding their own data and that of other parties. A new era of personalization requires new skills to blend massive volumes of data from divergent systems into meaningful, actionable information. The target should be that each customer receives a product or service tailored to his/ her individual needs, over the channel or selection channels most suitable for him/her. This is feasible if data management is done properly.
Secondly, related to the above, the concept of ‘open banking’, which can bring a big change in the banking system. Opening up their Application Program Interfaces (APIs) gives other parties, including competitors, unprecedented access to a bank’s data. Customers’ demands have changed, they will anyway shift where they are provided with best products and services. So, saying no to ‘open banking’ will not help anyway. Banks must open up their APIs; by doing so, they can also benefit by becoming consumers of them, tapping into third-party capabilities to add real value to their offering. Doing this in a clever way could help them enhance their products and services. When looking at things this way, the potential really begins to outweigh the threat.
Fintech have also used PI technology to enable their businesses to work, and their success is encouraging competitors to develop their own APIs. Additionally, Insider Intelligence reported that 48% of banking executives believe new technologies like blockchain and artificial intelligence (AI) will have the greatest impact on banking. According to Insider Intelligence, banks are exploring blockchain technology in hopes of streamlining processes and cutting costs. Consumers can already see AI being used by most banks through chatbots in the front office. Banks are using AI to smooth customer identification and authentication, while also mimicking live employees through chatbots and voice assistants.
“COVID-19 HAS MADE DIGITAL TRANSFORMATION MORE RELEVANT AND URGENT THAN BEFORE”
How will these new technologies shape the future of our banking sector?
Banking, one of the largest and most longstanding of all the major industries, has of course moved with the times. But we can expect more change to come, with technology at the heart of this. As I said earlier, a more intelligent approach to banking will be the new normal. Customer expectations have changed. These transformational services mean people want and demand personalised, convenient and high-speed services across the board. In order to meet these expectations, a smarter approach to banking must be adopted. And in order for that to happen, banks need to make better use of their data. When it comes to data analysis, AI will refine this process and help ensure its lifespan is managed appropriately. Ultimately, AI will be used to automate repetitive processes for banks, driving greater efficiency and accuracy. Of course, we must not forget the impact technology can have on productivity.
In fact, improving employee productivity, operational efficiency and fuelling business growth are the key internal benefits bankers attribute to technology today. This might be through better productivity tools, better connected workers with better devices and network tools, or more efficient cloud-based services. Banks are increasingly moving away from functional teams to agile teams, with colleagues working more collaboratively, changing and improving things faster, with bottom-up initiatives aligned with strategic objectives. Technology naturally facilitates this change, especially with cloud-based workplace tools that are intuitive to use and can be used wherever colleagues are working. These same tools can connect colleagues together quickly and easily. This will all be key to keeping up with a fast-moving business world in which expectations and needs can change in the blink of an eye.
Do the regulations and our Banking Act make provisions for different emerging new technologies in that sector?
This area, which will need lot of focus and dynamism, is the regulation around such technologies.
All the central banks have to gear up for such challenges. The rapid growth of technology and digitisation in the financial industry is continuing to drive new regulations around the globe, and there is already a lot happening since last year. A wave of data privacy regulations is hitting every region of the world; that is just one example of new regulations. But more needs to be done. According to me, we need a uniform regulation around the world on usage of cloud-based services, artificial intelligence and for hedging cyber security. Regulators and banks need to work together to make the digitalization journey of banks much safer for the customers. Regulators across the world should come together for creating uniform regulations, so that no bank can take the advantage of regulatory arbitrage.
“BANKS NEED TO MAKE BETTER USE OF THEIR DATA; AI WILL REFINE THIS PROCESS AND HELP ENSURE ITS LIFESPAN IS MANAGED APPROPRIATELY”
But does adopting advanced technologies to improve internal processes enough?
This is a very good question. At a time of fierce global competition, the distance between technical promise and genuine achievement is a matter of especially grave concern. The biggest challenge is old process based on which automation has been achieved; if that process is outdated, the output of adopting advance technology will not be acceptable. Secondly, how efficiently the technology has been implemented. The test of successful implementation, whether all types of permutation and combination can be achieved through this technology. If all are not achieved, then manual intervention will continue, creating risk and delay. Another important factor of technology is that it should be user friendly and safe to use; if it is not, it may lead to issues. No advanced technology can make the bank efficient if the human force of that bank is not skilled enough to understand application of the technology. Finally, human force in the banking system should be honest enough to use the technology for the benefit of the organization. So, to answer your question in one word, the answer is no. Achieving efficiency is a multi-factor model.
Banks must face the growing competition from fintech startups, multinational organisations and tech giants through continued disruptive innovation. How should banks cope with fintech, regtech and tech giants? Should they work in partnership with them?
That is the best option. Bank can utilise the technology expertise of fintech and fintech can utilise the banking domain knowledge of bankers and also utilise the high capital requirement of running a bank.
Inevitably, new emerging technologies also engender new risks, including a new generation of cyber operational risks. How to manage this aspect?
Cybersecurity is a complex and multifaceted challenge that is growing in importance. To counter new and emerging threats, banks will need to learn from previous threats across a range of industries to proactively meet the challenges ahead. Most organizations have traditionally viewed cybersecurity as an information technology problem. It should be treated as an Enterprise Risk. In this effort, we recognize the importance of using data to identify trends and patterns. But there is a lot of data: external threat information, internal and external usage logs, customer information, transaction data and more. Added to this is the increasing challenge of mining the data for useful information in the time frames required as the threats become more sophisticated.
Harnessing the big data assets in a proactive manner across the fraud and cybersecurity domains will help combat the ever-changing nature of attacks. Though cybersecurity is clearly a cross-industry issue, banks are leading a trend towards convergence of fraud and cybercrime prevention technology and operations in support of a holistic approach to cybersecurity. This strategy will require new capabilities, not least to fill gaps in the technology marketplace as part of solving the biggest data challenges to date, and in proactively using better analytics to make real-time, risk-based decisions. Leveraging new channels of communication is important to better serve customers, but keeping pace with emerging technologies – and their associated threats – are also key challenges. Mobile devices and applications are primary examples of the balance between greater efficiency and new kinds of cyber risks. Improved knowledge of threats is often cited as critical to enhance cybersecurity. Banks are trying to educate their customers, in part through new channels of communication like SMS, emails, advertisement related to risk etc. in addition to more frequent website updates.
Banks are currently live in a reactive world in which they conduct forensic analysis on their systems, data and networks to determine where weaknesses may persist or where threats or breaches have occurred. But this is an increasingly outdated approach, given that data volumes are growing rapidly and the threats are becoming ever more complex to analyse. In order for financial institutions to become proactive, they too must harness their big data assets and utilize high-performing analytics to facilitate risk-based responses to potential incidents.