AI Will Help Banks Move Beyond Traditional Credit Scores - Shivaji Chatterjee, Hughes India

By Shivaji Chatterjee, Sr. Vice President, Enterprise & Government Business, Hughes Communications India

This year gone by has seen the BFSI sector picking up many new trends. This has resulted in a significant shift in evolution of technologies and their consumption. Besides, there has been a high adaptability for digital and contactless payments in the sector. A good example is the rise of the neo banks, digital on-line entities leveraging mobile-first technologies and being extremely user friendly with minimum operating cost.

Fintech firms are collaborating with brick and mortar conventional banks to offer web and mobile platform as white label solutions. Of course large, conventional banks have pushed their digital initiatives to the next level.

• Security: With accelerated growth of operating remotely, cybersecurity and access management is going to play a major role. From the network perspective, blockchain technology is emerging as a key enabler of information security. Besides, with more applications on the cloud and emergence of SD-WAN, security at the branch/edge of the network is becoming more critical than ever.
• Ever more bandwidth: Despite limited working hours and attendance in the BFSI sector, there has been no significant let up of the bandwidth utilization. With more applications, cloud hosting, centralised operations – the need for branch bandwidth has gone up with a minimum of 2 Mbps per branch as a standard. Technologies like broadband fibre and HTS VSATs that ensures speed of 5-10 Mbps would begin replacing MPLS and RF links.
• Cloud and SD-WAN: With the entry of global cloud companies and the burgeoning applications that supplement the core banking portfolio, there is a huge emphasis on cloud hosting and direct access to cloud applications from the edge. Hence, traditional network architectures are lending way to SD-WAN with local breakout to the cloud in a secure, managed manner. It also brings in broadband, LTE access technologies into the branch, and WAN as compared to incumbent MPLS and VSAT options.

SD-WAN has evolved the router, network management, security and network architecture in one go and made it more cloud-friendly. This helps in keeping the network elements aligned to user and banks needs.

While banking-as-a-service (BaaS) is likely to emerge enabling third parties to directly connect with the banks’ systems, there is a growing need to use artificial intelligence (AI) for smart lending. This will help banks and FIs use deeper insights beyond traditional methods of credit scores.

The Challenges

The year 2020 saw the BFSI sector hit the reset button for everyday business by accelerating digital initiatives and adopting technology to make them more flexible and efficient. This also brought to forth concerns and issues that did exist but were not high on the radar.

Competition: BFSI has seen a high degree of competition. The pandemic exposed inefficiencies of current financial services processes while disruptors have been gaining ground as more and more financial services consumption is going digital. To compete actively at the customer touch points, the BFSI industry, present in the brick and mortar form, have to enhance their telecom and networking infrastructure at the branch touch point levels to provide a similar or better level of services. The digital transformation due to smart phones and smart platforms has happened very rapidly to give faster, cheaper services under business models that are fast changing the competitive landscape.

Data and security issues: These are big obstacles for digital transformation. Legacy systems need upgrade while ensuring 100% data integrity. The upgraded ecosystem has to handle effectively the training needs of literally tens of thousands of bank staff, much high telecom bandwidth needs, enhanced data center resources, effective failover systems at branch, and data center levels etc. These fundamental needs, wrapped around the inherent fear of setbacks and getting stuck in planning stages is proving to be a challenge.

The sector also acknowledges that managing security in digital transformation is a continuous story. Almost all BFSI organisations have set up independent security departments with strong vetoing powers on which technology adoption meets the security compliances. These systems and processes laid down, at times, leads to institute adopting existing incremental technology much faster than new technologies.

Business priority change due to pandemic: While digital transformation is being pushed ahead the current focus is more on short term goals and initiatives of reducing cost, revenue growth, improving existing product and services, and innovation within the existing realm.

Bridging urban-rural divide: While smartphones have led to digital transformation in urban areas, majority of rural India still uses feature phones. Besides, there are several black spots – unserved and underserved by mobile phone connectivity. For the BFSI sector this creates a big challenge in terms of providing uniform quality of service on a pan India basis. The sector resorts to a store and forward non-online mode of communication via business correspondence and for on-line communication the VSAT technology can prove to be a secure and reliable connectivity service.

Telecom Has the Solution for BFSI Woes

Cleary the benchmark is set very high for the BFSI sector in India. The sector needs enhanced bandwidth and highest level of availability at every touch point – branch, kiosk, or ATM. It also needs to be abreast with the latest security best practices and adoption of newest technologies for better cost optimization and to ensure high availability and reliability.

BFSI players have always been early adopter of technologies and communication solutions have evolved to become lifeline of the sector.

SD-WAN and virtualisation: SD-WAN is clearly the most sought after networking solution by the BFSI sector as it provides a complete networking framework and a modernization of the wide area network in keeping with evolution of the banking applications, cloud architecture, virtualized appliances, centralized control and management, higher visibility and decentralized security.

4G/LTE-based solutions: 4G and LTE penetration has reached far and deep into the country. The networks have got augmented with much more spectrum allocation and hence bandwidth. These solutions have gained very good acceptance in several areas of the financial services sector. There are good solutions available that bond multiple LTE links and service providers to provide speeds of 2-6 Mbps per site and give SLAs of 99.5% with high levels of security.

High throughput satellite: The HVSAT solutions provide the BFSI sector very high bandwidth of 2/4/6/8/10 Mbps at a fraction of the cost of the conventional satellite solutions and VSAT that were restrictive in providing bandwidth higher than 2 Mbps. This technology jump from VSAT to HVSAT is being very ably supported by ISRO with several satellites having been already commissioned in the geostationary orbit to offer these solutions. In addition, LEO satellites from internet majors like OneWeb, SpaceX, and Amazon offer low-latency connectivity.

Opportunity Galore

Digitization has propelled a significant change in the BFSI sector with the introduction of new-age banking solutions. Besides, the pandemic has increased the demand for easy access to financial products, services, and information and the need for stress-free banking. We see this change as an opportunity. The percentage of clients using digital channels for bank transactions has considerably increased. Customers of a younger generation are more willing to trust digital banking and learn how to use it. India is now on its way to becoming one of the world’s largest digital economies, and banking will indeed ride this wave of innovation.

The Indian government has taken several actions and strategies to make banking more accessible and better. With the economy on an upswing, banks in India, both private and public, see the value of digital technology like robotic process automation, AI, and machine learning. These innovations provide great possibilities.

Emergence of BaaS will allow non-banking businesses to connect directly to banking system and embed financial services into their products. In addition, AI for smart lending will enable banks and financial institutions to employ deeper insights than traditional credit scores. Financial organizations, such as banks would have to rethink their digital strategies to see if they can satisfy future demands.

The pandemic has also emphasized the necessity for digital delivery options. However, given the current situation and challenges, it will be intriguing to see how neo banks handle regulatory and compliance, data and cybersecurity, seamless API integration, and product expansion.