The imperatives behind BFS
Digital technologies have transformed traditional ways of doing business and the story is no different for the BFSI sector.
This has been further accelerated by the current coronavirus pandemic. According to Zinnov, banking and financial services (BFS) companies are making their digital investments on technologies such as data science, big data analytics, cloud, security, artificial intelligence (AI)/ machine learning (ML), and blockchain. While 34% of the total digital engineering spend is being allocated towards data science and big data analytics, cloud comes a close second at 31%.
Another IDC report shows that public cloud is playing a critical role in many banks’ modernisation efforts. Close to 30% of the banks that are currently running workloads in the private cloud now plan to move a percentage of these to the public cloud within 24 months. As customers embrace more digital channels, the BFSI sector will have to look at a digital-first business strategy to sustain competitive advantage. We look at few emerging trends across the BFSI sector.
All things digital – the new BFS normal
The current crisis highlights the urgent action required for businesses to upgrade to digital platforms, new processes, and strategies to stabilise their operations and sales. Businesses that paid heed to the digital transformation buzz were able to quickly adapt to the social distancing guidelines. Even capital markets looked to fintech automation to reduce costs and drive efficiency. In recent months, cash flow management has been critical. As per a survey by PYMNTS, 76% of surveyed participants faced a cash flow shortage, with 18% struggling with cash flow shortages on a frequent basis.
The BFSI sector is combatting the cash flow crunch with innovative solutions by adopting low-code or no-code platforms. These systems allow leaders to quickly introduce new software solutions and maximise their budgets. For instance, Coforge addresses cash flow shortage through process automation and re-engineering solutions for its American financial, retirement, investment, and insurance client.
Contactless payments, fraud detection, and changing consumer behaviour
Digital payments are not new for the modern consumer. But an interesting trend noticed is the uptick in contactless payments during the pandemic. For example, Credit card giant, Mastercard reported a 40% jump in contactless payments, including tap-to-play and mobile pay. The rise is driven by the changing consumer behaviour of minimising human interactions, reducing cash transactions, and being able to quickly exit a store after purchase. While the pandemic has seen a surge in online transactions, at the same time there is an exponential increase in cybercrime such as payment fraud, cyberattacks, and credit card fraud. A survey by TransUnion reported over 100 million suspected fraudulent transactions from 11 March to 28 April.
To combat the fraud supply chain, financial players and merchants must adopt a digital trust and safety strategy. Organisations should consider proactive measures to protect themselves and their consumers from losses. Many banks are leveraging AI to move from traditional banking to an insight-driven approach. Data is leveraged to analyse, strategise, and develop new products and solutions based on consumer behaviour. Real-time predictive analytics would help mitigate cyber risks, help make quick decisions, and create self-diagnostic or preventive-maintenance solutions.
For instance, Coforge is collaborating with a Fortune 100 company to develop a Financial Crime Platform of the future – bringing in our cross-functional team comprising of domain consultants, big data practitioners, quality engineers, API developers, bpm architects and visualisation experts. This would include root cause investigation to take timely corrective action. Building a strong security architecture that minimises the risk of fraud in consumer markets. Periodic diagnostic risk reviews adhering to the defined anti-bribery and corruption (ABC) framework. And most importantly, training your employees and consumers on basic cybersecurity hygiene.
Regtech on the rise
With the increase in financial crime, regulators around the world are cautioning the public to stay alert for frauds. Malicious actors are specifically using the pandemic to create turmoil and seek profit from unsuspecting victims; profiting from the market volatility and chaos. During the time of crisis, it would be tempting for companies to bypass long regulatory procedures and save on time. But regtech is important now, more than ever. With teams working remotely and almost the entirety of businesses moving to the cloud, regtech tools and strategies would help stem the regulatory tide. Modern regtech or regulatory technology solutions are offering the possibility to implement systems that automatically monitor, analyse, organise, report, and take direct action on non-compliant events and prevent fraudulent activities.
The pandemic exacerbates the investment challenges of an already difficult landscape. In this environment, self-directed brokerages (SDB) are experiencing issues with websites that aren’t able to handle the trading volume. With fee compression we can expect to see an increase in consolidation. Some early trends reported here are:
- Digital is the way forward – there is no more ambiguity. Any firm without a digital advice offering is missing out.
- No more hidden fees – Consumers are no longer tolerant toward hidden fees and unnecessary expenses
- Hybrid digital investments – investors have to be prepared for new investment risks when it comes to hybrid digital advice platforms and also deal with technical and capacity issues.
Regulators worldwide continue to release new guidance and requirements to assist mortgage borrowers facing economic hardships due to the pandemic. With the aid of digital solutions, the mortgage or loan servicing and debt collection sectors are able to cut costs and create a new brand reputation. There are opportunities across the value to improve customer experience right from new customer orientation to billing and payments to fees and escrow maintenance. For instance, we provide low-code processing platforms that enable several clients to set up client-facing portals for loan processing and client servicing for retail and institutional users.
In this digital era of 2020, the BFSI sector will need to introspect and redefine their operations with a seamless digital-first approach. Customer-centricity should be at the core of their digital transformation journey to stay successful. Coforge continually strives toward helping its customers get the most out of their digital endeavours. For us, it means collaborating with our clients, employees, and partners to co-create durable value for the BFS industry. Over the years, through the convergence of emerging technology, business innovation, and efficient processes we have taken an engineering-led approach to quality – mitigating risks while containing costs.
By Gautam Samanta, EVP & global head of BFS at Coforge