How emerging financial technologies can transform the way banking systems work in India

“In many parts of the world, customer experience often comes at the expense of security. But, in India, it is fairly well managed on both sides and the fraud percentage is comparatively low,” said Karthik Narayanan, Co-founder, CTO and CPO, INAI during a TechSparks panel discussion on ‘Optimising fintech for all’.

With the increasing demand for contactless payments and lending options during the COVID-19 pandemic, financial institutions in India are adopting new financial technologies more than ever before to improve customer experiences and efficiently manage lending operations. Discussing the present scenario of the lending system in India, panellists including Karthik; Ranjan Kant, Co-founder, Arthmate; and Rajat Khare, Director, Distinguished Engineer at Intuit, expressed optimism about how financial institutions are transforming from traditional systems to digitised lending operations.

“In India now, one can completely run the lending process without even having a piece of paper involved if the person has the right tools and models built for that. Even though the issues like security and fraud still exist, India as a country has evolved a lot and it will continue to evolve,” said Ranjan.

The path to a ‘digitised financial world’

According to Rajat, time and cash flow are essential for SMEs. Around a decade ago, financial tools were more like assisted tools, where people had to manually put the numbers by the end of the day and wait for outcomes to analyse their business and operations. “But now, there are AI-powered tools, which are more like assisted bots that truly understand the behaviour of the product, their usage, and identify what similar customers in that space are doing. These tools help SMEs ensure there is a better cash flow and resources are properly managed,” added Rajat.

While the latest financial technologies help improve the efficiency of financial institutions, they also come with certain challenges, especially when businesses are growing at a massive pace and consumers are increasingly adopting digital financial technologies. “In general, the most crucial challenge faced by businesses in the financial sector is scaling and keeping up with the pace at which businesses are growing today,” noted Karthik.

Breaking down the challenges, Karthik added, “The challenges faced by merchants are also very specific to the nature of their industry. For instance, for somebody in the gaming space like fantasy cricket, all of their transactions would typically happen just before the toss. So, they will have to support huge amounts of loads during that time. They will have to have significant redundancy in the stack to ensure there is no lag.”

Adding to the conversation, Ranjan said, “I think for traditional banking systems, there are challenges on multiple dimensions. But, the positive thing is that not only private banks but also public sector banks are now taking charge and working towards making 50 percent of their retail lending as digital in a year or two.” He further added that with fast tech adoption and quick turnaround time, digitisation of the banking system is becoming a big trend moving forward in traditional banking.

Practices that ensure the best customer experiences

With the emergence of new technologies like 5G, consumers are no longer willing to wait for anything – be it a web search or a financial transaction. Talking about the practices that optimise customers’ user experiences, Karthik said, “The speed at which you do payment matters. People want faster checkout options. So, offering the right set of payments, vaulted and secured payments along with the right set of experiences can help reduce the number of drop-offs from anywhere between 10 to 60 percent – depending on the geography you are operating.”

“While UI/UX is important, it is also important to ensure the checkout is compliant with laws and guidelines. These guidelines are crucial because it helps control the synthetic credit in the industry. It also helps protect customers’ personal information like contact details and location,” added Ranjan.

Rajat perceives compliance and data privacy in three real aspects. “Every time a customer signs up for a product globally, we do their risk and sanction screening. We make sure they're not coming from embargoed countries or blacklisted places. Secondly, we make sure we have the right risk and fraud prevention practices in place, in terms of the payment method or the address data. And the most important thing is that every country has varying compliance rules around accounting taxes, the way their chart of accounts should look, and the way their balance sheets should look. This is where we are using our technologies to stay compliant with guidelines, which we as a service provider are mandated to,” he explained.

Can new-age tech make fintech more agile and secure?

Talking about how blockchain can impact the world of fintech, Rajat said that blockchain gives more authenticity to the nature of the data captured. He added that blockchain can also help organisations build authentic and accurate credit profiles of individual users. On the other hand, organisations can also use blockchain to comply with financial guidelines and tax norms. “I think it's a two-sided equation and both sides could benefit from blockchain. Firstly, it would help small business owners comply with the ever-changing tax norms. On the other hand, the governments would be able to make their records more digitised and placed on the blockchain,” added Rajat.

With more financial institutions adopting modern technologies like blockchain, cryptocurrencies emerge into the scenario. Rajat noted, “So I look at it in two ways. How does crypto get adopted as a more mainstream payment method? How can it become a currency that's not just in the metaverse, but also consumed by people?”

It depends on how startups and the whole innovation ecosystem make it much simpler and more reliable for consumers. “We are interestingly looking at that perspective, working on finding a way how we can bring crypto transactions when our products are sold on Metaverse as well as on Amazon,” he added.