Capitalize on technology to drive value creation

2021 has been a year that has tested the resilience of economies and businesses around the world as organizations slowly recover from the impact of the pandemic. Undoubtedly, the year proved to be rather difficult for the banking and financial services sector. During the pandemic, the industry has seen a significant shift in maintaining customer confidence, although most banks have shown momentum with good revenue performance and decent profits.

The pandemic, however, has forced banks to re-examine their technology strategies and strengthen digital/branchless banking, change the definition of financial inclusion, offer improved services to its customers, and redefine customer relationships. But the most important factor that underlined the performance of banks in 2021 and will define the growth of the sector in 2022 is the ability to capitalize on technology investments and create value.

  • Economic Recovery and the Changing Regulatory Landscape

With the onset of the pandemic, the economy has suffered intense disruption and continues to recover to pre-pandemic growth levels. However, with the onset of 2022, the Indian economy is gradually gaining momentum and is expected to grow by 6.5% in fiscal year 2022-2023. As the third wave of the pandemic emerged this year, economists continue to hold a positive view of economic recovery due to increased FDI inflows and India’s place among top attractive destinations for international investors.

Additionally, with the Reserve Bank of India (RBI) emphasizing financial inclusion and digital banking models, new regulations are being put in place, forcing banks to be more regulatory conscious. Big Techs that had previously entered the lending space have consolidated their position – either directly or in partnership with regulated financial entities, thereby competing with banks and requiring additional protection for consumers. The RBI has endeavored to implement technical and compliance standards for banks and financial institutions to regulate banking and lending processes and thereby ensure faster economic recovery.

  • Reinvent the customer relationship

During the pandemic, banks and other financial institutions have understood the importance of anticipating customer needs and expectations. Becoming a customer-centric and customer-first organization is essential to ensure not only survival in the market, but also to retain existing customers, not to mention segment growth. Banks need to focus on shifting from providing transaction-only services to value-oriented advisory services to their customers. The added value perceived by customers through these services will help banks build lasting relationships with their customers.

However, it is important that banks train and develop their relationship managers with the right customer data and information to deliver the right advisory services. Additionally, banks and financial institutions have an enormous wealth of data internally that can be used intelligently to better understand their customers and their preferences, but which remains mostly unused due to technology gaps.

Leveraging the right technology and solutions is key to efficiently collecting this internal data, while maintaining safety and security. However, most banks still struggle to leverage this data intelligently due to the lack of in-house technologies.

Banks therefore need to focus on implementing the right software solution to function as an intelligent middle layer to receive and retrieve required customer information. This intelligence will help banks personalize and personalize their advisory services for customers, offer the right advice, and move away from tactical, transaction-focused relationships.

  1. Buy now, pay later as a form of consumer loan

With the rise of fintech companies, the concept of Buy Now Pay Later [BNPL] revolutionized the banking ecosystem in India. Banks have understood the importance of effectively leveraging this concept to improve customer experience and create positive sentiment. It is now seen as the new form of consumer lending – where banks extend needed credit in interest-free or spaced interest-bearing installments to its consumers. The BNPL market in India is worth $3-3.5 billion (approximately Rs 22,500-26,250 crore) and is expected to reach $45-50 billion (approximately Rs 3.37-3.75 crore) by 2026, according to consultancy RedSeer..

BNPL has the potential to change the way credit is granted and banks will need to perform background checks on customers to ensure defaults and resulting liabilities do not accumulate. Banks would also do well to be careful in communicating the terms of the credit agreement, so as not to unknowingly sell to customers who are financially illiterate and therefore face debt collection problems.

  1. Digitization and a rapidly emerging new ecosystem

A 2020 Deloitte report in the aftermath of the lockdown revealed significant changes in consumer behavior with an overwhelming 96% of respondents willing to opt for digital transactions to meet their day-to-day financing needs. With the growing adoption of open banking around the world, there are growing concerns about data sharing and data security.

That said, countries around the world are charting the way forward in terms of working on a regulatory approach to data sharing across sectors. India’s financial and demographic landscape has seen a dramatic change over the past few years, with an increasing number of fintech companies emerging. These companies have transformed digital payments and lending markets, indicating an increase in digitalization.

To ensure a fair regulatory landscape for all financial institutions, India recently introduced an account aggregation framework for sharing financial data and ensuring seamless access to data by users. Government data shows digital transactions grew nearly 90% from 232,000 to over 430,000 in the three years from FY2019 to FY21, mostly led by UPI. The value of digital payments in India will triple to $1 trillion by FY2026 from $300 billion in FY2021.

India’s recent announcement to adhere to the UN Principles for Responsible Digital Payments is expected to transform the regulatory landscape and make it more secure.

  1. Revolutionizing Talent Recruitment with Automation

The second half of 2021 has seen a wave of large resignations across industries, with an increased level of talent attrition, job changes by employees and the immediate need to hire replacements. The pandemic has revamped traditional corporate working styles and replaced them with hybrid or remote working for its employees.

The banking industry has faced higher levels of competition for hiring and needs to pay more to recruit and retain talent. To ensure a seamless transition to new work models, banks and financial institutions have realized the importance of leveraging emerging technologies such as automation to not only retain existing talent, but also attract the right talent. Leveraging these technologies has also enabled banks to design the right retention strategy and improve and automate hiring decision-making processes.

The Great Resignation is slowly evolving into the Great Awakening and will soon transform hiring processes and talent needs in banking.



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The opinions expressed above are those of the author.



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