Commentaries and insightful analyses on the world of finance, technology and IT.

May 31, 2017

5 ways in which artificial intelligence is redefining banking

Artificial Intelligence (AI) has become an oft heard buzzword in the financial services industry. Be it improving customer interactions, analyzing millions of data points in seconds or detecting fraud. As I attended Infosys Confluence 2017 in San Francisco last week, and interacted with several banking and financial services leaders, one thing became stark clear- AI in the banking industry is no longer about pilot projects or enthusiastic experiments. It has established its value as a technology that can significantly improve the banking experience in the near future.

As AI adoption gathers pace, several aspects of banking are set for a makeover. Here are the 5 key areas that I think will be most significantly impacted with the rise of AI:

The banker bots: The bots are everywhere. And they are redefining the way banks are delivering customer experience. Be it Swedebank's Nina or Mizuho Bank's Pepper, virtual assistants have made their way right up to the customers in the banking ecosystem. As more and more banks adopt chat-bots, the technology behind them- Artificial Intelligence- is set to learn, evolve and become more agile and efficient. As a result, we are likely to see even more bots becoming bankers.

Catching the fraudsters: PayPal, which processed $235 billion in payments last year from over 4 billion transactions by more than 170 million customers, uses a deep-learning system based on AI to detect fraud. Not only does the system flag unusual transactions, it also profiles these frauds as a "feature," or a rule that can be applied in real-time to stop purchases that fit this profile. This has helped keep PayPal's fraud rate remarkably low, at 0.32 percent of revenue--a figure far better than the average of 1.32 percent that merchants see, according to a study by LexisNexis. As AI adoption gains traction, more and more banks are likely to utilize AI technologies for detecting and combating fraud.

Smartening the back-office: While the customer facing side of AI technologies is well elucidated, we often miss out on the impact that AI is having in the back-office operations of banks. AI is removing thousands of man-hours from banks' sheets by reviewing loan agreements, identifying repayment patterns and bringing in Robotic Process Automation (RPA) to populate data entry and increase processing speed, especially for structured data. This part, according to us, can be real game changer for banks in saving costs and increasing efficiencies in the near future.

Making data-based, real-time recommendations: Banks have often struggled to make relevant recommendations to their customers about their products and services. The model that traditional banks have been following is creating standard recommendations for a set of customers and flashing them at various point-of-contacts, without any real targeting metrics. AI engines are set to change all that. These self-learning systems are cultivating user data based on their behavioral patterns, banking history and in some cases even their public profiles to make suitable recommendations to users. In recent times, banks have been utilizing these recommendation engines as a key tool to upsell and drive incremental revenue.

Bringing Fintech innovations to customers: A lot of AI innovation is happening in the Fintech space. Companies like Anki and X.ai are reducing human intervention in customer interactions. These innovations are propelling banks to integrate specialist third party services from niche start-ups in a very flexible way and bring these services to their customers. New tools are facilitating integration and cognitive agents are making it faster to train and activate a customer facing agent to sell these services to all clients. Thus, collaboration, rather than competition, is booming between banks and Fintechs, thanks to technologies like AI. While banks have the edge of an already established customer base, and their ability to scale offerings quickly, Fintechs are bringing in the innovation factor to the banking party!

As AI adoption accelerates, we see more advanced use cases emerging for banks, such as identifying opportunities from data and actively suggesting intelligent, dynamic policy changes. The speed and scalability of cognitive technologies will result in a slew of growth opportunities for banks which incorporate these approaches into their strategy.

May 19, 2017

Artificial Intelligence in Capital Markets: a tale of opportunities and Fintech collaborations

According to a recently released IDC spending guide, worldwide Cognitive Systems and Artificial Intelligence revenues are forecast to surge past USD 47Billion in 2020. According to another research firm, Opimas Research, in 2017, financial firms alone will spend more than USD 1.5 billion on artificial intelligence (AI) related technologies and by 2021, USD 2.8 billion, representing an increase of a whopping 75%.

Capital Markets, like every other space, is seeing a surge in technological solutions that are coming of age and delivering increased performance- especially in areas of advanced analytics, real time trade-processing platforms and improved regulatory compliance. These technological solutions in a way, have come as a panacea for Capital Market firms, which are grappling with increasing compliance costs and shrinking bottom lines.

Thanks to these macroeconomic factors, Capital Market firms are increasingly looking towards advanced technology solutions like AI to increase employee efficiency and aid faster decision making.

As a technology, AI already has established use cases in areas of client relationship management, trade execution, reconciliations, transaction reporting, tax operations, and several other areas.

We see initial implementations like robotic process automation for reduced manual errors and improving process speeds by automation of repeatable IT tasks. Even as the Capital Market firms explore more advanced use cases for AI, a few areas that we are seeing pilot adoptions include speech recognition, machine learning platforms and virtual agents.

However, the siloed legacy infrastructure that most of the capital market institutions have, coupled with lack of a cohesive, top-driven automation strategy are acting as impediments in the way of effective AI implementation. In such a scenario, many Capital Market firms are taking the route of small, targeted phases of adoption, which can scale in sync with their IT infrastructure.

Another aspect that we find interesting, is the alternate route that these organizations are looking to leverage for bringing in AI and other automation technologies into their ecosystem -- partnerships with Fintech players. Capital Market firms, much like banks, are partnering with Fintech players for things like AI driven post-trade processing platforms and advanced analytics. The most prominent model of these engagements as of now is via accelerators and labs, and the next phase can bring in investments and acquisitions.

As Capital Markets gradually move up the AI value chain, we can expect more Fintech collaborations, advanced use cases for areas like fraud detection and prevention and anti-money laundering activities.

Keep watching this space for the latest in banking technology and trends!

May 8, 2017

ATMs - celebrating a remarkable half-century milestone

Automated teller machines (ATMs) are celebrating their 50th birthday this year. The first ATM was invented by John Shepherd-Barron on 27 June, 1967, and was first installed in Enfield Town branch in north London. Within 50 years, it has evolved from a simple cash dispensing machine to an all-in-one digital banking outpost. Simultaneously, the ATM Industry Association (ATMIA) is also completing 20 years. So, this year marks dual celebrations for both 50 and 20 year milestones!

There were three million ATMs operating worldwide as of 2016. By 2020, the number is expected to reach four million. In fact, the world is going to witness around 37 percent growth in ATM installations between 2014 and 2020. This includes 50 percent growth in ATM cash withdrawals despite the presence of online banking.

It is no surprise that ATMs are the preferred banking channel, allowing customers to directly access their money. During India's demonetization drive, ATMs were the most visited machines. Most of us had to queue in front of them to get the first glimpse of the new 500 and 2,000 rupee notes.

Over the last five decades, ATMs have transformed from cash withdrawal machines to self-service channels, complementing branch, mobile, and Internet banking.

Today's ATMs are providing a wide range of banking services, as follows:

1.Card-less - With growing demand for near-field communication (NFC), personal identification number (PIN) and plastic cards are slowly becoming redundant. Several banks across the globe now support the use of smartphone for cash withdrawal from an ATM using NFC technology. Customers can download banking applications on their smartphones and wave their smartphones to get instant access to their money and other services. Such card-less ATMs can reduce customer data-related fraud which account for 30 percent or US$2 billion losses annually. Many leading banks across the globe have started launching an emergency cash service on card-less ATMs.

2.Multiple functionality - Thanks to rapidly evolving technology and smart innovations, ATMs now perform multiple functions including simple cash dispensation, instant loan provision, live video advise from tellers, among others. Banks are rapidly modernizing and innovating their ATM banking interfaces with simplified touch-screen user interface and advanced cybersecurity protection. The remote ATM monitoring software with advanced analytics are attempting to reduce the downtime of machine and operational costs, while improving utilization and customer satisfaction.

3.Cash recycling - These make cash deposited by customers for cash dispense operations by other customers thereby reducing the cost to banks for cash deliveries to ATMs. Chinese ATM vendor, GRGBanking has estimated that cash-recycling machines can decrease the daily cost of ATM operation by 18 to 25 percent, and could save as much as US$948,000 per 100 ATMs annually. This green solution is widely accepted by Japan -- in fact, 100 percent of new ATM installations in Japan are cash recyclers.

4.Biometric authentication - According to a survey, 40 percent of banking customers feel PIN is not a safe way to withdraw cash at ATMs. Biometrics are emerging as more reliable method of authenticating user's identity. With biometrics, banks can ensure only authorized customers who go through the fingerprint, palm and finger vein patterns, or iris scans can get access to their accounts.

The recent biometrics technique of customer authentication includes using customer's heartbeat rhythms, being tested by Canada's largest bank.

Let us browse the following key innovations:

1.Face-recognition ATMs: Customers can be authenticated based on facial recognition. Some leading ATM manufacturers have started offering this mechanism.

2.Loan-dispensation ATMs: Based on predictive analytics, banks can cross-sell through ATMs. The user interface can be personalized to offer most frequent transactions and next best offers. It can offer pre-approved personal loan to customers too. Customers can get loan approval in a few minutes and start accessing the loan money! Financial institutions (FIs) in Russia and Poland have started offering instant personal loans to customers through ATMs.

3.ATMs with video conferencing capabilities: Customers can have a video conference with teller through these ATMs. The teller can control the machine and its functions, helping customers to complete the banking transaction.

4.ATMs with aerial imaging plate: This is a contactless ATM with holographic floating interface. Customer can see the ATM user interface floating in midair. He can perform hand gestures to make a selection like pressing a button without touching the actual screen.

5.Apple's virtual ATM: Apple has recently filed a patent for iTunes-based ATM network. The apple phone user can launch the application and borrow instant cash from nearby iPhone users. The borrowed money will later be settled through iTunes accounts.

6.Gold-dispensing ATMs: One of top Swiss gold refiners in the world has launched Smart Gold ATM in Singapore. This gold vending ATM machine allows users to convert cash into 24 karat gold coins / bars. Likewise, ATMs can be used to dispense other goods, including lottery tickets, gift cards, movie tickets, postal stamps, and other consumer goods as well.

7.Bitcoin ATMs - Unlike traditional ATMs, these act as bitcoin currency exchange machines. They are connected to bitcoin exchange, allowing users to exchange cash for bitcoins or move money to public key on the blockchain. In future, when the regulations on bitcoin currency are formalized, these would be easily accepted by users worldwide.

ATM 2.0, the future of self-service banking, can be envisioned as the convergence of ATMs and smartphones with expanded interoperability.

ATMIA has rolled out the red carpet to celebrate this memorable milestone and urged billions of ATM users to join this mega event to unveil the true power of ATM!

May 3, 2017

Rethinking loyalty programs in cards and payments

- By Siddhartha Chanda and Souna Uthappa

Customer loyalty programs have always been important for any business and financial services (FS) industry is no exception. To understand why loyalty is so important, we can recollect Pareto's principle which states that 80 percent of the business comes only from 20 percent of customers. In other words, loyal and returning customers make a business workable and profitable.

Coming to the FS industry and in particular the card business, when we talk about loyalty programs, the first thing that comes to the mind is the point per spend model or more commonly called cash back program. This can be substantiated by data where in the US, about 91% of card companies offers the cash back program to the consumers at the rate of one point per dollar spent. Historically, cashback programs have been quite successful in customer retention, as they directly offer monetary benefits. CEB suggests that point-per-spend program directly enhances card usage by two times and increases account retention with half as likely to attrite - thereby increasing the length of the customer relationship.

However, the future of cashback programs looks bleak, as tighter margins could make them outdated by the end of the decade. In addition, regulators are incessantly scrutinizing interchange fees, which govern most funding projects. As a result, interchange fees have already started seeing a downward trajectory -- it has been reduced to 50 basis points (bps) or lesser from 175 bps in major markets.. On the other hand, in markets where interchange fees have been cut, issuers have started using higher fees and annual percentage rates to fund rewards, which is driving down customer satisfaction levels. In the debit card segment, where interchange fees were drastically cut in the wake of Dodd-Frank act, leading issuers have stopped offering reward programs.

At this juncture, FIs are moving away from traditional loyalty programs to a model which focusses more on services and features. In terms of services, some of the banks and card companies are looking beyond rewards and are focusing more on pricing features like trimming cash advance and annual purchase rates for best card holders, offering fee waivers for some of the services, and more. Another American financial services giant is putting its money in a coalition loyalty program, where it has collaborated with some of the top-rated retailers in the region and customers can earn and redeem at any of the retailer's locations.

Digital innovations using emerging technologies like big data, analytics, and machine learning are being used to come up with innovative features for customers. For instance, in one of the banks, big data is being used to get insights about a particular growing community, which can be used to create a customized loyalty program. Analytics helped the bank to get data about education levels, home ownership, affluence, and other factors. Based on the bank's geographic footprint, customers were categorized into segments and then their financial needs were identified. By getting these segmentation insights, banks could strengthen customer relationships and increase customer base within this community by 10 to 15 percent.

In addition, innovative digital apps with high-levels of personalization are helping banks earn loyalty of customers in a digital world. For instance, new apps are being built which automatically calculate the average monthly income of customers, helping them plan their expenses and savings better. During months of high-income, the extra amount gets moved to savings automatically. In another mobile app, unimportant transactions and budgets are not shown to customers, instead customers focus on must know information like the amount that can be spent, upcoming expenses, and automatic transfer of money to savings at set intervals, etc. Such intuitive features and much more will be definitely liked by customers.
Reward programs have become a key differentiator amongst financial institutions to foster a more customer-centric brand image, thereby retaining valuable customers.

The traditional model of cashback has become expensive, which comes from the interchange fees is under scrutiny by regulators. Leading institutions should overcome these challenges by discarding reward points in favour of non-monetary rewards and targeted campaigns through digital innovations.

April 17, 2017

Banking - Riding onto Augmented Reality journey

We all know Pokémon Go! The game was downloaded more than 100 million times in the first month of its launch and reported $10 million earning per day with its popularity. This introduction of augmented reality into gaming, added a whole new chapter in the gaming industry. It made players get up from their couches and explore new places in their surroundings. I witnessed this shift when my son explored an unknown temple nearby to grab the Pokémon and also saw some colleagues using staircase regularly to find the hidden Pokémon.

Virtual reality (VR) is a simulation, giving viewer the impression of a real scene with interactions. However, AR is integration of real-world information with advanced technology enhancements. It brings the digital interactions closer to the real-world by adding graphics, sound, and smell as perceived by the viewer in real world.

World's leading Global Investment firm has reported that VR / AR market across industries will reach $80 billion by 2025. Gartner has listed AR / VR in top 10 strategic technology trends for 2017.

AR has brought in superior customer engagement and there are many ways in which it can benefit banking industry. Mobile is the most favorite channel for financial transactions. Today's customers need personalized services and AR can truly enhance the customer experience by making the customer journey simple and interesting. Banks are investing into AR and trying to adopt innovative solutions to provide enriched customer experience and stand out in highly competitive world.

Let us outline key use cases applicable to banking and financial industry.

Location-based services

Mobiles have become more advanced with built-in sensors to work with AR applications. The handheld AR solutions utilize image linked map (ILM) interface to provide a stylized map for user interactions. Banks have started using these solutions to provide discounted offers, nearest ATM / branch locations, dinning offers, shopping centers, and many other options. These are displayed not just as GPS location on map but with real-time pictures along with detailed information about place, distance, directions, etc. Below are some of the examples where location-based services are provided with AR applications:
1. The oldest and leading foreign bank in China has launched an AR app called 'Breeze Living' on iPhone. It provides location-based services such as discount coupons.
2. The leading private-sector bank in India has introduced AR in its mobile application 'Near me'. It lists all the dining destinations, shopping centers, ATMs, branches, and many other things.

Virtual banking

Banking industry is undergoing a massive change, mainly due to emergence of changed customer expectations driven by technology. End-to-end digital banking is the key to great customer experience. AR app user can just scan his account number and with all displayed options, he can manage his account, make payments, and explore new products. User can hold his mobile camera on a product image and AR brings in the complete brochure alive!! With AR in place, the customer can even expect his personal banker virtually available in his living room, helping in finance management.

Banks in different regions have started adopting AR applications.
1. One of the leading bank in Australia has launched an interesting AR app for iOS devices, making account management possible. Customers can check their card balance, make payments, find the closest bank or ATM branches, etc.
2. Industry leader bank in Poland has enabled AR feature on their mobile app. Customer can point the phone camera at the banner on their website and avail augmented 360-degree product information and avail attractive interest rates!!
3. UAE's largest bank has launched the first virtual bank branch in the world using VR / AR features on new Apple Watch banking application.

Emerging banks or fintechs can adopt AR banking techniques, rather than setting up traditional brick-and-mortar branches . These banks will provide enhanced experience to customers and save the operational cost as well.

Mortgage and lending services

Banks can adopt the AR solutions to provide rich experience to potential lending or mortgage customers. Combined with location-based services, AR solution can help in property searches, listing down all details of property, view properties and display special offers when a device is pointed at it. This can further be enhanced for personal lending services.
Mortgage and lending services with AR applications are provided by the banks across all geographies:
1. Leading Australian mortgage provider has developed iPhone apps which are used for making property search decisions by giving property listings and detailed information on particular properties.
2. UK's largest provider of residential mortgages has advanced property listing with their AR application.
3. One of top financial institution in Spain is offering similar property AR application.

Stockbroking

Tech-savvy millennials are the key banking customers. Banks are focusing on them, engaging them more in their financial interactions and ready to provide loyalty benefits. Stockbroking contains huge amount of predictive and historical data. AR solutions can be used to gamify and create realistic world for customers to trade in, zoom in-out the data sets, and easily analyze the patterns.
Below mentioned trading service corporations are providing the stockbroking service with AR / VR application in the different regions:
1. The traders of multinational financial services leader are using virtual Holographic workstations with Microsoft HoloLens. These are augmented to complement existing trading environments, making trading experience interactive and interesting.
2. StockCity on Oculus Rift is introduced by an innovation firm of global financial trading corporation. It allows investors to visualize their investment portfolio as a collection of buildings. The AR aspect creates highly engaged trading experience.

Product training and education

AR / VR has the potential to convert lengthy boring training / education material into interesting gaming content. This can transform the way customers learn about new financial products and services. The virtual trainer can take several avatars explaining different perspectives about product / service. It can as well bring in cost saving by cutting down traveling cost for meetings and trainings.

Few banks have adopted AR / VR application for training on their new products. They are:
1. Switzerland's central bank launched an AR app during the release of new bill. The users can point the camera at the new bill and discover all the information about it.
2. Australia's leading multinational bank has announced first VR / AR learning system aiming at primary school children to teach them financial literacy.
Augmented reality provides new channel for financial service providers to deliver financial content in a novel and easily consumable visual format. Banks and financial service providers should think of AR as an opportunity to innovate and also transform customer experience for millennials and future generations.

Who wouldn't like performing financial transactions in an augmented business or monopoly game where bank notes float across your coffee table?

Banking - Riding onto Augmented Reality journey

We all know Pokémon Go! The game was downloaded more than 100 million times in the first month of its launch and reported $10 million earning per day with its popularity. This introduction of augmented reality into gaming, added a whole new chapter in the gaming industry. It made players get up from their couches and explore new places in their surroundings. I witnessed this shift when my son explored an unknown temple nearby to grab the Pokémon and also saw some colleagues using staircase regularly to find the hidden Pokémon.

Virtual reality (VR) is a simulation, giving viewer the impression of a real scene with interactions. However, AR is integration of real-world information with advanced technology enhancements. It brings the digital interactions closer to the real-world by adding graphics, sound, and smell as perceived by the viewer in real world.

World's leading Global Investment firm has reported that VR / AR market across industries will reach $80 billion by 2025. Gartner has listed AR / VR in top 10 strategic technology trends for 2017.

AR has brought in superior customer engagement and there are many ways in which it can benefit banking industry. Mobile is the most favorite channel for financial transactions. Today's customers need personalized services and AR can truly enhance the customer experience by making the customer journey simple and interesting. Banks are investing into AR and trying to adopt innovative solutions to provide enriched customer experience and stand out in highly competitive world.

Let us outline key use cases applicable to banking and financial industry.

Location-based services

Mobiles have become more advanced with built-in sensors to work with AR applications. The handheld AR solutions utilize image linked map (ILM) interface to provide a stylized map for user interactions. Banks have started using these solutions to provide discounted offers, nearest ATM / branch locations, dinning offers, shopping centers, and many other options. These are displayed not just as GPS location on map but with real-time pictures along with detailed information about place, distance, directions, etc. Below are some of the examples where location-based services are provided with AR applications:
1. The oldest and leading foreign bank in China has launched an AR app called 'Breeze Living' on iPhone. It provides location-based services such as discount coupons.
2. The leading private-sector bank in India has introduced AR in its mobile application 'Near me'. It lists all the dining destinations, shopping centers, ATMs, branches, and many other things.

Virtual banking

Banking industry is undergoing a massive change, mainly due to emergence of changed customer expectations driven by technology. End-to-end digital banking is the key to great customer experience. AR app user can just scan his account number and with all displayed options, he can manage his account, make payments, and explore new products. User can hold his mobile camera on a product image and AR brings in the complete brochure alive!! With AR in place, the customer can even expect his personal banker virtually available in his living room, helping in finance management.

Banks in different regions have started adopting AR applications.
1. One of the leading bank in Australia has launched an interesting AR app for iOS devices, making account management possible. Customers can check their card balance, make payments, find the closest bank or ATM branches, etc.
2. Industry leader bank in Poland has enabled AR feature on their mobile app. Customer can point the phone camera at the banner on their website and avail augmented 360-degree product information and avail attractive interest rates!!
3. UAE's largest bank has launched the first virtual bank branch in the world using VR / AR features on new Apple Watch banking application.

Emerging banks or fintechs can adopt AR banking techniques, rather than setting up traditional brick-and-mortar branches . These banks will provide enhanced experience to customers and save the operational cost as well.

Mortgage and lending services

Banks can adopt the AR solutions to provide rich experience to potential lending or mortgage customers. Combined with location-based services, AR solution can help in property searches, listing down all details of property, view properties and display special offers when a device is pointed at it. This can further be enhanced for personal lending services.
Mortgage and lending services with AR applications are provided by the banks across all geographies:
1. Leading Australian mortgage provider has developed iPhone apps which are used for making property search decisions by giving property listings and detailed information on particular properties.
2. UK's largest provider of residential mortgages has advanced property listing with their AR application.
3. One of top financial institution in Spain is offering similar property AR application.

Stockbroking

Tech-savvy millennials are the key banking customers. Banks are focusing on them, engaging them more in their financial interactions and ready to provide loyalty benefits. Stockbroking contains huge amount of predictive and historical data. AR solutions can be used to gamify and create realistic world for customers to trade in, zoom in-out the data sets, and easily analyze the patterns.
Below mentioned trading service corporations are providing the stockbroking service with AR / VR application in the different regions:
1. The traders of multinational financial services leader are using virtual Holographic workstations with Microsoft HoloLens. These are augmented to complement existing trading environments, making trading experience interactive and interesting.
2. StockCity on Oculus Rift is introduced by an innovation firm of global financial trading corporation. It allows investors to visualize their investment portfolio as a collection of buildings. The AR aspect creates highly engaged trading experience.

Product training and education

AR / VR has the potential to convert lengthy boring training / education material into interesting gaming content. This can transform the way customers learn about new financial products and services. The virtual trainer can take several avatars explaining different perspectives about product / service. It can as well bring in cost saving by cutting down traveling cost for meetings and trainings.

Few banks have adopted AR / VR application for training on their new products. They are:
1. Switzerland's central bank launched an AR app during the release of new bill. The users can point the camera at the new bill and discover all the information about it.
2. Australia's leading multinational bank has announced first VR / AR learning system aiming at primary school children to teach them financial literacy.
Augmented reality provides new channel for financial service providers to deliver financial content in a novel and easily consumable visual format. Banks and financial service providers should think of AR as an opportunity to innovate and also transform customer experience for millennials and future generations.

Who wouldn't like performing financial transactions in an augmented business or monopoly game where bank notes float across your coffee table?

April 5, 2017

Innovation in payments -- Payments enabled smart screens

In today's world, technology surrounds everyone in one or the other way, so it might not be completely incorrect to say that it is technology that is making us 'smart.'

Almost everyone has heard of smart phones, smart cities, and smart homes. The cell phone and PC connections to the Internet have been there for many years now, but today we see many other physical devices connected to the Internet; this is known as the Internet of things (IoT). Improved wireless technology, increased usage of smartphones, low-cost sensors, and such trends are fueling the way IoT brings disruptions across various domains.

Today, most consumers have shifted to online platforms because of the ease and convenience offered. IoT can be leveraged to entice the consumers back into the shopping streets.

The screens in malls, streets, airports, and others playing the usual advertisements fail to engage today's consumers, so there is a need to engage better. But how? The answer is 'connected screens.'

These screens engage customers via near-field communication (NFC) and can be installed in stores, street joints, shopping centers, metro stations, airports, etc. These screens have the potential to become a new point of sale (POS) 24/7, so market players are trying to provide a mix of payments and connected screens. This definitely will be a smooth experience for customers. While waiting for a bus or a train, they can get interested in a promotion or offer on the screen, walk to the screen, select the product, and make the payment via contactless cards or mobile wallets, which is smarter, quicker, simpler, and as secure as in any physical store. Payments-enabled connected screens allow the consumers to pay for goods and services easily.

There are many instances available in the industry which have showcased and tested the usage of payments-enabled connected screens. At Gatwick airport, Tesco had launched interactive screens (based on barcodes), where the travelers could shop for products and get the same delivered at their door step when they are back. Along similar lines, charitable organizations have collected charity from people through connected screens that allowed people to make donations instantly by tapping their NFC card or connected devices on the screen.

The growth of IoT, contactless payments (NFC), and increased emphasis on customer engagement are empowering the adoption and deployment of connected technologies. Payments-enabled connected screens are just one area. We should be all set for a wide-scale deployment across the world in the coming two years.

March 31, 2017

Real opportunities in artificial intelligence

- By Kuljit Singh and Saurabh Jain

One of the most interesting parts of our fun-filled annual get-together was the gems of wisdom imparted by our senior management. Most emphasis was laid on how the financial services industry is captivated by artificial intelligence (AI). It was stated categorically that AI is and will remain at the top of our agenda for some time to come.

My earliest memory of robots with intelligence, and in this case with lots of muscle, is that of the movie, Terminator's part one. It is fascinating to understand that what was shown as fiction in the movie, in terms of the Terminator gathering myriad data and processing it to take its decision in real time, has now become a reality and fad.

Financial services firms are using AI in the forms of real-times analytics, predictive analytics, machine learning, deep learning, image and video analytics, graph analytics, bots, RPA, and more to improve their understanding of customers and also to improve their services and processes. If we look around, AI is becoming ubiquitous and is touching all domains and functions within financial services, like, fraud analytics in consumer banking, real-time analytics in corporate banking for loan approvals, real-time analytics in capital markets for monitoring trade, etc. Similarly, biometrics is used in consumer and corporate banking for identification, in capital markets for identifying trading patterns, and more.

One of the recent examples which gave us inklings of banking interests in AI is Santander's announcement that it would be using voice recognition via its mobile app to provide secured transactions. RBS bank's AI customer service assistant, Luvo, which interacts with its staff, is on trial. RBS plans on using it to serve customers in the future. Swedbank's Nina, a web assistant, and many such banks are already using or are in the process of using AI for various aspects of banking.

The focus is now moving from basic robots to humanoid robots with human emotions, like Pepper, the robot developed by Softbank, which is powered by IBM Watson. Mizuho Financial Group started using Pepper to address customer inquiries in 2015 itself. Not to be left behind, Mitsubishi UFJ Financial has also trialed a humanoid robot named Nao.

With such sharp focus and widespread acceptance of AI, it is imperative for technology companies to up their games to be able to service the demands of financial services clients. As AI moves deeper into the organizations, the opportunity is getting bigger for vendors to help select, deploy, and maintain this new AI ecosystem.

As in Terminator, where the famous antagonist spoke in an impersonal and robotic voice with no human touch, the same malady also ails the current robots. And to find the cure to these and other issues is going to present challenges and opportunities, which would keep banks as well as vendors busy for some time to come.

March 28, 2017

Is 2017 the year of regtechs?

- By Naveen PV and Varun Narang

Regulation was just a word before 2008, then it became 'the word' and for financial services -- the world. The subprime crisis of 2008 led to an over-regulated environment in financial services. The likes of Volcker, Dodd-Frank, and stress tests became buzz words, and millions of dollars were spent on ensuring compliance with the regulations.

Since the financial crisis, major US banks spent billions of dollars on compliance and added substantial strengths to their compliance departments. Financial institutions (FIs) began capturing, storing, and analyzing more data in-house, data reporting saw a substantial uptick, and new approaches to handle risk were introduced. 

At this juncture, the intervention of technology became really critical to handle the massive growth of reporting requirements. This subsequently led to the marriage of regulation and technology, leading to regtech (regulatory technology). Regtech came to the help of the financial services industry by automating compliance tasks and reducing the operational risks associated with meeting compliance requirements.

The effect of regtech on regulations is almost as extraordinary as fintech's impact on banks. It addresses risk and compliance obligations in a very cost-effective way by using algorithms and analytics to generate real-time information. Regtech also triggers innovation in the compliance space by identifying and adopting emerging technologies which have the potential to help firms manage regulatory compliance in an efficient way.

Few areas where regtech is affecting substantial change are anti-fraud measures, anti-money laundering (AML), Know Your Customer, regulatory reporting tools, compliance analytics, and such. For example, AML checks can now be streamlined using new approaches, social media and biometrics can be used effortlessly for customer due diligence, and producing a suspicious activity report can be a click away for banks.

Few interesting regtech companies are: Suade, a technology consultant for regulatory concerns; AlgoDynamix, a risk analytics company that detects disruptive events; Silverfinch, a data distribution hub that connects asset managers and insurers through a fund data utility; Corlytics, a provider of compliance risk analysis for financial institutions; Trulioo, an identity verification company; IdentityMind Global, an on-demand platform providing risk management and anti-fraud services; and such. A few governments are also making efforts to promote regtechs. Britain's Financial Conduct Authority provides clarifications on the compliance steps to follow and has also partnered with various FIs, academics, and accelerator platforms. Regtech companies are making complex work simple, making firms more flexible, and helping them reduce the regulatory costs.

2017 was tipped to be a great year for regtechs. However, the sector may face some issues due to the proposed policies of the new US president, which is targeted at de-regulation of the financial sector. The decrease in the number of regulations and their complexities would impact the prospects of regtechs, at least for some of the late entrants into the game. Regtechs have been focusing on digitization and automation of manual reporting and compliance processes during most of its existence. But looking at the imminent changes which may occur in the US regulatory world, to stay relevant, regtechs should broaden their scope of activities and move towards helping the financial services segment to monitor and enforce compliance with the regulations in near real-time. Nevertheless, regtechs will continue to have a profound influence on how banks and financial services firms comply with regulations in the future.

March 27, 2017

Transforming financial services using IoT

The divide between the physical and digital world is thinning as if these worlds are merging into one. As per Gartner, by the end of this year, there will be ~8.4 billion connected things (commonly referred to as Internet of Things or IoT) in the world, recording, and processing data continuously. To put this large number into perspective, as per McKinsey, IoT may generate US$11 trillion in economic activity by 2025 and has the potential to change the world as we know it.

As the name suggests, Internet of Things is the interconnection of computing devices embedded in things and is mostly associated with the engineering or manufacturing sector like building connected cars or safer aircrafts.
IoT has the potential to transform intangible services like financial services, though indirectly, using tangible things.

The most obvious benefit which comes immediately to mind is the availability of better and more data regarding users' assets. The other benefits are improved customer experience and operational performance, effective product / stock pricing, development of usage-based insurance, effective underwriting, etc.

IoT can be used in all the sub-sectors of financial services like insurance, customer relationship management (CRM), data management, investments, banking, and such. Auto insurers have started installing IoT devices in customers' cars, which help to choose better policies and effective premium rates. Investment bankers can invest in easily measurable things like weather, therefore pricing derivatives better.

High-frequency traders can invest their money a few seconds before the rest. Retail banks can get actionable insights from home appliances data and provide timely credit to customers. Business banking can provide less risky loans to SMEs by predicting how many appliances will need maintenance.

Recently, IBM established global office for its 'Watson IoT' business, having ~6000 associates and clients world-wide. Japanese bank, Mizuho, has started research and development (R&D) on the creation of a platform for secure payments using IoT devices such as smart home kits, connected cars, and wearables. Australia's Commonwealth Bank, experimented with an inter-bank trade transaction combining Internet of Things with blockchain. BNP Paribas' German digital arm, Consorsbank, has formed a team to develop new financial services such as investment advice using IoT. A European bank is piloting on a 'healthy savings account.' The bank will track customers' fitness levels through a wearable device and offer higher rates to those who burn more calories.

Insurers and bankers are already waking up to this massive opportunity and sensitizing their employees to modify and align their offerings with smart devices. From an IT vendor's perspective, they can start by forming a separate team focused on IoT. They can also start tying up with industrial consortiums, academia, and IoT platforms like Amazon, GE, Microsoft, and such to be prepared to surf this game-changing tide.