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

September 29, 2016

Open banking over API gets a fillip with CMA measures in the UK

- by Amol Kulkarni and Harshit Tripathi

"We need banking but we don't need banks anymore" -- Bill Gates, 1997

Almost 20 years on and Bill Gates' prediction regarding the biggest transformation in the banking sector seems ever so true. It is disruptive and radical to think of banking without banks, but who knew that one day technology could undermine the existence of banking institutions themselves. Though it is just the beginning, but CMA directives to implement open banking over application programming interfaces (APIs) is set to mark a milestone in this journey.

The Competition and Markets Authority (CMA) launched an investigation and analysis of current accounts and associated services to individuals and small and medium-sized enterprises (SMEs) on November 6, 2014, costing five million pounds, to further the intention towards open banking over API that was being evangelized by the Open Data Institute (ODI) and Open Banking Working Group (OBWG).
While the CMA has set the course in the right direction, there are still a few areas where the CMA could have done better.

Key measures in the right direction:-

• Simpler charges and intimations on overdrafts
• Disclosure of service quality measures, which can be meaningful if key performance indicators (KPIs) are shaped with inputs from customers instead of banks
• Providing a common platform for price comparison and selection
• Encouraging credit agencies and banks to share the transaction history of customers, resulting in better credit deals especially for SMEs
There is a need to do more...
• Rather than attempting to refine and add value to 'what is being offered', the CMA directive is more focused on 'how it is being offered'
• It is an old ball game for banks to charge customers one way or the other. Restricting income from overdraft charges will push banks to increase charges elsewhere. There cannot be directives to avoid this fallout
• The CMA views the market in just two segments -- retail and business banking customers -- while in reality, the market is lot more segmented. Tech-savvy versus technologically-challenged are two such segments the CMA should have considered before mandating these directives

From its final set of directives, the CMA aims to promote greater market competition and enable customers to leverage open APIs and leverage the best deals for their banking needs.
The directives will not only allow customers to view all their bank accounts in just one application but will also enable them to easily compare products and services from different banks, as well as receive personalized financial advice and get the best deals. Moreover, for banks, it is not just going to be about giving the best offers and deals, but also to publish their service quality indicators, which will allow customers to evaluate between competitive price offers and quality of service.

The CMA has made it a top priority to empower tech-savvy customers in both the retail and business banking segments with more insights into pricing structure and enabled comparison. There seems to be marginal impact and empowerment for less tech-savvy customers. With this, the CMA has targeted the 'cost focused' section of Michael Porter's   strategy and has ignored the 'differentiation' factor in order to gain a competitive advantage. The CMA directives seem to have ignored the fact that value addition to the existing range of products and services could also drive competition.

The directives have shifted the focus on how to make switching banks an easier task without losing your history and Nesta's challenge for price comparison will ensure customers get the best deal.   We believe this will actually result in more of a comparative advantage, rather than a competitive advantage.

It is still early to assess the impact of the CMA's directives since a lot is dependent on how innovatively technology is used to build the new open banking ecosystem. While there are still many positives which should be encouraged; however, the timing is still in question since banks are looking to replace their legacy systems and a low interest rate environment is already marring their earnings. To top it all, open banking APIs are set to trigger aggressive price competition, which might push banks further towards lower margins of profit.

However, open banking will find its force as FinTechs and other market forces make it inevitable. Open banking over API will create immense possibilities in delivering banking services over ALEXA like AI-based assistants who can, in turn, call banking APIs that have been exposed. We can expect banking services to truly permeate our lives over unimagined touch points.

The US dilemma: To be 'SWIFT' or 'FASTER'

- by Varun Narang and Sweenie Dabas

The payments universe is evolving rapidly.  Companies and consumers are constantly trying to stay ahead of the curve to comprehend the future. In such a scenario, real-time payments may be the crystal ball. 'Real-time payments', or 'Immediate payments' allows consumers and businesses to transfer money in real-time between bank accounts at a very low cost.

Globally, about 30 countries have either implemented or are in the process of reviewing and implementing an immediate payments infrastructure. The US, however, despite being the largest economy and a technologically advanced country, has made noticeably slower progress in this regard.

The US has been in a quandary for some time now. The Electronic Payments Association (NACHA), the Federal Reserve System (Fed), banks and other players have been talking about real-time payments for the last 20 years but only recently did the Fed take concrete steps towards its implementation.

In 2015, the Fed established 'The Faster Payments Task Force' with 331 members dedicated to improve the payments system across the US. It is tasked with identifying new and effective approaches for implementing faster payments capabilities in the US and is supported by McKinsey in the effort. Instead of following the beaten track of mandatory and controlled approach, the Fed has taken a conducive approach and is encouraging various industry parties to develop solutions and letting the market discover and decide the best solutions, governed by the broader guidelines called 'Faster Payments Effectiveness Criteria'.

The central bank's move has encouraged several initiatives to enable immediate payments -

- In October 2014, the Clearing House (operator of CHIPS and EPN ACH network) announced a multi-year endeavor to build a real-time payment system. It is currently working with FIS and is set to launch a pilot in Q1 2017
- In May 2015, NACHA adopted a rule that will enable same day processing of Automated Clearing House (ACH) payments and its phased implementation will begin in Sep 2016
- clearXchange (a P2P payment network owned by member banks) has already reached more than 170 million digital customers
- Payment solution providers such as Fiserv and FIS have launched proprietary real-time payment services - Popmoney and PayNet, respectively
- Fintech startup Dwolla runs a real-time, streaming payments protocol FiSync and has already submitted a real-time payments proposal to the Fed task force. Another startup, Ripple Labs, settles transactions in real-time using distributed ledger technology
This huge and heterogeneous ecosystem will lead to rapid strides in developing real-time payments and will give banks a bouquet of options to choose from. In fact, some of the largest banks - Wells Fargo, Chase, BofA - have started offering real-time P2P payments this year.

A real-time payments system will benefit multiple stakeholders in the U.S., including retail consumers, banks, and government agencies. However, it will not be without challenges. It will require significant overhaul of the legacy systems which currently support batch transactions, streamlining of operations to provide 24/7 support, and enhanced fraud and risk management.

The vast number of US banks, 6799 to be precise, and the number of parties involved, makes this project more challenging and unique. It was relatively easier to implement 'Faster Payments Scheme' in the UK, 'SIC' in Switzerland or 'FAST' in Singapore, given the small number of institutions in these regions. But the large and dynamic ecosystem of the US underscores the need and role of technology consultants to enable the transformation and represents a huge opportunity for IT service providers. They can enable banks to make their payments infrastructures more robust by assisting in:

- Easy product related customization
- Infrastructure designing to make it highly scalable and resilient
- Infrastructure implementation and server hosting
- System integration with periphery systems
- L2, L3 infrastructure support
- Regulatory compliance Singapore's

The Faster Payments Task Force will publish its assessment of the solution proposals in early 2017. But the Fed has not made it mandatory for banks to contribute and there is no deadline attached. US banks, however, can't afford to just sit back as this represents a huge opportunity - mobile P2P is estimated to grow to USD174 billion by 2020, up from USD5.6 billion in 2014 - and savvy fintech startups are already way ahead in the race. With their global peers having reached the destination already, it is imperative for US banks and regulators to come to a consensus on establishing real-time payments system in the country, and soon.

September 22, 2016

Are commercial banks with FinTechs or not, in the innovation race?

- by Souna Uthappa and Irene Varghese

All eyes and ears were on Rio Olympics in anticipation to see who contrives the best strategy and exhibits exemplary skillset to win the race! At the end, it was the US which emerged as the ultimate winner in the game of Citius, Altius, Fortius!
Likewise, most banking executives are touting on the latest buzz - FinTech which is disrupting the financial services arena. Consumer banks have already started making strategic moves partnering with FinTech firms, so that they don't fall prey to them. Now, it's time for the less digitally-savvy commercial banks to be 'faster, higher, stronger'.

Seeing the rich banking experience enjoyed by consumer banking customers, commercial banking customers too have started demanding innovative products, platforms, and a seamless banking experience. Towards this, banks are proactively reaching out to their commercial clients in an attempt to find out their areas of concern and come up with innovative solutions, FinTech being one among them.

Recently, KeyCorp bank conducted a survey of commercial clients and found that digitizing payments is the need of the hour. Another major bank, SunTrust introduced a payment & technology unit. The objective of this unit is to focus on FinTech startups that are looking at new solutions in the commercial banking space and utilize those solution for their clients. U.S. bank  joined tech start up Plug and Play as aFinTech and security anchor partner. Leveraging FinTech, U.S. bank has also introduced mobile payment services for their aviation clients which lets its private and business pilots to pay for fuelling and services from their phone directly.

From the above examples, it is evident that commercial banks are focusing on leveraging FinTechs in digitizing their payment business. Initially, payment innovation using FinTech was the hotbed for consumer banking but now it is gaining traction among commercial banks as well. Considering the fact that commercial clients are looking for more digital payment tools and experience, it would be futuristic for banks to thread a story with FinTechs in the payment space.

Beyond the frontiers of payments, the other area which could see momentum is small and medium enterprise (SME) lending. The SME market is mainly underserved and so easier for FinTech firms to penetrate. Hence, commercial banks need to find the right approach, so that they don't lose their share of profit to FinTechs. Recently, JP Morgan partnered with OnDeck, an online small business lender; to strengthen their SME offerings by leveraging OnDeck's credit modeling expertise.

The above mentioned are just a few business areas in which commercial banks can partner with FinTechs to stay ahead. They can also be leveraged to strengthen the banks' operational efficiency in areas such as process automation, specialized services, analytics, client onboarding, etc.

FinTech is bound to stay! How well banks use FinTechs in their business model would script their future. Commercial banks who were laggards in digitization can't afford to lose out on the FinTech opportunity as well. Hence, CXOs of these banks must devise the best plan to incorporate FinTech in their business model either via partnership or acquisition, so that commercial banks touch the finishing line in the innovation race!

September 12, 2016

Social Media Banking: Are Banks Ready?

- by Chetna Narayanan and Prasanna Sekar

A trek to the bank branch / ATM to either open an account or make a payment transaction is a familiar event for most of us. But the last 5-10 years has brought about sweeping changes in banking with an array of payment channels - plastic cards, online (Internet), mobile, peer-to-peer (P2P), and more - made available by financial institutions.Gone are those days when one has to visit a branch or trek to an ATM to make payments. Online banking has enabled customers to transfer or make payments from the comforts of their home.

After online banking, P2P services and mobile cash transfers emerged as the next important frontier in payments, opening the customer's gateways to new innovative ways of payments as it connected individuals to banks, the Internet and merchants.

Today, banks are moving a step further by transforming themselves from "transactions to interactions" using social channels such as Facebook, Twitter, etc. The growing presence of banks in social media is changing the way banks engage with their customers. Banks are making themselves accessible in social media channels. Thanks to the new age 'social banking', customers can do their favorite activity, i.e., be online on Facebook / Twitter and simultaneously, get access to banking activities.

Social media channels such as Facebook, Twitter, and WhatsApp have grown over the years. These channels have a much bigger potential to act as a medium to do business for banks and not just be limited as a medium to get feedback or advertise new products. Concepts such as social media payments could change banking by allowing customers to use social media to make payments or carry out various other transactions.
The concept of social media payments is not new. However, few banks have realized its potential to be the future of banking. Things are changing now as more and more banks are starting to accept social media as a medium for payment transactions.

Consider a scenario where a customer can pay through his / her twitter handle and WhatsApp. This has already been implemented by Barclays in 2015 for their 13.5 million twitter users in the UK. ICICI bank too allows customers to pay through Twitter, and ABN Amro is leveraging WhatsApp as a medium for customers to send payment requests to another person in their WhatsApp contact list.

Facebook, WhatsApp and Twitter are not the only social media channels for banks. There are other channels such as Pinterest (Image Sharing) that banks can leverage. Banks could create boards such as "buying a car" or "holiday destination" in Pinterest and pin it with interesting images that will interest or influence customers when they are evaluating their purchase options.

Fintech are also responding actively in the social media payment space and are trying to provide integrated solutions through social media apps. For instance, Fastacash, Circle, Venmo (owned by Paypal) are leveraging social media networks and messaging apps to provide P2P payments and consider social payments to be its future.

In a world where change is the only constant, banks must change too and adopt newer ways to differentiate themselves and engage customers.

September 2, 2016

Digital core - Beyond core banking?

-by Souna Uthappa and Naveen PV

Banks are facing a lot of pressure to increase efficiencies and cut costs. But this is being hindered by the core systems that they have adopted over the years, which are amongst the oldest in the banking technology landscape and lacks agility. In today's digital environment, where digital drives customer experience, it is imperative for banks to have a digital framework at their core. A strong digital core enables customer centricity, better customer experience, a single consolidated view of the customer, real-time insights leading to quick decision-making, cost-savings, an omnichannel banking experience, improved compliance and much more. According to Forrester, one of the main differentiators of the digital core is the separation of customer interactions and data, thereby significantly reducing the amount of risk to the customer.

Many banks across the globe have already embarked upon their digital journey on the core banking front and are slowly moving away from products to platforms. Some recent examples of digital core adoption include:

• First Hawaiian Bank selected a suite of digital banking, payments and personal financial management capabilities
• Hong Kong's Fubon Bank selected  a core banking solution to enable a 24/7 multichannel operation with a 360 degree view of customer relationships
• Nordea replaced its  core banking systems in order to facilitate the digitalization of business operations
• Sweden's Länsförsäkringar Bank selected a new platform to power its transformation and to enhance next-generation digital banking services and offer a highly-personalized customer experience
• Bank of Bhutan adopted a new core  to power its next-generation banking services and to create a strong foundation for the bank's digital banking strategies
• Norway's Sparebanken Sogn og Fjordane opted for a digital banking platform (DBP) to enable its new omnichannel banking experience

Core digitalization adoption has been largely limited to new-age banks and smaller / mid-sized banks. Larger banks have stayed away from this trend, primarily due to the sheer scale of implementation, potential disruption of operations during the project, and the cost associated with core replacement and transformation.

Considering that the core transformation and replacement have a major impact on the bank's operational and financial front, banks are becoming increasingly cautious in making decisions regarding the new core as well in the core selection process. But to remain competitive, digitization has become a must; therefore banks need to innovate and extract maximum value out of their core banking and digital banking capabilities and make the necessary changes in their architecture to support this. If not, they face stiff competition from digital banks, niche vendors, mobile or online banking solution vendors, startups, and fintechs, which will eventually result in a diminished market share.

August 17, 2016

The 'artificially intelligent' hedge fund rises

- By Sweenie Dabas and Mayur Bansal

Right now, artificial intelligence (AI) is certainly the buzzword in financial services. From robo-advisors (automated financial advisors and planners) and humanoid robots in branches, to chat-bots (chat robots for customer service) and machine learning algorithms for fraud detection and credit scoring, AI is inundating the world of banking, payments, and wealth management. And the big, secret world of hedge funds is actively exploring this technology as well.

The traditional systematic trading techniques used by hedge funds have to rely on human beings to develop the mathematical models to find trading opportunities. Now, AI is enabling the development of self-learning programs where the initial software application is created by humans, but after which it can develop itself, learn through real-time experience, and adjust its strategies accordingly. The shift from discretionary to systematic hedge funds is fast taking place and is visible in the number of hedge funds being launched. In 2014, more than 40 percent of new hedge funds launched were systematic funds, i.e., they utilized computer systems to select investments, which was the highest ever till that time. AI-based hedge funds have also justified their existence by outperforming average industry returns consistently since 2008, with 2012 being the only exceptional year in which they under-performed.

Artificial intelligence is being used for natural language processing (NLP), sentiment analysis, big data analysis, and deep learning to explore investment opportunities. In addition to processing vast amounts of financial data to extract hidden trends, AI techniques enable the analysis of non-financial data like news articles, tweets, pictures, videos, etc., and recognize patterns though human-like inferences. Advanced techniques such as Bayesian networks and evolutionary computation are also being used to build machine learning models for hedge funds.

Artificially intelligent systems are being explored and developed by well-established hedge-funds like Bridgewater Associates, Two Sigma Investments, and Renaissance Technologies, as well as new AI-focused firms including Sentient, Rebellion Research, and Aidyia, with the total managed capital running into trillions of dollars.

Some examples include:
1) Two Sigma manages assets worth US$35 billion and uses advanced AI technologies to discover new investment opportunities. One of the applications it uses is NLP to analyze the Federal Reserve (FED) minutes of meeting in order to gain insights into focus areas of the FED
2) Hong Kong-based Aidiyia is another flag bearer which has developed a trading robot inspired by genetics. Aidiya started trading in US equities in 2015
3) San Francisco-based startup, Sentient Technologies, has also been trading using AI-based systems since last year
4) Numerai is another AI-based hedge fund which has been developed by a community of anonymous data scientists. It makes use of a monthly tournament to get AI based-models from various data scientists to predict the stock market movements. Numerai received a funding of US$1.5 million from Renaissance Technologies

Since its inception, AI has witnessed contrasting hype cycles. Currently, however, the industry seems primed for disruption and innovation and AI's evident broad-based applications and benefits make it a potential game-changer. But it will not be devoid of challenges - AI requires not just skilled human resources, but also technology infrastructure that can work on extremely low latencies. It will also need extremely supportive reconciliation, reporting, and various other operation support applications. In addition, the regulatory side of use of AI in hedge funds remains hazy. But as AI becomes more mainstream, more robust regulations will surface that will require financial institutions (FIs) to develop stringent controls and risk assessment frameworks.

Like any other disruptive technology, there would be some AI techniques that fail or lead to unexpected results. But overall, it could lead to some big systemic changes in the hedge fund industry.

Risk management - Evolving challenges and models

- By Mayur Bansal and Ashima

The post-crisis era has witnessed a slew of compliance regulations in the finance industry. New products, increased government scrutiny, and a strong focus on compliance, has brought greater risks and a larger set of rules and regulations. Financial institutions (FIs) must now review their compliance practices and the technology infrastructure that supports them, and pursue a broad range of compliance and risk initiatives. According to predictions, the global IT expenditure by FIs on risk IT services and systems is expected to be US$70 billion in 2016. This expenditure has been mainly driven by investments in the areas of governance and systems, and process integration. However, expenditure in additional areas, such as compliance, stress test reporting, data aggregation, enterprise crime and fraud, are also important for the growth of risk IT spending.

Industry participants and regulators are focusing on managing risks due to various costs associated with enterprise fraud, money laundering, market and credit positions. In addition to US$12.4 billion in monetary fines (till 2014, as per CEB TowerGroup), there are various hidden associated costs such as fraud remediation and ongoing monitoring costs, suspension of licenses, opportunity costs, reputation damages, and higher risk premium costs. FIs face various challenges when attempting to improve their risk management practices. One big challenge involves identifying, developing, and adapting to new technologies. The other is adopting proactive risk management and compliance methodologies. Availability of good quality data, ever increasing pressure to maintain / increase profitability, reducing margin of error, and growing complexity in impact analysis, are key factors that make it necessary for FIs to understand risk with a fresh perspective.

Risk management approaches adopted by FIs are being enabled by technology in many ways. Their current approaches utilize advances in the fields of big data, analytics, and storage technologies to make risk management more futuristic and predictive as compared to the traditional and backward-looking methodologies. The approaches are being fine-tuned to make them more integrated and holistic for real-time analysis and reporting, as per regulatory requirements. Risk management in financial services is continuously evolving with the expansion of the role of the Chief Risk Officer (CRO) or Chief Finance Officer (CFO) being introduced to take care of capital utilization, cash management, and regulatory compliance. CROs have now become the first line of defense with the responsibility of overall risk management. In addition, it is now crucial to invest and innovate in risk platforms. For instance, innovations such as blockchain technology and crypto-currencies have removed various intermediaries in the transaction processes. The innovations must focus predominantly on risk reduction with efficient and predictive technology.

Looking ahead, the business models of FIs will need to be risk-based with a focus on just-in-time risk management and analysis. The technology infrastructure will need to be reinvented to bring improved controls and compliance while decreasing operational costs. Further, holistic risk management frameworks will need more investments, as a fragmented approach will adversely affect the complexity, efficiency, and sustainability of FIs and their systems.

August 2, 2016

Bank(ing) on big data - Banks or fintechs?

- By Chetna Narayanan and Prasanna Sekar

Today Data is omnipresent and is one of the most talked about topics across the table - anywhere and everywhere. But if you think that only the availability of data makes sense to create better offerings or to generate better value in the financial services (FS) industry, then the answer is a big 'NO'! Why? Because only the proper channelization of data will create value-based offerings for customers.

Though banks have huge amounts of data available to them, they, inadvertently, do not utilize this data to the extent they are supposed to in today's highly competitive marketplace. Banks have in their possession a significant amount data, which can be represented as the voice of the customer (VoC) on different social media platforms to understand customer needs and behavior. Unfortunately, they are not technically competent to utilize this data to create a more engaging customer service

Banks own and enjoy the advantage of data volumes, which comes in all shapes and sizes: horizontal, vertical, structured, semi-structured, and unstructured. Despite banks and financial institutions being such significant custodians of financial data, they do not use data points innovatively to create value-based offerings to customers as they are still struggling to be technically competent. However, they are powerhouses in terms of data collection and this is where fintechs firms like PayPal or TransferWise - are playing an active role in building customer-centric products and taking the financial innovation concept to banks

Among fintechs, big data analytics is one of their favorite roundtable discussions as they are utilizing and putting data into action by creating value for traditional banks through increased efficiency and cost reduction.

Banks provides plethora of customer data but it's of no use if it cannot be retrieved, validated, disseminated, and effectively converted into actionable insights. Today, fintechs are helping banks to disseminate the customer information so they can use it effectively to do deep dive analysis of consumer's financial behavior, enabling the delivery of much more personalized and comprehensive range of services.

For example, Barclays uses big data and Hadoop to come up with services called the Local Insights and Smart Spend. This is their attempt to stay technologically competent to understand and engage with their clients.

Fintech firm Trulioo has created a first-of-its-kind database for rural African population, which will help in searching for personal data across regions, which was not even previously considered by big banks.

Fintechs 1010Data and Xignite have created new, cloud-based data-sharing models, which will be useful for countries like Luxembourg, which is stringent on privacy regulations.

As fintechs continue to evolve their big data and analytical offerings, banks will establish and define each customer's experience according to individual's requirements, much before s/he can request a specific service. Though banks have started to adopt big data more and more over the last few years, there are still a lot of areas in which it could be leveraged and hopefully we will see more innovation in the use of big data techniques by banks.

Financial innovation is no longer a game of isolation. The owners of data (banks) and the kings of innovation (fintechs) are collaborating with each other and they need to as the former possesses the scale of data and the latter has the ability to convert that data into real-time actions - to take the FS industry to greater heights of customer innovation and deliver a truly engaging experience.

July 25, 2016

Chat bots: So banking can be as easy as chatting

- By Kiran Kalmadi and Durga Prasad Balmuri

Imagine you are chatting with your friend Vikki about a new film, over a messaging app, when you suddenly realize that you need to transfer money to her and book yourself an Uber cab as you are heading out for dinner. In a regular scenario, you would log into your mobile banking app, authenticate yourself, enter the required payee details, and submit a request to initiate the transfer. You would then open the Uber app to book your ride. What would it be like though, if you could do all this without leaving the messenger? As it happens, that is now perfectly possible.

Enter 'chat bots'*. With a chat bot integrated into your messenger, all you need to do is type a simple message like "Send $100 to Vikki," to transfer money, and "Get me an Uber," to book a cab -- all right within the messenger.

Since the beginning of 2016, the focus on chat bots has increased significantly. The likes of Facebook, Google, Microsoft, and Apple are all investing in bots and looking at ways to integrate them into mainstream applications. Interestingly, the 'bot' jargon gained popularity when in April 2016, Facebook announced that it was opening up its 'Messenger' platform to third-party chat bots. This meant that people would be able to interact with bots in Messenger the way they talk to their friends -- all thanks to artificial intelligence (AI), natural language processing (NLP), and some human help. In fact, many banks have recently started showing a keen interest in chat bots.

Today, banks from across the globe are exploring chat bots as a means to answer FAQs, educate their consumers, send them personalized offers, and help them with everyday banking activities like making enquiries about balances, transferring money, paying bills, etc. While the Royal Bank of Scotland (RBS) already has 'Luvo,' an AI bot meant to answer customer queries, Bank of America and American Express (AmEx) are embracing Facebook Messenger's chat bots. Bank of America's bots will enable its customers to receive real-time alerts and important communication. The AmEx bot, meanwhile, is working on innovative ways of interacting with customers. Once a customer opts for AmEx bots, they will start receiving real-time notifications about their purchases, alongside personalized alerts like their card's benefits and purchase-related services. Just this month, Russia-based 'Tochka Bank,' of the Otkritie Financial Group, launched a Facebook Messenger bot for a whole range of financial services. The bot will help the bank's customers check their account balance, contact customer support, make payments, and help them find nearby ATMs via GPS.

Considering the variety of possible offerings, chat bots can not only be a convenient way for customers to interact with their banks, but can also help banks increase engagement levels and thereby improve loyalty. However, challenges like authentication issues and user errors mean that banks may initially use Messenger bots where authentication and funds are not involved -- like search, general enquiries, and education -- and with time, slowly graduate to live chats and alerts, and then finally include transactions that require authentication
 
This is just the beginning and the area is expected to see a lot more traction over the coming months. Until then, keep watching this space for further updates. Amidst all this, I forgot to ask Vikki - did you receive the $100 I transferred?

*Webopedia defines 'Chat bot' as being short for 'chat robot', a computer program that simulates human conversation, or chat, through artificial intelligence.

July 11, 2016

Smart machines: Will they disrupt the banking industry?

Decades ago, self-driving cars were nothing more than an unrealistic dream. But in today's tech-savvy world, this dream is now a reality ― with the concept of smart machines. Once considered in the same vein as our childhood super heroes, smart machines are now all set to rule our industries.

Smart machines are basically intellectual devices that use cutting-edge technology to displace human chores. These machines can make use of loads of facts and figures from various sources to offer new kinds of information and can analyze huge amounts of data and information to reach conclusions that human beings can't even begin to imagine!

Examples of smart machines include self-driving cars and cognitive computing systems that can process problems, make choices, and provide solutions without the need for human involvement. In fact, smart machines are poised to be the next digital disruptors across all sectors! They will revolutionize the way businesses are run and can be especially useful within the banking industry.

Smart machines can offer huge latent benefits to early adopters in the financial services sector, including better customer experience, higher productivity, and larger profits. Banks are now deploying smart machines across an array of jobs. In fact, many banks will replace the jobs humans used to do, while others will introduce services that were not possible earlier. Thus, it is crucial for IT decision-makers within banks to prioritize prospective investments into smart machines.

Applications of smart machine technology in the banking industry include smart vision systems, virtual customer assistants, smart advisors, smart security, virtual personal assistants, as well as smart infrastructure.

An animated avatar of a virtual customer assistant, which is smart enough to offer intelligent help to customers while creating a fun experience ― such as the flapping and drumming on the screen of a tablet or a smartphone ― is an example of the kind of smart machines that banks will look to invest in the near future. Similarly, the demand for smart vision systems is likely to increase dramatically for the purposes of identifying thefts, authenticating using laser ray technology, measuring consumer attention spans to predict customer actions, etc.

Smart infrastructure is another innovative area in which banks will soon be investing in. Smart detection technologies implanted in building infrastructures can help bank executives predict problems, make well-versed decisions for asset maintenance, and even use green technologies.

So by when will we be able to witness the impact of smart machines in the banking and financial industries? Well, it is expected that most banks will invest in smart machines and their supporting technologies over the next few years. However, an impact of this will be the removal of millions of banking jobs, specifically in the US and UK. However, to counter this and to sustain superiority over machines, bankers should look to move more complex roles like expert thinking, breakthrough ideation, and complex communications to us humans while leaving the more mundane banking chores to the smart machines.