Fintech Disruptor
One might remember banking experiences three-four decades back. When you go to the bank to update the passbook, you drop it in a basket and go back the next day to collect it. The process took so long since the banker had to reconcile entries from a huge B4 size ledger book and manually update the entries in the passbook. Gone are those days!!! The banking industry has come a long way from the 80s and 90s. Today, digital banking gives us notifications on a real-time basis with a tap on mobile or wearables – be it transactions, bank balance, or statements.
While banks have transformed themselves with innovative digital offerings, several incumbent and Neo banks have made a significant dent in traditional revenue with their innovative digital transformation initiatives. To sustain high growth and customer retention, traditional banks need to traverse the extra mile and develop hyper-personal relationships with customers turning apathy into emotional connection.
These days, a frictionless digital banking experience is inevitable to maintain or increase the market share of the banks. Omni-channel experiences, smart onboarding, microservices-based architecture, cloud-native approach, or automation – these are de facto expectations from the banks. The main reason behind these high expectations is Fintechs, raising the bar for banks in the post-pandemic world. Millennial and Gen-Z customers are now looking for an exceptional banking experience in all areas, not isolated service.
To ‘provide value for the money’ or exhibit customer-centricity, banks ought to step up their game plan by increasing their focus on innovative offerings. With over 26,000 Fintechs operating worldwide, banks have to go beyond their usual territory and provide hyper-personal curated banking experience by embracing ML, NLP, and open APIs. Not only do legacy banks need to innovate and implement, but even central authorities like RBI should become liberal and revise their policies to promote healthy competition and innovation culture across the BFSI segment. Several innovative initiatives are becoming mainstream because of Fintechs, which can be adopted by banks in a phased manner. Banks can embrace following leading-edge technology to remain ahead of the cut-throat competition.
- Enable Composable banking whereby the customer is not tied to a specific vendor, product, or technology. For an instance, Mambo provides over 4000 products from different banks, NBFC, and Fintechs on its platform.
- Augment innovation quotient like ENBD, which provides an additional interest rate based on the number of daily steps (5k or more) taken by individuals. They are also planning similar benefits for other exercises like swimming, etc.
- Enable community banking by providing Value-added services to Gig workers, LGBTQ, senior citizens, or disabled customers to cater to their specific needs.
- Implement platform banking by integrating value-added services from Fintechs or others to provide a holistic experience to maintain customer loyalty.
- Increase customer engagement through gamification to attract kids and teens to build brand loyalty early on.
- Develop AR Tool for personal finance management as done by Westpac.
- Provide AR/VR experience to the customer whereby they can visit the virtual mall for a shopping experience through All-in-one SuperApp.
- Provide 24×7 chatbots using AI and ML.
- Combine AR/VR with AI to create seamless, immersive experiences for the customer, say for virtual branch visits, thereby creating loyalty, brand building, and arresting customer attrition.
- Use alternative data for taking decisions, like predicting default risk. This can be innovatively inferred based on behaviour and personality traits captured in social media. This can help the bank speed up recovery or restrict future lending.
- Bring assurance or options to customers that the bank’s profits or part of it will be invested only in “Clean energy” to reverse the climate crisis like Swipe.
- Develop an algorithm to link likes on social media to the interest rate.
- Provide Goal-based savings options to facilitate healthy savings.
- Provide multi-lingual AI and Robo advisors, ranging from personal finance to goal-based investments.
- Boost customers’ credit scores by providing micro-loans to step up their borrowing capacity.
- Propose smart vehicle insurance which can adjust your premium amount depending on your usage, location, driving style, and discipline.
- Use of IoT in ATMs to sense queue length and provide an option to an exception in authentication based on a customer’s past transaction history.
- Use of smart contracts to allow users to take out a short-term loan using Ether as collateral.
- Bring out voice-enabled payments for visually impaired or handicapped people.
- Automate claim payment minus manual filing, in case a flight gets delayed beyond a certain agreed duration as per insurance policy .
- Use novel biometric security like iris recognition, palm vein patterns, or retinal scanning.
- Offer contact-less, gesture-based ATM transactions like the one developed by Motion Gestures.
- Embedded Rounding off to nearest pre-defined unit to create either investment pot with delta money or help achieve goals that emotionally engage them.
- Implement blockchain for immutable records and security and speed up money flows for a variety of transactions like property registrations, funds transfer, supply chain, trade finance, and payments transactions.
Few of these suggestions will certainly bring loyalty among happy and satisfied customers. This type of digital transformation will also increase employee engagement. This results in higher productivity, accurate predictions, and decision-making.
Digital transformation is full of risks and challenges. Organizational challenges, data governance, data privacy, cultural mindset, compliance risks, regulatory risks, or lack of skilled resources can become roadblock but it can be addressed in innovative ways. But this puts brakes on the delivery and execution of the initiatives. However, for the larger benefit of shareholders and investors, banks need to show the same agility as Fintechs to survive and grow.
As Darwin’s law of Survival of the Fittest suggests, only Agile and customer-centric futuristic banks will flourish and fare well in the future; rest will get acquired.
Programmable Money !!!
Unleashing the power of Programmable Money: A Revolution in Our Wallets?
In today’s digital age, the concept of money is evolving rapidly. A year ago, the RBI (Central Bank of India) did something that few other central banks had done before — launch a Central Bank Digital Currency (CBDC). Think of this simply as an online version of our physical currency. It’s a digital banknote. With a CBDC, the RBI can simply ask people to open digital wallets and issue new digital notes to them directly called e-rupee.
Having run this pilot project for a year, RBI is deliberating it now to take it to the next level. Yes, as you rightly guessed from the title, RBI is deliberating to launch it as programmable e-rupee.
Unpacking the concept:
Programmable money, is reshaping the way we think about and use currency. Unlike traditional forms of money, programmable money is not just a medium of exchange but also a tool that can execute actions based on predefined conditions, thanks to smart contracts. This is often achieved through smart contracts, self-executing agreements stored on a blockchain. These contracts automatically enforce and execute the terms of the agreement with no intermediaries.
Imagine a world where government provides subsidy to buy a ration and beneficiary can only use this money to buy food ration as an example and nothing else. Voila, the purpose is served. Yes, that is exactly central bank is thinking of programming your money in your e-wallet so that you cannot spend the money on anything else apart from buying grocery or food stuff. The government can also set an expiry date for the money similar to loyalty reward points.
While some may argue that this may cause limited fungibility of money but that is only for the brief period until that e-money is spent on targeted sector/purpose for the first time.
Yes, this may cause the government to track your move and data privacy nightmare may become an issue. However, this may ensure that government money is used exactly for the purpose it has been distributed.
There are other use cases also which may ensure frictionless transactions ultimately benefiting humans. Some of the scenarios can be like it automatically deducts rent on your payday, or a donation to your favourite charity triggers after you complete a workout. This is the potential of programmable money, a digital currency embedded with code that defines its use. While still in its early stages, it holds the promise to revolutionize the way we interact with money.
Programmable money differs from traditional digital currencies, like Bitcoin, in its ability to carry instructions. These contracts specify conditions under which the money can be used, opening up a pandora’s box of possibilities.
Potential Applications:
The applications of programmable money are vast and still evolving, but here are some exciting examples:
- Automated Financial Management: Imagine setting up rules to automatically invest a portion of your pay check, send funds for recurring bills, or even allocate savings based on pre-defined goals. This can save time, minimize manual errors, and boost financial discipline.
- Targeted Aid and Micropayments: Governments and NGOs could create programmable tokens to distribute aid efficiently, ensuring it reaches the intended beneficiaries and is used for specific purposes like education or healthcare. Similarly, micro-payments for content, like online articles or music streams, could be automated based on consumption.
- Supply Chain Efficiency: In complex supply chains, programmable money could track goods along their journey, trigger payments upon delivery, and ensure compliance with specific conditions. This could improve transparency, reduce fraud, and streamline processes.
- Programmable Insurance: Smart contracts could automate claims payouts based on pre-defined triggers, like reaching a specific health metric or experiencing a weather event. This could streamline the insurance process and improve access to coverage.
- Tokenized Securities: Programmable money could facilitate the creation of new financial instruments like tokenized stocks or bonds. These could offer fractional ownership, frictionless trading, and programmable dividend distribution.
Challenges and Concerns:
While the potential is immense, several challenges need to be addressed before widespread adoption of programmable money:
- Technical Complexity: Building and maintaining secure and scalable platforms for programmable money can be complex and expensive.
- Regulatory Issues: Existing regulations might not be equipped to handle the unique aspects of programmable money, requiring legal frameworks to adapt.
- Privacy and Security: Programmable money could raise privacy concerns, as transactions might be tied to specific conditions. Robust security measures will be crucial to prevent fraud and manipulation.
- Accessibility and Equity: Not everyone has access to the technology and skills required to interact with programmable money, potentially exacerbating existing inequalities.
The Road Ahead:
Programmable money is still in its nascent stages, but the potential to transform financial systems and everyday life is undeniable. As technical hurdles are overcome, regulations evolve, and awareness grows, we might see this technology seamlessly integrated into our financial lives. The key will be to ensure its development focuses on inclusion, security, and responsible innovation, paving the way for a more efficient, transparent, and equitable financial future.