International Data Corporation (IDC), in its worldwide information technology (IT) industry predictions for 2021 and beyond, said that the global economy remains on its way to its “digital destiny” driving $6.8 trillion of IT spending from 2020 to 2023. Closer home, the Chief Economic Adviser (CEA) to the government, Krishnamurthy V Subramanian, also echoed IDC’s theme when he highlighted that the use of technology, especially data analytics, artificial intelligence (AI) and machine learning, could help improve the quality of assets in the financial lending business.

Indeed, despite the disruptions caused by the global pandemic in 2020, the global economy remains on its way to its “digital destiny” as most products and services are based on a digital delivery model or require digital augmentation to remain competitive. It is estimated that 65 per cent of global GDP will be digitalised by 2022, increasing a whopping $6.8 trillion of IT spend between 2020 and 2023.

The financial services industry, including banking and insurance, was the first to adopt technology to meet the requirements of a rapidly evolving digital generation as well as disruptions caused in the financial services industry itself. The digitalisation in the financial world is not a fad, it’s a necessity. The need of the hour for the BFSI segment is to spruce up its services to customers and intermediaries by digitising its operations to enhance the customer experience and lower the turnaround time for routine and transactional queries.

Enter the fintech firms which have morphed from being associated with scrappy start-ups to becoming a major facet of established and legacy financial institutions. Once Silicon Valley-based disruptors were shaking up the big banks, today fintech incumbents are teaming up with large banking and financial institutions to even sit on their board.

As the financial sector races for competitive advantage, it is embracing a range of new, cutting-edge technologies, many of which are now more viable than ever. Advances in cognitive technologies, and increasingly sophisticated data analytics have added to the glamour of fintech companies. Digitalisation of enterprises will be further shaped by cloud adoption.

Technologies to tap consumers’ data through usage-based consumption like data analytics and AI are emerging rapidly. Such developments will give small-to-medium sized enterprises access to sophisticated capabilities once only available to huge multinationals.

Expertise required

The complexity involved in designing today’s technology platforms requires deep expertise in a wide array of areas. This is causing a historic wave of collaborations across different industries. Such cross-industry partnerships will necessarily need to include efforts to build end-to-end customer solutions that harness the best of each partner’s assets and capabilities. With the surge in demand for digital services, banks seek fintech innovations to enhance their services and gain market share. Banks and corporates will have to work in sync to adopt digitisation albeit with stringent regulations and trust.

By the end of 2021, 80 per cent of enterprises would have put a mechanism in place to shift to cloud-centric infrastructure and applications — twice as fast as before the pandemic. Faster responses to current business needs will require long-term digital resilience, enabling business scaling, and ensuring greater business operational flexibility.

Perhaps the most transformative technologies opening up significant areas of opportunity for financial services enterprises is AI. Cognitive technologies such as computer vision, machine learning, natural language processing, and speech and pattern recognition are being embedded in software applications, imbuing big data with superior capabilities. The Internet of Things (IoT) has just begun to reveal its promise.

Machine learning shows the most immediate promise; it has the capacity to enhance a wide array of applications, particularly those involving classification, prediction, anomaly detection, and personalisation. The tremendous investment in all these areas suggests the near-term emergence of ecosystems and platforms that deliver a new level of value. The simplest form of AI being used today is in chatbots.

Chatbots are using AI to evolve better and more accurate by mapping over billion data points on a regular basis. Soon they are predicted to have an emotional response as well.

More disruptions likely

The future appears to be even more disruptive. The new norm for financial services that will transform most of the traditional paradigms will be ‘digital only’. As AI develops and matures in conjunction with data science, machine learning, data analytics and other cognitive tools, they will play a key role not only in digitisation for fintech institutions, but also in mapping consumer trends and loan diligence.

Indeed, technological innovation will be a game-changer for the sector as digitisation will help an organisation stay relevant, offer customised solutions and ensure retention of customers vs traditional approach. Those who do not climb on this bandwagon soon will find themselves obsolete.

What is beyond doubt is that enterprises will need to transform many of their traditional ways of doing business. While tech companies need to become digital enterprises, even financial service firms will need to marry technology in ways that have never been imagined before. Combinations of hardware, software, networking, data storage, analytics and cognitive technologies will be a must for the entire BFSI segment in the years to come.

The writer is CEO, Aquapay Payment Technologies Pvt Ltd.