Challenge of taming the technology to work our way

The innovative power of technology could galvanize buoyancy of the economy conspicuously. The advent of fourth industrial revolution in 21 st century marked the onset of digital world with universalization of digital intensity and spread of internet of things (IOT). The tools of big data, artificial intelligence (AI), machine learning (ML) and robotics led to digital data size galloping from Exabytes to Zettabytes making technology both an enabler and an operational risk if not properly channelised.

The biggest threat in technology usage is cyber security and gullible innocent customers are easily swayed and duped by making them to share their credentials. Recently RBI has brought out a booklet – ‘Be(A)ware’ illustrating the modus operandi of how digital frauds are perpetrated and how to protect against them.

Further Industry 4.0 potentially enables use of real time data, greater interconnectivity that dramatically altered how businesses operate integrating physical production and operations with advanced digital technology to create an exceptionally connected and holistic smart efficiency empowered ecosystem.

In brief, the transition of the global phases of business environment is interesting. Graduating from industrial revolution 1.0 (1780s) marking use of steam power, 2.0 (1870s) triggering automation and assembly line principles in manufacturing, 3.0 (1960s) with entry of electronics and 4.0 (2000s) with onset of digital technology and communication network marks the milestones of developments in the way we live, work and operate.

More importantly, India is distinctly riding on demographic dividend. It has one of the youngest populations (62.5% of its population is in the age group 15-59) in an aging world and when it is seen together with the spread and quick adoption of English language, embracing digital industrial revolution 4.0 has been high gaining global leadership in innovating nuances of applying and harnessing information technology in a big way. The rising number of Unicorns, start-ups and service sector domination resonates the technological collaborations and sharing synergy evidencing the strength of India to unleash technological potentiality.

1. Technology in Financial sector:

While industry 4.0 has brought about universal capacity upgradation, it is distinctly visible in financial sector where interoperability, speed, access and diversity of products and services have revolutionized digitally.

Technology in action could be perceived in banks, non-banks including fintech, neo banks enamouring new age customers to adopt them to improve their life style. Besides the virtual banks, open banking – open bank data is making its debut in India where consumer banking and transaction data could be shared with the third party with the consent of customers for greater collaborative use. The success of YONO of SBI is another evidence of customers going digital in a trade off for quick access of services. Kotak Mahindra banks – 811 is another strong digital manifestation.

The popularity of digital wallets like Google Pay, Paytm, PhonePe, and MobiKwik etc in making micro digital transactions is sign of penetration of technology with the help of UPI innovated by NPCI. The recent launch of UPI123Pay facility by RBI for feature phones to work without internet connectivity is another milestone in creating supply side financial services. With every innovation is digital banking space, the density of dependency on technology and the financial system is exposed to its rising associated operational risks.

In this technological milieu, Public Sector Banks struggling with economies of scale are not able to unleash technology on full scale to pass on low costs to consumers so far, while the new generation bank customers are looking for improved efficiency and not necessarily the costs. The new age young customers is the segment that is sensitive services speed and access. The improved state of the art technology as and when could replace human component in traditional banks can improve operational efficiency matching the new range of service providers. Optimisation of technology by financial intermediaries to work their way can eventually lower consumer costs provided it is able to add the intended synergy.

2. Study of Bain & Co:

It is therefore of no surprise when the survey of Bain & Co using its proprietary tool – Net Promoter Score Prism found that 56 percent of bank customers are ready to switch their savings accounts, 59 percent for credit cards, 63 percent for auto loans and 69 percent for personal loans from their existing banks to better service providers – fintech, neo banks among others. In contrast, 20-30 percent of respondents of UK and 10-20 percent of US expressed interest to migrate.

When we interpret this data from the demographic pattern, more bank consumers are in lower age group in India compared to these countries. By nature, the Gen- y and Gen-z – the predominant segment of bank consumers is enamoured by quick – on go access to financial services through digital mode and their numbers are large and rising. The new generation segment of young customers are tech savvy and are prone to switch entities but in the long term the sustainability and ability of risk management strategies of financial entities to protect consumer interest will play a differentiated role. The long term sustainable players in financial sector will be the entities who are able to tame the technology to their advantage managing its upside risks.

3. The way forward:

The heightened use of technology by financial entities while providing diversified, quick and efficient services to customers have, of late begun to emit early signs of rising operational risks. The regulators are imposing restrictions and penalising for the laxity in managing operational risks. If they are not checked in time, the risks can assume higher proportions threatening the stability and soundness of financial entities. The recent example is the regulatory embargo of RBI on Paytm Payments Bank that mandates that no new customer can be onboarded. Already embroiled in Paytm IPO crisis, the Paytm Payments Bank is facing the restrictions for the third time reflecting recurring weaknesses in managing risks. The bank has also been directed to appoint an IT audit firm to conduct a comprehensive System Audit of its IT system. Similarly, way back in December 2020, the regulator had barred HDFC Bank from launching any new digital products or services and issuing new credit cards till the lender resolved recurring tech issues.

Restrictions on credit card issue was lifted in August 2021. With the higher use of technology in providing financial services, the entities are exposed to operational risks. Not much awareness is spread so far in managing OR. The line management staff are not adequately equipped with the skills sets to manage the IT risks. The financial entities and regulators have to collaborate together to tame the technology to work to their advantage and should not allow it to mar the prospects of growth. Technology is an enabler and can also be a risk in itself, if it is not managed well.

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