In this insightful interaction, Johnson K Jose, CTO, Federal Bank, shares his experience of overseeing the bank’s digital transformation over nearly three decades. He highlights key milestones such as the adoption of Total Branch Automation (TBA), Core Banking Solutions (CBS), and innovations like AI-powered chatbot Feddy. The conversation touches on the role of AI in enhancing customer service, the bank’s approach to cybersecurity, cloud strategy, and exploration of technologies like blockchain and biometrics.
Jose also delves into how Federal Bank is leveraging AI to improve operational efficiency, enhance customer experiences, and address cybersecurity challenges. The interview covers Federal Bank’s cloud strategy, adoption of emerging technologies like blockchain and biometrics, and their focus on future technologies to drive banking innovation.
You have been with Federal Bank now for almost three decades, you have seen all the changes coming in – from computers coming into banking, then the internet and now this fourth Industrial Revolution. How would you describe this journey? How has Federal Bank’s digital transformation journey been, or maybe I can ask, how has the journey from digital transformation to automation been so far?
The journey has been fascinating. When I joined the bank, only a few branches had computers, with a system called Kali running in Mumbai and Delhi. My first responsibility was to connect the entire bank to a single network and roll out the Total Branch Automation (TBA) software. We developed this in-house, hiring and training people specifically for this. By 2000, all branches were automated, though we still faced challenges like maintaining servers 24/7.
In 2006-2007, we migrated to the Core Banking Solution (CBS), Finacle, which was a huge task. Before CBS, we created a system allowing Federal Bank customers to transact across branches without CBS. We also introduced internet and mobile banking, pioneering innovations like Fedbook, a digital passbook, based on customer feedback.
We introduced scan-and-pay technology, ahead of its time, but eventually partnered with NPCI to bring it nationwide. Our journey has been about learning and innovation. Initially, employees were hesitant about technology, fearing job losses, but we emphasised that these tools would ease their work, not replace them. And indeed, as new technology gave us more time, it translated into more business and efficiency.
How is Federal Bank leveraging AI to enhance customer experience, and what specific use cases have seen the most significant impact?
Federal Bank leverages AI in multiple ways to enhance customer experience. A key area is robotic process automation (RPA), with over 400 processes automated to handle routine tasks, reducing human errors and allowing employees to focus on higher-value activities, like customer interaction. This helps ensure operational accuracy and efficiency.
Machine learning (ML) plays a significant role in identifying fraudulent transactions and detecting patterns in customer data. For example, AI helps spot “mule accounts,” often used for fraudulent purposes, enabling the bank to freeze such accounts and prevent further misuse.
The bank’s AI-powered chatbot, Feddy, enhances customer service by handling queries and transactions efficiently. Additionally, AI is used in targeted marketing, improving conversion rates by identifying specific customers more likely to respond to tailored offers, significantly increasing marketing efficiency.
How are you measuring the success and impact of Feddy on customer satisfaction and operational efficiency?
Our main goal with Feddy was to improve the customer experience by reducing wait times. Previously, customers had to wait 1 to 1.5 minutes to speak with an agent, which many found unacceptable. We identified common requests—like balance inquiries or transaction statuses—that could be automated. With Feddy, customers are authenticated quickly and can complete their transactions in just two minutes, down from four to five.
Initially, it took time to familiarise customers with this new system, but once they tried it, they stuck with it. Before Feddy, call centre volumes increased 4x to 5x each month. After Feddy’s introduction, this dropped significantly to just 1x. Most routine inquiries are now handled by Feddy, but when the system can’t provide an answer, it seamlessly transfers the customer to a human agent without them realising it.
The integration has been a major success. We’ve seen that 85% to 90% of customers who use Feddy don’t return to the old, manual process, valuing the time and convenience it offers.
What is Federal Bank’s strategy for adopting digital currencies, and how is the bank preparing for potential regulatory changes in this area?
Digital currencies are still evolving, and the RBI remains focused on their development, currently in a proof-of-concept (POC) stage. Although it’s still early, I believe the POC won’t stop, and digital currencies will continue to advance. The use cases are still emerging, and RBI, along with banks like ours, is experimenting with different possibilities, including programmable currencies. These are intended for specific purposes—like restricting usage to buying rationed goods. Just as UPI’s potential was unlocked by external users identifying new use cases, the full scope of digital currencies will be revealed over time.
In light of increasing cyber threats, how does Federal Bank prioritise cybersecurity investments and ensure the protection of customer data?
Federal Bank follows regulatory guidelines to prioritise cybersecurity, ensuring compliance with all necessary standards. However, the bank also recognises that most cyberattacks now target customers, using methods like phishing and social engineering, rather than attacking the bank’s perimeter, which is well-secured. To address this, the bank invests heavily in customer education, warning people about scams and advising them on how to protect themselves. Despite widespread efforts from the government, the RBI, and banks, many customers still fall prey to fraud, often losing significant amounts of money.
We send flyers and communications to our customers, and we also make radio announcements. Wherever there is an opportunity to reach our customers, we take it. Every month, we send a statement to customers that includes important information.
At all available touchpoints, we include a section to educate customers about new tricks and techniques that potential fraudsters might use, advising them not to fall for these scams. This ensures that our customers are always informed and aware.
What is Federal Bank’s cloud migration strategy, and how is the bank addressing challenges such as data privacy and security?
Federal Bank adopts a hybrid approach to cloud migration. While the bank utilises cloud services from providers like Google, Amazon, Azure, and Oracle, it doesn’t migrate everything to the cloud. Instead, each investment is carefully analysed for cost-benefit before proceeding. The bank prioritises data privacy and security, ensuring compliance with the Digital Personal Data Protection Act, 2023 and RBI’s cloud usage guidelines. Audits like the RBI’s seaside audit evaluate cloud security, including preventing data leaks and ensuring proper access controls. High availability and failover mechanisms are also implemented for critical applications. For non-sensitive tasks, like marketing, cloud usage is maximised.
How is Federal Bank positioning itself to capitalise on the opportunities presented by open banking, and what partnerships or collaborations are being pursued?
Open banking is becoming the norm, and we can no longer operate in isolation. At Federal Bank, we collaborate closely with fintechs and other partners, ensuring their applications integrate with our systems. We have published over 700 APIs, which partners can subscribe to and use for transactions after completing an onboarding process. These APIs are available through our cloud and on-premise API gateways, enabling seamless collaboration. Currently, we are working with over 100 organisations, and as we move forward, we will continue to open our platform for broader use across industries.
Which emerging technologies (e.g., blockchain, biometrics) does Federal Bank see as having the most significant potential to transform the banking industry, and how is the bank exploring these technologies?
Federal Bank sees significant potential in blockchain and biometrics for transforming the banking industry. While quantum computing is still in its research phase and not yet mature enough for implementation, blockchain is being actively explored. The bank has partnered with a blockchain platform called Wave for overseas transactions and conducted proof-of-concepts with partners in the UAE. Additionally, Federal Bank is part of a consortium, promoted by Infosys, that focuses on identifying blockchain use cases in banking.
In biometrics, Federal Bank introduced SmilePay, a contactless payment system where customers simply smile at a merchant’s phone to complete a transaction. This system was developed over several months, involving extensive field trials and compliance with standards set by UIDAI and NPCI. While quantum computing is still in the distant future, the bank believes blockchain and biometrics have immediate transformative potential.