By Rajesh Londhe, Co-founder and Head of Payments, Phi Commerce
As a finance professional who had the privilege to have worked in banking, technology and payments, I am reasonably certain that it is only apt for banks to focus on core business of banking and engage technology service providers (TSP) for their tech requirements. During my early days of banking career, I witnessed first-hand how banks badly need to adopt technology and how critical that is to its operations and compliance.
Over the last 20 years, TSPs have added tremendous value to the banking system in India in their digital transformation. Be it bringing cloud technology into banking, building an array of mobile applications, doing a lot of automation, just to pick a few. And of course they have helped them to do a lot of transformation and give banks better customer service, enabling a whole host of tailor-made offers to customers using data analytics.
The financial world is changing fast with banks and non-banking financial companies (NBFCs) transforming into tech-driven, agile organisations, and a big part of this transformation is driven by TSPs. These partners are using emerging technologies like artificial intelligence (AI), blockchain, and cloud computing to change how banks operate and how we experience banking. These TSPs work with the bank APIs (application program interfaces) for all their products and services to substantially reduce their operational costs. At the same time, TSP obtains an opportunity to partner with banks, create customer-facing products and services, ensure maximum regulatory compliance and also ensure customer support and many more.
As TSPs we understand that banks have a legacy technology that is their strength and that actually also becomes their weakness. TSPs have the agility to work around these challenges, at times even hosting products at their frameworks. There is also quite a lot of innovation that is brewing on the TSP architecture including IoT and blockchain. Quite a lot of fintechs are working towards creating products which can be used to tighten transaction security.
As we speak we are on the cusp of another revolution that involves artificial intelligence and machine learning and TSPs are helping banks to bring out a whole host of customer-centric products, aligned with emerging compliance and regulatory requirements. And when we talk about regulations, TSPs are the ones who have to invest and upgrade their skills and processes to adapt to these emerging dynamic requirements.
Let’s face it, we expect more from our banks these days. We want instant responses, personalised offers, and services that just “get us.” This is where AI and machine learning are stepping in, powered by innovative tech providers. Imagine interacting with a smart chatbot that answers your questions in seconds, helps you find the best loan options, or gives tailored financial advice based on your spending habits—all in real-time. That’s not just a futuristic vision, it’s happening now. In fact, many banks are already partnering with tech providers to make this a reality. These AI-driven tools are designed to make banking simpler and faster, while learning from our preferences to give us a personalised experience. And the benefits extend behind the scenes too. Banks are now able to detect frauds faster by analysing transaction patterns in real-time, preventing issues before they arise. It’s banking that anticipates our needs, instead of just reacting to them.
According to a Gartner report, quoted in the media, India’s banking and investment services companies were estimated to have spent US$11.3 billion in technology related expenses in 2023. A recent report also mentioned that Indian banks are now looking to spend around 10% of their operating expenses on technology as against 6-8% traditionally, especially at a time when banking regulator Reserve Bank of India has initiated stringent actions for tech-related deficiencies on select banks.
