Evolution of the Banking Industry
Author : Tanmaya Kumar Sahoo, Tirumala Srinivas Kollipara, Sanjana Panda, Abhinav Dhaundiyal, Soumya Bhattacharya
INTRODUCTION:
Ever since the first currency was minted, there was a need for a safe place to store the money. From ancient times to today, in some form or the other, banks provided that safe lock. With time, responsibilities within a bank progressed from safe storage, exchange, loans & locker to today’s transaction card, ATM, advanced secured payment system & virtual banking.
This article gives a holistic view of the banking universe comply with a bird’s-eye view of the recent evolution of the banking industry along with the technological advancement in solving niche problems in this sphere. It ends with highlighting a few case studies prominent in the industry.
The article will give a mature idea of how the banking industry works & explains the evolution of the industry. The list of case studies acts as a repository & helps formulate an impactful AI/ML-driven solution that will change the future of the banking industry.
BANKING INDUSTRY IN A NUTSHELL:
The banking industry is differentiated mainly by the type of banks. The type of banks is further segregated based on the services offered. All banks, irrespective of the business model & services offered, are governed by the central bank of the respective country. The below picture brings the industry in a nutshell.
THE CHRONOLOGICAL EVENTS:
BFSI has changed drastically over the last century. In the last few decades, technology has accelerated innovation in banking. In the figure below, it can be observed that from the early 50s to a decade ago, the customer experience has tremendously changed and so have the services provided by the banks. The roadmap identifies the key milestone in the evolution of the industry.
The cornerstone of Modern Banking:
In the 1950s the concept of the credit card was introduced to the world. This eventually changed an individual’s relationship with money, enabling them to make bigger purchases without emptying their savings. In the 1960s and the 1970s, the groundwork for ATMs and the Internet was laid down. Adding another milestone of the decade was the development of SWIFT payment systems, which enabled payments around the world.
Banks go Online:
The 1980s and the 1990s was the decade of internet Banking. Internet, being coupled with the wide availability of commercial computers, was an innovative way of doing business by providing remote services.
Banks on mobile:
The 2000s and 2010 brought in an era of Mobile Banking. Smartphones brought the whole world into the customers’ palms and banks capitalized on it by creating apps that digitized the banking experience. In all these years we also saw the growth of various technologies such as cryptocurrencies and UPI (Unified Payment Interface) that are seen globally as the next big wave in the coming few decades.
INDUSTRY & TECHNOLOGICAL DEVELOPMENT OVER TIME:
Over the years banking experience has changed considerably and technology has also impacted the way banks operate. We are in the era of digital banking which is a lot more than just going paperless. Leading players are offering a new and improved customer experience and delivering faster and more efficient services. Another aspect where digitization is having a significant impact is risk management. Earlier, risk management used to revolve around credit risk scores, but there is a shift towards a more data-centric approach. Data such as customer demography, utilities & even social media data is now leveraged by organizations to identify risks.
Over the last decade, customer experience has severely changed along with the perception of the industry. The traditional customer journey includes traveling to branches to talk with a customer service representative, assembling pages and pages of documents to meet KYC requirements, and then waiting for days to receive final confirmations. With digitization, customers can discover and apply for products on their phones and receive funds in their mobile wallets, all in a matter of minutes. The banks have now been optimizing customer retention by being customers centric and with a data-driven approach, banks are creating hyper-personalized offerings, which drive customer churn.
Along with the paradigm shift of the industry, technology to has accelerated over time. Few indispensable technologies are Cloud, Analytics, and Cybersecurity. Clouds provide data storage and computation as per demand. Data Science and AI provide the customer-centric approach that boosts customer experience in a competitive world. Cybersecurity has been always an integral part of data, it is more crucial in a data-sensitive domain such as Banking.
The below diagram collects the above pointers & gives a visual representation of the paradigm shift.
CASE STUDIES:
Use cases across the banking industry can be categorized based on different metrics. Here, we have considered the impact area as the base & grouped the case studies.
CONCLUSION:
This article captures an overview of the banking industry, its evolution & some of the applicable use cases. In the coming version, we will focus primarily on the application of data science in this domain — starting with typical ML architecture followed by some key AI/ML-driven use case prototypes.
