If there is one thing that changed the face and the inner core of banking and continuing to change, it is technology. Banking and finance lend themselves eminently suitable for such continuous application of technology; every new development in technology has been gleefully opted for by banking and finance. The ever increasing volume of transactions and ever changing customer expectations are the key differentiating drivers for such an extraordinary use. Of course the need to increase efficiency and quality, and reduce cost is also there, like any other vocation.
Technology has thrown several gauntlets simultaneously on to the banking and financial sectors in recent times. I would like to highlight five of them.
Banks deal with hard cash and money and therefore have always been targets of crime; while the banks make good use of IT for protecting cash and money, ironically use of IT by criminals have also increased substantially. If we need to provide safe and secure banking, then providing for safe IT systems is an undeniable requirement. It is essential that in every IT based initiative, security is addressed as a vital component. Banks need to bestow greater attention on Cyber security. Criminals have become IT savvy; cyber attacks are becoming highly sophisticated, use specialized analytical techniques and exploit minute vulnerabilities which had hitherto gone unnoticed. Continued vigilance and concerted proactive protective actions are warranted.
One of the important characteristics of the IT world is that it is ever changing and dynamic. Cloud based computing, block chain processing technologies and virtualization of IT systems are a few examples which hold potential for being used in a big way. The fruits of these would be in the form of safe, trackable and secure digital currency, distributed ledger-keeping and homogenous IT systems -all of which would ultimately result in better customer service.
The Fin Tech companies - the new, non-conforming disruptors
For too long, banks thought their competitors are their fellow bankers; then they accepted the other financial institutions as their competitors. They always thought the technology companies are their enablers; with their help, the banks have been differentiating themselves from the rest of the crowd. The banks never thought the technology companies will be their direct competitors. I have been sounding way back in early 2000s itself about this possibility; I used to say that banking knowledge is no longer with the bankers and it is with the techies. The techies have now grown as Fin-Tech companies and are emerging as the direct competitors in the identified chunks of banking businesses; technology has today dissected the entire value chain of banking and finance and bundled out the chunks in innovative ways that it is they who intermediate between savers and investors, or between sender and receiver of funds. Banks need to handle them carefully without inhibiting innovations; banks have to find ways to cooperate, co-opt and compete with the Fin-Tech companies.
Actually, these Fin-Tech innovations are knocking at the doors of competition for central banks as well. We have all along been maintaining that there is no competitor to central banks for issuing currency. But this is being challenged by the developments with regard to e-currency. However, I still maintain that e-currency is no substitute for currency; if at all, it can only be a better alternative to any other payment instrument. But, researchers and innovators on the field are and will be continuing their attempt to develop an e-currency. Despite my misgiving about is success, I do support research on this subject.
The payment revolution engineered by technology
One of the major beneficiaries of the large scale use of IT in the banking industry is payment systems. While it is satisfying to note that there are new initiatives in payment systems aimed at providing better customer comfort, it is also essential to ensure that these systems are safe and result in overall efficiencies including reduced costs to the common man. How to take full advantage the payment revolution is a challenge.
The varied choices of technology for financial inclusion
Financial Inclusion is an achievable reality, and the role of IT in this initiative is very significant and fundamental. More needs to be done here. Varied technical solutions have the potential to achieve this and at reduced costs. Finding the right mix and adapting them for achieving the financial inclusion in the shortest possible time is a big challenge. If the banking system has to meet these challenges squarely, the academics, the industry and banking professionals have to work together.
By Mr R. Gandhi
Deputy Governor of The Reserve Bank Of India.
Assistance provided by Shri S Ganesh Kumar, CGM is gratefully acknowledged.