Impact of IT on Banks and Fintech Disruption: Overview

The banking sector has undergone an intense transformation in recent years, driven by rapid advancements in technology. The initial stages of the Advanced Ledger Posting Machine (ALPM), Total Branch Automation (TBA) was a technology development that existed before the Core Banking Solution (CBS). Digital transformation has fundamentally transformed the banking sector, reshaping how financial institutions operate, interact with customers, and manage risks. The disruption of financial technology and blockchain technologies is a massive shift in the banking service, from traditional banking to neo-banks. Let’s see here how Information technology impacted banks over the period.

Digital Transformation:

The world is rapidly changing to be more digitally focused, especially in the banking industry. Traditional banks are undergoing major digital transformations to meet the needs of new customers and existing customers seeking a more tailored and individualized banking experience through digital channels. Technology implementation aided banks in making their own web pages which customers can access through the web browsers from their homes/workplaces. Some of the important electronic delivery channels include ATMs, debit/credit cards, mobile banking, and tele-banking where banking facilities are available on a 24/7 basis across the world. The establishment of the INFINET in 1999 resulted in the introduction of the Real Time Gross Settlement (RTGS) system and National Electronic Funds Transfer (NEFT). The Internet has thus ushered in the concept of anytime-anywhere banking. It resulted in compliance with the core principles for systemically important payment systems of the Bank of International Settlements (BIS) and has also provided the way for risk-free, credit push-based fund transfers settled on a real-time basis. With the advent of online and mobile banking, customers now have access to a wide range of banking services from the convenience of their smartphones or computers. This digital transformation has not only improved the efficiency and speed of banking operations but has also enhanced the overall customer experience.

Data Warehouse

Data warehousing is another development that effectively generates strategic information required by the management for continuous strategic decision-making like branch expansion, product line expansion, market strengthening, and credit risk assessment. It is an enterprise system used for the analysis and reporting of structured and semi-structured data from multiple sources, such as point-of-sale transactions, marketing automation, customer relationship management, and more. They can consolidate and integrate massive amounts of current and historical data in one place and are designed to give a long-range view of data over time. They can consolidate and integrate massive amounts of current and historical data in one place and are designed to give a long-range view of data over time. These data warehouse capabilities have made data warehousing a primary staple of enterprise analytics that help support informed business decisions.

Fintech Disruption:

Financial technology (better known as fintech) is used to describe new technology that seeks to improve and automate the delivery and use of financial services. Fintech uses specialised software and algorithms for computers and smartphones. Fintech has become a disruptive technology in the financial services sector.  The rise of fintech startups has disrupted the traditional banking landscape, offering innovative solutions in areas such as peer-to-peer lending, robo-advisory services, and digital wallets. Using technology, fintech companies are revolutionising traditional banking and finance to streamline processes, lower costs, and provide personalized financial services to customers. As a result, traditional banks are facing increasing competition and are compelled to innovate and adapt to stay relevant in the digital age.

Data Analytics and AI:

Data Analytics and artificial intelligence (AI) are used in banking to improve customer experience, enhance decision-making, credit monitoring, and prevent fraud.  By harnessing the power of data analytics and AI, banks can gain valuable insights into customer preferences, identify patterns, and anticipate market trends. This helps banks anticipate customer needs and offer proactive solutions. 

Blockchain and Cryptocurrencies:

Block chain technology is an advanced database mechanism that allows transparent information sharing within a business network without the need for a trusted intermediary. A block chain database stores data in blocks that are linked together in a chain. The technology allows digital information to be recorded and distributed, but not edited. Thus, block chain technology increases security so that data cannot be changed, tracked, or cheated.

The benefit of blockchain technology in banking is its ability to provide a secure and transparent way of recording transactions. In traditional banking systems, transactions are typically recorded in a centralised database. However, with blockchain technology, transactions are recorded in a partially decentralised network where only trusted participants can host the validating nodes. This makes it nearly impossible for a single point of failure to compromise the entire system, and helps to reduce the risk of fraud and cyber-attacks. Further, blockchain technology reduces the cost of operations. Traditional banking systems require intermediaries such as clearinghouses, custodians, and other third-party service providers, which can add significant costs and time to transactions. However, with blockchain technology, these intermediaries can be reduced, allowing for faster and more cost-effective transactions. This increased efficiency can lead to significant cost savings for banks and their customers. The blockchain is highly secure because it uses cryptography to protect data, making it difficult to tamper with or falsify records.

Blockchain technology records and confirms cryptocurrency trades, like a digital ledger. It collects and stores information about buying, selling, or exchanging digital assets. This information exists without a central authority (such as RBI) overseeing or controlling the cryptocurrency market.

Cybersecurity Challenges:

As technology evolves, so do cybersecurity trends, with data breaches, phishing, ransomware attacks, and hacks becoming increasingly commonplace. While technology has brought numerous benefits to the banking sector, Banks have to invest heavily in robust cybersecurity measures to protect customer data and safeguard their systems.

Regulatory Compliance:

Regulatory compliance ensures the bank operates within regulation, safeguarding its integrity and industry reputation. One of the main regulatory challenges for fintechs is compliance with KYC (Know Your Customer) and AML (Anti-Money Laundering) regulations. Fintechs must comply with these regulations to prevent money laundering and terrorist financing. New technologies such as AI and blockchain raise complex regulatory issues related to data privacy, security, and transparency. The e-PRAVAAH portal is likely to serve as a significant regulatory technology introduced by the RBI that will function as a comprehensive digital platform designed to streamline the processes for obtaining regulatory authorisations, licences, and approvals

Financial Inclusion:

Information Technologies provide increased opportunities and access to formal financial services, like savings, credit, and insurance. This, in turn, helps manage finances, and individuals can invest in income-generating activities. Offering affordable and accessible banking services through technologies ensures that unbanked and underbanked individuals can participate in the formal financial system. Technology has the potential to promote financial inclusion by expanding access to banking services for underserved populations. Mobile banking, digital wallets, and microfinance platforms have made it easier for individuals in remote areas to conduct financial transactions and access credit.

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