BANKING TECHNOLOGY IN INDIA: PRESENT STATUS & FUTURE TRENDS INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY (ESTABLISHED BY RESERVE BANK OF INDIA) AX Explore, Enable, Excel‘SECTION | - INVITED ARTICLES 01 02 04 05 06 07 08 09 10 FINANCIAL INCLUSION - THE WAY FORWARD - Shri M. V. Tanksale, Chief Executive, IBA UNIFIED PAYMENT INTERFACE (UPI) ~ A TECHNOLOGY BASED PRODUCT FOR FUTURE Dr.J..N. Misra, Chief Executive Officer, IIBF. DIGITAL BANKS: ARE WE THERE YET? ~ Shri Mrutyunjay Mahapatra, Deputy Managing Director & Chief Information Officer, State Bank of India DISRUPTIVE INNOVATIONS IN BANKING ~ Shri Munish Mittal, Chief Information Officer, HDFC Bank Ltd. ROLE OF TECHNOLOGY IN FRAUD PREVENTION ~ Shri S Kumar, General Manager (IT), Corporation Bank SOCIAL MEDIA BANKING ~ EVANGELISING SOCIAL MEDIA. FOR BANKING ADVANTAGE - Shri Abhijit Singh, Head, Business Technology Group, ICICI Bank Ltd. ROBOTIC AUTOMATION PROCESS FOR BANKING SECTOR IN INDIA, - Shri Rakesh Kumar, Chief Information Officer, Punjab National Bank ANALYTICS IN BANKING - TECHNOLOGY PERSPECTIVE ~ Shri Amit Sethi, President (IT) & Chief Information Officer, Axis Bank Ltd. BANKING TECHNOLOGY - GLOBAL TRENDS ~ Shri NK Subbu, Head (Technology), South Asia, Citi Bank Ltd. CYBER SECURITY ~ FUTURE CHALLENGES AND OPPORTUNITIES = Smt. Nirmala Sridhar, General Manager, Vijaya Bank ‘SECTION I 01 02 12” IDRBT BANKING TECHNOLOGY EXCELLENCE AWARDS 2015-16 FUTURE TRENDS DRIVING INNOVATION: NEW TECHNOLOGIES THAT CAN TRANSFORM THE BANKING SECTOR = Rajarshi Sengupta and Monish Shah, Partners at Deloitte 03 06 11 19 24 35 41 47 52 59 63 76Forever a decade, we have been presenting Banking Technology Excellence Awards. In the process, we have been watching closely the developments in the adoption of technology by banks and have been attempting to share insights with all concerned by bringing out a report every year. We have enhanced the report last year by publishing invited articles from banking professionals, in addition to the status of technology adoption based on the information furnished by the banks as part of awards process. While continuing the invited articles and the status of the technology adoption, we have included a chapter by the Knowledge Partner on what they see as future trends in Banking Technology. The report, we feel, is evolving into a useful document detailing the present status and dwelling on future trends in Banking Technology in India, with glimpses of global scenario. We are Hyderabad July 18, 2016 bral Explore, Enable, Exoel Banking Technology Digest confident that the report would be useful to banks, financial institutions, fintech companies and other stakeholders of Banking Technology. We thank all the banking professionals, who accepted our request to contribute articles to the report and shared their experience and expertise. We also thank our knowledge partners, Deloitte Touche Tohmatsu India LLP, for all the workin providing the necessary inputs for the report. Feedback is welcome at publisher @idrbt.ac.in. dh fnd, Dr. A. SiRamasastri Director, IDRBT Banking Technology in India : Present Status & Future Trends 01SECTION - | Invited ArticlesINCE nationalisation in 1969 and 1980, PSBs have opened thousands of branches in Rural and Semi-urban areas and taken banking services to reach the underbanked populations in the far flung areas. However, Geographical and Infrastructure barriers - physical access and communications - made it difficult for the banks to function effectively and meet the expectations of the Government and the rural population. However, with the BC model introduced in the last decade, banks could extend basic banking services atthe village level through the BCs. Theimprovements in Technology and Telecommunications have enabled the banks to provide BC faci at over 200,000 villages. But, Financial Inclusion still lacked the momentum and mission mode. PMJDY launched on 15" August 2014 by the Honourable Prime Minister gave the required thrust and boost to Financial Inclusion (FI) in India. More than 230 million accounts have been opened since then covering every household and the balances in these accounts have crossed Rs 35,000 crores. The e-KYC and ‘Aadhaar authentication has helped the banks in opening large number of accounts without difficulty. Prime Minister has made JAM - Jan Dhan, Aadhaar, Mobile - as the “Mantra” for Financial Inclusion. In the absence of any national identity like a social security number, Aadhaar has become the unique identifier for any individual in the country. Over 100 crores Aadhaar IDs have been issued across the country. Onlya small percentage remains to be covered. Aadhaar has made de-duplication of individual account holders within a bank possible bral Explore, Enat Financial Inclusion - The Way Forward BSAA ALE roti LLSLi Scch tS SUL LCC Scola exes Scal and has enabled the creation of the “Aadhaar Mapper” maintained by the NPCI. This serves as a tool for the Gol to credit the Direct Benefits to the bank accounts of the beneficiaries, reducing the time taken for the benefits from disbursement to delivery. The DBTL for crediting LPG subsidy has removed lacs of duplicate/bogus LPG subsidy claims and saved thousands of crores for the Gol. Similarly, the MGNREGA benefits were not reaching the actual beneficiaries, being partly lost to the middlemen/intermediaries. Also, multiple bogus musters with fictitious names were maintained and fraudulent claims were being made. The DBT for MGNREGA has ensured that 100% benefit reaches, the beneficiary. The DBT credit for food-subsidy has also eliminated a large number of bogus ration cards and saved thousands of crores for the Gol. The DBT is now used for several schemes like scholarships, pensions, etc. The Gol and the State Govts. are planning to cover all the social welfare schemes under DBT and plug the leakages. Banks have played a major role in the successful implementation of the DBT scheme. More than 45% of PMJDY accounts have been seeded with ‘Aadhaar. The mandatory obtaining of consent has slowed down the Aadhaar feeding. Neverthless, Gol and banks are taking steps by improving the Aadhaar feeding using all channels such as Branches, ATMs, Internet Banking, Mobile and Camp mode. The Aadhaar Act enacted recently has givenalegal backing toAadhaarand UIDAI. Banking Technology in India : Present Status & Future Trends 03horal Explore, Enable, Exoel The number of mobile subscription in India is 1034.25 million as at end of April 2016, of which more than 90% is active. Interestingly, 447.84 million subscription comes from Rural India representing 43.30%. Along with Aadhaar, banks are registering the mobile numbers of customers in their bank accounts. This has improved the communication with customers. The DBT beneficiaries now get the information about the amounts credited to their accounts immediately through SMS, sent to them free of charge by the Banks. Banks can also send notifications to the customer mobiles about other credits received through remittances like IMPS or AEPs transactions from theirrelatives/friends working elsewhere. As part of the PMJDY campaign, all customers have been issued RuPay cards for transacting on their accounts. Now banks have provided Micro-ATMs (Ver 1.5 compliant) to all the BCs. The AEPS (Aadhaar Enabled Payment Systems) and Card + PIN systems have been installed at all BC points, While the on-us transactions have stabilised, the issues relating to off-us transactions are getting resolved. These will mean interoperability of micro-ATMs, where customers of any bank can use the services of any BC. Interoperability will be specially helpful, when the customers move out of their own village and go to Shandies/Market yards etc., and need to transact on their accounts and find only the BCs of other banks. Experts the world over have been advising that Fl does not stop at providing just savings bank accounts and transactions. Financial inclusion means providing all the Financial Services - Deposits, Loans, Payment services, Remittances, Insurance and Investment products to be made available at the BCs. The PMSBY (Prime Minister's Suraksha Bhima Yojana) and PMJJBY (Prime Minister's Jeevan Jyoti Bhima Yojana) schemes for the PMJDY account holders have created a new awareness about Insurance amongst the Rural population. Seeing the benefits of PMSBY, more people are joining the PMJJBY. The APY (Atal Pension Yojana),a long term Pension and Insurance scheme with attractive premium rates and subsidy premia for first five years, has also been introduced by the Gol and marketed by the banks. The success of Insurance Products should entice the Mutual Fund Industry to come out with a simple Mutual Fund product linked with SIP. It should not be far- off when the rural population also participates in new IPOs, through their bank accounts. To enable the PMJDY customers to get comfortable in availing loan products from the banks, the overdraft facility of Rs. 5000/- has been made availableto all PMJDY account holders. This has benefitted a large number of BPL customers to geta loan for the first time. While BCs are expected toassistin recovery of loans at villages initially, BCs are also expected to play a major role in sourcing other loans like KCC, ATL, ete. and help in disbursement at village level instead of the customers having to travel to the Brick & Mortar branches. The card acquiring infrastructure has been very inadequate in the rural and semi-urban areas. The number of cards issued is over 65 crores while the number of PoS terminalsis only 1.4 million as at the end of April 2016. The Gol and RBI are keen to expand the card acquiring infra-structure in the next three years and targets to more than double the number of PoS terminals. To incentivise the card culture, it is proposed to introduce differentiated MDR for debit cards in select merchant categories like utility payments, PDS, Fertiliser shops, Public transport, etc. This willnot only help in reducing cash transactions and move towards cashless society, butalso help in disbursal of KCC loans by making the farmers make their purchases for inputs directly at the dealers and merchants, without the need to approach the Bank branches. The cash-out at PoS will also help them to withdraw small amounts of cash for other needs. To make it easier and help the rural population comfortable with conducting the 04 Banking Technology in India : Present Status & Future Trendstransactions at PoS and ATMs, it is proposed to make available biometric authentication in all future PoS and ATM machines. To make the Financial Inclusion measures more effective, the BCs have to be properly trained. IBF has already trained thousands of BCs. It is proposed to have a graded certification for all BCs so that the better qualified BCs can also be trained to sell investment products like standard insurance, pension, mutual funds, etc. and also market other banking products. For Financial Inclusion to succeed, in addition to training BCs, awareness of Financial Services - Financial Literacy amongst the rural population - which in India is only around 23% - should increase, RBI has come out with guidelines on FLCs - Financial Literacy Centres - to target different groups - Farmers, SHGs, Micro and Small bral Explore, Enable, Exoel Entrepreneurs, Senior Citizens, School Children, Others (may be identified by the FLCs) with funding facilities from NABARD from the Financial Inclusion Fund. RBI has proposed thata centralised BC registry be maintained by IBA, to be shared by allbanks. RBI has last year, given an in-principle licence to payment banks and small business banks. Arriving with the latest technology, these banks are expected to support Financial Inclusion in a big way in the next few years and the rural population will benefit fromnewservicesand products. Using Technology through Micro-ATMs, PoS machines, Mobiles and Aadhaar-based authentication is the way forward for Financial Inclusion. HOR’S PROFILE Shri MV. Tanksale, Chief Executive of Indian Banks’ Association (IBA), has a long and illustrious career of 40 years in Banking. A professional banker from Union Bank of India for nearly 35 years, he went on to Punjab National Bank as Executive Director and retired as Chairman & Managing Director from Central Bank of India. He won the Golden Peacock HR Excellence Award 2012 & Person of the Year Award for his contribution to Financial Inclusion from SKOCH Foundation, ShriTanksale is a Bachelor of Science, Post Graduate in English Literature, CAIIB, and Fellow of the Institute of Cost & Management Accountants of India. Banking Technology in India : Present Status & Future Trends 05bral Explore, Enable, Exoel TH Indian Banking system is going through a transformational phase. Although public sector banks still command dominant presence, the current policy prescriptions of the Government with regard to capital infusion on the basis of efficiency of operations, consolidation of banks and opening, doors to new generation universal banks, niche banks, payment banks and small finance banks will change the banking landscape dramatically. Moreover, technology will make engagement of other entities, markets and instruments with banks more multi-dimensional. Alternate sources of financing, both domestic and offshore have already become a reality. Efficient risk management will be the key to operate and scale up in the uncertain global environment. Improved customer experience will be the game changer in the new era of changing customer habits and preferences. “Disruption, Innovation and Competition” is the new mantra to stay ahead in the game. As the proliferation of mobile phones amongst the digitally literate population in India has become a reality, adding innovative products and services on mobile platform helps in achieving financial inclusion goal of the country as well as our endeavor in marching forward towards a cashless economy. In this backdrop, the development of “Unified Payment Interface” by National Payment Corporation of India isa leap forward towards achieving the above goals. MOBILE BANKING - THE WAY FORWARD Banking is fast evolving from a setup where customers used to interact face-to-face with the Unified Payment Interface (UPI) - A Technology Based Product for Future LOTSA Leen Oil = Oni ea bankers to a situation now where practically any banking transaction can be completed from a remote location, using devices like ATMs, Point-of- Sale machines, Cards, Internet banking and Mobile banking. Of particular interest is mobile banking and the mobile phone, which was originally developed as a compact telephone for verbal communication. This has today transformed into virtually a mini-computer and is now a di convenience device that also enables telephone conversations. In India, mobiles entered the landscape in 1995 although in countries like USA, itwas introduced as far ago as 1973. However, after a short period of introduction, the usage of mobiles in India increased rapidly till it reached explosive proportions overthe last decade, or so. Like many other countries in the world, mobiles in India have become important devices for conducting banking transactions. The types of transactions that can be done using a mobile phone include: * Funds Transfer Mobile/DTH Recharge Utility Bill Payments Balance Enquiry Mini Statement Cheque Book Requests Term Deposit Creations RRR HH Transaction Alerts. 06 Banking Technology in India : Present Status & Future TrendsThe mobile penetration in the country is fast increasing. The number of mobile subscribers stood at over 900 Mn. However, a large proportion of mobile phone subscribers use the GSM handsets, ie, not the smartphones. The number of smartphone users is expected to reach 168 Mn. However, with more and more applications being made available on smartphones and with more people, especially in rural areas, getting used to mobile phone operations, the number of smartphones is also poised to increase sharply. DEMOGRAPHIC FEATURES RELATED TO BANKING AND DIGITAL CHANNELS ININDIA. With 1.3 billion population, India is the second most populous country in the world. The percentage of young population far exceeds the old. We are also the second largest English speaking population next. only to USA. The country produces 1.5 million engineers every year. On the top of it, the country is bestowed with following advantages as far as banking and digital channels are concerned: * Over 933 Mn mobile connections * Smartphone connections expected to reach 204 Mnin2016 % Number of internet users by end 2016 expected to reach 354 Mn, i.e., 27% of the population. Of these, almost 60% are mobile internet users * Over 190 Mn bank accounts opened under Jan Dhan Yojana, since August 2014, TRADITIONAL MOBILE PAYMENTS Traditionally, mobile payments are ‘Push’ transactions. A push transaction is one where an accountholder who has registered for mobile banking, uses authentication to withdraw money from his account and send it to the beneficiary. For doing this, the remitter needs to know basic banking details of the beneficiary, viz, name, bank where bral Explore, Enable, Exoel account is maintained, its IFSC (routing) code and account number. The beneficiary may or may not maintain his account in the same bank as the remitter. There are, however, not many payment systems, where a beneficiary can ‘pull’ the amount from the remitter’s account. Even if such a feature is available, it works only where, both, the remitter and beneficiary maintain their accounts in the same bank. Whatis Unified Payments Interface (UPI)? To take mobile payments to a new height and level of convenience, UPI was launched in April 2016 as a unique interoperable payment system that requires just a single identifier for transactions. Using the existing IMPS (Immediate Payments Service) framework of National Payments Corporation of India (NPC), UPI enables seamless payments across banks, merchants, businesses and customers without sharing any confidential financial information. While it is still in the process of being introduced, it is being seen as a potential game- changerin the Electronic Payments landscape. UPI PARTICIPANTS How do Customers Register for UPI? Stage 1 - Customer Profile Creation %* Customer downloads the PSP application of any bank which is integrated with UPI % The PSP server sends outbound SMS (text message) to the PSP server, to identify and verify the mobile number * After verification, the PSP fingerprints the mobile device along with the mobile number. Banking Technology in India : Present Status & Future Trends 07horal Explore, Enable, Exoel Stage 2 - Registration for Bank Account % The customer specifies the bank name with whoms/hehas account % Provided the customer request is received from the same mobile number which is on the records of the Issuing Bank (account maintaining Bank) as the registered mobile number, the Issuer Bank sends the account details to UPI. UPI then passes this information to the PSP which, in turn, integrates it into the PSP App. PSP App displays the masked account no.(s) to customer * The customer then selects the masked account details of the account that he wants to authorise for UPI transactions (in case of multiple accounts) and the PSP then prompts for Virtual Address selection for the account % The PSP stores information like Mobile Number, Virtual Address, Account Number and IFSC Code mapped to the device ID. A Typical UPI PSP APP Whatisa Virtual Payment Address? Virtual Payment Address is like an e-mail address. It isvery flexible and the customer can setup practically any Virtual Payment Address for his identification, eg., ramesh@axis or 9769852458 (mobile no.) @unionbank, 258996526843 (Aadhaar No.) @mybank, ete. These are very easy-to-remember identifications, tailor-made for each customer and using the Virtual Address protects other sensitive banking information like account number, IFSC Code, card details, etc., from being exposed to other customers, merchants, etc. Features of UPI * UPlallows the use of Aadhaar number, mobile number, with 'pay-by date’ to allow payment requests that can be 'snoozed’ and paidlater * UPlensures 1-click2-factor authentication The virtual addresses do not allow security to be compromised if the merchant's database is hacked, as their data base will only have list of virtual addresses * UPI permits immediate funds transfer, 24x7 without providing banking details such as beneficiary's account number, IFSC Code, card details, etc. There are no cut-off timings like those in traditional Payment Systems, eg., RTGS * The platform is standardised across banks, which means that transfers can be initiated on the go * It increases the smartphone adoption in the Indian economy by creating a solution which canbe scalable rapidly to abillion users * UPI does away with the need to install Point- of-Sale (PoS) machines, which helps in reducing overall costs 1. Example of Payment Request og Banking Technology in India : Present Status & Future Trends% Mr Bibek Rath, with Virtual Address br@kbl is using the PSP App of Catholic Syrian Bank (PSP Bank) to generate a payment instruction to pay INR 50,000 to Trupti (Virtual Address trupti@imobile) 11 Example of Collection Request * Mr Bibek Rath, with Virtual Address br@kbl is using the PSP App of Catholic Syrian Bank (PSP Bank) to generate a collect request to receive INR 50,001 from Trupti (Virtual Address trupti@imobile). Benefits of UPI The main differentiator of UPI transactions is its ability to maintain complete confidentiality. Only virtual address is shared to effect a transaction instead of disclosing account number, IFSC code, etc,, in other conventional mode of transactions. As it supports both pull and push transactions, it meets a whole range of payment requirements of the user. This includes Cash on Delivery, Bill Split Sharing, Merchant Payments, Remittances, etc., to name a few. Two-factor authentication is ensured by single click. Because of the architecture of the system, the transactions can be authorized only by entering PIN. But USP of the system is its availability 24%7 in contrast to limited time window available for other Payment systems like RTGS, NEFT, etc. Some Typical Cases of UPI Transactions Online Shopping: Reena is browsing myDeals and finds a leather sofa that costs INR 40,000 and places bral Explore, Enat the order. myDeals allows her to pay 70% as advance payment and remaining 30% on delivery. Reena's father is to pay the 70% advance and the balance taken care of by Reena on delivery. How it works: After selecting the product, Reena proceeds to make the payment, opting for UPI. She enters her father's virtual address and clicks on checkout. myDeals initiates the first “collect” request of INR 28,000/- as amount during checkout (as advance payment) and sends the “collect” request to Reena's father. He accepts the request and provides his credentials for payment, following which myDeals confirms the order. ‘Once the furniture is ready, myDeals creates a new “collect” request for the remaining amount (INR 12,000) with a "pay by" date and sends it to Reena’s PSP by entering Reena's Virtual ID. Reena snoozes the request and leaves it in her PSP application's inbox. Once the furniture is delivered and she is satisfied, Reena enters her Bank Account PIN and authorizes the payment for INR 12,000/-. Cash On Delivery: Dilip frequently shops online. On the occasion of Diwali, he decides to shop for some gifts for his family. He selected a set of five items on myWebPortal and requested for Cash on Delivery. How it works: On delivery date, the delivery boy arrives at Dilip's door step with the goods. Once Dilip is satisfied with the quality, he shares his virtual ID (Dilip@myBank) with the delivery boy, who then, with his mPOS device initiates a “collect” request. Dilip receives a notification for the payment request by MyWebPortal. He accepts the request and initiates payment. Once the payment has been made, the delivery boy receives confirmation of the same. Splitting the Bill: Two friends Nitin and Rahul go out for dinner and Nitin pays the bill. They agree to split, the cost 50-50 and Nitin initiates a request for payment from Rahul, with a pay by date of seven days from the date of request. Banking Technology in India : Present Status & Future Trends o9horal Explore, Enable, Exoel How it works: Nitin logs on to his myBank app. He initiates a “collect” request by providing Rahul's virtual address (rahul2727@yrBank) and then enters the amount to be paid defining a specific timeframe. Rahul gets a message on his phone, with a “collect” request from Nitin for a given amount. However, he is currently in a meeting and decides to attend to it later and 'snoozes' the request. Since a timeframe had been defined by Nitin while requesting the payment, Rahul's PSP application allows such a snooze and reminds him after the said period has lapsed. Rahul accepts the “collect” request, provides his credentials and authorizes the payment following which Nitin receives immediate confirmation of payment. Issues relating to UPI There is a school of thought that the large banks may become reluctant to join UPI as they will have more to lose than gain. This apprehension stems out of the fact that the customers of those banks can use the other banks as PSPs, consequent to which the PSP bank can obtain key banking details of the customers of large banks. But the contrary view could be that. those banks may lose in competition if they do not. join the mainstream. In a service driven organization, ultimately the customer decides the course of a change process and those who do not join this change process ultimately lag behind. Moreover, there is another side to the whole story. The bigger banks may convert this adversity to their advantage by maximizing transactions in an environment of reduced transaction cost thereby improving fee income. The process innovation brings in efficiency to the system and the best always wins. There are not many examples of UPI like transactions in other countries. The concern areas could be development of proper security architecture to safeguard such transactions leading to generation of customer confidence. A proper dispute resolution framework is also a prerequisite for the success of such a system. However, all these issues can be tackled by putting in place proper regulations and the sooner we doit, the betterit is forus. UPI -AProduct forthe Future UPI has plugged the gap of a long standing need of customers to do all kinds of day-to-day transactions through mobile. The solution is reasonably secure, convenient, easily implementable and works on 24X7 basis. This will also help us in our march towards achieving cashless transactions. Critics may say that it is a technological twist to an existing concept. But one has to recognize the fact that a new way of doing thing which ultimately helps in satisfying the need of an eco-system will emerge as winner. UPI thus has a strong potential to make its mark asa successful product for the future. * Support provided by Shri §K Datta, 3t Director (Training) is thankfully acknowledged. ITHOR’S PROFILE Dr. Jibendu Narayan Misra is the CEO of the Indian Institute of Banking & Finance since 15” December, 2014, Dr. Misraisa Ph. D. in Physics. He joined State Bank of India as Probationary Officer in 1979 and has held various key assignments across circles, including London. abs Dr. Misra has held important positions such as General Manager, Patna circle; General Manager, Rural Business (Outreach), Corporate Centre, Mumbai and Chief General Manager of Mumbai Circle, He was elevated to the post of Dy. Managing Director on 31.07.2013 and was in-charge of Corporate Development and Human Resource Depart mentofthe Bank. 10 Banking Technology in India : Present Status & Future TrendsINTRODUCTION Ws is a Digital Bank? This question needs addressing before we analyze whether we are ready to experience a Digital Bank holistically. The subject digital is very loosely spoken and understood interchangeably as IT-enabled, mobility- driven, analytic social media based and so on. Digital undoubtedly is driven by technology, but a Digital Bank is definitely much more than these individual pieces. The current in things is bottom-up customer experience-driven banking products and services. In this fast changing digital world, where the definition of digital itself is changing frequently, it is instructive to analyze the scenario. In doing so, let me take the readers through a historic perspective as wellas a few case studies from SBI to understand the status of the digital journey of the Indian Banking sector. IT JOURNEY DEFINES DIGITIZATION OFTHE BANKING SECTOR Information Technology initiatives of banks in Indi primarily started with back office computerization in the 1980s by SBI and full branch computerization in the 1990s along with networked programs like ATMs and Internet Banking rolled out by SBI. With the adoption of Core Banking Solutions (CBS), automation of branch processes and centralization of operations, the predominance of IT in Banks gained further momentum. During the last couple of decades, most of the banks bral Explore, Enat DIGITAL BANKS: ARE WE THERE YET? have undergone the transformation to technology- driven organizations. Moving from a manual, scale- constrained environment to a global presence with automated systems and processes, it is difficult to imagine today the scenario before, when even a simple deposit or withdrawal of cash required a long, wait to get over. Banks in India are undergoing a significant transformation phase of technology advancements and its adaptations. They are now constantly aspiring to enhance customer experience, improve efficiencies with adaptation of leaner and cost- effective operations and drive revenue by increasing, the depth as well as the spread of customer ‘engagement. Banking industryis slowly shifting from the traditional transaction-efficient banking towards relationship anchored banking with emphasis on digitally re-imagined products and services. IT has now been leading as well as assisting the banking industry to roll out products and services to the nook and corner of the real and virtual world. tis also simultaneously dealing with the challenges, the new world and economy poses. Envisaging the expectations of new generation of customers and designing products to compete with non-banking, entities providing similar facilities is one of the very important challenges for IT. In the last few years, IT has enabled banks in meeting high expectations of the customers who are more demanding and techno-savvy as compared to their earlier-day counterparts. They demand instant, anytime and anywhere banking facilities. Additionally, IT has been providing solutions to Banking Technology in India : Present Status & Future Trends a.horal Explore, Enable, Exoel banks to take care of its accounting and back office requirements in shorter time and in a precise manner than ever, thus reducing loss of productivity and enabling front line staff to serve the customer more efficiently. Many banks have modernised their services with the induction of new generation computer and electronic infrastructure. The electronics revolution has made it possible to provide ease and flexibility in banking operations for the benefit of the customer. The e-banking services like Credit Cards/Debit Cards, ATM, Electronic Funds Transfer, Mobile Banking, Internet Banking, etc., have enabled customers and banks to say good-bye to old systems of huge account registers and large paper-based transactions and branch visit-based banking Overall, the way banks nowadays are delivering services to their customers is changing. However, technology comes at a cost - implementing all these technological initiatives have been expensive, though rewarding. We are now at a time when we have to deal with challenges in choice of appropriate technology, dealing simultaneously with legacy and modern parts of the IT and change management. Also, the new skills in IT like mobile, cloud management and new coding practices related to security have to be integrated. DIGITALJOURNEY OF INDIAN BANKS Digital Banking in India has in general followed the change in the Indian banking landscape from the entry of private players to increased regulatory surveillance to changing customer channels to implementing technology. All these changes have pushed the banking system to become more efficient, agile and resilient. As the landscape in India is further changing which is evident from the ‘emergence of payment banks and the changing focus of traditional banks towards the digital side of things, the digital imperative is looming large. Digitalization of banking operations is a transformational change impacting the business models of the banks operating in India and elsewhere. The digitalization efforts of banks in India are getting facilitated by improvements in ecosystem and favorable demographics. The government has a focus on digital India and intends to move towards a cashless economy. It has plans to provide universal access to mobile connectivity, information for all, and public internet access programs. The government is also focused on promoting e-governance. All these initiatives are expected to boost the digitalization effortsacross sectors. Asa result of the general trend towards digitalization, several industries including banks face disruptions from tech-savvy firms. In the banking sector, legacy banks have started to see competition from new players not only from banking, but also from other technology-focused industries like telecom and retail. Licenses for full or partial banking have been granted to telecom companies, security market entities, postal service provider, bottom of pyramid players, payment service providers, technology companies, and NBFCs. As many of these players who are starting fresh could start their business ona digital platform, the traditional banks are being forced to bring ina digital change. As at this moment, major digital initiatives are being seen in the payment space, with wallets and multiple varieties of e-payments coming in. Similarly, cloud computing, mobile and web banking, deployment of, analytics as integral part of customer interaction is also seeing excellent momentum. Banks like SBI are leading the pack by making futuristic investments in technology infrastructure, product development and innovation. DIGITALBANKING INITIATIVES AT SBI In SBI, we take pride in the relationships with customers, both individual and corporate, which we have nurtured over the past 200 years. We have constantly reinvented and reimagined ourselves as new technologies have emerged, and as winds of economic change have swept across the global 12 Banking Technology in India : Present Status & Future Trendsfinancial landscape - keeping the customers’ needs in forefront of all ourefforts. ‘As part of our digital journey, we are fine-tuning our processes, developing and hiring key talent, and putting in place comprehensive technology solutions to deliver a truly delightful customer experience across multiple touchpoints. The digital roadmap is anchored on product innovation and service delivery. Our digital foray is based on the four key pillars, namely, Social Networks, Mobility, Analytics, Cloud (SMAC) and IoT. All these technologies form the core of Digital Banking concept which are being applied to each one of the bank’s functions for creating value. However, developing a digital agenda and driving a digitally centered transformation, especially in large organizations is a complex task. We have understood that this requires an unusually high level of coordination of cross-bank initiatives spanning prioritization, resource allocation, and collaboration in execution. Additionally, in-house build and IT capabilities shall be crucial and critical. For these, all itiatives today are driven on a strong discipline of Project Management, which collaboratively works with business and external partners. ‘SBI today is the largest IT spender amongst banks in the country. At the same time, our IT spends are Capex and strategy-oriented and we are ready to spend provided there is a value-add and the expenditure fits in the larger scheme of things. At the same time, de-cluttering the IT stack is an important, part of the digital roadmap and we are also looking at this as an opportunity to remove some activities that. are not adding value to the organization and to replace them with more appropriate ones. This has been especially beneficial as we are dealing with some complicated processes that involved various departments. It has helped us streamline our work, flowand save time andeffort. Most banks are currently in the early stages of developing the capabilities and culture of digitally bral Explore, Enable, Exoel native organizations. While the banking industry has historically sought to maintain a customer-focused relationship, the needs and wants of today's customers are very different from those of even a decade ago. At the same time, the bank's offerings in the digital space has to simultaneously cater to varying requirements of different customer groups and one solution cannot fitall In SBI, Data Management and Analytics is being used extensively for analyzing customer preferences and g0 towards insight-driven marketing strategies for creating a value proposition for the customer and creating a win-win situation for both parties. Today, for us in SBI, omni-channel and digital is the rule. We understand that most of the transactions can be done from their homes and customers need not visit the bank branch for anything. Technology has also changed the accounting and management system of all banks. And itis now bringing a complete paradigm shift in the functioning of banks and delivery of banking services. Multiple channels of interactions such as the internet, mobile, tablets are gradually taking customers away from traditional channels such as branches and ATMs. In SBI, more than 75% of transactions are now done in non- branch channels. Even in the branch, the presence of technology and use of new digital channels is at a very high level. In SBI, we understand that digital technologies increase a bank's connectivity - not just with customers, but also with employees and suppliers. Most of these technologies are now being adopted in some way or the other at SBI, which extends from online interactivity and payment solutions to mobile functionality and opportunities to boost bank brands insocial media. Understanding that the customers prefer transactions to be done on the fly, loans to be approved just before finalizing purchase of goods and SBI has now started offering pre-approved loans with different online retailer's platform. Customers expect bank to offer solutions, which is seamlessly Banking Technology in India : Present Status & Future Trends 13horal Explore, Enable, Exoel available that too across a wide variety of channels. We are accordingly using our leading social media presence to offer banking services across these platforms. Digital draws on big data and advanced analytics to extend and refine decision-making. Specifically, trained professionals have been brought together and collaborations have been entered into with IIMs for Analytics at SBI. These are helping us to get better grip on high tech areas like model generation for a host of activities. Data management and analytics is now being used extensively for analyzing customer preferences and go for insight-driven marketing strategies for creating a value proposition for the customer and creating a win-win situation for both bankand customers. We have implemented new generation and open source utilities like Hadoop for more efficient use of, the technology at hand and to come out with more customized and targeted solutions keeping in mind the degree of digitization required. We are also exploring ways to deploy these tactics in various other core banking areas like sales, product design, pricing and thus, designing a set of truly amazing customer experiences. Another way of creating value through digital is by enabling straight-through processing—that is, automating and digitizing a number of repetitive, low-value, and low-risk processes. In our digital journey, we know that quick wins shall have to coexist with big long term wins to sustain the digital experience and investments. Thus, upgradation of existing processes of service delivery like Self Service Kiosks, Cash Deposit Machines are being implemented to substitute for services which required customers to visit branches. Use of e-mail, missed call banking and profile based banking are being done to improve customer self- service and the bank to respond more quickly to certain needs or help requests. Extensive use of Mobile Apps is also being done. We are using live banking advisor at select SBI Infouch Branches which enables the customers to interact with our product specialists. This channel also has features of instant sanction of certain loan products. Data churning helps us to assess and design our offering to target specific customer, keeping in mind specific products for our not so tech-savvy customers as well. Ability to deploy solutions in quick time is essential in the digital world to sustain competitive edge. We have deployed dedicated teams looking after our self-hosted private cloud which is getting scaled and benchmarked very frequently. Thus, IT Infra in the digital world is geared to provide laaS (Infrastructure as a Service) to internal departments and verticals inside the bank. To be able to provide facility unique identifiers to customer for performing a lot of activities is an area which we are presently investing a lot to get the more correct grasp of the requirements which our customer base may feel. We are also in the process of implementing Customer Relationship Management (CRM) for managing customer relationships in a better manner with more sophisticated data gathering tools. CRM as a concept is much more a human function than a technology implementation. It is not a product or a service, itis an overall business strategy that enables organizations to effectively manage relationships with their customers. CRM initiatives usually seek to fulfill several objectives. One of the objectives is to get closer to the customer by utilizing the data "hidden" in scattered enterprise databases. Examining and analyzing the data can turn raw data into valuable information about customer's needs. By predicting customer needs in advance, businesses can then market the right products to the right segments at the right time through the right delivery channels. Other CRM objectives include: increased cross- 14 Banking Technology in India : Present Status & Future Trendsselling possibilities, better lead management, better customer response and improved customer loyalty. We are now on the threshold of implementing a unified CRM system for the State Bank Group, inclusive of all the associates, subsidiaries and joint ventures, to establish a cross-sell and cross service platform that meets our customers’ needs at any time, on any channel. The proposed CRM System at State Bank will yield the following benefits: * Integration of experiences across customer touchpoints * Improve efficiency and effectiveness in providing customer service Customization of products and services Personalized individual marketing messages Enhanced ability to target profitable customers. Thus, SBI’s digital journey has been based on comprehensive assessment of the various dependencies, strategies and the overall assessment of the optimal solutions. CHALLENGES IN MANAGING THE DIGITALTECHNOLOGIES With all the benefits that banks have derived or likely to derive from digital transformation, a few challenges also exist. Digital adoption is facing pressure from both external and internal forces which can be categories broadly under four main heads: Technology Infrastructure, Regulatory, Process and People. These challenges are pushing banks to constantly modify their digital strategy. Integration of the customer-facing digital offerings with back end operations and processes are imperative to help ensure the success of a digital strategy. Technology infrastructure is an important enabler for a successful digital transformation. It is important for banks to upgrade their systems to implement new technologies. There are still few bral Explore, Enable, Exoel banks who have not yet upgraded their systems from legacy processes to the new infrastructure, which is required for integrating front end digitization to back end operations. Some of the programming languages (such as COBOL) that were used few decades ago, are still being used by the banks. Banks are also maintaining multiple customer-facing systems which cause duplications in the processes and also make the process inflexible, expensive and time- consuming. Further, the digital transformation programs effect banks! internal processes during the transition period and disrupts the business as usual. During the trial and testing phase, and sometimes during final implementation, technical glitches hamper seamless offerings and create negative publicity. In late 2015, a major bank upgraded its online platforms to provide a similar look for all the digital banking platforms. However, after the implementation there was a major technical glitch due to which customers faced challenges while accessing their bank accounts. Thus, Change Management should be given top priority at all times. Managing the social media is equally important in the digital age. Customers often go to the bank's Facebook page to convey their dissatisfaction. This often proves to bea reputational risk. Data security is one of the highest concerns for any banking player today. With the increase in digitalization and ease of banking services, a new threat that banks are exposed to is cyber crime. These crimes are not only for monetary gains, but also for the valuable information of individuals or institutions. The threats could be from inside or outside the organization. For banks to implement advanced technologies, government support is inevitable. Additionally, banks are currently overburdened by regulatory pressure. The compliance measures adopted by them to meet the growing regulatory requirements may impact the capital investment budgets set aside for digital transformation. Adoption of Basel 3, for Banking Technology in India : Present Status & Future Trends 15horal Explore, Enable, Exoel example, requires huge capital/recapitalization. Where legacy banks are facing challenges and pressure from regulators, start-up firms, P2P players and Fintech are enjoying incentives like tax holidays, tc., which further adds to the competition faced by banks from the challengers in the market. Further, adoption of technology such as cloud computing also faces regulatory compliance around data confidentiality. The groundbreaking redefinition of the payments space, explosion of technology-driven wealth management or strong emergence of online peer-to- peer lending solutions are all breaching the areas which were formerly banking strongholds. The nimble-footedness of the new players could be a big challenge to the existing players. Non-bank attackers, ranging from large telecommunications companies to small and nimble technology players, are defining the standards for digital banking. They have a high pace of innovation and pose a unique question to banks to innovate at lightening speed while meeting regulatory norms. To compete with the tech giants and challengers, banks require that their employees have strong technology skill sets, which currentlyis a challenge. While the scope for technology opportunities is vast; it includes data analytics, big data, digital marketing, social media usage and analytics and customer analytics. Due to a lack of strategy around digital training for up-skilling employees, banks may not be able to innovate quickly. WAY FORWARD At State Bank of India, we have always emphasized upon the quality of service we deliver, and our processes have invariably been customer focusing. That's why the concept of being ‘customer-centric’ is not new to us. The digital age has enabled us to enhance the customer experience dimension, to supplement the service elements. Today, we have the largest retail customer base of any bank in the world, at over 300 million customers ~ anumber equivalent to the entire population of the United States. We operate out at over 17,000 branches across the states of India, and across Metro, Urban, Rural and Semi-urban population clusters. We also have a large Foreign Office network spread over dozens of countries across five continents. We service every possible financial services product either directly, or through one of our subsidiary organizations - from traditional deposit and lending, services, to transaction processing and cash management, from capital markets to insurance and credits cards. All of this represents a huge challenge in terms of scale and complexity. Digitalization shall continue to be perceived both as an opportunity as well as a challenge. For banks, execution will be key in the future. This is a playing field where the winner shall be decided based upon path-breaking innovation, flexibility to adapt and successful implementation of ideas. Banks are expected to redefine their digital roadmap and overcome the silos created by various channels, such as mobile, data analytics, cloud, etc. into a ‘consolidated digital plan! They are supposed to ensure a consistent experience across all channels while directing customers to their channels of choice. To implement customer-centric technology and operational platforms to support a coordinated channel strategy - cultivating a customer-first culture throughout the banks priority. Following shall be the continuing strategy for all banks including SBI in taking and embedding the digital journey: % Adoption of new/redefined core banking platforms - The time is now for banks to replace legacy core banking platforms. Ageing, non-integrated legacy banking systems are becoming a liability, as maintenance costs rise and customers demand real-time access to information and services. Develop a technology strategy and roadmap that integrate the core banking platform with emerging mobile channels. 16 Banking Technology in India : Present Status & Future Trends% Upgrading or replacing online and mobile banking solutions - It should evaluate those digital banking providers that have architectures that support traditional and mobile browsers, as well as native and hybrid mobile technologies. Embrace mobile technology and incorporate social media into the marketing strategies. Deploy the right planning and support functions to facilitate successful execution of initiatives. * Bank Payment Hub ~ Some banks are implementing Bank Payment Hubs (BPHs) asa means of updating clunky legacy infrastructure. A BPH brings together different elements of banks’ payment systems, enabling better management of payment flows and improving flexibility, thereby allowing banks torespond more easily and quickly to changing, demands and market conditions. * New security frameworks for combatting fraud and cyber security ~ Information, digital transactions and smart devices continue to proliferate at an extraordinary rate. This also opens up potential loopholes that can be exploited for various kinds of fraud, * Data governance and management will acquire the centre stage of information strategy formulation for the facilitation of both internal as well as external regulatory information needs with appropriate standards of data quality. Standardized regulatory tools in the industry supported by a strong data governance structure will become a norm in the industry. * IT Governance in the Indian banking industry has to assume the importance it deserves to seize the emerging opportunities as well as to manage the challenges. The responsibility in this regard should range from setting the IT strategy to reviewing the performance of the IT function and organization for suitable direction. bral Explore, Enable, Exoel CONCLUSION From India's perspective, a mix of growing adoption of smartphone and internet penetration, greater access to banking services, and a focus on facilitating, seamless transactions through electronic payments will drive a truly inclusive ‘Digital India’ which will transform the livelihoods of crores of customers and small businesses. Also as mentioned above, Banks in India have executed digital initiatives in a fragmented manner and in silos from their peers abroad. Now since the banking sector in India is getting competitive with payments and small bank licenses, it will bring the unbanked masses under the ambit of formal banking and also expedite financial inclusion. What needs to be ensured is that banking and payments players work in syne with regulators, aiding this journey to digitalization. Going forward, banks are expected to collaborate instead of compete with the challengers; integrate and realign all their processes and systems; and automate their processes and push their customers towards more self-servicing, intuitive and robotic channels. Digitization also means fostering innovation across products and business models as well. If banks are to continue engaging with their customers and delivera 2Ast century banking experience, it has become necessary that they make efforts to leverage the current offerings of loT (Internet of Things) which is anadvanced adaptation of cloud computing. Banks and Fintech startups need each other ~ ‘Fintegration’ Identifying and engaging with start- ups/companies at an early stage has significant benefits for a large company, not just in monetary terms but also in being able to guide the product/concept design to best suit their own use- case. Companies who may not have the ability and bandwidth to scout for innovation independently can easily collaborate or partner with these start-ups. Banking Technology in India : Present Status & Future Trends v7horal Explore, Enable, Exoel As many leading companies have also managed to minimize innovations costs and associated risks by outsourcing innovation, banks in India too should look out for the latest and most innovative technologies emerging and then figure out which could be leveraged to derive the maximum synergy. Multi source technological solutions have to be adopted to make the processes more robust. In the coming years, banks are likely to create a complete digital ecosystem by bringing in the integration of processes, people and technology. Open Application Programming Interfaces (APIs) and simplified digital architectural designs may emerge for a seamless connection between interfaces, services and applications (apps), driving an uninterrupted flow of digital content. Another development is likely to be the introduction to robotics, automation and self-learning algorithms in order to limit human involvement and up-skill machines to offer self-servicing channels. This will involve initial investments which will be capitalized in the long run in the form of reduced operating expenses, especially staffand rental costs. In other words, the digitalis a journey and no one, let alone banks can claim to be completely there. Preparedness and continuous innovation is the key and Banks are in for a long haul and have to release new offerings on a continuous basis. ITHOR’S PROFILE Shri Mrutyunjay Mahapatra, a post graduate in Physics and Business Management had varied stints in State Bank of India, in the country and abroad for over 33 years. Apart from managing branches of various sizes and responsibility and leading teams under retail network, Mr. Mahapatra also worked extensively in Corporate Credit, Leasing, Private Equity andIT functions. Heisalso credited with setting up of a number of new businesses of the bank which include Private Equity funds and Stressed Assets funds, custodial services and general insurance in his overseas assignments of over seven years. He worked at Chicago and London offices in top leadership positions. He was on various boards of Government and SBI-owned companies in India and abroad. Shri Mahapatra loves to read, run long distances and play violin. 18 Banking Technology in India : Present Status & Future Trendsbral Explore, Enat bf Disruptive Innovations in Banking BANKING: INTRODUCTION ANKS have been constantly transforming their banking services by investing in digital enabled initiatives/innovations and adopting new process to maximize banking benefits for both the bank and the customers, This transformation involves looking from a customer perspective who is the end user of the banks services and is achieved by providing superior customer services and products aligned to the customer's needs. Such transformation has been happening in the Banking Industry for a few decades. Banks traditionally had a strong branch network as delivery, channel. It should be noted that in the last decades multiple such innovations and transformations have been happening. We saw ATMs being implemented in 1980s to 1990s, Core Banking, CRM implementation, and Call Centre implementation between 1990s to 2000, Internet and Mobile Banking getting implemented between 2000-2010 inthe banks. Banks have been providing their products and services through various channels like the branch, call centre, ATM, Internet Banking, etc., and this has evolved over the last few decades. Since these channels were added at different points of time, and built as separate structures, integration, consistency and availability of products and services became difficult resulting in customer dissatisfaction. CUSTOMER BEHAVIO GRATIFICATION The customer behavior has changed in the last couple of decades. Convenience and on-demand availability of services - anywhere and anytime, has become the need of the hour and customers look for quick gratification. In this digital age, the customer wants the best service at the best price in one click. QUICK There is a sudden explosion of mobile devices and smartphones and the data networks now available in almost all cities, towns and villages of the country, we have seen disruption happening across various industries. Uber is not just a mere mobile app; ‘on one hand it allows anyone to become a taxi driver andon the other hand, it provides convenience to the customer. It gives control to the end customer and allows the customers to get transported and pay for the services - anytime, anywhere by a couple of clicks on his mobile app. This is disruption in the transport industry. Similarly, we have seen the “Whatsapp" trend that has disrupted the mobile messaging industry. Though every telecom operator provides SMS as a form of messaging, the “Whatsapp" built as a mobile application and residing on the mobile devices, became an instant hit and surpassed the volumes of all telecom providers put together. There is a huge proliferation of really smart mobile apps in the last 4-5 years, which has made the smart phone device intelligent and a reliable companion of the customer. It has become single window of access Banking Technology in India : Present Status & Future Trends 19horal Explore, Enable, Exoel to the digital world of services, information and entertainment. DISRUPTION IN DIGITAL BANKING The Banking Industry has witnessed significant digital disruptions in the last couple of years. Traditional banks have built trust with their customers over a period of time and have acquired significant customer base and many have embarked on digital transformation and are in different stages ofthis journey. In the digital world, the customer journey with the bank will actually begin from his mobile device and not from the branch and this user will always expect an “Uber” like experience which is convenient and gives him the control. Hence, it is important to think from a customer perspective while defining the products and services and this in turn will impact the internal and back end technology and process of the bank. This back end technology and process needs to. flexible and agile and must align to the customer needs. These “digital” customers will make more transactions on digital channels like mobile and tablets compared to any of traditional channels like the branch and call centre. These are some of the digital innovations and disruptive trends in the Banking Industry: Omni-Channel, Contextual and Personalization in Banking Traditionally, the banking business was focused inside-out and starts with product constructs, technology systems and process which were more designed as silos with little focus on UX design and experience whereas in Digital Banking, the focus is outside-in, where more emphasis is on user experience and design. The technology systems and process are designed to be flexible, componentized and are aligned to the customer needs. The customer in this digital age looks for Omni channel and personalized experience. Omni channel experience means the customer can access any of the bank channels (Branch/ATM/Call Centre/Mobile Device) and will experience the same brand experience as the customer data will be commonly accessed and updated from all the different channels. For example, if the customer was accessing the Internet Banking application and was browsing for a personal loan, the next time when he calls the call centre for resolving his service query, the call center personnel can enquire if he was interested ina personal loan and can give him special and personalized offer based on his credit worthiness and relationship with the bank. Personalization involves use of analytics and big data for customer profiling and analyzing customer behavior. This new age digital banking is about user experience (Ux), personalization and providing relevant and targeted offers to the customer, thereby increasing share of wallet. Mobile and Smartphones: Growth and Availability ‘Smartphones have become powerful and cheaper over the last few years. The CPU configuration on the mobile phone is almost equivalent to the CPU configuration available on laptops and desktop computers. The cost of mobile phones have become very competitive as more and more mobile manufacturing companies have entered the market. In India, the number of mobile users is expected to grow to 895.6 million by 2019 and the number of smartphones will be around 651 million (Source: Economic Times]. Internet penetration and mobile data networks both in terms of quality of service and bandwidth has improved over a period of time. Reliance JIO is all set to disrupt the telecom market with low cost smartphones, 4G services, superior content, applications and low cost of service. This will further propel the growth and expansion of the smartphone and internet service across India including small town and villages. Banks are building 20 Banking Technology in India : Present Status & Future Trendssmart mobile banking apps that turn any smartphone into a fully operational bank. They have started focusing on prioritized launch of new banking products and services and have built complete end- to-end Shopping, Entertainment, Payment and Banking ecosystems on the mobile platforms Aadhaarand UID The Aadhaar card which gives a unique identification to residents of the country, has become the leading biometric identification programme globally. Till April 2015, UIDAI has issued 810 million Aadhaar cards which is 67% of the total population of India (1. 2 billion population). With the prominence and recognition of the UID number as an identification number, the KYC (Know Your Customer) has become easy. With eKYC services available from NSDL, the BFSI sector has started using these services and integrating them into their customer acquisition systems for validation and data enrichment. This has greatly improved the turnaround for the KYC and related activities and improved customer interactions Biometric Authentication Voice and Iris scanning as alternate biometric authentication mechanisms has become more prevalent in recent times as it reduces identity theft and improves customer convenience. Biometric authentication using iris scanning of the eye has started gaining popularity due to the Aadhaar, UID. There are mobile phones available with sophisticated camera and in-built customized mobile app to enable customer authentication and onboardingina seamless manner. Voice Biometrics uses the “voice signature” of the customer for authentication. This technology extends to allow the customer to use voice ‘commands to maneuver through the banking mobile app and conduct banking transactions. These solutions are now enabled and integrated in various devices into the car/home entertainment systems making banking services very easy to.use. bral Explore, Enable, Exoel ‘CKYC from CERSAI: Central KYC Repository CERSAI has initiated a project of having a central repository of all KYC information of the customer. This initiative will be transformational and will provide the latest, verified KYC data to the banks. Banks internal process and systems will undergo a change. Banks will have to initially check with CKYC. repository before onboarding a new customer into system. If the customer does not exist in the CYKYC database, the banks collects the information from the customer and uploads into the CKYC database. The CKYC system will assign a unique ID for this customer. This number will be shared with the customer too. The customer can quote this number henceforth to any other bank before availing any new product or service. This helps the KYC process at the Bank to achieve faster TAT’s and also makes it easier for the customer as it eliminates/reduces the documentation and verification process. Payment Industry The Banking Industry has witnessed major changes over the last one year, with significant focus from banks on driving electronic payments through mobile banking, social media banking, wallets and other customer-centric payment services which is complimented by increasing penetration of smartphones and Internet. Banks have been encouraging their customers to use electronic payments and to use online internet and mobile banking channels. Four major private banks in India have seen more than 100% growth over the last year in IMPS volumes by their customer. On the merchant acquiring side, the average daily PoS transactions has grown substantially over the last year. Emerging Payment Systems - UPI (Universal Payment Interface) This was conceptualized by NPC! and will make digital wallets from different banks interoperable for the first time. This will bring a major boost to the Banking Technology in India : Present Status & Future Trends 21horal Explore, Enable, Exoel digital wallets and will allow easy and convenient ways to transfer money and without a need to share the mobile number or account number. An individual will be assigned a virtual address by the bank which is easy to remember and this becomes his identity to accept and transfer money. It allows a person for the first time to “pull” money from the other person. This concept of payment system is unique and will be a disruption in the digital payment systems. Near Filed Mobile Communication (NFC) NEC technology is becoming increasingly a popular mode for in-store payments and used in contactless cards and mobile phones (tokenization). The payments through NFC removes the need of a PIN and is currently capped at Rs. 2000/-. This improves the customer experience, eliminates the need to swipe a physical card and enables the customer's mobile phone asa payment device. Blockchain Blockchain is a distributed shared ledger that is secure and records the ownership of an asset. Itis the underlying fabric on which the Bitcoin network functions. Through the use of Blockchain technology, banks will be able to reduce frauds, increase transparency and reduce costs of transactions. Banks in India are evaluating this new technology framework and have started building POC’s and use cases around KYC, Trade Finance, Payment systems, etc., so as to understand this new technology framework and it's applicable use in the Banking space. NASDQ has successfully implemented a Blockchain framework by launching Ling system in Dec. 2015- which is based on shared ledger technology. This facilitates issuance, cataloguing and recording of share transfer transactions to private investors without involving middlemen like clearing firms. Digital Wallets Mobile digital wallets have gained tractions alongside the increasing use of mobile devices and e- commerce. Digital Wallets is used for money transfer, between P2P/P2B, banking transactions, shopping, ticketing and bill payments and can be used in making purchases - online/onstore. Mobile payments in India are estimated to grow from $86 million in 2011 to $1.15 billion in 2016, with a compounded annual growth rate (CAGR) of 68 per cent and have become a big success in the last couple of years for small tickets payments due to convenience. Social Data andAnalytics Due to the growing popularity of social media applications like Facebook and Twitter, banks are using the social media services for communication, brand proposition and engagement with customers. They have also started providing banking services on the social media platforms. They are performing analytics on the social data to understand the customer preferences, targeting the customers with right marketing offers and products and also using social data as alternate source of credit decisions. DESIGN OF THE NEW DIGITAL BANK The omni-channel orchestration and personaliz: experience hence defines new structures and design of the bank in a unique way. Transformation of the traditional banks to the new age digital bank would necessarily mean adopting to this new framework. This design includes having a single monolithic layer, which comprises of a) UX/Marketing; b) Banking API's; ¢) Banking application and databases d) Payment Infrastructure. The Ux/Marketing layer would be common platform and will provide an omni-channel access (Branch/ATM /Call Centre/Micro Websites) and marketing offers. The Banking technology Infrastructure comprises of Core Banking database, LOS's and LM's systems, Analytics and Big Data Infrastructure and all the information and functionality in these systems would 22 Banking Technology in India : Present Status & Future Trendsbe provided as components and will be integrated with Banking API's. The Banking API's are functionality comprising of various banking services and products broken down in basic finite components allowing them to be personalized and customized based on customer preferences. Since it is built as an API framework, itis flexible and scalable. Also, the new banking technologies and products available from the new startups and Fintech companies will be available as API's and will integrate into the Bank's Technology infrastructure. This model hence moves away from the traditional silo approach into a more flexible, agile and scalable framework. Banks will be using new technology frameworks like Blockchain in the areas of Trade finance, New Payment mechanisms, Omni-channel Digital Banking frameworks and technology-enabled platforms like Biometrics, NFC, CKYC which will form basic foundations in their digital strategy. The entire ecosystem comprising of customer, ‘employees, and business stakeholders is undergoing a transformation over a period of time. Internal organization structures will be flat so as to enable Mee aaisea a4 Shri Munish Mittal has been associated with IT ‘Management of HDFC Bank for the nearly 21 years now. He is currently the CIO of the bank, responsible for creating business value using Information & Communication Technology and bral Explore, Enable, Exoel quick decision making. Banks have started focusing, on building centre of excellence in Innovation and Design and now have a separate vertical focused on Digital Banking and Innovation which cuts across all verticals and silos within the bank so as to make the back-end people and process more responsive to customer needs. They have been recruiting people from e-commerce and mobile app companies and from different industries to infuse new ideas and thought process to enable this transformation to happen. This digital disruption is gradually changing the way banking has been done in last few decades moving towards “completely end to end digital” banking, system, Banks need to adopt the “digital mindset’, recognize the major disruptive digital trends and start preparing for the future of Digital Banking. REFERENCES Digital Bank from Chris Skinner * Articles from News publications %* YouTube videos on Digital Banking * Various articles from the Internet. providing best in class IT-enabled Digital solutions tobank's customers. He also directs the IT teams of HDFC Securities Ltd. and HDB Financial Service Limited. Heisa Science graduate with Masters in Business Administration. Banking Technology in India : Present Status & Future Trends 23horal Explore, Enable, Exoel Role of Technology in Fraud Prevention SUA ELAR Coe liee LeL ed ehS ocd’ “Technology has transformed the way business transactions are being performed. It has also opened new avenues and ‘means for unscrupulous elements to hijack information and perpetrate frauds.’ INTRODUCTION ECHNOLOGY has created new trade opportunities, new markets, new ways of servicing customers and more effective delivery channels for banking industry in tune with the evolving customer preferences. Internet Banking, SMS/Mobile Banking, IMPS and PoS transactions are a few examples. Further, we see that funds transfer mechanisms - the core contribution of technology to the Banking System - across cities and countries and continents have become more efficient, faster, easier and secure than ever before. Information Technology (IT) also provides banking industry with ways to deal with new challenges and evolving requirements of the economic world. IT is the base stone that facilitates alignment of the banking sector with the demands of the economic world that aims towards increasing the reliability, accuracy and speed of financial transactions. The manifold increase in the financial activities across the world in the past decade can be attributed to the association of Technology and Commerce. Technology has helped in reducing the cost of world wide fund transfer just because of development of worldwide networks. IT is the enabler of the challenging needs of the banking customers, who are more tech-savvy and demanding nowadays than ever before. Customer aspiration is for efficient banking services at the narrowest possible time- window, at the place where they are and at the time of their choice. They want banks to serve them beyond traditional ways and confines, IT helps banks to keep their accounting record and also in their back office operations in a more organized, structured and efficient manner. Self- banking concept would not have evolved across the world without technology. Delivery channels like ATM (Automated Teller Machine), Cash Deposit Machine, Internet Banking and Mobile Banking would not have existed without IT. Core Banking, setup where data is stored in a centralized location and accessed from branches spread across the country has evolved only in the cradle of technology. Technology is bringing most of the changes in business today. IT is creating new markets, new business opportunities, helping creating new products, system and information oriented business and management processes. Taking banking services to the World Wide Web, thereby taking banking facilities to the doorstep of customers is the major path-breaking contribution of ITto the banking sector. We do transactions and business settlements through internet electronically, in different verticals like business-to-business and business-to-customer. Technology helps banks in achieving better efficiency and productivity, implementing strong controls and thereby augmenting revenues. Customers also fulfill their dreams and demands through online, internet. 24 Banking Technology in India : Present Status & Future Trendsand mobile banking platforms, on anywhere and anytime basis. Banks' dependency on technology is substantial to realize changing customer expectations and demands. WHAT CONSTITUTESAFRAUD? Fraud is any intentional act or omission designed to deceive others, resulting in the victim suffering a loss and/or the perpetrator achieving a gain, usually, monetary. It can also be defined as a person or thing intended to trick others, typically by unjustifiably claiming or being credited with accomplishments or qualities. Normally, frauds can be categorized into any one of the below mentioned three common types of frauds: a. Corruption b.Asset Misappropriation c. Financial Statement Fraud. There are three basic factors influencing the occurrence of fraud viz., 1) Pressure; 2) Rationalization (Attitude) and 3) Opportunity. The Fraud Triangle Ranionstzaton (atin) pportanty Pressure: The most common compulsion for a person to commit fraud is external pressure that may include medical bills, expensive tastes, addiction problems, significant financial needs, etc. Often this need/problem is non-discloseable in the eyes of the fraudster. That is, the person believes, for whatever bral Explore, Enable, Exoel reason, their problem must be solved in a discreet manner. Rationalization: It occurs when the individual develops a justification for their fraudulent activities. The rationalization varies by case and individual. * "Ireally need this money and | will pay it back when | get my salary” * "Otherpeopleare doingit” % "Ididn't geta raise. The Institution owes me.” Opportunity: Opportunity is the ability to commit fraud. Because fraudsters don't wish to be caught, they must also believe that their activities will not be detected. Opportunity is created by weak internal controls and procedures, poor management oversight, and through abuse of power. Breaking the fraud triangle is the key to fraud deterrence. This entails removing one of the elements in the fraud triangle in order to reduce the likelihood of fraudulent activities. Of the three elements mentioned above, removal of opportunity is most directly affected one, by the system of efficient internal controls and generally provides the most actionable route to deterrence of fraud, ERA OF TECHNOLOGY IN BANKING The introduction of technology in the banks in India got its impetus since early 90s when the industry level settlement allowed the banks to go in for computerisation of all their day-to-day front-office operations markedly called as Total Branch Automations (TBA) as against specific areas like Current Account or Saving Banks or Cash Credit/Overdraft operations in the form of Advance Ledger Posting Machines (ALPMs) with limited memory of 256 KB. Some back office operations for reconciliation purpose were also encompassed in the TBAregime. The beginning of millennium has brought in more and more introductions of technology in banking operations as the banks started setting up Wide Area Banking Technology in India : Present Status & Future Trends 25horal Explore, Enable, Exoel Network for establishing connectivity for faster transmission of business communications and financial data. The improvement and maturity in communication technology, coupled with the telecom service providers’ penetration to almost all parts of the country enabled the bank to plan for bringing in better and efficient banking mechanism by means of Core Banking System (CBS). The CBS, while enabling the bank to offer Any Branch Banking, and other facilities to the customers, also enabled the bank to have a centralised database to enable them to have better Management Information System. The introduction of CBS has revolutionized the landscape of services offered to the customer, which could not even be visualized in the pre- automation era. The customer was no longer tied down to a branch of a bank and could virtually put through transactions from any branch of the bank in which the customer was maintaining the account. The customer was elevated from the confinements of branch-banking to a wider spectrum of any- branch banking. The networking of branches also opened the floodgates for the introduction of a wide range of alternative delivery channels like Automated Teller Machines (ATMs), Internet Banking, etc. The penetration of mobile phones and its easy adoption by consumers brought in another important technology introduction in Indian banking scenatio since 2006 and thus came Mobile Banking in the form of Short Messaging System (SMS), STK (SIM Tool Kit) Banking and App-based Banking. Thus, the customers virtually carried their bank accounts in their hand and were provided with the convenience of effecting banking transactions at the time and place of their convenience. This transformed the manner in which the banking transactions were carried out. The Reserve Bank of India (RBI) also reformed the payment system in India with the introduction of Real Time Gross Settlement (RTGS) and National Electronics Funds Transfer (NEFT) which almost eliminated the time window of funds- in-transit, thereby ensuring availability of funds across the banks in very short time across the country forthe bank customers. While the introduction of technology has brought in lot of efficiency and cost reductions in operations for the banks as well as redefined the convenience of banking for the customers, it has also brought in elements of risks associated with technology assisted banking. Let us briefly dwell upon technology related risks associated with different facets of banking operations and how the same can be mitigated. OPERATIONSAT BANK BRANCHES In the days of manual and conventional operations of banking, the transactions had sufficient traces on the identity of the person who had prepared a transaction voucher and the personnel who authenticated the same in the manual ledger, sub- day register etc., as the physical hand writing was available in the records. In the technology-driven operations, sufficient processes and procedures had to be built at various levels to ensure that each and every transaction necessarily carried the identity of the Maker and Checker. It also needs to ensure that the Maker and Checker are not the same individual to restrict the occurrence of fraudulent transactions in the banking system, The system needed to hold the complete audit trial in a foolproof manner to ensure complete tracking of any type of transactions being made in the system. The operations in CBS environment were suitably controlled to ensure that only authorised users are allowed access to the system by means of assigning unique User Name and Password for the respective users. When some frauds happened owing to compromise of passwords of the users, the technology again came to the help of the system. Banks introduced additional security measures to access the CBS system by means of biometric authentication, a foolproof mechanism to identify the users of the CBS. 26 Banking Technology in India : Present Status & Future TrendsTechnology also provided automatic locking of the terminals after a predefined period of no-activity time span. This provided safety to the users whenever they leave their desk to attend any other work and the terminal gets activated only by their authentications. Normally, this automatic locking of terminals is implemented where the bank has centralised management of desktop policy. In addition, the users have the facility to lock their terminal any time by their own action. These facilities of locking either centrally or by the user provide comfort to the users from the fear of misuse of their system in their absence by piggy-riding their identity. The prevalence of mobile phones among the masses is a great boon for informing the customers whenever a transaction takes place in their account by means of Push SMS messages. In addition to getting alerts on transactions as mandated by RBI, the customers can specify the threshold value of transactions above which alerts need to be generated, by registering for such facility with their banks. Customer can verify and confirm the authenticity of such transactions and get in touch with the bankers in case of observing any sort of anomaly. The development in mobile technology and availability of smart phones facilitates such alerts being sent to the registered mobile number as and when transactions are effected in the linked accounts, through any of the available delivery channels. In the pre-CBS era, there used to be substantial frauds being committed on Demand Drafts (DD), as the paying office and issuing office were independent entities and verification was limited to the prima-facie authenticity of the physical DD instruments on hand. Once CBS was put in place, the entire information relating to the DD was available in a centralised database and could be accessed and confirmed in the system at the time of payment. The system had the capability to validate the DD details like Issuer, Payee, Amount, Date, etc., and completely eliminate any chance of committing a fraud in this area. bral Explore, Enable, Exoel The efficiency of Inter Branch Reconciliation (IBR) system in any bank plays a major role in the prevention of internal frauds. The transaction entries between branches of the bank are routed through Inter Branch General Ledger and typically, debit leg of the transaction entry will be in one branch and the corresponding credit leg will be in another branch. These transactions will take place on the same date or on different dates. In the manual era, these entries were to be brought to a centralised system and reconciliation was done by matching a particular Debit/Credit entry passed in Inter Branch General Ledger with the corresponding Credit/Debit entry, individual transaction-wise. In case of any unmatched debit entries without corresponding credit entries were found, the reconciliation team had to verify whether it was done by accident/mistake or intentionally to commit frauds. The efficiency of the IBR system lies in its capability to arrive at and ensure that all entries in Inter Branch General Ledger are reconciled within the shortest period of time, so that the detection and remediation of fraudulent transactions are achieved much faster. Information Technology played a major role in substantially reducing the time window for processing and reconciling IBR transactions in the CBS environment. This has resulted in almost elimination of frauds in this domain. The RBI has brought in Cheque Truncation System (CTS) into the Banking System which has eliminated physical movement of payment instruments from bank to bank during the Cheques Clearing process. Under CTS process, the collecting banker scans all the instruments (Cheques, Demand Drafts, Pay Orders and Dividend Warrants etc.) and sends only the images to the Centralised Clearing House. From the Clearing House, only the scanned images are queued to the respective banks on which these instruments are drawn. The paying banks process the transactions in their system based on the image of the instruments. Owing to the electronic movement of images of the payment instruments as against the physical instruments, the time period of clearing has Banking Technology in India : Present Status & Future Trends 27horal Explore, Enable, Exoel shrunk significantly to the extent that a cheque drawn on a city down in the south, say, Kanyakumari can be deposited ata northern location, say Kashmir, and realised the next day of presentment of the instruments. This benefit of such faster operations to customers has brought in yet another challenge to the bankers in the form of color copying of instruments, which are difficult to distinguish from the original instruments and also materially altered instruments being deposited at remote branches of the banks under Any Branch Banking facility. Hence, technology- assisted process improvements were brought in wherein the banks subjected the payment instrument to Ultra Violet scan before capturing their images. Pantographs virtually eliminated the prospect of conning using color copied instruments. Moreover, as these electronic images are made available very early in the morning for the paying bankers, they have put in a process of sending SMS alerts to the account holders about the likely debit that can take place in their accounts for transactions above a cut-off amount depending upon the risk appetite of each banks. This process provides dual benefits to the customers, viz,, (a) if itis a fraudulent transaction, the customer has sufficient time to alert his banker not to honor such instruments and (b) where the customer could not keep sufficient funds could ensure availability of funds in their account to honor the presented instruments. The Closed Circuit TV cameras (CCTV) played a major role as a deterrent for frauds at the bank branches and commercial outlets. The notification that a place isunder surveillance of CCTVisa strong deterrent for a person with fraudulent tendencies. In many cases, the CCTV grabs are taken and analysed by the investigating authorities to establish the identity of fraudsters. Now-a-days, the law enforcement authorities have mandated CCTVs in almost all the commercial establishments. OPERATIONS IN INTERNET BANKING Unlike operations in CBS environment, the entire transactions on Internet Banking channel are done by the customers themselves. Since the website is hosted for the global community, it needs stringent security checks to provide comfort and confidence to the users. The customers of Internet Banking/e- Banking are invariably targeted for phishing attacks, to capture the User Identification and Passwords for, committing frauds in the compromised accounts. The bank needs to perform regular Vulnerability Assessment and Penetration Test (VAPT) of their website to ensure that the weakness, if any, are quickly identified and plugged. This is normally done through VAPT tools, which performs these tests and provide the reports for review and rectification. There are tools available which scans through the web and informs any look alike sites (Original site may be www.abcbank.co.in and lookalike may be www.abe.bank.co.in) which may not be easily distinguishable to the normal customers. If an unsuspecting customer keys in his login ID and password unaware of the fact that he has landed ina counterfeit site, all his genuine accounts will get security compromised easily. Such scanning tools will help in sifting such bogus sites Technology has also enabled countering such phishing attacks with the introduction of Secure Access Images that is known only to the user and available only at the genuine site. Phishing sites may not be in a position to show these predefined images chosen at the time of registration for availing Internet Banking services by the customer. Introduction of captcha, a system to distinguish a human input from a machine input is another means for thwarting spam and automated extraction of genuine data from websites. The transactions in Internet Banking are normally authenticated using a transaction password which is different from the login password to the internet banking site. Apart from this, the RBI has mandated to carry out the transactions through additional 28 Banking Technology in India : Present Status & Future Trendsfactor authentications. With the deep penetration of mobile phones, most of the banks have gone for One Time Password (OTP) as an additional security measure for effecting financial transactions on internet. The process is developed in such a way that ‘once the transaction password entered by the user is. verified and found correct, the system will generate an OTP and send the same to the customer's mobile number registered with the bank. On receipt of this OTP in their mobile, the customer has to enter the same in Internet Banking portal for final authentication of the transaction. Some of the banks have issued unique grids based cards to their customers which enable them to provide distinctive reference to be entered by them to validate a transaction, that functions as an additional factor of authentication. Certain banks have also introduced hardware and mobile based software token technology which function as additional factor of authentication and much needed security for the users to perform their transactions. For example, the famous RSA SecurID authentication mechanism consists of a “token” - either hardware (USB dongle) or software (a soft token) - which is assigned to a user and generates an authentication code at fixed intervals (usually 60 seconds) using a built-in clock and the card's factory encoded random key (knownas the ‘seed"). The seed is different for each token, and is loaded into the corresponding RSA SecurlD server as the tokens are purchased. The token hardware is designed to be tamper-resistant to deter reverse engineering. It is a time based pseudo-random or cryptographic algorithm. Based on the time, there is a code. The dongle and the server know the code for every window. This isa shared secret - the dongle does not connect to a remote server. It instead knows what. token to be generated based on what time it is. The server will probably allow one or two of the most recent secret keys, to prevent the situation where the user enters a key that has just expired while the transmission was en route. bral Explore, Enable, Exoel Information technology revolution at rapid phase has led to innovative ways of handling the e-commerce and e-banking transactions. Banking being integral part of individual and corporate customers, banks and financial institutions have to think of innovative ways of protecting the customer information and identity from any frauds and malicious transactions. In order to protect the customers and the bank from internet banking frauds on high value transactions of individuals and corporates, technology comes to the fore through Digital Signature Certificates (DSC). Most of the banks have gone in for overhauling their e-Banking system to incorporate Digital Signature Certificates based authentication of transactions, that also ensures non-repudiation of the transactions effected on a future date. The RBI has been promoting introduction of Public Key Infrastructure (PKI) technology based Digital Signature Certificate usage in the electronic payment systems to secure a transaction from non- repudiation angle. Various electronic payments systems introduced by RBI and other agencies Viz., Real-Time Gross Settlement (RTGS) System, National Electronic Fund Transfer (NEFT), Collaterised Borrowing and Lending Obligation (CBLO), Forex Clearing, Government Securities Clearing and ‘Cheque Truncation System are notable among them. In fact, realising the advantages of the Digital Signature Certificates, big corporates and banks who have the process of exchanging volumes of information in printed form with their customers, have shifted to sending documents like Housing Loan Interest deduction certificates or any statement of accounts in electronic form with DSC. DSC ensures added authenticity to electronically generated and transmitted document with respect to content and source of origination. If anybody changes the signature or successfully tinkers with the documents sent, the signature validation will fail, confirming tampering. This has resulted in huge cost reduction and also enhanced authenticity of information sent. Using risk management tools, itis possible to find out the geographical locations from which the Banking Technology in India : Present Status & Future Trends 29horal Explore, Enable, Exoel transactions are being made and the time difference between the geographical location to prevent internet transactions being performed within short intervals between transactions from different places. Some of the banks even warn the customers and seek entering of authorisation password or additional factor in the form of OTP in case the transactions take place from not usually known IP address or in case of unusual spend on the account (a normally low value transaction account suddenly doing high value transactions). OPERATIONS INATM Automated Teller Machines (ATM) are the most popular alternate technology-driven delivery channel introduced by the banks. It was introduced by almost all the banks in the late 90s and at the beginning of new millennium, The customers of the banks were given a plastic card (initially called as ‘ATM card) which was attached to the account with the bank which allowed them to draw cash in the ATMs of the bank on a 24-hour basis. As the market, matured with more and more ATMs and with interoperability of ATMs coming in place, banks started issuing Debit Cards which allowed the customers to operate the card for cash withdrawal across ATMs of different banks. As usual the customer convenience always comes with some challenges and ATM operations were no exception. Customer denying receipt of cash dispensed from ATM was the major challenge. The banks had to go through different improvisation of ATM processes to improve customer convenience. The ATM configuration and the centralised ATM switch software have also gone through these process changes. The RBI even gave instructions to all the banks to ensure that the ATM performs only one operation at a time for a given validated Personal Identification Number (PIN) and the customer has to swipe or dip/insert the Debit Card and enter the PIN again in case one more transaction. In the initial days, banks allowed multiple transactions to be performed and also the cash dispensed by ATMs would be taken back by ATM in case the customer failed to take the entire dispensed cash in time. As these resulted in lot of frauds and complaints, the ATMs and ATM switch were modified to ensure that once the cash is dispensed, it will not be taken back. These two process improvements have immensely contributed to avoiding lot of frauds and customer complaints. Nevertheless, fraudsters do keep pace with technology and brought in skimming devices and attaching it to ATM's card reader. It was done with such professionalism that a common user could not find anything amiss. But the device extracted the customer information from the magnetic stripe, obviously, without the knowledge of the unsuspecting user. They used it for producing duplicate (skimmed) cards and committed frauds. Normally, these skimming devices were deployed in ATMs in the remote places without any security guards or monitoring. The banks also issued advisory on best practices before accessing ATMs and to report any suspicious matters to the bank if noticed. These days the ATM industry has responded by coming out with ATMs which has sensors to identify attachment of any external device and sends response to the ATM switch for taking preventive actions. The industry has also introduced Jammers to ensure that skimming devices are not able to extract information from the cards. But, itis a cat and mouse game, as the industry come out with newmethods to prevent the frauds, the fraudsters come out with methodology to circumvent such preventive measures. As more skimmed cards operations were observed to be taking place abroad, banks ensured disablement of operations of Debit Cards in foreign countries for most of the customers except those who have specifically asked for such facility. ‘As a security and Risk Mitigation measure, the RBI has advised that with effect from 1° July 2013, all new Debit and Credit cards will be issued only for domestic usage unless international use is specifically sought by the customer. The existing Debit and Credit cards will be restricted for usage in domestic ATMs, domestic PoS terminals and Indian 30 Banking Technology in India : Present Status & Future TrendsWebsites only with effect from 1" July, 2013, even though the card will be printed as ‘International Debit Card. RBI has further directed that only EMV chip cards will be allowed for international usage. For the customers who had used their card at least once internationally, banks were advised to replace the existing magnetic stripe cards with EMV chip cards. Further, RBI has asked the banks to issue only chip- based and PIN-enabled Debit and Credit cards from September 2015, a move aimed at protecting customers from frauds. EMY, stands for Europay, Mastercard and Visa, the three companies that originally created the standard. The standard is being managed by EMVCo, a consortium with control split equally among VISA, Mastercard, JCB, American Express, China UnionPay, and Discover. The EMV technology is more secure than magnetic-stripe technology and store customer data on Integrated Circuits in addition to magnetic-stripes (for backward compatibility with devices not made ready for EMV). The magnetic-stripe cards use the same transaction data every time the consumer makes a transaction, which makes the card information easy to steal and duplicate. As against this, an EMV card uses a computer chip embedded in the card to create a single-use transaction code to authenticate each transaction along with PIN to be entered by the customers. The integrated circuit technology has also rendered cloning of cards impossible, as of now. But these EMV cards do have magnetic-stripes for backward compatibility as the whole ecosystem which accepts these cards (PoS, ATM) is still not completely EMV chip-ready. Fraudsters are exploiting this lacuna by performing transactions in countries/devices which still permit transactions based on information embedded in the magnetic- stripe. OPERATIONS INFINANCIALINCLUSION The banking industry has spread its reach to the remotest part of the country after major thrust given by the Finance Ministry and RBI for Financial bral Explore, Enable, Exoel Inclusion of populace from unbanked rural pockets of the country. More and more customers from remote villages were brought under the fold of banking services since 2005. The Pradhan Mantri Jan Dhan Yojana (PMDY) scheme launched in August 2014 by the Indian Government has given major thrust and boost to the movement of Financial Inclusion and under this scheme more than 22.18 Crore accounts were opened since August 2014, with an aggregate balance of Rs. 39,152 Crores. Most of these accounts were opened with simple Know Your Customer (KYC) process verification based on Aadhaar Card Unique Identification Authority of India (UIDAI) has undertaken the massive movement of enrolling people across country with their complete demographic details and also biometric details of all hand fingers and iris. This has also enabled passing of Gas Subsidy, Social Security Pension, etc, by the Government directly to the beneficiary's accounts opened with the banking system. The linking of ‘Aadhaar number with the Gas Consumer number ensured uniqueness of beneficiary and weeded out all duplicate and non-existent consumers from the system, thereby saving thousands of crores of rupees to the government. The Electronic Benefit Transfer (EBT) has ensured that the benefit reached the actual beneficiaries in time, by weeding off the middleman in disbursement of subsidies. The Financial Inclusion attained its success by means of introduction of Business Correspondents who were from the villages or who visits a cluster of villages to facilitate the villagers to perform banking transactions through hand held micro-ATMs. These micro-ATMs had the advanced feature of providing two-factor authentication to the remote customers who operated through these devices. The villagers were given smart card and linked with their biometric details of their fingerprints. The transactions done on them required both the smart cards and their biometric authentications. These devices had voice enabled feature to inform the users in vernacular languages on the type of transactions being performed and also the amount of money being Banking Technology in India : Present Status & Future Trends 31horal Explore, Enable, Exoel transacted, A printed slip was also generated on completion of the transaction, These operational features have provided enough confidence to the villagers to perform transactions through micro- ATMs ensuring the success of PMJDY scheme. REPORTING OF BANKING FRAUDS The RBI has come out with a circular on a fraud risk management system for banks. This made their CEOs, audit committees and special committees accountable for systemic failure of controls, the absence of key controls or severe weaknesses in their existing controls, all of which facilitated exceptionally large-value frauds. Financial institutions responded well to the regulator's requirements by undertaking significant changes in their policies and procedures, acquiring new skills and forming dedicated teams to prevent and detect frauds. The RBI has also released its report of the Working, Group on Information Security, Electronic Banking, Technology Risk Management and Cyber Frauds. The RBI prescribes that banks should conduct annual review of frauds and apprise its board regarding the findings. While conducting the review, the most crucial aspect that must be taken into account by banks includes the following: * Has the bank employed adequate system to detect frauds? * Howare frauds examined? * What kind of action bank takes and within how much time if a person is found responsible for fraud? * What are the reasons for the fraud - laxity in following the systems and procedures or loopholes in the system? * What measures have been taken to ensure that the systems and procedures are scrupulously followed by the staff concerned or the loopholes are plugged? * Whether frauds are reported to the local police for investigation? Whether bank maintains the data and records of these facts: + total number of frauds detected during the year + amount involved as compared to the previous two years + modus operandi of major frauds reported during the year along with their present position + estimated loss to the bank + number of cases (with amounts) where staff are involved and the action taken against staff + time taken to detect frauds (number of cases detected within three months, six months, ‘one year, more than one year of their taking. place) «status of the matters reported to the police + preventive/punitive steps taken by the bank. Hence, it has become essential that banks should have proper reporting mechanism in place to report to the RBI all information about frauds and the follow-up action initiated, FRAUD PREVENTION MEASURES Inadequate measure to prevent banking fraud is the primary reason for widespread frauds. Delay in reporting by banks is another important reason. Banks should, therefore, ensure that the reporting system is suitably streamlined so that frauds are reported without any delay. Banks must fix staff accountability in respect of delays in reporting fraud cases to the RBI. Delay in reporting of frauds and the consequent delay in alerting other banks about the modus operandi and issue of caution advices against unscrupulous entities could result in similar frauds being perpetrated elsewhere. Banks may, therefore, strictly adhere to the time frame fixed by the RBI for reporting fraud cases failing which banks would be liable for penal action as prescribed under Section 32 Banking Technology in India : Present Status & Future Trends47(A) of the Banking Regulation Act, 1949. Banks should specifically nominate an official of the rank of General Manager who will be responsible for submitting all the returns referred to in this circular. Fraud Monitoring Cell, Department of Banking Supervision, Central Office publishes a directory of officers of all banks/financial institutions responsible for reporting of frauds. All banks should furnish to the aforesaid department any changes in the names of officials that will be necessary for inclusion in the directory on priority basis as and when called for. Banks must provide sufficient focus on the “Fraud Prevention and Management Function" to enable, among others, effective investigation of fraud cases. Banks should be able to provide promptly as well as accurately report frauds to appropriate regulatory and law enforcement authorities including the RBI. The fraud risk management, fraud monitoring and fraud investigation function must be owned by the bank's CEO, its Audit Committee of the Board and the Special Committee of the Board, at least in respect of large value frauds. Banks can also frame internal policy for fraud risk management and fraud investigation function, based on the governance standards relating to the ownership of the function and accountability for malfunctioning of the fraud risk management processin their banks. KEY RECOMMENDATIONS OF THE WORKING GROUP A risk-based transaction monitoring or surveillance process needs to be putin place. Banks may consider dynamic scoring models and related processes to trigger an alert in the case of transactions that are not, normal in order to improve their preventive and detection capability. A study of customer transaction behavioral patterns, stopping irregular transactions or obtaining prior confirmation from customers for outlier transactions may be incorporated as part of the process by banks. bral Explore, Enable, Exoel Quick fraud detection capabilities would enable banks to reduce their losses and also serve as a deterrent for fraudsters. Various important requirements in this regard include the generation of alerts, redressal mechanisms, and dedicated e-mail IDs and phone numbers to facilitate reporting of suspected fraud, mystery shopping and reviews, Banks should set up transaction monitoring units within their fraud risk management groups. Their transaction monitoring teams should be responsible for monitoring various types of transactions, especially in potentially vulnerable fraud areas, and raising an early alarm if their suspicions are raised. Banks need to put in place automated fraud detection systems that are based on advanced statistical algorithms and techniques. GUIDELINES ON FRAUD TRANSACTION- MONITORING SYSTEM Scope of coverage: For a transaction-monitoring system to be effective, the scope and complexity of the monitoring process should be determined on a risk-sensitive basis. This means that a bank or financial institution may need to undertake different levels of monitoring within its business units, depending on factors including the activities of a business unit, its customer base and the country in which it operates. Knowing your customers: Understanding a bank or financial institution's customers and updating their risk profiles on a risk-sensitive basis are important elements of an effective transaction-monitoring system. The better a bank or financial institution knows its customers, the greater is its ability to unearth discrepancies between a given transaction and a customer's risk profile. This will provide it with critical information to detect and assess any unusual or suspicious activities. In addition, a good understanding of its customers is a prerequisite for a bank or financial institution, to enable it to implement the right monitoring methods for customers with different fraud risks. Banking Technology in India : Present Status & Future Trends 33horal Explore, Enable, Exoel CONCLUSION The technology not only favours those who put them to use with good intention, but supports those who wants to exploit the gullible nature of the common people as well. Frauds have evolved from being committed by casual fraudsters to organized syndicates and these fraudsters use sophisticated methods to take over control of the system being compromised. The problem is more pronounced in the financial sector in view of the reward in terms of, money. Hence, there isa dire need to have robust and efficient enterprise level risk monitoring and management system in place. Itis essential to get not only multiple sources of data to understand the entities being compromised, but also apply sophisticated analytical methods to understand the data, extract optimal information, use high end pattern recognition and text mining features and advanced modelling techniques to reduce false positive rate. In a recent address at the anniversary of Vigilance Study Circle at Hyderabad, the Central ‘Commissioner, Mr. K. V. Chowdary has remarked: “Technology or automation can only be an enabler to enhance effectiveness and cannot prevent frauds on its ‘own. Technology is like a servant to us and we can successfully use it to either reduce the frauds or to perpetrate more sophisticated means overcome the mitigation initiatives.” ITHOR’S PROFILE Shri S. Kumar is the General Manager (IT), Corporation Bank. He is a Certified Associate of Indian Institute of Bankers (CAIIB) and is also a Certified Information Systems Auditor(CISA) of ISACA, USA since 2005. He is proficienct in programming languages like Fortran, COBOL, C, C++, SQL, etc, and has contributed towards various in-house software development for the bank. After heading the Data Centre of the bank between 2008 and 2011, he is now working in the Information Technology Division, Head Office of the Bank as General Manager. 34 Banking Technology in India : Present Status & Future Trendsbral Explore, Enable, Exoel i Social Media Banking - Evangelising Social Media ' for Banking Advantage EXECUTIVE SUMMARY Tt popularity of Social Network sites has seen a tremendous rise in the last decade. From youngsters to middle aged group, more and more people are being attracted to sites such as Facebook, ‘Twitter, Whatsapp, etc., to stay connected with their near and dear ones. According to statistics, approximately 2.1 out of 3 billion internet users across the world have social media accounts, majorly on Facebook followed by YouTube and others. With the advent of digital banking channels and proliferation of smartphone users, banks have made efforts in streamlining the traditional banking services to deliver multi-channel experience to its customers. Amidst all the efforts of banks, there has beena gradual shift in customer and bank interaction as growing number of customers prefer to interact, with their banks via smart devices and have become less contingent with branch interaction, leaving banks a minimal opportunity to learn or build relationship with its customers. On one hand, the growth of digital channels has decreased the opportunity for banks to generate a holistic view of customers that they had been attaining using traditional ways. On the other hand, there is a ray of hope for improving customer relationship as banks have started embracing various social media channels that offer vast opportunities for analysing customer data, including demographical and behavioral data to offer fine-tuned products and services, ‘The biggest challenge that lies before the banks is not simply to establish a presence on social media Shri Abhijit Singh, Head, Business Technology Group, ICICI Bank Ltd. channels, but to meet consumers’ rapidly changing expectations to deliver seamless banking services on social media channels. Customers seek for transparent banking which provides them a medium to share their views or feedback on the product and services that are being, offered. They expect banks to offer tailor made financial advice based on the needs and keep them regularly updated about financial offers, upcoming events and recent changes in regulations. In the current scenario, banks are leveraging on technology advancement in providing transaction based solution with a little focus on what customers are saying. Many leading banks respond promptly on social media to specific queries, however, they need to hone their customer service capabilities by streamlining their offering for better and faster communication through social media. By analysing large volumes of data available on social media, banks can extract key insights that will enable them to offer right products at the right time, faster and reliable customer service, marketing strategy plan on social media channels based on customer segments and brand promotion to improve overall business performance. Since social media is all about customer experience, banks need to build their social media strategies around the customer to drive loyalty, revenue and profitability. ‘Some banks have already started using social media for their services. While some are focusing on providing information about products and trying to generate leads, others are providing transactional services. Banking Technology in India : Present Status & Future Trends 35IMPACT OF SOCIAL MEDIA. The rising penetration of social media among youth and middle aged group for staying connected, communicating to larger audience on a daily basis and sharing information on happenings across the world has drastically impacted the banking industry in the past decade, as more and more banks have established their presence on these sites International banks are engaging with customers on social media through Twitter, Facebook, Linkedin, etc. In the domestic market, banks such as ICICI started embracing social media channels such as Twitter and Facebook for offering convenient banking services to its customers followed by other leading banks. As penetration of smartphone users and internet, connectivity is increasing day by day, more and more customers have started using social media to share opinions on products and services offered by financial as well as non-financial institutions. Banks must listen, analyse and respond, as well as integrate their social media strategy with their overall corporate strategies. Banks across the world require torethink on their core business strategies and adapt to rapid growth of digitalization and social media to stay more customer focused. Earlier, traditional practice of banks involved ‘push’ marketing to communicate their offerings to customers, either through advertising, direct mail, point-of-sale displays or face-to-face interactions. However, with the evolving digital banking, banks' inclination has shifted from branch based customer service to customer engagement, which requires 2 two-way information flow. To strengthen customer engagement, banks need to involve in activities of developing a deeper understanding of customers to apprehend their frequent changing behaviour, sentiments, needs and wants. Banks, are working on crafting meaningful marketing campaigns with the advent and use of analytic tools, interpreting enormous interactions over social media. The fast paced growth in the field of machine learning and analytics, can help banks unveil the behavioral aspects of customers that were otherwise unknown to them. With constant changing environment and rigorous competition by Fintech companies in digital market space, banks are looking for ways to transform their legacy systems to include social analytics listening. The fast paced growth in the field of machine learning and analytics, can help banks unveil the behavioral aspects of customers that were otherwise unknown to them. With constant changing environment and rigorous competition by Fintech companies in digital market space, banks are looking, for ways to transform their legacy systems to include social analytics listening. The huge amount of customer input from social media sites will facilitate banks to develop intense knowledge about their customers, including their sentiments, needs and wants, resulting in improved engagement and smarter decision-making. With a vision to stay ahead in competition with other financial institutions and Fintech companies, banks need to unleash the full potential of using social media channels for banking advantage. They need to look beyond building reputation and brand image, to enhance customer engagement and predict customer habits from large volume of data generated from social media sites. Using these insights, banks can reinforce their risk management capabilities and can improve customer satisfaction by developing product offerings as per the needs and desires of the customers. The effective use of social media tools can not only improve customer satisfaction, but can also drive business expansion through acquisition of new customers and increased share of the customer's wallet. ICICI Bank's ‘Pockets’ - e-wallet is one such example which has seen over 4.1 million downloads in just 1.5 years of its launch, 36 Banking Technology in India : Present Status & Future TrendsSOCIAL MEDIAFOR BANKS Banks are looking for other ways to gain a competitive advantage while tackling the threats posed by social media, such as sharing of bank's sensitive information on these public forums. In addition, strict regulations and other such reasons have been responsible for late adoption of social media and technology by financial institutions as compared to other industries. But things are moving very quickly with players such as Fintech companies, which have emerged as a unique industry, encompassing the use technology to make financial systems more coherent. Many of these start-ups are using Social Analytics which is helping them to revolutionise the traditional business models that the finance sector has relied upon for decades. In today’s customer-centric world, customers have different expectations from banks including the engagement methodology. This has triggered a drastic shift in the way a bank connects with its customers and stakeholders using social met Itis indeed a digital way for banks to collaborate with customers, thereby creating a two way communication channel for banks to capture customer interaction and design offerings as per the customer's needs. On the other hand, customers are embracing sites such as Facebook and Twitter to bral Explore, Enable, Exoel share their experience and gather information related to products and services to make their purchase decision. This change in trend is motivating banks to use social media channels beyond the usual traditional marketing campaigns and banking. transactions to build an on-going customer relationship, while focusing on key areas where social media is changing financial services around the world. Tapping the Unbanked Customers: Social media and rising demand of e-wallet apps are helping banks to diversify their offerings and penetrate through untapped geographies where they are yet to establish a physical presence. By leveraging social media channels, banks can reach out to the unbanked customers by providing them with general banking services such as minimum balance account opening services, low-denomination fund transfers, etc. Moreover, social media listening on competitor products can help financial institutions to develop competitive offering and redesign their social strategies to increase customer satisfaction and acquire new customers. Brand building on social media helps customers to differentiate brands and choose the right ones. Apart from selecting the right brand, consumers should be able to influence product and services offered by theirbrand. Customer Service: Customers who are dissatisfied with the services received, share their reviews on social media channels and expect real-time responses from their banks. For banks, any such comments on a public forum may lead to negative publicity making it necessary for financial institutions to monitor social channels 24X7, which will not only highlight customer challenges, but also help banks take adequate steps to address the issues to avoid reputational risks. Integration of social media with bank’s Customer Relationship Management (CRM) system will ensure real time update to the bank about customer's posts, thereby ensuring faster turnaround time. Apart from the regular inquires, Banking Technology in India : Present Status & Future Trends 37banks can adopt social analytics tools to predict customer's response towards new strategies and proactively handle complaints. In order to deliver seamless customer service on social media channels, banks need to ensure that the voice of the customers is listened promptly anda standardised response is in place. Value-added Services: With so much happening in social media space, banks need to ensure that an efficient dedicated social media team is in place which can extract and share information on the social platforms. This will also make the bank more accessible and responsive to customer's queries. Social media is not just being used to deliver or market about the new products and services, itis also being used to design them by leveraging analytics to study customer habits and needs. Customers are delighted when they are offered with unmatched products and services that were never offered to them. To quote an example, banks are providing value-added services on Facebook and Twitter, which enable users to recharge their pre-paid mobile phone connections, transfer money, etc. Providing the right information to customers at the right time will increase customer satisfaction and enrich their experience. Educating Customers: It is utmost important that customers are well aware of the latest regulatory requirements such as KYC, AML, Aadhaar updation, etc., along with the operational changes. Social media can be an effective channel to spread awareness among customers, keeping them updated on the latest happenings in banking space and educating them on fraudulent practices carried out by criminals to dupe customers and on the importance of maintaining confidentiality of sensitive information such as password, PIN, etc. Customers can also learn about new product offerings by the bank through social media and either compliment or raise their concerns about the same. Collaboration: In addition to providing customer delight, social media provides an opportunity for bank's staff to engage in building a collaborative environment in the workplace. Integration of social networking application and collaboration tools such as ‘Facebook at Work’ and ‘Skype’ are proving to be effective ways of bringing employees together to indulge in brainstorming activities for innovative solutions. These tools can be used by employees for, sharing best practices and boosting knowledge dissemination. Customer Insight: The vast amount of customer feeds from social media sites will facilitate banks to develop intense knowledge about their customers, including sentiments, needs and wants, resulting in improved engagement and smarter decision-making. Banks can also use social media analytics to create exclusive offerings based on the activity history of the customers. For example, if a customer is looking out to purchase a car, banks can immediately study the credit worthiness and provide him/her with a loan offering through any of the banking channels. Risk Analysis: Usage of predictive analytics on the huge data generated from social media sites clubbed with the information at bank's disposal can help banks identify potential defaulters and changes in market trends. The bank, therefore, can take appropriate measures to shield itself from all these volatilities. Another area could be identifying insights about emerging talks among customer conversations, allowing banks to take adequate steps to alleviate risks to brand reputation. Marketing: Marketing professionals in financial institutions need to work on changing theirlong-held beliefs on building and managing customer relationships. Social media marketing strategy needs to be in connect with that of company’s overall marketing strategy, enforcing companies to adopt test-and-learn approach that can handle an ever- changing social environment. Customersin the social media age rely on the suggestions of their near and dear ones making word-of-mouth as the most preferred marketing channel. This will continue to affect customer growth and spread of 38 Banking Technology in India : Present Status & Future Trendspositive/negative comments about a product or service among the target customers. Marketing and sales teams can improve marketing campaign strategies by improving effectiveness of profile clustering and feeding real-time data to the databases with customers’ social interests which will help in making decisions and drawing conclusions, An effective marketing strategy requires organisations to have clear customer segmentation, real-time marketing, low cost of acquisition and faster time to market. Many of the renowned Fintech companies have grown exponentially by using online marketing and social media as their core marketing channels. Traditional banks have also invested in social media analytics. With lot being said about what social media has to offer to banks, are banks’ strategies really inclined for leveraging social media benefits? To answer this, banks need to assess their capabilities w.rt technology, resource capacity to study social media channels, and thorough study of data at their disposal. The rising popularity of Fintech offerings has also triggered banks to strengthen competency level of its employees by organising regular trainings so that they efficiently work on these evolving channels. Technology: In order to provide seamless services to end customers, banks need to assess their technology requirements to integrate the old system to the new channels. Any shortfalls identified must be backfilled. With UPI (Unified Payment Interface) coming in India, technology can bring a lot of changes in the way payments happen around the social media. This would enable the social media banking in a big way as the customer is no longer required to give their personal credentials such as account details, security pins and can transact using virtual addresses. With its secured nature, UPI sets up the stage for a better banking through social media channels in coming future. bral Explore, Enable, Exoel Capacity: Banks need to assess the resource capacity to perform and monitor social media activities and align as per the need for smooth functioning of activities Data: With enormous amount of data at banks’ disposal, banks need to work on ways to derive a meaningful insight about the customer data. WAY FORWARD Until now, barring few exceptions, most banks and financial institutions have taken lesser steps in leveraging social media compared to other industries mostly due to concerns about security, regulatory compliance and privacy. However, in recent years, there has been a considerable rise in customer expectations from banks due to increased internet and social media penetration. Tech savvy customers are driving current and future demands in banking and its digital transformation. Banks need to develop a framework and work on a clear path for empowering social media growth for their advantage. In order to harness full potential of social media, banks have to move beyond one-off deployment on social media sites such as Facebook, ‘Twitter, Instagram, etc. and adopt an organisation wide culture that taps into the opportunities that social media has to offer. This can range from designing new products based on crowd sourcing to pitching in relevant banking products and advisory based on social profile analytics to creating more personalised relationship with the customer. Social Strategies of banks need to incorporate a cyclic transformation right from gaining customer insight to on-going improvisation of their offerings, processes and internal core systems. Today, banks need a comprehensive solution that spans across multiple capabilities such as deriving insights, customer engagement, data mining, governance, compliance, etc. Banks globally are realising the need Banking Technology in India : Present Status & Future Trends 39of dedicated teams to manage social media data across different units in an organisation and effectively manage wide spread content, conversations on social media, thereby creating a seamless customer experience. Embedding these strategies into a bank's ecosystem can impact multiple areas, such as customer relationship management, risk management, new product and service offerings, customer education, etc. Banks can reassess their services and processes using a transparent feedback mechanism from customers and can make appropriate changes based on inferences drawn from social media data. Beyond all these, banks will need to streamline their progress tracking mechanism by establishing key performance indicators (KPIs) to measure their success/failure as they make a move ahead. Few instances where International banks have engaged with customers on social media are: * Online community for small business owners to connect with each other and gain access to resources and advisory content * Branded social space for customers to improve financial awareness through P2P and expertinteractions + Card designed based on social media feedback and crowdsourcing techniques. Adoption of social media engagement in domestic market has also seen a considerable rise where services like ICICI Bank Pay, India's first-of-its-kind in social media platform provides money transfer facility through Twitter. With the launch of this facility, the followers’ count of @ICICIBank Twitter handle has increased considerably since inception. As UPI is expected to bring in a lot of changes in merchant payments landscape, social media is expected to surge in with bigger advantages. For ‘example, a merchant promoting a product on Twitter handle or Facebook page forits followers. Customers can confirm the order and make a payment on merchant's Twitter handle or Facebook page to buy the product without sharing their account details. For instance, if a customer confirms the order, the merchant pushes the collect payment request to the customer's Virtual Payment Address (VPA). The customer just needs to confirm/authorize the collect request on his/her mobile banking app and the payment is complete. His/her order is ready for delivery. Asimilar scenario can be thought of wherein customers try to chat on Whatsapp and split their bills on a trip by sending collect payment requests to their friends on their VPAs. This could be the new social banking era. ITHOR’S PROFILE Shri Abhij Singh heads the Business Technology Group at ICICI Bank. He is responsible for provision of technology services to Retail Bank, Wholesale Banking, Commercial Banking, Small and Medium. Enterprises and Agri Group (SMEAG) and International Business of the Bank. He has over 15 years of experience covering a variety of roles in various industries in multi-cultural setups at local, regional and global levels. He is experienced in managing large scale IT transformational projects across Retail & Commercial Banking, GTS, Private Banking and Global Markets. Shri Abhijit is an MBA in Finance from Jamnalal Bajaj Institute of Management Studies, Mumbai and holds a Bachelor's degree in Engineering from University of Mumbai. 40 Banking Technology in India : Present Status & Future Trendsin India OVERVIEW Tt Indian Banking Sector is entering a crucial phase of version migration of the Core Banking ‘Systems (CBS) after around 15 years of existence in the post core banking era. The typical scenarios in the implementation of CBS in the Banking Sector in India, especially nationalised banks will be the existence of various customisations (codes specially used for a particular activity) over and above the core banking systems either as a work around to meet the pressing requirement or provide a critical functionality, which was not available as part of the standard core banking product., or that these customisations have been done over a period of time to address various functional requirements as and when they emerge. While these customisations help the bank in the day-to-day operations, it is a nightmare to account forall the incremental changes that has been done over a period of time, review and carry over the same in the upgraded version, at the time of version migration, unless it is meticulously planned and adequately staffed with the human resources of the required skill sets. The challenges have become manifold on account of the staff attritions due to resignations, superannuation and transfer of officials with the specific skill sets relating, to technical management of core banking systems, besides lack of adequate documentation. While banks have addressed their pressing needs with customisations around the core banking solutions, not much effort has been made by the core banking solution vendors to either incorporate these requirements as part of their standard products or bral Explore, Enat Robotic Automation Process for Banking Sector SU cA UU CULL ENS auc elie Lh) Le Sooo provide a facility to keep track of these changes. It is also not possible for the vendors to keep track of the changes been made in different versions and different locations and sites across the banking, industry, since these are global products. Further, the lack of a standard method for integration of applications have also lead to the complexity. This has led to file based integrations with codes written in both the applications. So, when the changes are to be made in one of the integrated systems, the codes of the other integrated system also needs to be changed to take care of the changes and provide the new functionality. Figure A: Bank's Perpetual Cost Banking Technology in India : Present Status & Future Trends 41horal Explore, Enable, Exoel What is Robotic Process Automation? Robotic process relates to bringing in process automation in data access relating to multiple applications or screens to complete a particular task. For example, in Call Centres, when a customer calls the Customer Care Agent and wants to know the particulars of his account, the agents access multiple applications to respond to the queries of the customer. He needs to login to different systems and access the relevant menus and screens to provide the required information since all the requirement is not handled in one application. Thus he opens multiple screens on his desktop and toggles between different screens as per requirement. The process though repetitive, is time consuming and delays response to the customer. Using Robotic Process Automation, the Call Centre Agent can have a unified interface wherein the data is fetched automatically (by application system login at the backend) from the different applications and can be displayed on a single screen instead of multiple windows and this will facilitate faster response to the customer queries and improve interaction with the customer. This will help in reduced turnaround time and improved customer experience. In the Robotic Automation Process, the system connects to multiple applications through a profiled User ID and the information is fetched into the screens. This information is also stored in the memory of the desktop that is used for accessing the application. Based on the coordinates, the information is fetched from the memory and used at the various locations for processing. This helps in providing a unified screen of processed information, without the need for manually logging into different applications and waiting forthe response. Robotic Automation Process can be implemented at situations where the tasks are repetitive and time- consuming. It will bring in process efficiencies. Physical integration with various applications will not be required since there will be a single application which will fetch data from multiple application through legitimate user IDs. See exactly what 7, your users are Vos doing inside and across their applications A occned , Y 9 CC Improve Measure Streamline manual Identify process processes that inefficiencies, ‘cost money bottlenecks and ‘compliance risks Figure B - Phases in Robotic Process Automation ‘Gremio Sora Grid 1 - Typical Banking Applications in Use in Different Banks Understanding Robotic Process Automation Although the term "Robotic Process Automation’ suggests physical robots wandering around offices performing human tasks, RPA is a software-based solution. In RPA parlance, a “robot” is equivalent to 42 Banking Technology in India : Present Status & Future Trendsone software license. For business processes, the term RPA most commonly refers to configuring the software ‘robot’ to do the work previously done by people. RPA software is ideally suited to replace humans for so called “swivel chair" processes; processes where humans take inputs from one set of systems (for example email), process those inputs using rules, and then enter the outputs into systems of record (for example Enterprise Resource Planning (ERP) systems) (Figure 1). Figure RPA Software be ldeatly Suited or “Swivel Chal” Processes, ERP CRM HRM Legacy Consider, for example, a human resource (HR) specialist in charge of on-boarding new employees for a large company. The on-boarding process typically entails logging on and offa dozen systems to set up a new employee with benefits, payroll, email, voicemail, security clearance, office space, office furniture, computer, parking pass, expense account, identification badge, and business cards using standard rules. Multiply that process by the thousands of employees who are on-boarded each year in many large organizations. Now imagine that RPA software has been configured to do all this work just as the HR specialist did - by logging on and off systems with its own assigned logon ID and password to perform these routine tasks. How Robotic Process Automation Works? Programmers use one of a number of different programming languages to create each application running on your desktop. Yet, all of the applications bral Explore, Enable, Exoel have one thing in common. Each includes a set of objects that interact with the underlying Windows® operating system. Application developers originally constructed and assembled a user interface designed forenduserease of use. be ‘names wa potion Some applications offer Application Programming Interfaces (APIs), that both describe the objects within the application and the manner of accessing, them. Many applications do not offer APIs at all, or if, they do, the APIs may not access features you need. Even those that do offer APIs often do not provide a flexible way to allow for user process optimization. Before Robotic Process Automation, if you tried to integrate data across applications, you were limited to the data integration points the original developers thought were important. Those do not necessarily reflect what is important for your business today. Robotic Process Automation takes a unique approach to automation. The powerful, yet intuitive, Robotic Process Automation software allows developers to integrate any UI object from any application with any other object in any other application (Figure 3a). Takes Dnetenied kutematinn Figure 3a - Robotic Process Automation Banking Technology in India : Present Status & Future Trends 43Every mouse click, every link, every submit button communicates between an application's objects and the operating system. Robotic Process Automation leverages these ongoing communications, and resides between the applications’ objects and the underlying Windows operating system(s). In effect, Robotic Process Automation breaks down your applications’ walls and allows you to use the program components in ways well beyond the applications developers’ original intentions. It uses an event- driven approach to inject code into participating applications at runtime. This code performs a given action (automation, process improvement) once a predefined event occurs. Using Robotic Process Automation software, a typical entry-level programmer can create automations that offer immediate benefit to your desktop users. Moreover, you can create robust automations among legacy applications and newer solutions such as Web Applications, Web Services, Rich Internet Apps, and Mashups to deliver significant long-term benefit to your enterprise. How RPA is Different from Business Process Management (BPM)? RPA is “lightweight” IT in that it does not disturb underlying computer systems. RPA software is an example of ‘lightweight’ IT, a term used to describe front-end, commercially available software that supports processes and is typically adopted outside the control of the IT department. RPA technology sits on top of existing systems - without the need to create, replace or further develop expensive platforms. RPA software accesses other computer systems the way a human does ~ through the user interface with a logon ID and password. RPA software accesses other systems through the presentation layer ~ so no underlying, systems programming logic is touched (Figure 3b). RPA products do not store any data. In contrast to RPA software, BPM solutions interact with business logic and data access layers. 0a softmre weer act ‘wim the preston BPM soma merternts Figure 3b - Difference in Interaction between RPA and BPM RPA does not replace BPM, but rather complements it (Figure 4). RPA and BPM are each suited to automating different types of processes. BPM solutions are best suited for processes requiring IT expertise on high-valued IT investments like ERP and Customer Relationship Management (CRM) systems. BPM solutions are developed by IT staff. The two distinguishing attributes of RPA software - it's designed for non-programmers to use andit does not, disturb existing systems - means the threshold of business processes worth automating are substantially lowered, as illustrated by the blue tail in Figure 4. Now, those swivel chair processes that are ‘owned by operations and are too small to justify the use of IT development resources can be automated by operations folks. RPA solutions are typically Figure # new i i ns it ea St 44 Banking Technology in India : Present Status & Future Trendsdeployed by business operations staff with IT oversight (but not with IT developers) for processes that require business and process expertise. The significantly lower IT investment costs now makes automating these processes financially benefici ‘Boariane Gaal | ranger Provenenn | ALR on ‘Teshniss] utsora | Cros « row sealer [Use etre soontons_ Integration Method — [access business loge |Acerss the presence inger fiperoreeang [Beles ahaa Davalos rene Sperone Testo System Teaing Seine ween Rewsrerenia How RPA can help Indian Banking Sector in the Current Scenario? With banks in the process of deciding to upgrade their CBS, they need to freeze further customisations inthe current operating version. RPA can help banks to meet the requirements that ‘emerge in the period till migration, without going for customisations in the Core Banking. This will make the migration process smoother. Further with the proposals for mergers gaining ground, RPA can be a very important tool to manage the Transition of Technology Systems, with proper understanding of the complete ecosystem. This will help in a planned integration of the technology systems with the resultant entity after merger. Typical issues in Contact Centre ( before RPA) Figure 5. Contact Centre before RPA A Leading International Bank Operating in To+ Countries ‘Customer information in various systems, ‘data islands Large contact canter ‘for Crecit Card Figure 6 Contact Centre Process after RPA Banking Technology in India : Present Status & Future Trends 45horal Explore, Enable, Exoel Major Benefits of Robotic Process Automation Specific benefits of RPA include: * Helping you monitor exactly what users do in virtually any application, analyzing inefficiencies and compliance risks, and automating manual processes that save time andmoney * Providing an iterative approach for more rapidly realizing ROI benefits of application automation projects * Simplifying and expediting the application automation process, thus reducing the risk for newautomation projects %* Reducing operational costs by streamlining existing business processes * Extending existing applications to comply with new business requirements (e.g. regulatory compliance) * Allowing and restricting access to certain application functionality, based on particular roles * Extending legacy applications to participate in next-generation portals, mashups, and rich Internet applications Improving effectiveness of up-selling and * JTHOR’S PROFILE Shri Rakesh Kumar is General Manager, Information Technology Di cross-selling campaigns by providing timely and accurate access to customer, competitor, and promotional data * Providing a single unified view to streamline processes Dramatically reducing average handling times Improving customer satisfaction by resolving issues more quickly %* Reducing training costs significantly for new and existing employees Simplifying compliance with regulations and laws. CONCLUSION Robotic Process Automation promises immense benefits to the Banking Sector in India. We expect the implementations of the Robotic Process ‘Automation to pick up in the months to come, on specific areas in Banking. This will also facilitate a smooth migration to the latest versions of the CBS, besides reducing the dependence on human interfaces for standardised repetitive tasks. (Continued on page 58) sion, Punjab National Bank. He has over 38 years of banking experience and has worked in various capacities. He has exposure of over 10 years in Information Technology and has been a member of the core team implementing Core Banking and extending banking and financial services through alternate delivery channels. He was instrumental in launching PNB-Global Credit Card. Shri Rakesh isa CAIIB anda Post Graduate in Commerce from University of Delhi. 46 Banking Technology in India : Present Status & Future TrendsTHE JOURNEY SO FAR lf ‘one were to trace the journey of analytics in banks, onewill probablyrefer to the days of vertical specific reports (online and periodic) which were in use by various verticals to analyse profitability/growth within the vertical and at the bank level. These reports moved from tabular to graphical, then to being interactive (with drill downs) involving supporting data marts (sometimes Data Warehouses), the migration happened from vertical specific marts to Operational Data Stores which enabled analysis of trends in the movements of key figures across the bank. ‘The Operational Datastores became important as the bank had to cater to Automated Data Flow requirements for sharing of information with regulatory bodies. The need for operational datastores was also compounded by the fact that the number of vertical specific applications started growing with the growth in complexities within each vertical which warranted the need for hosting siloed applications to support specific functions but when it, came to reporting, the data from across all the applications was to be collated and churned, thus began the advent of DataMarts, Operations Datastores and Warehouses. “Still Structured’ Looking at it today, the data within the Datamarts and Operations Datastores was still structured and logically queriable. Though the hosting of these enterprise DataStores required huge investments (compared to technology budgets of those days), it had laid the foundation for the bral Explore, Enat Analytics in Banking - Technology Perspective present day analytics. In the initial stages, these investments supported management dashboards andvertical specific MIS. MOVING FROM STRUCTURED TO UNSTRUCTURED DATA Unstructured data —from social media posts to images, email and web logs — is growing at an exponential speed. Here are some indicative statistics on social media: Worldwide there are 2.22 billion social network users online. Global social network penetration is 31%, with active Facebook users itself being 1.59 billion, With so much valuable information available, many banks & financial institutions have recognized the potential of Big Data & Predictive Analytics to mitigate risk, improve customer experience & tap incremental revenue. Banks empowered with advanced analytics are now using - * Structured data (existing customer & account profile data) Semi-structured data (social media) * Unstructured data (customer support audio files). With application of social media analytics, banks can cull out and decipher large amounts of data from various social media platforms. This helps explore customer sentiment about brands, trends, issues faced, effectiveness of marketing campaigns, competitor brands and competitor intelligence, etc. Banking Technology in India : Present Status & Future Trends 47Findings can be used by sales, marketing, risk and other functions to arrive at more informed and timely decisions. Today banks can also forecast customer needs and behaviors more precisely and deal issues before they can damage the business's reputation. Social media analysis involves identifying and collecting relevant social media data around brand, customer feedback and discussions. Data-gathering tools help banks collect customers’ tweets, blog, posts, status updates, etc. real time from various social media sites, based on pre-defined search parameters. This allows companies to track and respond to customer updates and posts/tweets on immediate basis. The next step involves analyzing the collected data to understand customer sentiment. The data will contain plenty of irrelevant information. Clutter around the data is removed to improve the accuracy of the analysis. Methods like Semantic analysis are used foradvanced data-cleansing which groups large amounts of data based on the relationship between words and/or phrases. It provides a higher level of refinement than text analytics or natural language processing tools. Semantic analysis goes beyond classifying customer comments into positive, negative and neutral, and provides insights into what customers think about products, including what they like and what improvements they would like to see. Analyzing the data helps banks to segment the customers effectively, identify the influencers from their social groups, etc. After this, banks integrate unstructured data with structured data to obtain a 360-degree view of customer. This helps track customers’ activity on social channels, create their digital profile, pull user location and track their spending habits, further providing insights on customers’ potential behavior, patterns and preferences, which will help banks to offer personalized products/services/offers on a real time basis. MERGING INTERNAL AND EXTERNAL DATASOURCES More and more banks are merging internal data (on premise databases, data warehouses, Hadoop, cloud data sources & apps etc.) and data from external sources (social media, market & sales intelligence data, macroeconomic data etc.). Analytical tools are applied to this combined data set which helps in arriving at meaningful insights. CAPTIVETO CLOUD The growth in the amount of data generated by traditional and modern sources (transactional, social media along with the audio support and voice calls) requires huge investments in the Storage and computing resources required to churn all the information and to put it to beneficial use. This paradigm shift in the volume of data being churned by organizations has driven a shift from captive data stores to use of cloud based infrastructure. Cloud providers today offer cost effective scaling up options to organizations, which intend to start small and then scale up based on need. PRESENT DAYANALYTICS IN BANKS Now, the focus is shifting towards advanced analytics, which enables banks to perform predictive analysis, Big Data Analytics, data mining, location based intelligence, etc. With these analytical tools/methods, banks can now derive insights that directly impact their business strategies, help in taking major decisions, be it to drive revenue, to control costs, or to mitigate risks, which can be infused with data and analytics. Decisions based on analytics can help to strengthen customer relationships, devise new customized products/services better suitable for customers, generate incremental business & meet regulatory requirements. 48 Banking Technology in India : Present Status & Future TrendsDRIVERS FORANALYTICS IN BANKING Strategy and Direction: Analytics is the foundation for formulating business strategies, economic forecasting, product/channel development and business improvement. Improving Customer Experience: Using analytics for customer experience management helps in delivering personalized, more meaningful and contextual interactions while assisting customers with their financial needs. More and more banks are exploring real-time delivery of product or service offerings at the right time and sophisticated relationship pricing. Insight on Customer Behavior: While demographics and current product ownership are the core parameters, behavioral, preferential and attitudinal insights are gaining importance, as channel selection and product use become more differentiated. Banks are using the following approaches: %* Sentiment analysis - Analyzes electronic text from files, reports, surveys, forms, e-mail and more to identify a user's thinking and priorities. %* Social media analysis - Collects and analyzes intelligence gathered from a variety of social mediasources * Customer lifetime and profitability value. Risk and Fraud Management: ‘Big data’ can be effectively used even for risk and fraud management, with data mining expanding to include transaction patterns and social media interactions which can point potential losses or fraud. With integration of structured and unstructured data, banks are exploring traditional risk management for pricing and other decisions. Big data insights are used for risk adjusted pricing and transaction scanning to prevent fraud and money laundering. Insights from big data also help banks in managing credit risk. bral Explore, Enable, Exoel Evaluation of Channel Usage: Analytics helps banks understand channel effectiveness and performance based on both customer behavior and transaction mix. Customer satisfaction, channel profitability and models to improve retail delivery can be arrived at, based on data collected through delivery channels. ‘As more banks work harder at migrating customers to digital channels, analysis of engagement and shifts in channel use become important indicators of satisfaction and re-pricing opportunities. Marketing: Banks are now able to market unique, timely, and relevant offers based on customer insight. Performing analysis across multiple channels allows banks to utilize marketing spends efficiently and facilitate higher conversion of sales leads. With application of analytics for lead generation, campaigns and customer segmentation, the advantage can be derived by driving analytics real time to increase it's relevance multifold. With more and more disruptive digital changes taking place in the financial industry, analytics will help banks stay relevantand achieve sustainability. ANALYTICS HAS MOVED FROM POST-FACTO TO REAL-TIME Following area few initiatives which indicate present day analytics is real-time: Natural Language Processing with Deep Learning: Banks are investing in virtual assistants to understand speech and text inputs with variation and respond to Bank's internal process related queries. These solutions are maturing to cater to customer queries on Bank's channels, namely Call centre, Internet Banking and Mobile Application. Use of Machine Learning and Neural Network for Personalization: Personalization of customer offers to cross sell and upsell products to customers. Predicting avenue through neural network and Machine Learning of customer base and their behaviour. These initiatives help in prediction of Banking Technology in India : Present Status & Future Trends 49horal Explore, Enable, Exoel customer's interest in the product offering, preferred time and channel of communication suitable for the customer. Customer Genome: These initiatives involve a very detailed understanding of each customer based on his/her lifestyle, life stage, type of engagement with Bank, transaction patterns, preferences regarding travel, health, food & dining etc. This data is acquired through various transactions of customers, eg., when customer swipes card at a fast food joint, data gets captured. Text mining is used to identify the merchant, certain parameters are applied for identification through rules engine (eg. more than 4 transactions ina month means customer likes fast food). With this identification, customers are tagged into different categories. With such insights on customer behaviour, patterns, preferences, Banks are better prepared to offer tailor-made products/services to customers. Voice based Analytics: These initiatives involve Real Time Voice Analytics and call routing at call centres based on Speech Analytics and Deep Learning. (Deep Learning is a branch of machine learning based on a set of algorithms that attempt to model high-level abstractions in data by using a deep graph wit multiple processing layers, composed of multiple linear and non-linear transformations). Banks are working at developing capability for Real time call analysis for speech sentiment and alert the call centre agents or supervisor fornecessary action. Location based Real time offers: This includes, real time analytics based on transaction data on ATM or PoS and customer location, for providing best suited offers to customers. Eg. - If customer withdraws cash from ATM or swipes card in a PoS machine, instantly offers related to dining delight can be sent to his mobile, Customers are now eligible to receive one offer per day which is nearest to his transacted PoS or ATM. Analysis includes: % Transactionamount * Typeof Merchant, Location of transaction * Availability of offer in the transaction proximity Email Sentiment Real time Analytics : Mail sentiment analytics uses machine learning to identify customer sentiments in a mail and takes quick action which involves: * Automated, multi-dimensional analysis of English emails - content and context * Automatic segregation and prioritization of English emails * Smart, editable auto-response generation in English * Aggregated, drill-down dashboard for subsequent ("post-call”) Analysis Phrase wise, priority wise, process adherence- wise, etc. * Productivity analysis for e-mail channel. APIs - Collaborations & Chains Present day analytics has also moved from organization specific to inter-organization collaborative analytics. Blockchains are re-writing, the way organizations collaborate with each other. APIs are helping organizations collaborate based on data services shared/exposed by one another. A few examples are: Use of social media for tracking defaulters - Google Big Query and Social Media API's are helping banks profile the defaulters and find matching profiles and zero down upon the current location and whereabouts of theirdefaulters. Such use of big data analytics is helping us reduce TAT incurred for defaulter tracking and recovery. DISRUPTIONS AND THE FUTURE With more and more digitally disruptive changes taking place in traditional marketplace and 50 Banking Technology in India : Present Status & Future Trendsunconventional players like Fintech startups newly entering the markets, banks need to - % Be open to change - Be open to the process of engaging with external technology solutions and invest knowledge capital and resources early on inan innovation process * Collaborate & Co-innovate - Collaborate with start-ups and create new opportunities by co- innovating products/services. * Incubate & Invest - Venture investing will help FS players and start-ups to complement each other in terms of innovation and capital needs and overcome challenges faced while operating singularly. To encourage such collaboration, Axis Bank has recently launched “Thought Factory’, an innovation lab facility aimed at accelerating the development of innovative technology solutions for the banking sector. It's an initiative through which Axis Bank will ‘engage with FinTech start-ups, who could potentially impactor disrupt Banking. The objective of the Lab is to drive technology focused innovation by discovering and deploying useful new technologies through experimentation, quick prototyping, and pilot launches that provide consumer insights/feedback. Projects undertaken would need focused technology investigations and testing of market potential. HOR’S PROFILE bral Explore, Enat The Innovation Lab will work closely with the startup community that are redefining banking in the digital era, The Bank is experimenting with emerging technologies such as blockchain, artificial intelligence, mobility, and cloud to bring about disruptions across functions including Credits, Deposits, Wealth Management, Mobile Payments, and Security etc. Axis Bank will engage with the start- up community to fast-track the innovation journey. The bank also hosted Hackathons for identifying talent across the country for the in-house innovation teamat ‘Thought Factory’. EXCITING TIMES These are exciting times with this pace of change never been seen before. What's interesting is that the banking fraternity has very well adopted and benefited from the pace at which technology is changing the way we conduct business. Today, we as an industry are capable of consuming/analysing (to our benefit) almost all of the digital data which is generated (Structured, un-structured, social media and collaboration). It is difficult to predict what lies ahead. Keeping pace with the change is in-evitable, as on date there is no right or wrong way of approaching data - organizations have to churn and analyse every byte of information available to them, leaving no byte unturnedis going to be the theme for the future Shri Amit Sethi is the President and Chief Information Officer at Axis Bank. He has rich experience in leading IT for delivering business value and enterprise agility. Before j ing Axis Bank, Mr. Sethi served as the Senior President & CIO at Yes Bank. Prior to that, he was with ICICI Bank as Business Technology Head. Shri Sethi holds an MBA in Finance and a degree in Electrical Engineering. He enjoys travelling, watching movies and reading about wild life, science, culture and history. Banking Technology in India : Present Status & Future Trends 51bral Explore, Enable, Exoel HE banking industry today is in a state of flux, with multiple technology changes cutting across various facets of the value chain. These multitudes of technology changes are impacting the way banks conduct business, as the traditional banking methods are not enough to meet the ever increasing customer expectation and to improve the profitability. Non-banking service providers like Fintech companies, High-tech companies and telecom Banking Technology - Global Trends Shri NK Subbu, Head (Technology), South Asia, Citi Bank Ltd. companies are causing disruption and disintermediation, often targeting discrete highly profitable segments of the banking value chain. While the degree of disruption is different for different banking services, nonetheless this is a threat looming and is expected to accelerate. Surprisingly, the disruptions and related technological changes are happening all over the world. This is also due to the fact that the "Worldis lat’ stanc cRM (GALES, SERVICE 8 x SELL) 5. Typical Banking System Architecture - Current Artal items 52 Banking Technology in Indi:TECHNOLOGY ARCHITECTURE - TODAYAND TOMORROW Based on evolving technological changes, Banking Technology architectu the current state, near future state (1-3 years), future state (3-5 years) is depicted in the following pages with the salient features: Salient Features of Current Trends * Enhanced services offering through Internet and Mobile platforms, with self-help features Reactive approach to launching alternative paymentoptions to meet the market demand No design or architectural changes to the Core Banking platform for capturing additional information for FATCA, KYC, FNA, etc. Customer relationship module for servicing and crosssale, using static data New customer acquisition through Internet, Mobile, ATM Nascent stage of digitization of critical processes, with no major focus on improvement in operationalefficiency Expensive data warehouse used for normal reporting. Limited use of scientific and statistical methods for data analysis and decision management External and internal interfaces are MLI (Message Level Interface)-based ‘While enhancing the services offered through Internetand mobile, not much attention is paid to the core systems which results in sub optimal design, delayed time to market and post implementation issues cusToMeRs PR OBPECTS / CUSTOMERS Typical Bankina System Architecture — Near Future ‘Ace told bd Banking Technology in India : Present Status & Future Trends 53* Branch, ATM and PoS networks still continue to expand, Services Offered - Future Trends [1 to 3 years] * More services/transactions are offered through digital medium, tending towards Mobile banking rather than Internet * More efficient, API based interfaces with the core banking backend systems %* Standardization of payment systems across banks. This will no longer serve as a differentiating factor * Customer relationship module will be more dynamic andwill be based on real time data Increased customer acquisition through Internet, Mobile, ATM and availability of new tools for this Digitization with greater focus on operational efficiency Improved analytical functions through the data warehouse, and decision making based on statistical & scientificapproaches Interfaces are based on API (Application Programing Interface) and micro services Focus on re-architecting the core banking system to provide improved turnaround times andlesser postimplementation issues Trending towards reducing branch ATM, PoS footprint 3 ; i ee ' Z i Typical Banking System Architecture — Future CLOUD COMPUTING (ATS nommcey | “toners ro STAGE OF DEPLOYMENT | 54 Banking Technology in India : Present Status & Future Trends% Robotic Process Automation (RPA) for reducing the manual work. Future Trends [3 to 5 years] * Digitization of processes wherever applicable and adoption of RPA where manual work is being done. This will lead to a reduction of backend personnel to a considerable percentage Offer most of the services through Mobile and Internet with Audio and Video chat facility * Significantly reduced presence of Branches, ATM and PoS network. Also the primary focus of the branch network will shift from execution and servicing to sales and distribution Implementation of advanced CRM tools with high analytical capability * Existing back end infrastructure and core banking will be re-engineered to ensure very high adoption of services/micro services based architecture. Sleek and lean servers and cloud based storage architecture will lead to rationalization of data centre costs. FUTURE TRENDS IN BANKING TECHNOLOGY Banks will be focusing more on the following technology areas in the coming years. Mobile &Mobility: Mobile technology is revolutionizing the global banking industry by offering new opportunities for banking both in terms of Customer Acquisition and Retention. Mobile banking adoption among the customers has been much faster than the adoption of online banking more than a decade ago, though on an absolute scale mobile banking adoption has been slow and clearly lags behind internet usage. This leaves tremendous scope for increased usage of mobile banking. An overwhelming number of customers use mobile banking to check balance in their accounts. As of today, mobile banking complements internet banking rather than replacing it. With an expectation bral Explore, Enable, Exoel of unprecedented reach of internet through mobile, it is time for banks to offer more and more products and services through mobile platform. Banks will focus on the following areas in the coming years to increase mobile banking adoption by customers. Improving Uland hence ease ofuse * Improving Customer confidence by strengthening security %* Rigorous mobile app evaluation and testing before releasing to customers. Analytics: Existing data warehousing and datamining, systems are used predominantly for reactive analysis and reporting. With more and more tools that are available in the analytics space, banking sector has to extensively leverage analytics for Marketing and customer segmentation, product management, pricing, risk mitigation, fraud protection and prevention. Analytics is an IT-enabled solution and has to be optimally used by the business units for different purposes as mentioned above. The next step in the evolution of analytics is the concept of ‘big data’ and ‘dynamic CRM system’. Big Data not only refers to the volume of the data, but deals with variety of data available for detailed analysis. The inputs to big data analysis include social media data, bureau data, core banking transaction data and channel utilization data. Robotic Process Automation (RPA): Process automation is nothing new - organizations have always looked for ways to achieve greater operating, efficiencies and supporting growth. Much of the automation was done by investing in newer or better, integrated applications or with the aid of a sophisticated business process management system, Many routine processes, mentioned below are still performed through manual means, and can be easily automated through RPA and requires minimal investment: Banking Technology in India : Present Status & Future Trends 55horal Explore, Enable, Exoel Reconciliation Extracting and reforming data into reports and data boards * Collecting social media statistics * Scraping data from theweb. In the coming years more and more robots will be used to perform routine backend tasks, which will result in lower costs and reduced manual errors. Cloud Computing: Cloud Computing provides many options to business leaders to achieve specific business goals, which might help to reduce capital outlay or reduce time to market The choice of cloud {Private Cloud, Community Cloud, Virtual Private Cloud, Private Cloud) and choice of services (Business Services, Application Services, Application Infrastructure Services, System Infrastructure Services) which will be migrated depends on business priorities. With more and more large players such as Microsoft, Amazon and Google offering services in the cloud market, it has become imperative for banks to explore adopting a cloud strategy to be competitive, While it is imperative for banks to adopt a cloud strategy in one way or another, effective cloud services will depend on: * Currentinvestmentin captive data centre % — Securityand data privacy concerns * Productsand services offered. Unsecured Lending: Few emerging trends in Credit Card industry are: * “Multi-Function Cards” capable of accessing multiple accounts (credit/debit) using same plastic * “Contactless Cards" which can even be a sticker embedded with RFID antennas and the customer has to just wave or tap the card to do atransaction * “Mobile POS’, which supports various payment devices such as traditional magnetic stripe, chip, contactless and mobile proximity payment usinga smartphone. Due to the recent wave of digitization in the payment industry, card holders nowhave option to: % Store Credit Cards in Mobile Wallets such as Apple Pay and Samsung Pay, and make Purchases at Merchant “Apps/E-Store” or at NFC/Contactless Terminals * Experience "M-Commerce" by Purchasing on Merchant Apps using smartphones * Experience “Mobile Banking” using Bank Apps and avoid visiting branches. Upcoming trends in sourcing of customers for Cards and Personal Loans are: % The usage of innovative models to assess credit worthiness using new criteria such as records of rent, mobile phone payments, as well as behavior on social media sites such as Facebook * Multiple Bureau checks for comprehensive credit worthiness check * "Internet of Things,” leveraging the data collected on the net and data mining for trends, behavior patterns support personalized offers. By improving portfolio behavior, reward points are increasingly being used, wherein banks mine customer data and create analytics to integrate the program with consumer's “Path to Purchase’, Payments: Payment solutions consist of an acquiring bank and issuing bank that are connected together via payment gateway, payment processor and finally the card network. While new methods of payment mechanism evolve, the primary goal is to ensure trust, security and low cost to all trading entities. While the current payment mechanisms largely depend on the hardware - a POS terminal, smart cards, etc., recent developments in the internet and mobile communication technologies has lead to the replacement of the hardware peripherals by software-only algorithms/systems. Software 56 Banking Technology in India : Present Status & Future Trendssolutions are much cheaper and have resulted in reducing the transaction fees substantially. The lower transaction costs have made it financially viable to handle low-value transactions electronically, which has resulted in increased transaction volume. The increase in volume and expectation of low transaction costs have led to innovations in the payment and settlement industry. Primary focus in these innovations are: * Toimprove customer experience To reduce transaction cost To increase speed of execution To perform safe and secure transactions To facilitate direct interface to reduce settlementissues. ee eH Branch, ATM, PoS Network: Banking services are provided traditionally through the branch network The issuance of debit and credit cards then facilitated financial transactions via the ATM and PoS, reducing the dependency on branches. With the advent of Digitization and Mobility, core banking services are now offered as self-service options through various customer touch points. The increase in online transactions prompted banks to give customers more options to transact online such as on the computer, laptop, mobile, tablet and even across social media platforms. Banks are also taking the digital route a step further and focusing on digital branches to cater to the more technologically advanced customers. These digital branches are convenient for the consumers and are also helpful to the banks as they provide tremendous, advantages in terms of costs, productivity and efficiency. Given the inherent advantages for both the bank and the customer in performing self-service transactions, its growth is set to increase exponentially, thereby resulting in reduced footfalls and lesser need for physical branches. While this transition is already in progress and will continue over a period of time, the branch, ATM and PoS networkis bound to shrink over the next decade. bral Explore, Enable, Exoel Core Banking Architecture: All the current technological changes to facilitate Internet Banking, Mobile Banking, Data Analytics, and other new payment methods are by building layers on top of the existing core banking architecture. Most of the banks still have legacy systems which were written a long, time ago using a procedural method of programming. While building layers on top of the traditional systems will help in reducing time to market, thereby increasing competitiveness, inherent flaws in the traditional system will continue to exist. Also, chunks of code written for regulatory and business needs of the past are not required any more, but continue to be in the system, which will slow down the processing speed as the adoption of Internet and Mobile Banking increases. It is imperative that the architecture of the existing legacy system be revamped or rewritten to get maximum advantage of the modern technology and new channels. This will require a lot of funding and time. However, this needs to be done sooner than later. Digitization of Processes: Most of the technology enhancements relating to digitization of processes is being carried out today without directly linking to the costs and operational benefit. While banks are realizing the benefits, quantitative measures of the benefits attached to the digitization process are missing. Current digitization projects are not linked to productivity goals and there are no proper means to measure. Going forward, that will not be the case and rewards and recognition will be linked to meeting the goals set at the start of a di project, rather than regarding the completion oft. Blockchain Technology: Blockchain is a distributed general ledger for recording the details of a transaction correctly without giving the details of parties involved and exposing any confidential information. Bitcoin Blockchain is the General Ledger of the cryptocurrency “Bitcoin’, Bitcoin is the concept of an encrypted virtual currency using the Blockchain protocol to perform financial Banking Technology in India : Present Status & Future Trends 57The full benefits of all the above initiatives will be transactions. Even though initial use of Blockchain realized only through proper employee education technology was to create bitcoins, this technology _and customer education. Banks need to invest a lot can beusedin: of effort to retrain employees to efficiently service the customers using the new tools. Similarly road shows and customer training sessions need to be conducted on a periodic basis to explain the new * New financial products based on approach and the embedded benefits to the cryptocurrency. customers. — ss THOR’S PROFILE ‘Shri NK Subbu has a wealth of experience and knowledge in the technology domain. He is currently the Head of Technology of Citi Bank, South Asia Cluster. He moved to a number of leadership positions with technology companies (Birlasoft, Saksoft) before returning to Citi in May 2011. * Virtualwalletand payments % Clearing and settlement solutions He holds a Masters Degree in Mechanical Engineering from the Indian Institute of Technology, Madras. (Continued from page 46) General Banking Automation Use Cases - Partial List Credit RiskControl(CRC) -Limit Setup & Maintenance « EMyCerdissuance Forex Update EMV Card DebtCard/ATM Card Replacement RTGS Reconciliation Automated Data Flow (ADF) Process NEFT Reconcitation BusinessLoanFacilty (BLF) Process Credit Card-Service to Sale ‘Anti Money Laundering. Transaction Screening Basel |ll- various interim migration processes POS Reconcilation~ 2/3-way Reconciiation NostroReconcil at on—2/3-way Reconcliation Vostro Reconailaten-2-may Reconctaton + Account Opening + BRC (Bank Realization Certficate)-3-way Reconcliabon * TaxCollectons, + SENS (NEFT) Reconct aton-2-way Reconciiation + KYClor OMAAccount (Direct Market Access} + DD.IP.O.Reconcilation~2nay Reconcsiation + Cash Managemert Service (CMS) * Trade Receivables andDiscourting + Inward Remittance (Guick Creat) + FATCAProcess * Charges Fteverssl + Electrone Straight Trough Processing (#STP) + KC + Suspense Accourt Reconalistion + ATMReconchation. 274 way + Straight-TrroughReconaliaton (incomng, Outgoing + ATI Dispute Payables. Recervabies) + Business FacityLetter (BFL) Generation Unified Ul, Composite Ul Adapbee Agert Deshtop + Vendor Code Creation Bancasurance- Auto Renewalof Term Poicy + Electron Cleanng Service (ECS) Detit Account Ciosing + Electronic Cleamng Service ECS) Crect XBRL Process, 58 Banking Technology in India : Present Status & Future TrendsOpportunities E truly live in times that are changing at such speed that keeping pace is a challenge. Computers and technology have so smoothly taken over our lives that imagining even a day without their presence is near impossible. And as technology improves, so are the challenges that are increasing in complexity. Cyber Security in a furiously changing world is fast paced and rising in global importance. This near ubiquitous computing atmosphere has been formed because of developments and the convergence of computing and communication technologies and platforms. Banking sector is not untouched and new banking technologies with unprecedented high bandwidth and high speed are making the cut, Processing of huge amounts of data in shorter span has been possible and this has consequently enabled and increased the possibility of unauthorized access and misuse of customer related and other banking, information. As technological improvement brings promise and enthusiasm to the banking industry, it many times also brings new opportunities for cyber fraudsters and hackers. The techniques and technologies used by cybercriminals to target sensitive and confidential banking information are refined and continuously changing. As is said, the cyber criminals are at least two steps ahead of banks and catching up with them is near impossible. Itis thus desired from the security perspective that continuously evolving controls be put in place in banks, to prevent any future cyber threats. bral Explore, Enat Cyber Security - Future Challenges and TUTE GRAS ACL Co colle LER col scolad Some of the cyber security challenges and opportunities that we may expect to see in the future in banking industry are enumerated below: INTELLIGENCE-LED SECURITY IN BANKS Intelligence-led Security is the collation, aggregation, correlation, review and analysis of both external and internal information to understand threats, ascertain threat vectors, determine and minimize attacks or losses. Banks will witness more reliance on an intelligence-led security, as existing tools will fail to deliver tracking of continuously changing security incidents and behaviours. Real-time monitoring and advanced analytics with quick incident management will provide banks clear actionable intelligence. By virtue of intelligence-led security programme, banks will have more proactive and predictive security program which will help in intelligence-led decision making. The key elements of successful intelligence-led security in banks will be: * Integration: The threat intelligence should be able to identify the enterprise wide threats * Less Redundancy and Less Noisy: Excessive redundancy and noisy intelligence together can increase inefficiency. So, the technology chosen should have low noise and less redundancy * Automation: Such system, if automated, will increase the effectiveness of intelligence-led security manifold. Banking Technology in India : Present Status & Future Trends 59horal Explore, Enable, Exoel Intelligence-led security program can provide the banks the cyber security and privacy protection which can be built around Intellectual Property, Information Assets, Physical Assets, Customers, Employees, etc., beside bank's brand reputation. RISK-BASED AUTHENTICATION IN THE CLOUD Bank's Systems and Technology explores the swift acceptance of the mobile channel, the factors of the InfoSec challenge, the shared approaches to fight cyber frauds, and the broad benefits of a multi-tiered, multi-factor methodology to mobile cyber security. For banks, itis much easier to counter or fight against known form of malware attacks than they do against unknown form of cyber attack vectors or zero-day threats vulnerabilities. That's why, one encouraging approach to cyber security for the banking industry is the concept of outsourced defence. It is possible that identity and Cyber Fraud Management can be outsourced or moved into the cloud. The cloud security service providers can provide banks with a lot of added background intelligence about cyber attacks and issues that may not have hit one bank, but have hit other banks. By working with multiple banks on a real-time basis, cloud security service providers can gather an added comprehensive protection. Cloud security service providers will be amassing the information, behaviour patter, signatures, defense strategy, etc., which can helps banks to protect themselves from all forms of even unknownattacks or zero-day attacks. BIOMETRIC-POWERED NEXT GENERATION BANKAPPLICATIONS, Banks’ present day applications are heavily reliant on passwords for authentication. The real problem with these passwords is that so many passwords are extremely difficult to memorise. Even if application can be built which can go to great lengths to avoid storing user credentials and passwords within its protected and secured data area, it's difficult to stop users from copying and pasting their passwords in a plain text paper ornotebook or in a draft e-mail for an easy reference. Biometric technologies promise an authentication technique which is easier than memorizing or copying and pasting a password. One approach to biometrics for bank can be voice print identity in which the customer may be asked to reprise a phrase ‘ora number of digits. The phrase thus echoed, can be the customer's home landline number or his mobile number. This will help to get rid of the various forms of replay attack. Even if the cyber thief has recorded the customer's voice, he cannot be successful as the requested phrase will be a random sequence of digits, or could be one of numerous random phrases. Voice print IDs can be replaced by another promising technique like facial recognition which can make banking platforms even more secure. The biometric techniques of future can be vulnerable to replay attacks which needs to be taken care by randomization. CREDIT CARDS WITH ADVANCED TOKEN GENERATORS One of the main problems with current day token generating systems is that devices are large and heavy. The future technology may eliminate this problem. Itis certain that a light weighted technology will evolve, which will be easy to carry orstore. BYOx TRENDS WILL INCREASE IN THE WORKPLACE The bring-your-own (BYO) trend is going to emerge stronger, whether banks like it or not. The challenge can be tackled by developing good policy guidelines todealwith. As the instances of bringing own mobile devices, applications and cloud-based storage and access in the workplace continues to grow, banks will see it as a cyber security risk. These risks can be exploited ata 60 Banking Technology in India : Present Status & Future Trendsmuch greater rate. These risks can arise from: both internal and external threats mismanagement of devices * external exploitation of existing software vulnerabilities result of poor and testing of applications. Some of the stated risks are going to continue and may not be eliminated completely. These risks based on the cyber risk appetite of the banks need to be accepted. All these should be the apart of a well- structured and established BYOx program. Itis expected that some of the users will find away to use their own devices at workplace, even if the bank has a policy against BYOx. Effective review and monitoring will be crucial here since if a BYOx policy if poorly implemented, a personal device can cause accidental disclosures due to thin line of difference between personal data and official data. DEVICE-BASED AUTHENTICATION Technology will be the key differentiator in the banking sector. A lot of modern day breaches happen as banks are not able to authenticate the customer device in totality. The next generation technology will see a new business model which will place the device manufacturers and network service providers inthe hotspot. With the explosion in mobile devices, there is aneed to have differentiation among these devices or to identify them uniquely. Some of the experts have predicted the possibilities of having a secure area on a smart phone available - probably for a fee — to banks and financial companies and other payments service providers. Such device based authentication will be embedded into the mobile devices by the manufacturer or can be located on a detachable SIM card or microSD card, which can be provided by the bank toits customers. bral Explore, Enable, Exoel THE REAPPEARANCE OF PHISHING Banks need to establish a more robust review and monitoring mechanism for phishing e-mails reported and received by customers, particularly spear phishing, which is targeted attacks. Although phishing is not a new attack, however, cyber thieves will be happy to capitalise on opportunities even in the future. High profile breaches of customer data which are anticipated in the future may affect the customers, as they reasonably expect e-mails from the bank concerning any action they should take immediately like resetting passwords, etc. In such circumstances, spear phishing s likely to be rife and for customers it will be easy to take these e-mails on face value. Banks will have to device an alternate way to ‘exchange information with the customers in a safe and secured manner. STATE-SPONSORED ATTACKS AGAINST BANKS There will be a continuation of state-sponsored targeting, attacking and hacking in the banking and financial sector as they are strategic in nature. These attacks will be more malicious and likely to occur over the next few years. Since the banks are targets of opportunity, there could be more sabotage attempts. More Usage of Machine Learning in Cyber Security Banks will see the augmented emphasis on areas like machine learning which is a sub-division of artificial intelligence and gives computers and devices the ability to learn without being clearly programmed for, that. In the context of cyber security and risk management, an exceedingly cutting-edge analysis engine grounded ‘on machine learning can make it enormously difficult, for hackers to bypass discovery, which means banks can proactively alleviate risks from multifaceted and emerging cyber security threats. Banking Technology in India : Present Status & Future Trends 61horal Explore, Enable, Exoel EMERGENCE OF RANSOMWARE AGAINST BANKS Banks will witness growing impact of ransomware Banks which are not prepared may lose millions. The challenge for banks will be to deal with the social engineering techniques that are used to plant ransomware. Better education to its customers and employees and real-time security protection, can cut down the threat size of the ransomware. As canbe seen, future threats are no less than seen in a sci-fi movie. The threats will be many and varied, but these threats will be a huge opportunities as well A bank with better cyber security offered to its customers and stakeholders will attract many customers and retain existing ones. Hence, banks will have to build a holistic, integrated approach to cyber security ~ may be by going in for Fusion Centre for Cyber Security, which will integrate fraud management, cyber security, IT team, physical security, etc., that will boost cyber intelligence and response. The future may be daunting and challenging, but certainly exciting and those banks that are well-prepared now and ready to handle the uncertain future head-on would certainly emerge the winner. AUTHOR'S PROFILE eee ‘Smt Nirmala Sridhar, General Manager, Vijaya Bank, is a banker with over 30+ years of banking experience. She heads the IT and Strategy division of Vijaya Bank. Smt Nirmala is a Master of Science, CAIIB, MBAand CISA. 62 Banking Technology in India : Present Status & Future TrendsSECTION - Il 1A IDRBT I efeL aL me Ree (LLL YE IE Excellence Awards 2015-16 rabral Explore, Enable, Exoel THE JURY Smt. Usha Thorat Shri. M. V. Tanksale Former Deputy Governor, RBI Chief Executive, IBA Chairman of the Jury Member - Oe ~~ Prof. G. Sivakumar Prof. B. H. Jajoo IIT, Bombay IIM, Ahmedabad Member Member Dr. Santanu Paul Shri Rajesh Doshi CEO & MD, TalentSprint Senior Executive Director, NSDL Member Member 64 Banking Technology in India : Present Status & Future TrendsBACKGROUND DRBT has been recognising Indian banks for adoption and innovation of banking technology to enhance effectiveness of banking ecosystem. Year 2015-16 marks the twelfth year of Banking Technology Excellence Awards. Over the years, the award categories have changed to reflect the rapid change that banking IT landscape has undergone. The current year award categories areas under: For Commercial Banks * Category I - Use of Technology for Financial Inclusion * Category - Digital Banking * Categoryill - Electronic Payments % Category |V- Analytics and Big Data * Category V - Use of Technology for Fraud Prevention and NPAManagement CategoryVI - Managing IT Ecosystem % CategoryVIl - Cyber Defence * * CategoryVIll - Innovative Use of Technology. For Co-operative Banks * Best |T-enabled Co-operative Bank % Best IT-enabled Regional Rural Bank. The commercial banks are sub-divided into large, medium and small banks to mitigate the chance of scaleand maturity bias. bral Explore, Enat Category eee reed (Cae) Large Banks ‘Above 3 lakh 16 Mid-size Banks | Above 4 lakh but 16 less than 3 lakh ‘Small Banks Upto 1 lakh 14 PROCESS The process for the selection of awards under various categories consists of three stages: * Questionnaire administration Response submission by banks * Critical evaluation by Jury and decision on awardees. Jury members consists of eminent personalities from industry, academia and banking fraternity. Jury member first recommends the category under which awards are to be given and guidelines on the evaluation parameters. Detailed questionnaire is then prepared for each category by IDRBT, assisted by External Knowledge Partner Team (Deloitte India). Banks are given 3-4 weeks to submit their responses. Thisis followed bya detailed evaluation of the responses. Jury members go through the detailed working, considering merit of each case before choosing the winner of the category. Banking Technology in India : Present Status & Future Trends 65bral Explore, Enable, Exoel AWARD WINNERS - 2015. Ne foNizcena Pret O 1 | Use of Technology for Financial Inclusion Union Bank of India i aa Bank of Maharashtra EVENT) Karnataka Bank Ltd (Special Mention) 2_| Digital Banking State Bank of India | Andhra Bank The Karur Vysya Bank Ltd 3_| Electronic Payments Bank of India Vijaya Bank South Indian Bank Ltd. 4 _| Analytics and Big Data ICICI Bank Ltd. - - 5 | Use of Technology for Fraud | HDFC Bank Ltd. | -- - Prevention and NPA Management 6 _| Managing IT Ecosystem Bank of India ‘Andhra Bank The Karur Vysya Bank Ltd, 7 __| Cyber Defence ICICI Bank Ltd. _| Yes Bank Ltd RBL Bank Ltd. 8 _| Innovative Use of Technology State Bank of India State Bank of Hyderabad | Indusind Bank Ltd, Category Winner Co-operative/ Regional Rural Banks ‘Special Mention for IT-Enabled Co-operative Bank ‘The Karad Urban Co-operative Bank Ltd. Best IT-Enabled Regional Rural Bank ‘Andhra Pradesh Grameena Vikas Bank BANKING TECHNOLOGY EXCELLENCE AWARD SNAPSHOT The attached report covers key aspects of the responses provided by the participating banks. Data and approach presented in the report are based on and limited to the data provided by the participating banks unless otherwise stated. USE OF TECHNOLOGY FOR FINANCIAL INCLUSION Indian economy is growing at a healthy pace of over 7%. Indian government is making effort to boost economy, and ensure every section of society benefits from the growth. However, a large untapped marketis still outside the formal channels. The Indian government, regulators, banks and non- banking organizations are working towards a common goal of financial inclusion for the masses. Technology has played a catalyst role in reaching out to financially secluded population at an optimum cost. Mobile banking, Aadhaar based payments, micro ATMs are few of the technological solutions that have added muscles to financial inclusion goal, Initiatives like PMJDY, PMSBY, DBT, Pradhan Mantri Mudra Yojana, Atal Pension Yojana, which have been rolled out by the government of India have led to a surge in number of unbanked people getting linked to formal banking services. As on 29.06.2016, 22.29 crore accounts have been opened under PMJDY scheme with 18.22 crore RuPay cards issued. Trends in financial inclusion segment. * Public sector banks have taken alead in setting up IT-enabled specialized Fl branches * Banks have put in place an automatic file transfer system between them and insurance companies to smoothen enrolment process under social security schemes 66 Banking Technology in India : Present Status & Future Trends% Some of the participant banks in the large bank category have seen a stabilization in number of accounts opened under BSBDA * Enrolment under PMJDY scheme grew at over 50% with PSU banks accounting for bulk of the growth %* Active account (>1 transaction in a quarter) as a percentage of total accounts ranges from: 17; DE 30%, * Zero balance accounts as % of total accounts ranges from: ‘5%, 65% % Average account balance maintained in BSBDAaccountsis close to Rs. 2000 % BSBDA accounts closed in the year as a % of total accounts ranges from: 02 ET 5.6% % Average deposit balance per SHG is close to Rs. 10,000 % DBT customer for banks have seen a growth of, over 100% in 2015-16 over 2014-15 PSU banks lead the pack in terms of account opened though eKYC route. Some of the banks have opened over 5 lac accounts using eKYC * Connectivity issue/delay in receiving OTP, biometric authentication rejection are sighted asmajorreasons for transaction failure Innovative approaches by Indian banks in promoting Financial Inclusion %* Specialized technology enabled financial inclusion branches * Acceptance of request for sanctioning of overdraft facility under PMJDY through ATM and SMS % Cardless transaction system bral Explore, Enable, Exoel % Use of WHIP and V-Sat in area of challenging connectivity % Incentive schemes for BCs for promoting activation of accounts % Use of analytics tools to monitor BCs performance % Understanding voice of customers for alignment of services, Way Forward A lot of initiatives have been undertaken in the recent past in bringing the financially secluded population under the formal banking ambit. The challenge ahead lies in a) reaching out to that section of society which s still unbanked and b) ensuring that. those joining the formal banking system do not slip outofit. Technology, as a lever has the potential to transform the approach towards financial inclusion. It can help build cost effective scalable model to offer banking services at bottom of pyramid and bring the financially neglected within the umbrella of formal financial institutions. New payments and small finance banks are likely to leverage technology from start of their operations and adopt a differentiated approach to financial inclusion. DIGITAL BANKING Indian economy is standing on the cusp of a digital revolution. Government of India has been actively promoting digital campaigns through initiatives like UIDAI, Smart Cities, and Digital India. The RBI has complemented the effort by enabling multiple digital banking platforms to hasten the pace of adoption of digital technology. Digital banking platforms such as ATM, Internet Banking, NEFT and RTGS have gained strong foothold in the Indian banking space. The biggest gainer however, is the use of mobile technology for banking and payments. Indian banks have expanded their digital space Banking Technology in India : Present Status & Future Trends 67bral Explore, Enable, Exoel beyond deposit, credit and payments and now have an active presence across various social media platforms. Trends in digital banking segment * Transaction on self-service modes in some of the leading banks accounts for more than 60% of the total transactions * Active digital customers (> 4 transactions per year) as a percentage of total digital customers * Average growth in usage of digital transaction modes like NEFT, RTGS, IMPS, Bill payments, Recharges, NFC transactions) % Average growth in user base across select digital channels * Average wait time for a call centre response varies widely from as low as 10 seconds to as high as 2 mins Focus processes and area for digitization by Indian banks * Update of KYC, Aadhaar, PAN details * Green PIN generation smoothening ATM/Debit card usage Sanctioning and disbursement of loans * Digitization of branch processes. Innovative approaches by Indian banks in the digital banking space * Selfie banking - opening of bank account through mobile usingaselfie * Use of digital pen to digitize data at source, ‘thus reducing data entry error and delays * Mobile based solution with innovative features like biometric authentication, fast pay, online tracking facility forlockers * Wearable devices banking %* Deployment of digital banking lobby/kiosk, whichis centered on self-service model. Way Forward The concept of digital banking is still evolving in the Indian banking space. Banks have started offering certain products exclusively through digital channels. Indian economy has the advantage of leveraging the technological advances and leapfrogging from a paper/physical based banking system to a digital banking system. Branchless banking or a complete digital bank concept exists globally. However, given the demographic and geographic challenges both digital and physical channel would continue to grow in India. The pace of growth of digital banking is set to be much higher with the emphasis being on digitization from the banks, the regulators and the Government. ELECTRONIC PAYMENTS Indian payment landscape is evolving fast, from cash only to card, internet to mobile and the latest being biometrics based payment systems. Increased accessibility of technology has played a pivotal role in higher uptake of electronic payments. 68 Banking Technology in India : Present Status & Future TrendsIn its Vision 2018 statement for Payment and Settlement System in India, the RBI reiterated its commitment for a “less-cash” society. In order to make its vision a reality, the RBI has been taking appropriate steps starting from amendment in the Payment and Settlement Act to facilitating the use of payment platforms like RTGS, NEFT and more recentlyUPI. Growing use cases for Electronic Payments Emergence of newer use cases have given a push to acceptance and usage E-commerce - E-commerce has transformed the way business is done in India. The number of online shoppers is expected to reach 220 million by 2020 from current level of close to 40 million shoppers. The most preferred cash on delivery (CoD) model is giving way to electronic payment channels. The implementation of UPI will enable the e-commerce delivery staff to collect money electronically for even CoD transactions will provide a boost to electronic payments in this segment Aggregator - Cab aggregators today provide services in more than 100 cities in India. Their business model is evolving to include segments like autos and two wheeler, thus reaching out to a larger, section of society. These aggregators have enabled and are promoting electronic payment to offer convenience to their customers. Bill Payment and Ticketing - A large number of institutions today accept bill payment through electronic mode. This includes mobile recharges, electricity bill payment, railway and bus ticketing Bharat Bill Payment System (BBPS) is further expected to provide a boost to payments in this space. Retail Stores - Organised retail has witnessed a healthy growth in Indian market. Stores like Big Bazaar, DMart are expanding aggressively in tier 2 -3 cities catering to customers across the society strata, Most of these stores run their closed loop electronic payment system along with acceptance of other bral Explore, Enable, Exoel digital payment. In addition to these large and medium retail stores, wallet companies are actively building digital ecosystem across small mom & pop stores. Trends in Electronic Payment System Banks have deployed multiple payment modes to boost electronic payment. Usage characteristics vary across different modes. Difference is also observed in service levels and transaction sizes between Metro/Urban and Semi-Urban/Rural markets. Pamen Wed eect at TS i Hoh ——* soto ree aching 8S 1520-0 |Web Skea 0 10-——+ as09 c ( ———T 12 es aa Fl Osetarata “ranean eRe} Public sector banks lead in terms of coverage in the north east. These banks offer a larger product bouquet toa large number of northeastern states. cor Debit Intemet IMPS! Mobile et amr "Arunachal Pradesh Mi Mi Assam ov vv thea. Fae Manipur vv vo iy Mizoram v v v Nagaland vy sikkim Taal Tripura vw vv Banking Technology in India : Present Status & Future Trends 6bral Explore, Enable, Exoel Innovative approaches by Indian banks towards Electronic Payments A few of the innovative approaches adopted by Indian banks are: Way Forward Payment landscape in India is evolving at a rapid pace. The initial boost to electronic payment was provided by internet and the next big game changer was mobile technology. The next generation trends include use of technology tools like blockchain for electronic payments. The concept of blockchain is still at very nascent stage, but is increasingly finding use cases in banking and payments segment. ANALYTICSAND BIG DATA Customer behaviour has become increasingly dynamic due to the pervasive connectedness through smartphones and social media. This results in flash trends which are very contextual and have a short life span of few hours or days. Traditional analytic models that run offline at monthly or even weekly intervals would completely miss such dynamic and short-lived behaviour which can have significantimpacts. The potential benefits of Big Data become larger as banks move beyond the confines of internal data and leverage external data. This proliferation of data has led to a revolution driven by the use of data and analytics to guide decision-making. One important enabler of analytics is the Single View of Customers, which is built not only by breaking down departmental silos, but also by integrating data beyond the enterprise. The availability of Single View of the Customer, combined with advanced real-time analytics, can help banks to create highly tailored offers to significantlyimprove customer response rates. Sources of Big Data for Indian banks Usage of Big Data Analytics The biggest use case for big data analytics for the banks continues to be cross sell of products to their customers. However, few banks are innovatively using Big Data to: * Assistin taking credit decisions % Track and predict customer repayment behaviour % Do sentiment analysis for their products and services Manage and measure marketing campaigns Fraud and risk management Branch and ATM location selection. * 70 Banking Technology in India : Present Status & Future TrendsWay Forward Given the emerging nature of this domain, a combination of expertise from multiple disciplines is required to create the right solution rather than selecting a generic out-of-the-box IT solution. To maintain competitive edge, organisations need to focus on a well-defined business goal, and continually assess the business case for expanding theiranalytics activities to encompass big data. Business decisions should involve statistical considerations around the meaningfulness of the information contained in the data, business considerations around the marginal business value of this information, as well as economic considerations around the costs of storing, cleansing, visualising, and analysing increasingly big data sets USE OF TECHNOLOGY FOR FRAUD PREVENTION AND NPAMANAGEMENT The Indian banking and financial services sector has witnessed exponential growth in the last decade. The growth has not been without its pitfalls as incidents of fraudin the industry havealso been on therise. Risks are inherent in the banking industry. In today's economic scenario the adage ‘prevention is better than cure’ has never been more pertaining. NPA is one of the biggest challenges faced by Indian banking industry. Role of technology which was earlier limited to reporting has expanded to prediction, detection, managementand reporting of NPAs. USE OF TECHNOLOGY FOR FRAUD PREVENTION IN INDIAN BANKINGINDUSTRY Indian banks have encountered maximum number of frauds in retail banking (including priority sector lending) followed by corporate banking, Fraudulent documentation and over valuation/non-existence of collateral are some of the most common instances of fraud. Indian banks are at different maturity stages when it comes to use of IT for fraud preventions. Some of the bral Explore, Enable, Exoel advanced banks have used IT for fraud detections/managementat: * Origination stage - Checks are performed on various data points at the on-boarding stage and trigger breaches are monitored carefully * Transaction stage - Tie-up with various third party agencies and using real-time transaction data and using automated engines at the background to identify a fraudulent transaction * Post transaction stage - measures like SMS alert/email to the registered recipient, have been put on place to ensure frauds are detected at the earliest. Banks have also invested in anti-phishing and anti- malware services to detect and arrest fraudulent transactions. Few of the best practices followed by the leading industry players are: Use of automated adaptive fraud monitoring systems with self-learning capabilities * Dual access control for all critical systems, with biometric authentication * Proactive risk management solutions to decline transactions matching with fraud trends * Fraud awareness and prevention campaigns forcustomersand employees. Majority of Indian banks rely on structured data available with them to identify fraudulent transactions, use of unstructured data though at nascent stage is gaining importance. USE OF TECHNOLOGY FOR NPA MANAGEMENT ININDIAN BANKING INDUSTRY. Notable practices followed by leading banks in use of technology for NPA Managementare: % System based checks at the loan origination stage to reduce chances of on-boarding negative risks * Rule based sanctions limits for employees to prevent over sanctioning Banking Technology in India : Present Status & Future Trends 71