Module - 5

Recent Trends in Banking

Technology
Contents of the Module
• Augmented Reality
• Block Chain,
• Robotic Process Automation and Artificial Intelligence,
• API Platforms
• Prescriptive security
Banking Technology
• The term “Banking Technology” refers to the use of sophisticated information and communication technologies together with computer science to
enable banks to offer better services to its customers in a secure, reliable and affordable manner and sustain competitive advantage over other banks.
• Banking Technology also subsumes the activity of using advanced computer algorithms in unraveling the patterns of customer behavior by sifting
through customer details such as demographic, psychographic and transactional data. This activity also known data mining, helps banks achieve their
business objectives by solving various marketing problems such as customer segmentation, customer scoring, target marketing, market-basket analysis,
cross-sell, up-sell, customer retention by modeling churn etc.
• Successful use of data mining helps banks achieve significant increase in profits and thereby retain sustainable advantage over their competitors. From
theoretical perspective, Banking Technology is not a single, stand-alone discipline, but a confluence of several disparate fields such as finance
(subsuming risk management), information technology, communication technology, computer science and marketing science.
• It depicts the constituents of Banking Technology. From the functional perspective, Banking Technology has three important dimensions. They are as
follows: (i) The use of appropriate hardware for conducting business and servicing the customers through various delivery channels and payments
systems and the associated software constitutes one dimension of Banking Technology. The use of computer networks, security algorithms in its
transactions, use of ATM and credit cards, Internet banking, telebanking and mobile banking are all covered by this dimension. The advances made in
information and communication technologies take care of this dimension. (ii) On the other hand, the use of advanced computer science algorithms to
solve several interesting marketing related problems such as customer segmentation, customer scoring, target marketing, market-basket analysis, cross-
sell, up-sell and customer retention etc. faced by the banks to reap profits and outperform their competitors constitutes the second dimension of
Banking Technology. This dimension covers the implementation of a data warehouse for banks and conducting data mining studies on customer data.
(iii) Moreover, banks cannot ignore the risks that arise in conducting business with other banks and servicing their customers, for otherwise, their very
existence would be at stake. Thus, the quantification, measurement, mitigation and management of all the kinds of risks that banks face constitutes the
third important dimension of Banking Technology.
Augmented Reality in Banking
• Augmented reality (AR) is an interactive experience that combines the real world and
computer-generated content. The content can span multiple sensory modalities including
visual, auditory, haptic (sense of touch), somatosensory (sensation of pressure, warmth,
pain) and olfactory.
• AR is an experience where parts of users’ physical world are enhanced with computer-
generated input. It can provide an interactive experience of a virtual environment in the real
world.
• Need for AR in banking:
• AR technology is partially immersive experience boosted by heads up display or existing
smartphones. Banks and financial institutions can engage customers and create new immersive
experiences through millions of existing compatible smartphones. AR can help financial service
institutions to engage existing and new potential banking customers.
• The need for AR in the banking sector can be deduced by the fact that it will provide consumers to view
the information in a concise, engaging as well as in an immersive manner.
Augmented Reality in Banking contd.
• Opportunities with Augmented Reality in banking:
• Locating ATMs: AR phone applications helps customers to locate ATMs nearby and bank branches. In
India, the Axis bank launched an AR app called “Near me” for this purpose. These apps convey real-
time data about location, distance, and services provided at these ATMs.
• Self Service: AR in banking applications help customers with information about their bank accounts,
loans, mortgages, etc. This will provide a great user experience to customers.
• Payment experience: The AR finance apps can encourage payments by recognizing the specifications
and price of an item and overlaying the data on customers’ experience with the real world.
• Security: The introduction of AR into banking can improve security with biometric security, like voice
recognition and retinal scans. It will be helping in blocking unauthorized access by hackers.
• Minimal Documentation: Imagine filing those bulk of physical documents one after the other. This
can be brought down as AR develops. Bank statements, advice, letters, and even cheques can be
presented virtually. It will save a lot of time. It will also simplify the process of obtaining loans, which
involves a lot of paperwork.
Cryptocurrency
• Technical issues
• Hacked accounts
Cryptocurrency – digital currency
• Transfer limit exceeds
• High transfer charges

• Immune to counterfeit
• Cryptocurrency • Don’t require a central authority
• Protected by strong encryption algorithm
Examples
• Bitcoin (BTC) (XBT) ...
• Ethereum (ETH) ...
• Ethereum Classic (ETC) ...
• Litecoin (LTC) ...
• Stellar (XLM) ...
• Zcash (ZEC
Bases of Blockchain
A B C Public Distributed Network

A has 1 BTC A has 1 BTC

A has 3 BTC X has 5 BTC X has 7 BTC
X has 3 BTC B has 3 BTC B has 1 BTC Ledger
B has 3 BTC C has 3 BTC C has 3 BTC
C has 3 BTC B paid 2 BTC to X C paid 2 BTC to X
A paid 2 BTC to X X has 7 BTC X has 9 BTC
X has 5 BTC Hash: 23510zh3868 Hash: 4985n376126
Hash: 56734c37012 Prev Hash: 56734c37012 Prev Hash: 23510zh3868
Prev Hash: 87543s2348
Blockchain
• Blockchain is a decentralized record-keeping system that uses a distributed ledger to store essential
data.
• This adds much-needed trust, traceability, and transparency to the blockchain. With that, blockchain
has the potential to solve several long-standing challenges in the banking industry.
• The lucrativeness of blockchain lies in its decentralized, secure and transparent nature. A
business always desires that its database remains secure, tamperproof, transparent, and
undestroyable. And, blockchain accurately overcomes all these hindrances, usually faced by
traditional database systems.
• In addition, blockchain significantly reduces the costs of operations by removing third-party
mediators from the system. And, the quickness of blockchain has increased transaction speeds.
These exclusive traits have made blockchain an effective and affordable option for all businesses
while making it also extremely important.
Blockchain
• Collection of records
• Linked with each other
• Resistant to alteration Blockchain
• Protected using cryptography
• Public Key Private Key

• A sends BTC to X # A’s Private Key

Hashing Algorithm. (to digitally sign the transaction)
Transaction is It is encryption algorithm
transmitted across the
Transaction can be decrypted
world X’s Public Key only with X’s Private Key
Terminology in Blockchain
• Miners: who validates the blocks by solving a complex
mathematical problems
• Proof of Work: process of solving the mathematical problems
• Mining: the process of adding blocks to the Blockchain
Blockchain in Banking
• Blockchain is the distributed ledger technology, which facilitates
recording transactions and tracking assets in any business
network. Its advanced features like transparency, immutability and
decentralization have been beneficial to all industries globally.
• Right from cryptocurrencies, blockchain technology has created a
hype and stepped far beyond rather than just powering bitcoin or
ether transactions.
• The transparent secured nature of blockchain is the sole reason for
its adoption into various industries for growth and development.
 Use-case of Blockchain in Banking Sector
• Clearance and Settlement: An average bank transfer usually takes few days to settle. So, moving money across the globe is a
logistical challenge for many banks. The bank transfer system needs to go through custodial services and reconciliation process,
which include Fund networks, Asset Managers and Traders.
• If a trader wants to transfer the money from a German bank to the United States, the transfer process will go through Swift. A swift
protocol is centralized and it processes only the payment orders. The actual money is processed through intermediaries involving
additional cost and time.
• A decentralized ledger technology like blockchain can help banks to monitor and settle transactions. Therefore, banks will not have
to rely on custodial services and regulatory intermediaries. The blockchain works for clearance and settlements in banking includes
the following steps:
• Step 1: When a user requests a payment, the payment transaction is represented in the form of a block.
• Step2: This block is sent to the network of computers, known as nodes. So, the block representing the payment is sent to every
node in the network.
• Step 3: Nodes validate the payment and user’s status using algorithms. These nodes receive a reward for proof of work. The
verified payment may include cryptocurrency, contracts, or any other information record.
• Step 4: Once the payment is verified, it is combined with other payments to generate a new data block for the ledger.
• Step 5: This new block containing payment information gets added to the existing blockchain and the payment gets completed.
• With blockchain for cross-border payments, third parties’ verification gets eliminated, resulting in speeding up the processing
time with less remittance cost of 2 to 3 % compared to 5 to 6 %
Use-case of Blockchain in Banking Sector
contd.
• Lending and borrowing: Lending and borrowing are the primary services offered by banks. The
stakeholders involved are:
• Lender -the banks or financial institutions that give money.
• Borrower – the one who takes money from banks or financial institutions.
• Guarantor – the one who is the promising entity to repay the loan.
• The workflow of lending and borrowing methods using blockchain is as follows:
• Step 1: Lender generates a profile containing the Personal details like name, address and ID, Details of bank
account, Type of investment a lender would like to make, Rate of interest associated with different types of
borrowers involved in the network. The profile details are provided at the marketplace. Based on these details,
the lenders and borrowers can find each other at the market.
• Step 2: The lender looks forward to a loan request from the borrower: After submitting profile details at the
marketplace, the lender waits for a loan request from the borrower. Once the request is received, the lender
schedules an interview with the borrower for further discussion.
• Step 3: Borrower generates a profile: A borrower creates a profile comprising personal details(name, address,
ID) and collateral information. The collaterals could be specified in terms of legal documents, crypto-coins, etc.
Use-case of Blockchain in Banking Sector
contd.
• Step 4: Borrower requests for the loan: Once the account is generated, a borrower can send loan requests to
multiple lenders—smart Contracts help the borrower to reach the lender, who meets the requirements of his
investments.
• Step 5: The lender starts the discussion with the borrower: When the loan request is received, a lender begins the
discussion with the borrower and try to get through the reason to apply for the loan, monthly earnings,
repayment rate, the number of times the borrower applied for the loan. These details help the lender whether to
approve or dismiss the borrower’s loan application.
• Step 6: Smart Contract (self-executing ) decides the rate of interest: Once the request is accepted, the smart
contracts check the CIBIL score to decide the borrower’s rate. Based on repayment rates, borrowers fall into high
risk, low risk and medium risk categories. When using the P2P (peer-to-peer) lending blockchain platform, the
rate of interest remains constant.
• Step 7: Smart Contracts facilitate auto-payments: Smart contracts embedded with a crypto-wallet can assist
borrowers in making their payments. If the borrower fails to pay timely installments, late fees are added to the
actual amount and upgraded on the ledger.
• Blockchain in lending can be beneficial to make fast approvals, minimize delays, reduce
the need for intermediaries, enhance transparency in the process.
Use-case of Blockchain in Banking Sector
contd.
• Accounting and Bookkeeping: Accounting is an area in banking, which is relatively
slow in terms of digitization. The sole reason behind it is the necessity to match the
regulatory requirements associated with data integrity and validation. Therefore,
accounting needs transformation with blockchain.
• The blockchain plays a crucial role in simplifying compliance and streamline the
conventional double-entry bookkeeping methods. Despite keeping separate records of
transaction receipts, the transaction can be directly added to the joint register using
blockchain. Thus, all the entries of this register can be distributed on the blockchain. It
will ensure the transparency and security of banking data. A blockchain can be just like
a digital notary for verifying the transaction details. Smart contracts would enable the
payments for generated invoices. Blockchain in accounting and bookkeeping improves
efficiency, reporting, and data access.
Robotic Process Automation and AI in Banking
• Robotic process automation (RPA) is a form of business process
automation technology based on metaphorical software robots (bots) or
on artificial intelligence (AI)/digital workers.
• Switching to Robotic Process Automation (RPA) development solutions is one
alternative to overcome the cost of human error that costs $878,000 per year
in banking that results in 25,000 wasted rework hours.
• In the financial sector, RPA is defined as robotic applications to supplement or
replace human operations.
• RPA assists banks and accounting departments in automating repetitive
manual operations, allowing employees to focus on more essential activities
and gain a competitive advantage.
Robotic Process Automation in Banking contd.
• Applications of RPA in Banking: RPA offers a number of uses in the BFSI (Banking,
Financial Services, and Insurance) market to free up the workforce to work on
more vital duties. The following are some of these applications:
• Dedication to Customers: Every day, banks respond to a number of inquiries
spanning from bank account details to application progress to balance
information. It becomes challenging for banks to react to queries with a quick
response time. Such rule-based processes may be automated with RPA to react to
requests in real-time and cut turnaround time to seconds, freeing up human
employees for other vital duties. RPA can also help solve queries that require
decision-making with the assistance of artificial intelligence.
• Chatbot Automation uses natural language processing (NLP) to enable bots to understand
and respond like people when interacting with consumers.
Robotic Process Automation in Banking contd.
• Accounts Payable: In the banking system, accounts payable is an essential but tedious operation. It entails gathering
vendor data, authenticating it, and finally processing the payment. This does not necessitate any intelligence, making
it an ideal application for RPA.

• This problem can be solved using Robotic Process Automation and Optical Character Recognition (OCR) solutions.

• The vendor details from the digital copy physical form can be read by OCR and provided to the RPA system. RPA will
compare the data to what is in the system and then process the payment. It can alert the executive to any errors so
that they can be resolved.

• Processing of Credit Cards: Validating consumer information and approving credit cards used to take weeks in
traditional credit card application procedures. Customers were dissatisfied with the extended wait time, and banks
were incurring costs as a result. On the other hand, banks may now complete the application in hours, thanks to RPA.
RPA can communicate with several systems simultaneously to validate data such as required documents, background
checks, and credit checks, and then make a decision based on rules to approve or reject the application.
Robotic Process Automation in Banking contd.
• Detection of Fraud: One of the critical concerns of banks with the adoption of digital
technology is fraud. It is challenging for banks to keep track of all transactions to detect
probable fraud. RPA, on the other hand, can track transactions in real-time and raise the
red flag for possible fraud transaction patterns, reducing response time. RPA can help
prevent fraud by restricting accounts and halting transactions in some circumstances.
• Process of Account Closure: With such a large customer base, it is expected to receive
account closure requests every month. Account closures can occur for various reasons,
one of which is when a client fails to deliver required papers. It’s simple to keep track of
such accounts, send automated reminders, and schedule calls for mandatory document
submissions with Robotic Process Automation. RPA can also assist banks in closing
accounts in unusual circumstances, such as when customers fail to present KYC
documentation.
Prescriptive Security
• Prescriptive security is, at its heart, a fusion of technologies and processes designed to
reduce the time and effort needed to detect and respond effectively to cyber security threats
and incidents. A critical aspect of prescriptive security is its use of automation and artificial
intelligence technologies.
• Cyber security  Computers, networks, programs and data
• Perimeter defence
• Reactive measures
• Predictive measures
• Prescriptive Security
• = Artificial Intelligence + Machine Learning + Data analytics
• NOT based on the intuition of the analyst
• Well developed plan that is implemented repeatedly to protect the system.
Cyber Security and Prescriptive Security
• Cyber security or information technology security are the techniques of protecting
computers, networks, programs and data from unauthorized access or attacks that are aimed
for exploitation.
• Most cybersecurity approaches were based on the following measures which are called as
“Perimeter defense”
• Reactive measures: Focuses on reacting to a thread that has already occurred.
• Predictive measures: Predicts what can go wrong and implements various protective
measures.
• But the modern world needs modern solutions. An increased risk of cyber attacks forces to
react, especially when having huge volumes of data to protect.
• This resulted in the need for new type of cybersecurity – Prescriptive security.
Prescriptive security for Banking Institutions
• Prescriptive security is a fusion of technologies and processes designed to reduce the time and
effort needed to detect and respond effectively to cyber security threats and incidents. A critical
aspect of prescriptive security is its use of automation and artificial intelligence technologies.
• It’s a type of threat intelligence security that aims to establish security measures and protocols
depending on the inputs of risks.
• The idea of the approach is to keep up with potential risks to implement necessary controls that
won’t allow damage to the protected system.
• Instead of using the method of analysts’ intuition to implement security measures, prescriptive
security uses a different strategy. It’s based on a well-developed plan that can be enforced
repeatedly to protect the system.
• This type of approach operates by using a combination of various means that were formerly
associated with security tools. For example, the new strategy makes use of artificial intelligence,
machine learning, and data analytics features to spot threats as quickly as possible.
Prescriptive security – Key players
• Key players operating in the global prescriptive security in BFSI
industry include Cisco, Systems Inc, Nice Systems Ltd, SAS Institute
Inc, ESRI , Hexagon, IBM , NEC Corporation, SAP ERP, and Splunk.
These companies have adopted several strategies such as product
launches, partnerships, collaborations, mergers & acquisitions,
and joint ventures to strengthen their foothold in the global
prescriptive security in BFSI market.
Application Programming Interfaces (API)
• Application Programming Interfaces (APIs) are a collection of protocols and subroutines that enable
applications to talk to each other and exchange information.
• APIs have become the standard way of connecting applications, data and devices, providing
services directly to stakeholders and creating new models for doing business.
• Three main types of APIs are being deployed by banks at present:
• Private API: This API is accessible only within the financial institution and is therefore used to
improve internal processes, such as boosting operational efficiency.
• Partner API: A more open API that can be accessed by the bank’s preferred third-party partners.
As such, partner APIs can facilitate greater expansion through new channels than a private API.
Such partners could include clearinghouses, brokerages and custodian banks, and they can
provide services to their customers using the bank’s platform.
• Open/public APIs: Not as commonly used at this stage, this API involves making business data
available to third parties. Banks can deploy such APIs to generate additional business and grow
their customer bases. For example, the bank could enable an API for a loan-comparison app,
which would allow it potentially to acquire new business from customers shopping for new loans.
Application Programming Interfaces (API)
• One example of a bank that uses API technology is BBVA, which offers API
services to clients in Spain, Mexico, and the U.S. These are open APIs, meaning
any company can use them — and BBVA offers you the ability to gather
customer information, collect financial statements, view your company’s
financial position, and much more. BBVA makes it easy for organizations to
access essential information without hassle or delay.
• Another example of a bank that uses open banking platforms is HSBC
Group. HSBC Group supports open banking APIs and private open banking
APIs, that can provide valuable information on business and personal
accounts, ATM locations, branch locations, loans and commercial credit cards.
Their private APIs ensure the secure exchange of information between
businesses and other parties, so that they can protect sensitive customer
information.
End of the Module