Introducing Inquisitorial by Indianaut, a long-form newsletter where we explain and analyze important stories stemming out of the Indian entrepreneurial ecosystem & economy. New articles every Saturday & Sunday.
Technology today permeates every aspect of human life. It enables you to interact with your friends, beats you at a game of chess, acts as your personal assistant, recommends movies and even helps you manage finances and fulfill your banking needs. The brave new world of fin-tech has taken the Banking, financial services and insurance (BFSI) industry in India by storm. The penetration of high speed internet and smartphones has enabled people to make transactions, transfer money, apply for loans, make investments using the internet. According to a report by Facebook and Boston Consulting Group (BCG), the number of users opting for online banking is expected to reach 150 million mark by 2020, from a mere 45 million active users in 2017.
(Credits: pymnts.com)
Businesses around the globe are embracing new technologies and heavily investing in R&D to stay competitive and future-proof. Blockchain, Big Data, AI and Deep learning are a gamut of new-age disruptive technology working in tandem to the vision of Industry 4.0. Countries recognize that expertise in these areas have potential to create jobs and economic prosperity. They are actively vying to become the next Gen AI superpower. In 2017, In the State Council of the People's Republic of China published the Artificial Intelligence Development Plan. South Korea made it to the headlines with its $2 billion investment plan to strengthen the discourse of AI R&D by 2022. This investment constitutes approximately 4.3% of its GDP, rendering South Korea at rank 1 when it comes to AI spending. Recognizing AI’s potential to transform economies, NITI Aayog published a report titled ‘National Strategy for Artificial Intelligence’ in 2018, which proposes setting up a Centre for Data Ethics and Innovation, aimed at enabling and ensuring ethical, safe and innovative use of data.
Fin-tech industry was one of the early adopters of mainframe computers, relational databases and has set a keen eye on the next generation of computational and analysis power. This was followed by quick absorption of Artificial Intelligence in the financial industry’s discourse. Automation is the new norm and ML is the hot skill to have on your CV.
Gone are the days when banking involved going to branches during the limited working hours for simplest of things like opening a bank account, getting account statements, credit cards and loans. Today fin-tech platforms allow you to do all these and much more at the comfort of your home. These platforms have come up with novel solutions that allow users to borrow money without a commercial bank, automate payments using APIs, crowdfund projects and transfer money abroad at low fees.
According to Goldman Sachs, Machine Learning and AI will enable $34 billion to $43 billion in annual "cost savings and new revenue opportunities" within the financial sector by 2025, as institutions use technological advancements to “maximize trading opportunities, reduce credit risk and lower compliance and regulatory costs.”
A Deeper Look into the Indian Fin-tech Ecosystem
Facial recognition to voice-enabled payments, disruptive technologies like AI, IoT, Blockchain etc. have resulted in steep growth for the Indian fin-tech ecosystem. A roadblock in fin-tech operations has been the issue of unaddressed payment when it comes to bulk payments or disbursal. Bangalore-based Cashfree deploys AI and ML based solutions by making digital payments work for clients.
According to a recent case study by DataVisor, they claim that their software was “able to uncover 30% more fraud at an accuracy rate of 90%. The case study also states the false positives amount to 1.3% of those fraud detection instances”. These risks can range from forged or stolen identities and coordinated attacks on the portfolio of customer data. Indian startups Capital Float and CreditMate work on fraud detection, propensity models and risk analytics to overcome these challenges with the help of AI.
In the domain of Insurtech, we have Coverfox which uses AI algos to find insights and patterns in consumer data, thus allowing users to choose a customized plan by comparing a wide range of plans from top insurance companies.
Lendingkart‘s AI algorithms screen more than 10K variables to attribute a “creditworthiness” score against the profile of each customer. At Lendingkart, credit evaluation, quality lead scoring, and product interaction are actively worked on by the algo.
PaisaDukan is a P2P (Peer to Peer) lending platform working not only in tier-1 but also tier-2 and tier-3 cities. This lending startup offers an AI/ML-enabled digital lending product which allows lower document availability with borrowers to encourage rural lending. The goal is to allow wider financial inclusion, women empowerment and last-mile credit facility in rural areas.
The Business of Emotion and Policy Frameworks
A recent study titled ‘State Of Enterprise AI In India 2019’, published by Analytics India Magazine, suggests that the Indian enterprise market for AI applications is estimated to be valued at $100 Mn, growing at 200-250% CAGR.
However for developing countries, it is often an ordeal to deploy AI without governmental intervention and policy support. The regulatory vacuum demotivates the big players to invest in the technology as there is uncertainty regarding its legality. There are also obvious concerns like breach of privacy, security, unforeseeable behavior of AI and ML systems, ownership of IP generated by such systems, usage of these sophisticated technologies to commit crimes, etc. Thus, the needle of thought on the role of AI in shaping human life keeps deflecting between a boon and a bane. To mitigate the risk of bending on the latter, legal frameworks, best practices, guidelines, principles and policy protocols must be established, human agency, privacy and freedom are not compromised.
We need a robust data protection law like the envisaged by The Personal Data Protection Bill, 2019 (PDP Bill) coupled with sectoral regulatory frameworks by RBI and IRDAI to ensure user privacy, security and fix accountability and transparency issues that arise from large-scale deployment of these systems. The current PDP Bill suffers from severe lacunae. Bill provides individuals with a (limited) right to access, rectify and erasure of personal data. However, despite such recognition, it severely lacks safeguards against the specific harms done from automated profiling and decision-making done solely by the machine objectively without taking into account the holistic picture of the individual’s personal situation.
Big Data analytics, also known as the business of emotion when working in tandem to the finance sector have devised a problematic ‘Alternative’ credit scoring system in India wherein there is a steadfast supply of consumer information to banks and social media data. All the information collected helps banks develop a predetermined ranking system to judge an individual's creditworthiness. Such a system can be discriminatory as consumers have limited rights to review and correct errors in their credit reports. A Report by Experian has also questioned the accuracy of the data used by these tools, in some cases identifying serious flaws that have a substantial bearing on lending decisions. These new-age technologies are fast-moving with unclear cross-country and within-country regulatory jurisdiction when it comes to data protection.
Darwin Vs. Data
According to Accenture’s Banking Technology Vision 2018 report, 83% of Indian bankers believe that AI will work alongside humans in the next two years — a higher than the global average of 79%.
“93% bankers in India said they increasingly use data to drive critical and automated decision-making. More partner-supplied customer data means a higher degree of responsibility for banks. Yet, 77% Indian bankers agree that most firms are not prepared to confront impending waves of corrupted insights from falsified data," said the report.
(Credits: processmaker.com)
The digital revolution in the BFSI space is inevitable. Even at this nascent stage, fin-tech startups have successfully disrupted the traditional business models causing incumbent players to either compete or join forces with them. The democratization of banking and financial services brought upon by fin-tech startups are giving power to the masses that have traditionally remained un-banked or under-banked. It’s time that leaders take cognizance of the impending revolution and take steps to ensure smooth protocols and assimilation of disruptive technologies in the industry discourse, surpassing the existing traditional frameworks to make the operations within the sector more agile and robust in terms of accuracy and speed.
Falguni Chaudhary is a PR specialist and communications strategist. She has previously worked as a consultant for startups in the AI, sustainable fashion, ed-tech space and was previously a contributing editor at NewsD, Youth Incorporated Magazine and Feminism in India.
Very Informative and full of insights about the fintech industry.
Insightful 🖒