BFSI companies are careful with new tech like GenAI because of sensitive data and decision-making, but usage is expected to grow as use cases mature.
As digital finance becomes a part of everyday life, resilience is crucial to ensure uninterrupted access to financial services. (Source: linkedin)
India's digital scene is changing fast. In the next five years, the Indian BFSI industry is set to become way more agile, inclusive, and smart. New tech will totally change how financial services are delivered, used, and regulated across India.
The Intelligence Layer
AI, especially GenAI, is leading the way in innovation across the BFSI sector. According to the NASSCOM AI Enterprise Adoption Index 2.0, published in August 2024, about 70 per cent of BFSI and healthcare companies seek competitive differentiation with AI, and 13 per cent of BFSI companies have conducted PoCs of over 10 AI use cases.
BFSI companies are careful with new tech like GenAI because of sensitive data and decision-making, but usage is expected to grow as use cases mature and important aspects like explainability, accountability, and interpretability of models are sorted out. Use cases range from simple tasks like document processing and chatbots to advanced ones like credit decision-making and fraud detection.
AI is changing customer experience by enabling super-personalised interactions. GenAI can make banking experiences smooth and intuitive, letting customers do both routine and complex tasks—like transferring funds, analysing spending patterns, or disputing transactions—using natural voice commands in their preferred language. This is especially important in a linguistically diverse country like India, where banking services depend on the ability to speak and understand multiple languages. AI-powered chatbots and virtual assistants provide round-the-clock support, handle routine inquiries, and offer personalised financial advice by intelligently analysing vast amounts of customer data.
In risk management, AI is enhancing fraud detection capabilities by analysing vast volumes of transactions in real-time, swiftly identifying suspicious activities, reducing false positives, and boosting security. Machine learning models are improving credit risk assessment by analysing complex datasets, including social behaviour, transaction history, and market trends, leading to more precise credit scores. AI also streamlines regulatory compliance by automating Know Your Customer (KYC) and Anti-Money Laundering (AML) processes, minimising human error, and reducing turnaround times.
Resilient and Agile IT Infrastructure: Ensuring “Always On” Services
As digital finance becomes a part of everyday life, resilience is crucial to ensure uninterrupted access to financial services. The widespread adoption of cloud-native architectures is proving vital for the BFSI sector's digital resilience and agility. Cloud-native observability enables real-time monitoring of infrastructure and applications, which is essential for detecting issues, enhancing system performance, and preventing service disruptions. This is critical for maintaining operational continuity and preserving customer trust. Indian organisations are diversifying their IT ecosystems, reducing dependency on single vendors, and embracing flexible, multi-vendor environments to mitigate risks and ensure swift recovery from disruptions.
Blockchain & Distributed Ledger Technologies: Trust and Transparency
Blockchain and Distributed Ledger Technologies (DLT) are becoming key enablers for fostering trust, ensuring transparency, and enhancing efficiency within the BFSI sector. Blockchain applications include improving cross-border payments, automating complex smart contracts, and enhancing regulatory compliance through immutable ledger systems.
The immutable nature of blockchain's ledger reduces fraud risk and builds greater trust among users. Smart contracts, as self-executing agreements with terms written into code, streamline financial transactions, reduce manual intervention, minimise errors, and cut operational costs. Blockchain is also used to create secure networking channels, reducing operational costs for banks and increasing profitability in the long run.
In digital lending, AI-blockchain integration could automate lending decisions, reduce fraud, and ensure robust regulatory compliance by 2030. Blockchain offers advantages over traditional systems for cross-border payments, including near-instantaneous, low-cost, 24/7 settlement; predictability by eliminating chargebacks; enhanced security through advanced encryption; and transparency and traceability via immutable public records and analytics tools to detect illicit activity.
Real-World Asset (RWA) tokenisation involves converting physical or financial assets into blockchain-based tokens to enhance liquidity and transparency. This positions blockchain as a critical enabler for automated, fraud-resistant lending and RWA tokenisation, suggesting new avenues for asset liquidity and fractional ownership.
Internet of Things (IoT) & Connected Ecosystems: Real-time Engagement
IoT benefits include improved customer experience, intelligent automation, enhanced security measures, advanced data analytics, seamless one-touch payments, and optimised management of ATM networks and branches. IoT-powered systems can automate operations, handle routine requests, and initiate new bank accounts, reducing manual intervention and minimising human errors.
IoT facilitates advanced security protocols through continuous remote monitoring of CCTV cameras, smart alarm systems, and other surveillance technologies across branches, ATMs, and data centers. IoT integration with multi-factor authentication (MFA) systems strengthens security via biometric authentication, facial recognition, and behavioural analytics. IoT sensors can detect irregular transaction patterns, promptly notifying banks of potential frauds or security breaches, safeguarding customer accounts in real-time.
The shift from reactive claims to preventive risk management in the insurance sector, facilitated by IoT (wearables, telematics) and AI, allows for personalised premiums based on real-time behavioural data, transforming traditional insurance models. This proactive approach can extend to banking for enhanced credit risk assessment, such as monitoring asset health for secured loans.
Emerging Frontiers: Quantum Computing
Quantum computing is still in its early stages for widespread commercial application in the BFSI sector but represents a medium-term frontier with potentially transformative impacts. Quantum computing chips like Google’s Willow and Microsoft’s Majorana could soon bring quantum computing into the mainstream. The Indian government has shown strong commitment to Quantum Computing technology through the National Quantum Mission (NQM), approved with a substantial budget of Rs 6,003.65 crore from 2023 to 2031.
While the current market size for quantum computing is relatively small compared to AI or Cloud, the Indian government's significant long-term investment through the National Quantum Mission signals a strategic national priority. The mission's focus on "secure quantum communication" and applications in "banking and security" suggests a future where current encryption methods might become vulnerable, necessitating the development of quantum-resistant solutions. Quantum computing's ability to solve complex optimisation problems could revolutionise financial modelling, leading to better forecasting, personalised financial recommendations and better underwriting.
DPI – The Next UPI?
DPI rails like the Unified Lending Interface (ULI) and Account Aggregators (AA) are set to broaden the distribution of financial services, moving towards an "open-data economy". This is not just about payments but also about identity, data sharing, and credit. Banks are integrating with India's DPI layers (UPI, Aadhaar, DigiLocker, AA, ULI) to enable faster customer acquisition, real-time KYC, enhanced credit underwriting using alternative data, and seamless cross-border transactions.
Digital-first models, supported by agent banking networks, vernacular interfaces, offline-enabled mobile apps, and voice-based banking, are enabling deeper penetration into rural and underserved regions 9. In the insurance sector, IRDAI's Bima Trinity initiatives—BimaSugam (a unified digital marketplace), BimaVistar (comprehensive bundled policies), and BimaVaahaks (a women-centric workforce for distribution in rural and semi-urban areas)—are set to revolutionise accessibility and coverage 10.
As India's BFSI sector races towards a digital future, it's clear that the only constant is change. With AI, blockchain, IoT, and quantum computing leading the charge, the industry is set to become more agile, inclusive, and intelligent. So, buckle up and get ready for a thrilling ride into the future of finance, where the only thing more certain than innovation is the excitement it brings!
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