SUMMARY
The Economic Survey for 2023 noted that India has achieved an 87% rate of fintech adoption against the world average of 64%
Banks must increase efficiencies and reduce costs to make basic banking affordable for the poor and simultaneously make banking even simpler and safer for first-time customers
Automation 2.0 will leverage AI and ML to revolutionise the way that retail banks operate and interact with their customers and reduce costs and improve efficiency
Despite persistent efforts, India is still far from achieving universal financial inclusion for all its citizens. The RBI’s latest Financial Inclusion Index for 2022 stood at 56.4, with a score of 100 indicating complete financial inclusion. Under this main index, the ‘access’ sub-index, referring to the accessibility of basic banking or credit services, stood at 73.3.
Put simply, a substantial fraction of the poor and remote citizens of India still do not have access to even basic banking services. Worse, the Global Findex Report of 2021 notes that India has the highest share of inactive bank accounts globally at 35%.
The RBI has also consistently recognised the critical role that technology could and should play in expanding the net of financial inclusion. Banks offering digital services can serve remote citizens at much lower costs, while digital-only fintech companies can create and market newer products and services that are far more affordable to poorer sections, boosting both access and usage of formal banking and financial services.
These beliefs have borne fruit. The Economic Survey for 2023 noted that India has achieved an 87% rate of fintech adoption against the world average of 64%. However, given that fintech adoption necessarily follows access to banking, the real challenge for banks and fintech providers is to add more and more ‘unbanked’ customers and make banking easier and less stressful for them rather than move existing customers to digital channels.
Now, reaching the last unbanked sections of the citizenry and adding them as customers is easier said than done. For banks, the cost of serving the poorest and the remotest citizens with limited banking transactions is a big consideration. Banks also face stiff competition from fintech and big tech players, like Google or Paytm, who are not only targeting their existing customers but are also vying to bring the unbanked into the financial net for the first time.
The First Wave Of Automation
In this context, the road ahead is clear for banks in India. They must increase efficiencies and reduce costs to make basic banking affordable for the poor and simultaneously make banking even simpler and safer for first-time customers so they can transact easily and with full confidence. As this part of the population prepares to walk down the road to becoming ‘a financially empowered section’, a second wave of banking automation that is currently sweeping the banking sector worldwide promises to be a powerful ally in India’s journey to financial inclusion.
The first wave of automation in the 90s saw the proliferation of ATM networks that allowed customers to self-serve for the first time without needing to visit a branch teller. The introduction of the Internet and mobile banking in later years continued the momentum forward, reducing the workload on bank employees and thus operational costs.
What Does Automation 2.0 Mean For Banks?
However, while automation through digitalisation worked exceedingly well for younger customers, particularly the digital natives, the poor and the older ones struggled with accessing banking via smartphones or desktops. The second wave, or Automation 2.0, promises to fix this by allowing even tech-shy customers to use digital banking with full confidence. At a more fundamental level, it uses advances in Artificial Intelligence (AI) and Machine Learning (ML) to revolutionise the way that retail banks operate and interact with their customers, and vice versa.
For instance, the next generation of chatbots and virtual assistants that are following the generative AI models, as popularised by ChatGPT, will allow customers to actually have conversations and resolve their issues online, without having to visit a branch or wait endlessly to talk to a human on a helpline.
This new generation of chatbots is far superior to anything we have experienced so far. And when armed with the historical transactional data of a customer as well as their cohorts, they can even make proactive recommendations on exercising financial prudence, or even new products or services based on their spending habits. More importantly in the context of financial inclusion, these virtual assistants can also be voice-enabled, letting customers simply converse with a voicebot.
Automation 2.0 is also helping banks reduce costs and improve efficiency — essential factors for making basic banking more affordable for the poor. For example, many progressive banks around the world are using AI to fully or partially automate the loan approval processes, enabling customers to receive a decision in a matter of minutes rather than days. As ICICI Bank notes in a blog, nearly 80% of Indian citizens do not have a credit score, making them ineligible for bank credit. AI applications can build a credit score for them, allowing banks to extend credit to this huge, unserved market.
Why One Must Exercise Caution
However, embracing the second wave of automation demands some consideration. One of the most critical concerns is ensuring that AI is used responsibly and ethically and that data privacy concerns are adequately addressed. As AI tools become more sophisticated, banks must ensure that their algorithms are transparent and fair and do not judge clients unfavourably or discriminate.
Further, training their employees and ensuring they adapt to the new ways of working post-automation 2.0 is another challenge. Banks will need significant investments in training and development to help their employees flourish in the new era of automation.
All things considered, automation 2.0 not only promises to be a key enabler of extending low-cost banking services to the last unbanked populace, but it can also help banks deliver more personalised services and support to all their customers while cutting down the costs of operations. In serving the two objectives of total financial inclusion and profitable growth, the new wave promises a win-win for all stakeholders.
