Impact of Disruptive Technology on Indian Banking Sector

International Journal of Mechanical Engineering and Technology (IJMET) Volume 8, Issue 9, September 2017, pp. 510–515, Article ID: IJMET_08_09_055 Available online at http://iaeme.com/Home/issue/IJMET?Volume=8&Issue=9 ISSN Print: 0976-6340 and ISSN Online: 0976-6359

IMPACT OF DISRUPTIVE TECHNOLOGY ON INDIAN BANKING SECTOR

S. Visalakshmi Assistant Professor (Sr.), Department of Technology Management, SMEC VIT University, Vellore, Tamilnadu, India

Dr. R. Ratneswary V. Rasiah Senior Lecturer, Taylor’s Business School, Taylor’s University, Malaysia

ABSTRACT The banking service sector encounters extraordinary changes by the introduction of disruptive technologies. These innovations are changing the sort of rivalry for the banking industry. Despite the fact that the electronic markets have overwhelmed the greater part of the playfield, the client confronting forms are extant. The purpose of the study is to assess the progresses brought by the technologies in the financial market, regardless of whether they act as enabler or disruptor for the traditional banking models. Keywords: Banking, disruptive technologies, financial innovation, digitization Cite this Article: S. Visalakshmi, Dr. R. Ratneswary V. Rasiah, Impact of Disruptive Technology on Indian Banking Sector, International Journal of Mechanical Engineering and Technology 8(9), 2017, pp. 510–515. http://iaeme.com/Home/issue/IJMET?Volume=8&Issue=9

1. INTRODUCTION The banking industry is blended universally due to innovative technologies, from startups to digitization. Majority of the banks to a great extent have seized digitization and are aggressively adopting new technologies in order to innovate though they consider the disruptive technologies as a big threat. According to a research report, (innovation in retail banking), the proportion of banks with an innovation strategy has increased to 74 percent in 2016. Changing customer preferences, rapid evolution of technology and pressures from disruptive banking world are accelerating a major transformation of the banking industry [4]. The assembly of these forces is putting digitization at the focal point of technology renewal. According to the research findings and customer interactions, the following huge change in banking will be caused by the development of open API’s, AI and block chain. Disruptive technology is one that uproots a current innovation or upsets a customary business practice to make a new industry [7]. While numerous Indian banks have possessed the capacity to hold their clients through customary channels and digital service offerings,

http://iaeme.com/Home/journal/IJMET 510 [email protected] S. Visalakshmi, Dr. R. Ratneswary and V. Rasiah recent shifts in the industry are undermining this generally stable client base. Regardless of the way that individuals have been with their present bank for the past decade or more, client relationship at conventional banks is slanted to disruption [2]. This motivated us to analyze the effects of disruptive technologies on the Indian banking sector. Collective disruption, as new market contenders, is a developing element in the banking industry. However the study affirms that changes in consumer behavior is a main thrust. The established banks are attempting to grab significant opportunities, by developing a comprehension of these advancing customer inclinations. The customers opt for quick and active banks that can be a part of their daily lives. For convenience of consumers the banks are experiencing a shift, getting away from branch locations and proceeding towards digital products and services that fit with consumers’ smart mobile-empowered lives. An expanding opportunity exists for the newcomers to snip market share over time, due to the growing vulnerability of conventional banking practices. The banking industry is progressively focused with product improvement, conveyance and customer engagement being endeavored to linger on fingers' tips. Therefore banking innovation needs to focus on creating a centralized customer business model and an infrastructure that appears to be uniform to the client.

2. FINANCIAL INNOVATION IN BANKING SECTOR Banks are the pillars of the Indian economy. Digital Banking provides critical solutions to bankers for their short term and long term business and technological requirements. The following are the various financial innovations adopted in the Indian Banking Sector.

2.1. Online and mobile banking Indian banks are moving towards actualizing a world class internet banking capability. By 2020, the average age of India will be 29 years and this youthful buyer base is web keen and needs continuous online data. According to the statistical report (2017), India had 331.77 million web clients. This figure is anticipated to develop to 511.89 million web clients in 2022. Despite the undiscovered potential, India as of now is the second-biggest online market around the world. The greater part of India's web clients are mobile phone internet clients, who exploit cheap alternatives to expensive landline connections that require desktop PCs and infrastructure. As of 2016, India had 320.57 million mobile phone internet users and forecasts estimate 492.68 million Indian mobile phone internet users by 2022.Therefore shift towards internet banking is fueled by the changing dynamics in India.

Figure 1 Internet users in India

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Figure 2 Mobile Internet Users Figure 3 Mobile Internet User Penetration (2012 to 2016) (2015 to 2022)

2.2. Unbundling of financial services The fight for the client interface is furious. Individuals are prepared and willing to consider financial technology options. 73% of customers say that they would consider utilizing technology providers for services more often than the utilization of their banks. Several financial technology startups are unbundling banking and providing individual services for everything from loans to wealth management robot-advisors to credit checks [1]. The distinguished suppliers include PayPal, Moven, Credit Karma, Lending Home and Wealth front.

2.3. Expanded ATM capabilities Advancements in ATM technology have made amazing progress and customer receptiveness has also increased manifold. ATMs are getting smarter, and everybody is taking advantage of their enhanced capabilities with more prominent recurrence. Indeed, it is becoming typical for banking customers to utilize more astute and Smarter ATMs, evading bank employees altogether. Banks across India have begun the way toward setting up ATMs empowered with biometric innovation to tap the capability of rural markets. Installation of multilingual ATMs has entered pilot implementation stage for many banks in the country. Multifunctional ATMs are fortified to perform other functions like mobile recharges, ticketing and bill payment besides dispensing cash and providing account information. Further, ATM switches are used to connect the ATMs to the accounting platforms of the respective banks. In order to connect the ATM networks of different banks, apex level switches are required that connect the various switches of individual banks. Through this innovation, ATM cards of one bank can be utilized at the ATMs of different banks, encouraging better client comfort. The different ATM network switches are CashTree, BANCS, Cashnet Mitr and National Financial Switch [5]. Most ATM switches are also linked to Visa or MasterCard gateways. According to bankers, demonetization, which led to cash crunch, was one of the factors that impacted ATM expansion [6]. The number of ATMs added between June 2016 and June 2017 was a little more than 7,000 while in the comparable period of the previous year, banks had added almost 16,000 ATMs and more than 18,500 in the year before. The total number of ATMs in the country in June 2017 was 2, 08,477.

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2.4. Payment technologies In the last decade, India has seen a shift from traditional payment methods to modern electronic payment systems of interbank transfer like RTGS and NEFT. Recently, Mobile payments are being embraced throughout the world performed from or by means of mobile device. Bitcoin is an innovative digital payment method performed over a peer to peer network. Bitcoins are taking over the crypto-currency marketplace. It is a decentralized digital currency. Contrary to traditional payment methods based on tightly controlled currencies, Bitcoin payments can be sent and received without any artificially imposed limitations on geographical locations, credit histories, mandatory reporting requirements, application approvals, etc. Bitcoins can be used and traded just like cash [3]. Business Online Bill Pay is another payment option that is generally used by businesses to pay regular bills, such as utilities and credit card payments. Finally, ACH (Automated clearing House) provides the facility to make payments from business account to any external account on same day.

2.5 Block chain Blockchain has emerged as the most important innovation in the financial services industry. Block chain the distributed ledger technology supports bitcoin, it has transformed business practices such as auditing and accounting, moreover acts as a value addition to the banking system in and around the world [8]. Nicolas Cary, cofounder, Blockchain has reported that the market capitalization for crypto currency is around $164 billion in the world however, in India after demonetization there has been a remarkable surge in individuals utilizing bitcoins and other digital currencies. Around 2,500 Indians are investing in bitcoins daily and claims that their platform will give users greater hold on their bitcoin purchase.

2.6. Business intelligence Banks across India are progressively embracing business intelligence (BI) and analytics to drive their overall profitability. Adoption of BI enhances transparency and control over the banking business. Business intelligence covers numerous segments of banking business like analytical customer relationship management, enterprise risk management, asset and liability management and compliance [11]. Banks’ business intelligence consists of several layers like operational database, data warehouse, OLAP (Online Analytical processing) and Data mining. 3. EFFECTS OF DISRUPTIVE TECHNOLOGIES ON BANKING SECTOR Indian banks deployed technology-intensive solutions to enhance revenue, improve customer experience, enhance cost structure and oversee enterprise risk. After a considerable measure of research on the changing patterns of Indian banking sector, we have confirmed that following are the impact of disruptive technology on Indian Banking Sector.

3.1 Digital Ecosystem as catalyst for new banking disruption With the expanding risk from new entrants and changing client demographics and inclinations, banks are making investments to drive innovation to retain existing customers. Banks having understood the importance of driving innovation convene digital ecosystem, collaborating with key players around mortgages, business loans, and mobile payments and other financial services [9]. Such digital ecosystems can bring significant implications for financial services and will probably become the catalyst for the next major stage of banking technology

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3.2 Utilization of Cloud services for key business activities Banks are concentrating to move their information either to a private cloud or to a hybrid cloud, subsequently combining public aspects for customer information with in-house privacy for sensitive information. Investment in cloud technology is comparatively lesser than revamping the core banking activities [10]. Therefore banks are vigorously investing into cloud services to develop full-fledged cloud management platforms to cater to different cloud environments.

3.3 Investment in IT security framework As digital channels are preferred by the customers, banks need to be more apprehensive about IT security. With increasing risk of cyber threats, banks are confronting a phenomenal challenge of data breaches and are therefore strengthening their security and authentication systems. They secure access strategies by means of biometrics and tokenization. Banks need to persistently reinforce their internal systems and incorporate enhanced safety measures such as multilayered authentication and internal control processes, without haggling on client comfort.

3.4 Risk management and compliance practices Banks are augmenting their focus beyond improving specific process to fully integrate risk management and compliance. To meet expanded compliance requirements, banks are adopting greater automation as manual processes are exorbitant, time consuming and inclined to errors. Banks are changing their noteworthy approach of receptive adherence system to proactive consistence by empowering administrators to survey the effect of controls before deciding.

3.5 Implementation of advanced analytics Banks are utilizing advanced analytics to determine information about customers and detect and mitigate risks associated with fraud. Banks are reliant on data-driven insights to formulate business strategy and make crucial decisions, along with enhancing risk management and compliance effectiveness. Banks should minimize operating costs by reducing the handling time of different activities and enhancing channel utilization. 4. CONCLUSION As banks play a crucial part in the financing of the economy, banking competition exerts an impact on economic development. However, there are some potential negative effects of banking competition through excessive risk-taking by banks, which may hamper financial stability. To confront extensive pressure banks have redesigned with the utilization of Information Technology. Banking sector uses technology to digitize its operations and to create new delivery models and services such as mobile banking, remote deposit capture, payments with debit card and transfer funds from one account to another through ACH (Automated Clearing House). Subsequently, there is a change in perspective from the vender's market to purchaser's market in the industry and finally it influenced at the bankers level to change their approach to convenience banking. This shift has augmented the degree of accessibility of a lay man to bank for his various needs and requirements. Yet, the incessant introduction of innovation has enormous and sometimes unpredicted impact on the structure of banking sector. However, implementing all this technology has been expensive but the rewards are limitless. Moreover, disruptive technologies now offer a chance to address persistent challenges such as lack of financial inclusion. Therefore, it is certain that the

http://iaeme.com/Home/journal/IJMET 514 [email protected] S. Visalakshmi, Dr. R. Ratneswary and V. Rasiah technology will continue to change the banking in future by offering more sophisticated services to the clients with the continuous product and process innovations. REFERENCES

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