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Emerging Technologies

4‌ ‌Ways‌ ‌Blockchain‌ ‌Can‌ ‌Foster‌ ‌Sustainable‌ ‌Finance‌ ‌

5 min read

Before landing on the technicalities of why, what, and how BlockChain will transform the finance sector, let’s take a good look at the back-end scenario of how the technology has found its fit.

A decade back, the whole system of a company’s transactions was recorded in a single master-sheet visited by a few that skipped update time on time. Inevitably, like any other organization, a hustle at the month’s end will lead to a ton of disagreements, unresolved claims, debates on transactions, and so on. Like every CFO’s pipedream, bringing transparency to the company’s financial transaction remained far-fetched until blockchain penetrated the market.

In contrast, the existence of a recorded ledger can be instantly viewed by the participants with capabilities like automatic updation or that provisions for simultaneous settlements were too absolute. Until interrupted with the adoption of the blockchain. A revolutionary asset that redefined the most conservative structures of economy and finance. 

 

Introduced under the pseudo-founder Satoshi Nakamoto, blockchain ruled out the age-old constraints and evolved as the first all-accessible, distributed ledger system that’s efficient, verifiable, and consistent. As far as security is concerned, each block of information stored in a blockchain is bonded by robust coding ethos driven by consensus and immutability.

Older tech-heads who are restrained to think blockchain as a formal transaction platform to mine bitcoins well, its real-time applications goes beyond that. Over the course of time technology found applicable in all walks of industry applications. Rather than a wide net record-keeping system, it eventually became a critical tool to encrypt assets that can be subjected to the relevant transactions on a virtual platform.

Blockchain in a Nutshell  

Matching the nomenclature, it is often illustrated as multicolored cubes tied on a string. As each box represents a unique value or data to address a specific transaction. The data stored in each cube or ‘blocks’ stores three specific categories of information –  the actual data sandwiched within a memory tag (hash) of the previous block and an identity hash of the cube itself. 

Whereas the string represents the code of ‘immutability’. If the information of the cube is tweaked or modified or subjected to data theft, the whole string of stored information will be lost. Again, the ledger that records the data transacts in real-time, subsequently circulated among the adjoint participants. Making it humanly impossible for any hackers to change every copy of the distributed ledger simultaneously. 

In parallel to tech evolution, the dark hat hackers are also rising in the game. Even if they manage to re-fix the entire data strings, blockchain quickly captures the digital identification of the individuals, before someone loses the string of data. 

Unlike traditional transactions, the responsibility in safekeeping the assets is not the sole responsibility of the banking partners rather the responsibility of each beneficiary who signed the digital ledger. Here, each block of information is validated by the participants, and changes are permitted only under the approval of the attendee. The self-authentication manual proves to be an ultimate roadway to establish trust among the ‘asset’ custodians. 

Blockchain has the potential to grow to be a bedrock of the worldwide record-keeping systems but was launched just 10 years ago. It was created by the unknown persons behind the online cash currency bitcoin, under the pseudonym of Satoshi Nakamoto.

In parallel to tech evolution, the dark hat hackers are also rising in the game. Under circumstances of malpractices or data breaches, blockchain quickly captures the digital identification of the individuals, before someone loses the string of data, making blockchain a trusted platform to carry out transactions.

Blockchain in Sustainable Financing

Blockchain application in finance can embark on a huge prospect for the CFOs who want to generate exceptional revenue opportunities for debut sectors in the market.

The touchpoints of improvements are that blockchain can promise a 15 % error reduction guarantee, a 40 % increase in performance efficiency, and a 25 % rise in customer satisfaction. Hence, reinforcing the technology in the financial institutions will drive transparency, improved reporting, and excellent revenue opportunities. Here are the few fintech advancements to watershed existing loops-

Faster Cross-border Payments: What overseas merchants truly suffered is from currency conversion. The process took days for the  ‘cash’ custodians to approve the money orders, delaying the payee waiting in another country.  Whereas blockchain not only assures a secure gateway for the transaction but enables micro currency trading, crypto transactions and many new fanged bit barters for international trade. The most sought-after that bloomed in the blockchain platform is ‘SWIFT gpi’,  dictating the digital revolution in an international payment and many others to experience down the line. 

Integration of Trade Finance: From the beginning of the 21st century, there was a steady adoption of enterprise software that efficiently managed in-house duties. Yet it failed to create revenue opportunities with the trading partners due to existing data silos if shared could have marked value for the organization. The need for integration of the data islands stretched the pathway for blockchain to enable multi-party transactions and hence ‘Smart contracts’. It smoothly converts these digital contracts into codes making them easier to run on a blockchain which equals faster clearance and settlements and more new opportunities. This happens to be the most utilized platform which replaced the redundancy of the system.  

Rethinking KYC with Blockchain: The robust security structure blockchain is heavily exploited by the financial institutions and banking sectors to improve their Know Your Customer (KYC) process. As each blockchain custodian updates their personal information, upon validating the access the banks can easily access the required information through digital signatures. Therefore,  KYC chain fundamentals fulfill three stark agendas; near real-time data exchange, Intra & inter-organizational fact verification, and reducing the process cost. 

Blockchain Rooted Credit Scoring: Other than public finance and accounting, blockchain can also participate in personal financing. Apart from security to preserve the identity, It can also debunk the truth about the customers before scoring for sensitive transactions like auto loans, credit cards, or a mortgage. The non-traditional factors like shopping habits, telecom bills, and social media activities of the candidate, which are often overlooked by the formal sectors can give a new dimension to judge the repayment capability of the waiver of the dues. Even though the blockchain system carries certain limitations, blockchain-based credit scoring is more accurate than the traditional way of retracing financial records.

Future Prospects of Blockchain in Financing

A new buzz prevails in the accounting sector that blockchain can take over the existing Enterprise resource planning (ERP)  system. But not yet. Rather the finance experts are predicting integration, a unified platform of ERP, blockchain, and cloud. It might take some time to fully understand the potential of blockchain and find ways to utilize ways one can accommodate the real-time feeds for risk management and compliance.

Current online accounts present two virtual keys to the users; private and public to manage their online accounts. Similarly, the financial organizations are about check-in for a private account in retaining the sensitive data, where they can control whom to permit the access. This gave birth to the concept of permissioned blockchains for both industry partners and even customers for transparency and a time-dependency in viewing the data. 

Blockchain is still a new concept and the complexity of the technology has created a rift between technocrats and financial strategists. This has given rise to multiple controversies on how the platform will influence the finance and accounting sectors. Issuing proper standards and compliance in the application of blockchain are yet to mature and the industry is awaiting the government’s ‘farmans’ to prepare blockchain for the next takeoff. 

Categories
Emerging Technologies

6 Ways AI-tech Can Increase the Profit Margin for BFSI

5 min read

Predicting financial growth with statistical modeling started with Bachelier’s ‘The Theory of Speculation’. The primitive form of AI and its application started way back in 1900. Gradually it was taken over by Bayesian statistics followed by parallel strategic computing systems, Expert Systems to interactive & responsible modern AI systems


Tech integration is not new to finance, but AI had a slightly different start. It was presumed that an automation system is only can bridge mundane limitations, making way for chat-bots as support functions, a 24*7 answering machine, responding to endless client queries at a time. It worked like a wizard to baffle the existing redundancies in the financial system. An intelligent document scanning system reduced the back-office load and gradually moved forward to streamline and optimize the processes.

The progression for even better projections was certainly not expected from AI. With further sophistication of machine learning models, AI was entrusted to male credit decisions, participate in stock bidding, and quantitative trading like critical decision-making processes. A recent report states that 10 years down the line AI will predict the stock market with 100 percent accuracy and an even longer time scale.

Now, AI in BFSI is not limited to supporting technology to bridge human limitations. Now, it’s scoring high credibility to drive the top line of growth and extend the profit margin with a competitive edge.
 

Profit Earning Applications

When the businesses were struggling to meet the financial targets, AI emerged as a boon to waiver the loss. The process took a sharp turn to what we call intelligent plans with assured Turn Around Time(TAT) for all financial services. Plus, AI interfaces are more robust, invariant to human biases with Natural Language processing that made it much easier to strike a human-like conversation with the visiting customers at online counters.
 

Hence be it for streamlining customer data to the optimization of the back office process AI attributes are formidable all sects of finance operations. Today we have designed bots used for self-help asset management or valuable insights from a data-pile or detection of anti-money laundering patterns. Here are the few AI transformations that the present finance sector is opting for. 

B2B enterprises are struggling to hit their financial targets, but leading companies are turning to AI-based sales intelligence tools as the bridge between the limitations of human organization and outstanding sales results, between drowning in data and competitive advantage, and between winning and losing

Interactive Humanoid Bots: If considered globally, humanoid chatbots were first introduced in the year 2015, by Ally Banks in the US. Tracing the trend HDFC bank attracted the limelight towards them by launching ‘Eva’ as the first humanoid, AI-powered chatbot with Natural Language Processing (NLP) abilities. The success of Eva in striking a human-like conversation won the heart of many, solved 5 million+ queries with an 85 percent accuracy rate across the globe. Queries are met in milli-seconds followed by quick recommendations with non-stop 24*7 engagement. Once it was mentioned that a bank saves 4 minutes of the consultant’s time due to queries made by chatbots and they can focus on critical processes efficiently.

AI-directed Risk-Management- AI-derived insights are a new way to make informed decisions – it has been a much easier task to waiver the market risks at bay with a promise of effective investment outcome. The ability of AI for faster data screening enables it to skirt through multiple data sets from both formal to informal platforms. Banks today are fostering tailored software for Constant Vulnerability Testing to eliminate data breaches, support resilience with cloud technology, mobile user support, and others. Today banks are heavily investing in AI and expecting more cognitive technologies for better prediction and performance.

Analytics with AI-vantage- It has been predicted that 32 % of the operative heads in the financial sector use AI for predictive analysis in making informed decisions and recommends AI-powered search engines and voice recognition features. On a real note, AI-Analytics provide wealth benefits for the finance service, by exacting the root cause, preventing revenue drops, and detecting the fine-variance in the data stream. It’s a much faster and convenient way to map the consequences beforehand and make calculated predictions. Further sophistication of machine learning algos will make it easier to manage, structure, and analyze data to save both time and money for financial corporations. 

Anti-money laundering- Secured banking is a reach-out for all finance customers and organizations are quite tight when it comes to assuring safe transactions in money matters.

Here AI is a perfect fit for securing banking systems money laundering and detecting fraud and busting cybersecurity threats. From malicious behavior, reviewing computer-generated log-system to spurious emails, AI software is taught to provide scam solutions with details like when, where, and how the fraud was committed.  Further, it can also integrate various multi-factor authentication systems, identity recognition, face recognition at ATMs, biometric footprints, and more. 

AI-surfaced Back-office- Smart data capture tools like Optical Character Recognition or OCR are also a part of AI automation. The technology helps to convert the documents into searchable data. It has decreased the error in maintaining consistency in record keeping of billing information, cheque deposits, banking statements from the customers, and others. Aligning with the shift towards digitization, AI took over the task to gain valuable insights from the captured information. Stepping towards automation has greatly improved the TAT and enabled the bank to keep track of the processing time. 

Self-Help Wealth-Advisory Blending the Gen-Z needs, banks and financial institutions have put on a savvy suite and appointing digital touch-points in managing personal portfolios. Integrating automation has resulted in shaping wealth management and helped to fetch insights from multiple platforms even from social networking sites. Other than only relying on bank statements, savings charts, and assets information from informal sections will help to come up with unbiased advice managing wealth. Plus it promises to eliminate mundane errors and false alarms and even has structures independent bots to look over the personal asset with accurate predictions. 

Gain upon AI Integration


AI will save more than 1 trillion USD for the banking industry as per current estimates. On the other hand, financial institutions are expecting a cost drop of 22 percent in funding the operations, mostly front office with AI integrations by 2030. The distribution of savings from AI will be by; reduction in the retail branches, security, teller, and cashier scale in front office operations, applying AI in KYC/AML and underwriting the collection system.


The above stats clearly approves that AI is the most promising application for finance institutions. Yet the finance industry needs to gain customer trust in implementing AI operations which leads to improving the machine learning algorithm to capture accuracy and better human-like interactions. This way we can gain a broader application window to use AI to be incorporated in social media, free text fields, and even machine vision into the development of lending, investment, and insurance products.


How to Get Trained in AI for BFSI?


If you agree that AI has the capacity to solve most of the banking sector for banking then you should consider upskilling. With AI institutions a financer can opt for a futuristic job like- Fintech headhunter/liaison, Self-driving finance engineer, Sustainable wealth manager, Crypto Forecaster, Trust officer, Cross-company cybersecurity liaison, and others. 

To ‘win the war of skills’ Indian Institute of Technology-Roorkee in collaboration with WileyNXT will be launching Artificial Intelligence in Banking program. India’s first-of-its-kind online program is made for technology and finance professionals. Miles Education is the branding partner for the course. For more insights keep an eye on the Miles Education website for more updates!