Now is the time for fintechs to innovate further because businesses and individuals are all receptive to the ease that new capabilities bring into their processes, Dennis Gada, SVP and Head of Financial Services, North America at Infosys shares more observations in this chat:
We are glad to have you here Dennis, tell us something about your journey in finance and fintech. Also, what have your biggest observations been on market evolutions in 2020?
Covid-19 has created an unexpected disruption in 2020, I would say that these kind of upheavals create unique and new opportunities. In my 20+ years in finance and fintech I’ve also seen the global financial crisis of 2007-2009, and the recession post-9/11, both of which had a big impact on fintech. In each case there was significant disruption, and there was an initial air of fear and crisis. At the same time, there were some disruptors who addressed customer needs well, and grew disproportionately through all the turbulence.
My largest observation of 2020 is that it has resulted in “genuine” and “game changing” digital transformation for the financial services industry across all sub-sectors – from consumer and commercial banking, to investment banking and wealth management. There is a renewed sense of urgency to transform business models, to invoke necessary change, and reverse procrastination.
From adjusting to working from home and shifting business models, to adjusting product and service offerings and quickly pivoting services or business models – resilience, creativity, and flexibility have led to a tremendous amount of innovative solutions that are yielding surprisingly quick results for many finance and fintech firms.
What do you think are the biggest challenges that small businesses have faced during the pandemic, specifically for crucial services like loan payments and applications? Please share your views on how do you think have the leading banks and financial providers addressed this during 2020.
2020 was a huge roller coaster for small businesses and certain sectors of the economy that have slowed down. We witnessed a positive and active side of governments supporting businesses and individuals during the pandemic, rolling out support mechanisms like the CARES Act and Paycheck Protection Programs (PPP) in the U.S., and similar programs around the world. Banks and financial providers played an important role in enabling these programs at a rapid pace. But, banks have also faced challenges such as significant operational and technology overload due to high volume spikes, resiliency and security of technology infrastructure due to remote working, and complexity of internal processes and systems.
To mitigate some of these challenges we saw accelerated use of AI and RPA solutions used in loan underwriting and submitting PPP applications, for example, and there was also “sensible relaxation” of norms to allow people to work remotely from any location (e.g. use of personal devices with the right security protocols). We also have seen business and operational processes being reimagined to allow faster throughput (e.g. digital client on boarding, remote customer service). The last time there was a global crisis, banks were widely perceived to be a big part of the problem – this time around banks are important to the solution.
We’d love to know yourthoughts on AI and the impact it throws upon today’s fintech and loan processing niche, how do you see newer fintech innovators changing the scenario here?
Lending is a big data problem, becoming a business naturally suited for machine learning and AI adoption. The more borrower data you have, and data revealing how similar individuals have paid back debts in the past, the better you can assess their credit worthiness. While in the past lenders only looked at a few metrics, like credit score and income, companies have started looking at an individual’s entire life and even their vast digital footprint (i.e. alternative data) to determine their credit worthiness.
Banks are also leveraging AI and machine learning-driven real-time insights from ingestion of traditional and non-traditional data for a holistic understanding of their customers and prospects. This enhances their targeting, profiling, and proactive offering of services with frictionless digital journeys. AI-driven automation of document classification and conversion to standard data models that can be machine measured and verified is enabling one-touch underwriting decision making. There are several fintechs, for example in the mortgage sector, that are using AI-driven automated document extraction and digitization to enable digital tracking, monitoring, and validation of the home loan file data completeness. Through this, the customer experience is also enhanced.
What do you think are some of the biggest benefits of AI powered automation in loan processes in the current time?
Manual and paper-based underwriting practices lack consistency, auditability, and accuracy, and are above all, time consuming. Automation can allow for the streamlining of disparate systems, provide reliable and consistent dataflow for any stage of the loan origination process and quicken the overall process, while delivering solid audit and control benefits.
Loan approval processes are usually the biggest roadblock for lenders looking to drive revenue. Lenders desire to increase the number of loan approvals from incoming customer applications while reducing loan default risk, or at least ensuring no significant change. Automation, AI and machine learning can help with the process of tracking and monitoring loans for delinquency and default. These technologies can also develop self-learning systems to manage each part of the loan process more efficiently.
There are many financial institutions that are leveraging AI to reverse discrimination in lending and foster an inclusive economy. Fintechs are moving from an industry sector view to a borrower view, using real-time data and machine learning analytics supporting the decision-making.
Assessment of sub-sectors as well as different regions has become particularly critical due to COVID situation. The recovery trajectory of each industry subsector will depend on the localized severity of the pandemic and dimensions of the recession with gradual lifting of demand-supply restrictions.
Using AI and better insights of borrowers, lenders are able to deploy account-level treatment plans and collection strategies with recommendations on channel of treatment. AI models are also able to provide prime time to call and recommendations on tone of call communication resulting in significant collection cost optimization and improvement in collection targets without sacrificing good delivery for customers.
Talking about banks and financial organisations, who according to you are early adopters of new technologies to enable improvised workflows in financial services like loans? Do share you top tips with us.
To grow and manage a lending business at its core involves managing conflicting business priorities, like capitalizing on credit appetite, mitigating credit risk and minimizing defaults. Advanced credit decisions with alternate data sources and integrated real-time insights about borrowers enables banks to strike the delicate balance between these conflicting priorities.
While traditionally banks have performed “post-mortem” portfolio analyses, they are beginning to approach underwriting and monitoring with a new configuration of sector analysis, borrower resilience, and real-time analytics assisted by AI and machine learning. All this is extremely important for the post COVID era.
What do you think about the global fintech marketplace at present? Tell us about some of the global start-ups that you think can evolve into global unicorns in the coming future.
The current environment has raised the fintech ecosystem to be well poised for growth – especially the firms that are partnering with larger banks and big companies.
There is often a misconception that fintechs will disrupt all traditional financial firms, which may not be the case. Fintechs have great ideas, but they don’t have the scale or distribution like large institutions have, hence why fintechs can deliver lot more value with partnerships. In my view, the fintechs in the space of digital payments (e.g. PayPal, PayTm), digital lending (e.g. Better.com, Rocket) and digital wealth management (e.g. Personal Capital) will significantly expand their business model and continue to grow exponentially.
We know that the global fintech trends are changing and the market is shifting due to business environments, what would you comment on the development of fintech in 2021?
Financial institutions are migrating business critical data to the cloud and opening their datasets via APIs to facilitate connections with fintechs and third-party financial data aggregators.
Cloud spend among financial institutions has been on the rise and will continue to increase at an accelerated rate. Innovation led by collaboration will be key in responding to customer service and cost expectations.
Banking has faced the most significant disruption from fintechs and nimble players. Early innovation has come at the back of retail banking, learning from the retail e-commerce industry. However, banks have learned that through cooperation, rather than competition with fintechs, they can create capabilities that can further enhance their offerings to customers. Driven by technology innovations in AI, voice recognition, predictive analytics, and mobility, fintechs will continue to improve the financial lives of banking customers.
The capital markets space will see an increase in fintech players spanning the entire value chain from front, mid, and back office functions to security and regulatory needs coming from niche solutions. Fintechs are leading conversations in approaches to investment decisions, underlying research, data analytics, and more — even making a mark in heavily regulated institutions such as exchanges and central banks.
Cross-border payments, distributed ledgers, tokenization, and real-time settlements are some of the trends that will be driven by fintechs in this space.
Can you tell us about some of Infosys’ upcoming plans in this space?
The Infosys has over 50 fintech providers, handpicked after extensive research and due diligence to make sure that the best of breed solutions across banking, capital markets, and payments. Our goal is to deliver significant transformation through these partnerships — whether it be through an implementation role or a comprehensive approach that integrates our proprietary platforms and solutions with fintech offerings to deliver superior value. Reflecting on our experience, we believe the right formula for digital transformation in financial services is across these 5 key elements:
- Evolving the business model from pipeline to platform
- Creating an active organization by breaking silos
- Automating operations for unprecedented efficiencies
- Modernizing application landscapes with cloud native, open, smart and scalable systems
- Orienting people and culture to customers
Recently, we announced strategic partnerships in financial services which include:
- Vanguard – Infosys is building the first cloud-native record keeping platform for Vanguard, whereby creating a new standard for the industry. Cutting-edge digital technologies and CX capabilities will dramatically improve the retirement savings experience for plan participants and plan sponsors.
- Old National Bank – In July 2020, Old National Bank announced a strategic partnership with Infosys to accelerate the bank’s adoption of digital solutions, bringing ONB’s existing infrastructure up to the current cutting-edge technology and, lastly, improving both client and employee experiences.
Lastly, tell us about some of the biggest lessons you’ve learned that you would like to share with fintech innovators and leaders.
Being bold always and being agile are two things I always recommend. During this time customers, governments, and partners are open to new ideas and disruptive innovations. The speed of progress has been surprising and we’ve essentially seen as much advancement in the last 10 months as we have in the last 10 years, and it is nowhere near to slowing down.
Thank you Dennis for answering all our questions!