How small finance banks are transforming the financial needs of rural India with cloud

With the evolving need for digital inclusion across the country, rural India has also seen an extensive adoption of digital payment modes and mobile app, driven by hyper-localization and the pain points of switching from cash-based transaction mode to digitized services. With the ever-evolving BFSI sector, Small Finance Banks (SFBs) have reached a nascent stage of evolution. These banking institutions are aiming at developing a viable business model to cater to the financial needs of the marginalized sections of society.

Cloud and AI/ML are being used by many of these new-age banks to make faster and more educated decisions for their customers, with rapid risk assessments. For example, video and image analysis is used to automate loan processing and sophisticated analytics are used to accelerate loan restructuring at ESAF Small Finance Bank. When it comes to consumer preferences and buying behavior, the bank uses deeper analytics provided by Oracle’s Autonomous Data Warehouse and Analytics Cloud services. This information allows the bank’s frontline workers to have informed interactions with customers to provide a better service. Similarly, Shivalik Small Finance Bank offers an exhaustive bouquet of digital services to their customers including UPI, E-mandate, Online customer boarding, gold loans, and additional digital services by partnering with fintech institutions and neo-banks. Mr. Shabeer Mohamed, Senior Director, Oracle Digital in a discussion with CXOToday shares his detailed insights on the same.

What is leading the rise of small finance banks?

Financial inclusion has become an imperative, with India advancing fast in its digitisation agenda – it’s a way for every unbanked citizen to gain access to basic banking services. Small Finance Banks (SFBs) have acted as a catalyst in fast-tracking this major move. After nearly seven years of being in existence, SFBs gradually gained momentum and have helped the underserved in the remotest parts of India achieve financial inclusivity. In the past three-and-a-half years, SFBs have delivered a 42 % CAGR followed by private banks at 13 %.

With rampant digitisation and new technology introductions, SFBs were able to expand into digital banking and new business avenues. They were able to simplify processes for customers, develop new products for them and improve customers’ overall banking experience. In the past few years, many banks including SFBs have adopted emerging technologies like cloud, artificial intelligence, machine learning, chatbots and more by virtue of which the banking industry has seen a huge transformation.

What is the role of AI/ML in the BFSI space and how are these technologies making the sector more efficient?

AI and ML have inevitably become significant pillars of digitization in every sector. A study by Gartner found that by 2025, 10% of enterprises that accept AI/ML engineering best practices will secure three times more value from their AI/ML efforts, vis-à-vis rest of enterprises that don’t. The BFSI sector especially, stands to benefit from such technologies with the ever evolving change in how banking is done and how customers interact with banking products and services. For example, one of Spain’s banks leveraged Oracle’s machine learning and analytics solution. They saw results quickly across the board in a number of processes. For example, a standard banking process such as risk analysis for loan grants was transformed; previously, textbook derivation models were used, but Oracle Machine Learning was able to power sophisticated algorithms. The result saw a 7% accuracy improvement in models, which translated to a 12% increase in profits on loans.

Driven by a competitive landscape, changing business models, increased regulation and compliance pressures, as well as disruptive technologies, financial services leaders are using the cloud to increase profitability and improve customer experience. Cloud native capabilities powered by AI and machine learning are accelerating development of hyperpersonalized digital banking services.

AI can largely contribute towards improving customer experience and streamlining processes. For example, as the dependency on digital banking catches pace, customers will expect faster response to their questions and better personalised services. Here AI can help fulfil customer’s requirements by integrating chatbots with digital banking. AI can also assist in aggregating data to predict further intention and have a more meaningful conversation with the customer. With the right uses of conversational AI and ML and NLP (natural language processing), a better customer experience can be created. AI can also help banks cull out any anomalies in the system and avoid any potential data frauds by identifying suspicious behaviour or money movements.

Cloud adoption is gaining prominence among banks, inspite of this being a highly regulated sector. That’s because some cloud providers like Oracle, offer a generation 2 cloud platform that is designed to provide banks with security, reliability (disaster recovery, high availability), and powerful capabilities for large and complex deployments.

We have also tied up with multiple AI and ML Start-ups who provide solutions like multilingual conversational AI and NLP based Process Automation for various verticals including Banks. These innovative companies hosted on Oracle Cloud help banks achieve automation and digitisation at attractive price points. Some examples are e42.ai, Gnani.ai, deepvisiontech.ai etc.

How are SFBs dealing with cyber security challenges while leveraging cloud?

Cloud is becoming a game changer for financial businesses and that’s why security becomes a very important tenet to be able to run their businesses. With over four decades of experience in managing the world’s most mission critical information i.e. data, at Oracle, we approach everything with a security-first mindset and our solutions are devised to provide high performance at low costs. According to a recent Oracle and KPMG Cloud Threat Report, it was found that because of a patchwork approach to data security, misconfigured services and confusion around new cloud security models there now exists a lack of confidence which needs to be fixed by organizations making security part of the business culture. Additionally, the study found that nearly 75% of IT professionals view the public cloud as more secure than their own data centers, however 92% of IT professionals do not trust that their organization is well prepared to secure public cloud services.

Oracle’s second-generation cloud infrastructure offers security at its core. We have made available two second generation cloud regions in India, spread across two different seismic zones (in Mumbai and Hyderabad) to help SFBs adhere to data residency norms as well as aide better disaster recovery.

In our continuous endeavour to help customers ensure that their most important information is defended against any breaches, recently we expanded OCI’s built-in security services and capabilities. The new capabilities include OCI Network Firewall, Oracle Threat Intelligence Service, Oracle Cloud Guard Threat Detector, Expanded Oracle Security Zones and Extending Oracle Cloud Guard beyond cloud security posture management for OCI. All of these have been welcomed by our banking customers.

How are SFBs leveraging OCI? Share some examples of implementation

Oracle has been supporting SFBs on their digitization journey for some time now. For example, Shivalik Small Finance Bank, ESAF Small Finance Bank and AU Small Finance Bank, among others – they all leverage Oracle Cloud Infrastructure to run their businesses.

Shivalik Small Finance Bank, with a network of more than 4.5 lakh customers leverages Oracle Cloud Infrastructure to offer a superior experience to its customers. The bank is enjoying benefits of products like API Gateway, Integration Engine, Database amongst others. The bank rolled out phase 1 of the API Gateway and Integration engine within 3 months via Oracle Integration Cloud service. They expect a reduction of 25-30% in total cost of ownership along with 10-15% improved efficiency by using OCI.

ESAF Small Finance Bank, with more than 550 branches across India leverages Oracle Autonomous Data Warehouse and Oracle Analytics Cloud to develop meaningful insights with a segmented view of the database. Internal decision makers now have access to core business analytics on a one to one basis. The bank is also aiming to better integrate industry data to understand customer behaviour and preference further.

AU Small Finance Bank leverages cloud technology to bring modern-day financial services to millions of “unbanked” citizens and businesses across rural India. Around 80 percent of the bank’s technology is powered by Oracle, and Oracle’s cloud technology underpins every part of the account management and loan application process. The bank has adopted Oracle’s analytics, machine learning, integration services, blockchain, and even chatbots. Most importantly, Oracle Cloud is helping the bank keep customer data timely, accurate, accessible, and secure.

We have many such examples of Small Finance and Co-operative Banks who are leveraging our State of the Art, Second Generation, Meity certified Data Centres in Mumbai and Hyderabad.

What is the future of SFBs in the country with the fast paced technological acceptance?

SFBs have a crucial role to play in ensuring financial services are provided to all citizens in India. This is especially critical in a country where nearly 191 million people are unbanked. With the help of new, emerging technologies like cloud, SFBs will be able to accelerate their agenda by simplifying banking for users.

In an endeavour to uplift India’s banking ecosystem, SFBs are offering services like opening accounts, online payments, money transfers and also providing services like microloans. In doing so, SFBs are making a huge contribution in growing India’s digital literacy quotient. Through their services, a new generation of people will be financially educated and they will all have the opportunity to play an important role in India’s financial and digital ecosystem.