Banking: Will digitization help recover from 2016’s aftershocks?

Banks and financial services companies are the backbone of any country as they have the power to propel or plummet a country’s GDP. By 2020, the Indian banking and financial sector is set to become the fifth largest, according to a joint report prepared by KPMG and Confederation of Indian Industries (CII).

2016 proved to be a rollercoaster ride, as Indian banks battled demonetization and a huge debit card breach, affecting close to three lakh accounts. Unfortunately, the year ahead too won't provide any relief, as the task of controlling the damage and the pressure to leverage digital is huge.

Banks and financial institutions have begun to fully integrate digitization in their businesses. With demonetization, there is now a great opportunity for a massive digitization drive. While payment companies and gateways drive unprecedented financial inclusion, the BFSI sector faces huge technical and regulatory challenges in absorbing the digitization wave.

Also, mobility-based feature phones, multiple payment gateways and Aadhaar-based biometrics, all demand an innovative approach to create a responsive and secure ecosystem.

The challenges are at several levels—to have innovative technology products and processes, as well as to create seamless digital platforms to expand the customer base exponentially.

According to Mithilesh Singh, director-Technology Audit at IDFC Bank, to survive in this dynamic environment and to capture the market through latest digital technologies, the bank took new innovative initiatives.

“One of the prominent initiatives taken by our bank is MicroATM technology for retail customers across Tier 1, 2 and 3 cities, and rural areas,” says Singh. “We were the first bank to roll out Aadhaar PAY for cashless payments to merchants nationally. The solution has been developed by our bank in association with UIDAI (Unique Identification Authority of India) and NPCI (National Payments Corporation of India).”

IDFC in partnership with NHAI (National Highways Authority of India) has also introduced a solution for hassle free trip on national highway called IDFC Bank FASTag. The bank is committed to offer innovative solutions to simplify the banking experience for the end users.

Cybersecurity is top priority

With digitization, the sector witnessed several challenges, and cybersecurity is the biggest one, agreed IT leaders.

Due to the transformation from manual to digital means of banking, the risk of cyber threat increases many folds for the financial sector. Financial institutions today, are being targeted by hackers with increasingly sophisticated techniques.

Traditional cyber defenses may be apt against thwarting malwares with known signatures, but such defense strategies are fast losing their effectiveness against more sophisticated cyberattacks such as zero-day or customized exploits.

Singh believes the banks need to look for bug bounty type of security program to address such kind of emerging threats.

In addition to this, the rise of SIM swap fraud has emerged as a big challenge for the sector. With technology, SIM cards can be re-activated and misused to hack into bank accounts. As hackers are one step ahead, banks and financial institutions have to aggressively think of an idea to combat threats to protect customers.

“As phones have become banks, there is a need for banks to do three factor authentication by providing a good user experience. Banks have to think of a solution to make phones secure too,” says Anup Purohit, CIO at YES Bank.

With Modi’s idea of becoming a cashless economy, proper security measures need to be implemented in banks to secure online transactions. With cashless economy and online transactions surge, the security threat is looming large, agrees Singh.

RBI has issued guidelines on information security, electronic banking, technology risk management and cyber frauds, which all banks need to follow. The report of the Working Group on information security, electronic banking, technology risk management, and tackling cyber frauds, highlighted the importance of establishing a robust network protection strategy and layered security based on the principle of defense-in-depth.

“Banks need to follow a rigorous security testing process before launch of any digital product, have to carry out vulnerability and penetration assessment, and network security audit. Overall, banks' approach should be proactive and not reactive,” says Nirmala Sridhar, CIO and GM–IT, Vijaya Bank

Overall, we can say that last year has been fairly good for the BFSI sector with new reforms, and introduction of Aadhaar pay and UPI app, which will propel the sector towards a huge digital transformation. The industry leaders foresee positive growth in 2017 as well, with a focus on newer technologies.