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Small Finance Banks – The quest for technology-led differentiation

Since their inception, Small Finance Banks (SFBs) have been primed as a vital cog for the last mile credit and service delivery for the MSMEs, farmers, and unorganized sector units, helping to bridge the $240 billion credit gap for the underserved segment.

Naveen Gupta, Senior Product Owner, Tagit
Naveen Gupta, Senior Product Owner, Tagit

By Naveen Gupta, Senior Product Owner, Tagit

These Small Finance Banks have a robust base of borrowers with small credit needs. The banks so far have been reasonably successful in serving their priority segment and are now looking to establish their presence in the commercial banking space by evolving beyond a credit-only institution to a diversified financial institution.

In today’s environment, SFBs are facing twin challenges. Where, from one end, the FinTechs are grabbing their market share using innovation and new technologies and at the other end incumbents’ banks are blocking their market access with their size.

To compete with them, SFBs must step up their game. They need to look beyond rate strategy (providing higher interest rates on CASA and deposits as compared to the incumbent banks) and build a robust, sustainable differentiation built around their primarily intended high-technology, low-cost model.

Born on the cusp of the digital era, Small Finance Banks do not come with the baggage of legacy technology. Though they don’t have the capital to match the technology spends of their incumbent peers, the unbundling of the banking technology stack and ecosystem driven collaborative innovation – courtesy API economy and open systems – presents a great opportunity for them to undertake a phased, yet fast leap towards digital transformation, all the while keeping IT spends under control.

SFBs must focus on:

  1. Implementing digital channels for banking services: Banks can use digital platforms such as mobile apps, online banking portals, and social media to provide customers with convenient and secure access to their accounts, transactions, and other banking services.
  2. Enhancing security: Banks can use advanced security measures such as biometrics, encryption, and multi-factor authentication to protect customer data and prevent fraud.
  3. Partnering with fintech: Banks can collaborate with fintech companies to access new technologies and innovative products and services to enhance their digital capabilities.
  4. Investing in digital infrastructure: Banks can invest in modernizing their IT infrastructure to enable better data management, improved scalability, and enhanced security.
  5. Providing digital financial education: Banks can use digital platforms to educate customers about financial literacy and digital banking services.
  6. Improving data management: Banks can use big data and analytics to gain insights from customer data and use it to improve product offerings, target marketing, and personalize the customer experience.

With the right technology transformation strategy powered by smart investments and careful roadmap considerations, Small Finance Banks can grow their business and achieve sustainable differentiation while keeping costs under check.

Banks need to ensure that they have the right partners for their digital transformation. Partners having plenty of digital transformation experience in the Indian market can help transform SFBs with the right speed and scale without impacting existing business and thereby enabling the SFBs in their journey of expanding market share and revenue.

Banks should collaborate with Digital transformation partners like Tagit who have platform-led solutions, provide more value in the long term, ensure that solutions are future-ready, and services delivered are secured and scalable.

With the right mix of products, SFB can successfully transform to a universal bank, increasing their market presence fending competition from new age fintechs and other banks and bringing more value to their stockholders. Tagit can help Small Finance Banks in increasing their customer base and revenue and enhancing customer loyalty with new and innovative features.

Tagit has been helping banks in India in their digital initiatives by providing best-in-class digital solutions alongside a holistic digital roadmap.

CategoriesAnalytics Artificial Intelligence IBSi Blogs

Can ChatGPT help fight cybercrime?

Open AI’s ChatGPT has taken the world by storm, with its sophisticated Large Language Model offering seemingly endless possibilities. People have put it to work in hugely creative ways, from the harmless scripting of standup comedy to less benign use cases, from AI-generated essays that pass university-level examinations to copy that assists the spread of misinformation.

Iain Swaine, Head of Cyber Strategy EMEA at BioCatch

Iain Swaine, Head of Cyber Strategy EMEA at BioCatch
Iain Swaine, Head of Cyber Strategy EMEA at BioCatch

Chat GPTs (Generative Pretrained Transformers) are a deep learning algorithm that generates text conversations. While many organisations are exploring how such generative AI can assist in tasks such as marketing communications or customer service chatbots, others are increasingly questioning its appropriateness. For example, JP Morgan has recently restricted its employees’ use of ChatGPT over accuracy concerns and fears it could compromise data protection and security.

As with all new technologies, essential questions are being raised, not least its potential to enable fraud, as well as the power it may have to fight back as a fraud prevention tool. Just as brands may use this next-gen technology to automate human-like communication with customers, cybercriminals can adopt it as a formidable tool for streamlining convincing frauds. Researchers recently discovered hackers are even using ChatGPT to generate malware code.

From malware attacks to phishing scams, chatbots could power a new wave of scams, hacks and identity thefts. Gone are the days of poorly written phishing emails. Now automated conversational technologies can be trained to mimic individual speech patterns and even imitate writing style. As such, criminals can use these algorithms to create conversations that appear to be legitimate but which mask fraud or money laundering activities.

Whether sending convincing phishing emails or seeking to impersonate a user and gain access to their accounts or access sensitive information, fraudsters have been quick to capitalise on conversational AI. A criminal could use a GPT to generate conversations that appear to be discussing legitimate business activities but which are intended to conceal the transfer of funds. As a result, it is more difficult for financial institutions and other entities to detect patterns of money laundering activities when they are hidden in a conversation generated by a GPT.

Using GPT to fight back against fraud

But it is not all bad news. Firstly, ChatGPT is designed to prevent misuse by bad actors through several security measures, including data encryption, authentication, authorisation, and access control. Additionally, ChatGPT uses machine-learning algorithms to detect and block malicious activity. The system also has built-in safeguards against malicious bots, making it much harder for bad actors to use it for nefarious purposes.

In fact, technologies such as ChatGPT can actively help fight back against fraud.

Take Business email compromise fraud (BEC). Here a cybercriminal compromises a legitimate business email account, often through social engineering or phishing, and uses it to conduct unauthorised financial transactions or to gain access to confidential information. It is often used to target companies with large sums of money and can involve the theft of funds, sensitive data, or both. It can also be used to impersonate a trusted business partner and solicit payments or sensitive information.

As a natural language processing (NLP) tool, ChatGPT can analyse emails for suspicious language patterns and identify anomalies that may signal fraud. For example, it can compare email text to past communications sent by the same user to determine if the language used is consistent. While GPT will form an essential part of anti-fraud measures, it will be a small part of a much bigger toolbox.

New technologies such as GPT mean that financial institutions will have to strengthen fraud detection and prevention systems and utilise biometrics and other advanced authentication methods to verify the identity of customers and reduce the risk of fraud. For example, financial organisations already use powerful behavioural intelligence analysis technologies to analyse digital behaviour to distinguish between genuine users and criminals.

In a post-ChatGPT world, behavioural intelligence will continue to play a vital role in detecting fraud. By analysing user behaviour, such as typing speed, keystrokes, mouse movements, and other digital behaviours, behavioural intelligence will aid in spotting anomalies. These can indicate that activities are not generated or controlled by a real human. It is already very successfully being used to spot robotic activities which are a combination of scripted behaviour and human controllers.

For example, a system can detect if a different user is attempting to use the same account or if someone is attempting to use a stolen account. Behavioural intelligence can also be used to detect suspicious activity, such as abnormally high or low usage or sudden changes in a user’s behaviour.

As such, using ChatGPT as a weapon against fraud could be seen as an extension of these strategies but not as a replacement. To counter increasingly sophisticated scams, financial service providers such as banks will need to invest in additional control such as robust analytics to provide insights into user interactions, conversations, and customer preferences and comprehensive audit and logging systems to track user activity and detect any potential abuse or fraudulent activity.

And it’s not all about fraud prevention. Financial institutions should also consider how they use biometric and conversational AI technologies to enhance customer interactions. Such AI-driven customer service platforms can ensure rapid response times and accurate resolutions, with automated customer support services providing quick resolutions and answers to customer queries.

Few world-changing technologies arrive without controversy, and ChatGPT has undoubtedly followed suit. While it may open some doors to criminal enterprise, it can also be used to thwart them. There’s no putting it back in the box. Instead, financial institutions must embrace the full armoury of defences available to them in the fight against fraud.

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