Even as FinTechs focus their efforts and investments on product innovation and customer experience, misaligned back-office capabilities can drastically impede their growth. This is where Artificial Intelligence (AI) and data analytics can make a significant difference.
Jay Venkateswaran, Business Unit Head for Banking & Financial Services and Tech at WNS, shares his thoughts on why fintechs are banking on AI and data analytics to build scalable back offices.
Beyond its unprecedented impact on human health and the global economy, the COVID-19 pandemic has re-shaped what consumers expect from businesses through digital channels. This digital acceleration has been most effectively demonstrated by how consumers interact with financial institutions, particularly fintechs.
Over the past couple of years, fintechs have led the way when it comes to product innovation, simplicity and customer experience. The successful ones find themselves experiencing hypergrowth, often witnessing 5x or even 10x increase in customers over a period of 18-24 months. This is new territory for fintechs, who are often unprepared for the regulatory standards and functional reliability required to run such scaled operations. While they are unburdened by legacy systems, they also suffer from the lack of well-structured, mature processes, systems and knowledge around financial crime prevention, regulatory compliance and customer service.
As per Compliance Week, in 2020, financial institutions have been hit with $10.4 Billion in fines and penalties related to financial crime and compliance, privacy, and MiFID (Markets in Financial Instruments Directive) regulations, bringing the total to over $46 Billion for such breaches since the great financial crisis of 2008-09. At this stage in their evolution, fintechs have to overcome the challenge of creating reliable, scalable operations that stay clear of such regulatory breaches and reputational damage, while maximising growth and customer satisfaction.
AI and Big Data Analytics to the Rescue
As fintechs evolve through the pandemic, there are several key factors affecting them including:
- The impact of hyper-growth on the reliability and scalability of their operations
- The prospect of separating operations from their sponsor or partner banks
- The impact of national banking licenses or other such regulatory status changes
As fintechs consider these and other changes to their operating model, they will need to rapidly deploy enterprise-grade workflow platforms to monitor, track and close out financial crime and compliance operations, customer service, disputes and other customer interactions. Such workflow platforms, along with well-structured standard operating procedures, functional guides and policy documents will form the strong foundation needed to ensure the smooth functioning of scaled operations.
However, these systems and processes alone are far from adequate as we have learnt from legacy banks and financial institutions. Despite all the efforts, investments and structure available at legacy banks, it is estimated that less than 1 per cent of illicit transactions are brought to light and stopped.
It will be critical for fintechs to bring the same level of innovation and tech-savviness to their back-office operations, as they have to their products. This can take several forms, some of which include:
- ML-driven solutions to top off best-in-class workflow platforms (such as Nice Actimize) that will focus on:
- Reducing false alerts
- Reducing risk by improving the detection of genuine suspicious cases
- Prioritising alerts and bringing more efficiency to alerts disposition
- AI-driven solutions around e-mail and chat management to focus on:
- Prioritising and segregating disputes, and high-risk, regulatory-sensitive customer communication
- Accelerating customer onboarding in flagged cases, by seeking clarification or additional documents from customers
- Proactively identifying and prioritising cross-sell and upsell opportunities, and diverting them to sales experts
- Creating a continuous feedback loop on customer communication drivers to enable proactive solutions to commons issues or questions
Fintechs that master their back-office functions, while optimising business outcomes through such AI and data analytics led solutions will build the most sustainable growth stories through the next phase of their evolution.