Amit Balooni

As India celebrates 75th Independence Day, thought to pause and lock back on evolution of banking over the years, more so the times I have witnessed From essentially being treasuries of princely states in pre-independence era to nationalization to liberalization to ...Read more

As India celebrates 75th Independence Day, thought to pause and lock back on evolution of banking over the years, more so the times I have witnessed

From essentially being treasuries of princely states in pre-independence era to nationalization to liberalization to going beyond banks (NBFCs and Fintechs) to advent of segmented licensing, the journey has been ‘liberating’ though not without challenges.

I recall spending whole day to get my college fees DD issued and waiting for centuries to open an account. KYC documents never seemed to complete.

Then later as a banker, learning Finacle shortkeys, telling customers about 11 o clock high value clearing and physical loan files being couriered to HO and waiting for those approvals to happen.

Then there were procedural challenges in the physical world.

Evaluating those bank statement printouts- creating a summary of TOD’s and inward/outward bounces and collating VAT challans was cumbersome. Till outsourcing to CPAs became an accepted norm.

The banker’s world was shifting – LOS, CRM, RAM and CIBIL became mainstream. Although the transition meant doing both physical and digital things together.

Ecosystem was still slow and changes percolated slowly.

While my public sector banks colleagues were pushed to chase govt schemes and psl targets, we at these new age private banks were pushing customers to use internet banking and later making them download mobile apps. Retail loans were no longer driven by whims.

Another shift came in ‘what’ and ‘how’ we were selling. Insurance, MFs and Bullion became central to customer relationship management.

I asked my senior once “Sar, we are asset Bankers sar!”

He responded, somewhat peeved, “Buggers all of you in Business, Credit and Branch are Salespeople. Tomorrow we may launch Alphonso Mangoes”

There was a silver lining to these cross-sells. The contests and foreign trips funded by insurance partners made us taste blood. It tasted sweet but in our hearts we knew that this comes at the risk of diabetes- dilution of customer service and relationship management. Mis-selling episodes started coming to fore.

I’m sure some of those things still linger in some form or the other even today, although with some nuance.

More interestingly, tech has turned the world upside down over the last few years-

The data from customer no longer means only documents. It increasingly means APIs. Evaluation for commercial loans is no longer only about files but speed too. Access to credit has deepened with the segmented approach of digital lenders. The scoring model extend beyond financials.

Payments transformation in India is another world inspiring story of revolution and inclusion done at scale.

Reaching a bank is still cumbersome and surprisingly we are still ‘Pressing 1’ on those vintage IVRs. Although I’m hopeful the chatbots will soon catch up.

In all this dynamism, there is one thing that remains central to bankers though. Customer Relationships.

Yes, the expectations run high and patience runs thin on either side, however need for engagement continues. I do all things digital but there are occasions when I need my RM. As we grow economically, customer needs will continue to evolve and require some support. Digital channels and Robo advisors can’t do it all and not for everyone. Remember even the bank security guards were helping many a customers when ATMs were becoming mainstream.

The part of this journey I have witnessed hasn’t been without stumbles and new challenges will come. However, in my engagement with Banks and Fintechs both within and outside India, convinces me that Indian Banking is poised to lead and parts of the world increasingly rely on India to set the tone.

Banking is not the easiest of jobs but as Indian Bankers we are increasingly becoming central to innovation and bringing solutions that resolve things at scale.

I’m excited to witness what’s in store for the next 25 years. When India turns 100, Banks may or may not exist in the current form but bankers will. Wonder if the qualification may change from finance, accounting and economics to Stats and coding?

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Axia_eth
Equidei    Contributor   Exp: 1 Year   Enthusiast

With the advent of blockchain technology, the future of banking is bright. And it is brighter for cross-border banking. Thanks to the recent blast of blockchain innovations, cross-border banking won’t remain tedious, long, and painfully slow. Moreover, digital ...Read more

With the advent of blockchain technology, the future of banking is bright. And it is brighter for cross-border banking. Thanks to the recent blast of blockchain innovations, cross-border banking won’t remain tedious, long, and painfully slow. Moreover, digital currencies will shake up the world of cross-border payments – pioneers being the private sector followed by curious regulators and government bodies. 

 

Cross-border banking is not just one of the earliest crypto use cases but also immensely impactful. This is because it enables a truly standardized, secure, censorship-resistant, cheaper, and faster alternative to current solutions. 

 

However,  crypto is still swooping into the much-monopolized banking industry. It is the need of the hour. For several reasons. 

 

For example, SWIFT, the hero of cross-border payments, is losing charm. It has remained stagnant for years now – payments can be made only during given banking hours and get completed a few days later. And let’s not forget the costly transaction fees. 

 

For availing banking across developing and underdeveloped countries, transaction fees are anywhere 5%-10%. This system enables the monopoly of big banks holding trillions of liquidity among themselves over the years.

 

Traditional cross-border transactions are slow, error-prone, and costly despite huge remittances. There are certainly no economical benefits to executing large-scale transactions. 

Traditional vs Crypto Cross-Border Banking 

 

Crypto innovation in cross-border banking provides trusted real-time verification of transactions. This happens without any intermediaries such as correspondent banks and dependence on a third party. 

 

Traditionally international transactions are carried out through a network of banks and a global messaging system called SWIFT, short for Society for Worldwide Interbank Financial Telecommunications. It is a framework that redirects transactions through various banks using a coded messaging system. Currently, the SWIFT system has over 11,000 banks and financial institutions, sending out over 42 million messages every day to complete cross-border transactions. This system gets a little complicated, expanding a simpler transaction into several steps instead of a simple peer-to-peer transfer. That said, over 4% of payments using SWIFT fail. 

 

But, Blockchain technology in cross-border banking aims to enable secure transfers between an infinite number of bank ledgers. This allows bypassing banking intermediaries. The transactions  remain secure, quicker, and cheaper and have full transparency. This is very different from existing methods as it reduces the probability of fraud. This is in the context of the Central Bank of Bangladesh losing $81 million due to hacking

 

When it comes to cross-border banking, crypto and blockchain can be used for several services like due diligence and loan creation, automating bill liquidations and loan contracts, and international payments. 

 

Recent research by non-profit Stellar Development Foundation and UK-based cryptocurrency payments platform Wirex has revealed an increasing use and acceptance, of cryptocurrencies for cross-border payments in four key developed and emerging countries (United States, United Kingdom, Mexico, and Singapore). More than 53% said they felt they paid too much in fees for international remittances via traditional financial means, such as wiring fiat currencies, while 37% said they didn’t know what they paid in fees.

The benefits of cross border banking via crypto

  • Interoperability or a common exchange ground: With crypto solutions, interoperability can easily emerge, creating a standardized process to further scale up banking processes without any conventional currency conversions. 

 

  • Real-time / Speed: An average international payment takes 2-3 days to clear, a stark contrast to domestic remittances, taking only a few seconds to show up. This is especially troubling for cross-border remittances by migrant workers sending money to their families at home, many of whom rely on these cash transfers. Blockchain transfers work within 10 minutes maximum as compared to SWIFT’s 2-3 business days. 

 

  • Fewer Fees: The World Bank estimates the average percentage transaction fee for cross-border remittances to be around 6.51% as of 2020. The number is even higher for transactions initiated through banks, averaging a whopping 11%. In comparison, transaction fees are way 40%-50% lesser on blockchain payments, and even P2P transfers. 

 

  • Easy Compliance: For financial institutions, it is considered that addressing KYC and AML of blockchain-based identities and their integrations with core financial systems will pave the way to easier compliance. 

 

  • Secure: Increased data security with encrypted and hashed transactions, it is almost impossible to break into. 

 

  • Data-Rich: There is the end-to-end transmission of metadata for every transaction to keep a track of transaction history along with pre-transaction information exchange for pre-authorization of transactions. 

The current state of affairs

Several startups are stepping into cross-border banking with crypto solutions. Ripple was the first of them – a fintech company with XRP as their token and RippleNet payments network. They enable cross-border settlement and currency exchange in real-time by adding banks to their distributed ledger network. IBM has its pilot distributed ledger international payments system called the IBM World Wire, allowing members to transfer funds and exchange currencies in the Stellar cryptocurrency. J P Morgan has JPMCoin to facilitate banking between countries, quicker. 

 

According to Gartner, by 2024, for example, at least 20% of large enterprises will use digital currencies for payment, store of value, or collateral, which will disrupt current financial networks and business models. This raises concerns with regulatory bodies across the globe to understand and foray into crypto as soon as possible. Today, Central Banks across the world are pondering on genuine use cases of Central Bank Backed Digital Currency. So far, 83 countries are experimenting with or implementing so-called Central Bank Digital Currencies, or CBDCs, which represent 90% of global GDP, according to the Gartner study. 

 

China has already distributed more than $5 billion of digital yuan to its people in 2021. 

 

To tackle the problem of standardization, ‘Project Dunbar is underway. Several central banks and the Bank for International Settlements have developed prototypes for a common digital currencies platform that has the potential to make cross-border payments more efficient. The aim is to transact directly with one another on a shared platform, reducing the need for intermediaries and cutting costs and time.

 

Even, SWIFT is being swift to catch up on innovations by partnering up with Capgemini to study and explore relevant blockchain-based solutions.

Conclusion

According to a report from Juniper Research, blockchain technology can help banks cut cross-border payment costs by $10 Billion in 2030 and also improve payment transparency and traceability. However, as per Juniper, many banks were reluctant to move away from traditions, and systems. Understandably, blockchain networks must further improve on the consolidation of robust blockchain-based identities, secure and user-friendly key management and interface, assurance of the transaction scalability, interoperability between multi-purpose blockchain networks and specific-purpose settlement networks, legal frameworks, regulatory policies, etc. When it comes to end-user adoption, digital wallets and the integration of fiat-crypto conversion services are a must.

 

What would differentiate crypto banking from traditional is decentralized registries of information, peer-to-peer solutions, emerging crypto-financial assets, and digital wallets. These hold the potential to bring transformations to the international financial system in terms of development financing through grants and loans to the countries, as well as enabling more efficient remittance corridors across borders.

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Team FrankBanker

Salient points of RBI’s monetary policy announcements today Repo Rate increased by 50 BPS from 4.40 to 4.90%. Consequent adjustment in Standing deposit facility (SDF) rate to 4.65%; Marginal Standing Facility (MSF) rate and the Bank Rate to 5.15% Credit cards to ...Read more

Salient points of RBI’s monetary policy announcements today

  1. Repo Rate increased by 50 BPS from 4.40 to 4.90%. Consequent adjustment in Standing deposit facility (SDF) rate to 4.65%; Marginal Standing Facility (MSF) rate and the Bank Rate to 5.15%
  2. Credit cards to be linked to UPI, starting with RuPay
  3. Limit increased for standing instructions on credit cards from ₹5,000 to ₹15,000 per transaction
  4. Projection for FY23 GDP growth retained at 7.2%
  5. Inflation projected at 6.7% for FY23
  6. Cooperative Banks- Loan limit per borrower for Housing loans increased and permitted to offer door step banking services to their customers
  7. Likely to introduce Digital Rupee this fiscal
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Axia_eth
Equidei    Contributor   Exp: 1 Year   Enthusiast

Ever since the invention of computers, dramatic technological changes have been taking place, as if right out of a science-fiction – from smart robots like Sophie to self-driving cars to 3D printing of prosthetic legs! This change is ...Read more

Ever since the invention of computers, dramatic technological changes have been taking place, as if right out of a science-fiction – from smart robots like Sophie to self-driving cars to 3D printing of prosthetic legs! This change is nothing but the rapid arrival of the Fourth Industrial Revolution, a convergence of the digital, physical, and biological spheres.

It promises a transformation in every aspect of our lives, affecting not only individuals, but entire industries and economies, and even redefining the concept of plain-old humankind. 

Understanding Industry 4.0

What is Industry 4.0? (aka Fourth Industrial Era / 4IR)

 

The First Industrial Revolution (1780 onwards): The invention of the steam engine replaced dependency on animal & human labour with machinery including the spinning jenny, coke smelting, puddling, and rolling processes for making the iron, etc.   

 

The Second Industrial Revolution (1870 onwards): Electricity took the center stage and led to installations of mass production machinery and expansive networks of railways & the telegraph, accelerated research and development, technological inventions, etc. 

 

The Third Industrial Revolution (the 1970s onwards): Also known as Digital Revolution took off with electronics, super & personal computers, and new platforms of mass communications via computers and processors. The large-scale popularity of computers and spike of interest in Artificial intelligence & automation began eliminating manual resources in the industry and is eventually paving the way for Fourth Industrial Revolution.

 

The Fourth Industrial Revolution (Industry 4.0 / 4IR): Industry 4.0 will be a fusion of technologies merging the physical, digital, and biological spheres. It is said to be an advent of ‘cyber-physical systems’ involving entirely new capabilities for people and machines.

 

The Industry 4.0 Trifecta

 

Big data, AI, and Blockchain are regarded as the trifecta of the Fourth Industrial Revolution. Emerging from this trifecta are in fact technologies of today like Robotics, genome sequencing, autonomous vehicles, nanotech, synthetic biology, cloning, biotech, quantum computing, Artificial Intelligence & Machine Learning, the Internet of Things, 3D printing, decentralized governance, and DeFi.

Role of Blockchain in Industry 4.0

Besides its mediating role in linking AI with IoT, Blockchain is pushing the wave of Industry 4.0 through advancing networks & accessibility and challenging traditional perceptions of banking and finance. It has the capability to fuel organizations towards scalable solutions in global trade – from the supply chain, legal, healthcare, academics, and transportation,  to finance

Decentralized Finance (DeFi) as a facilitator for Industry 4.0

 

DeFi (Decentralized Finance) is an ecosystem making financial products and services available without intermediaries. In its nascent stage, Defi is trying to eliminate the shortcomings of traditional finance and in the long run, it might become the monetary standard in Industry 4.0.

 

Whether it’s making a purchase in Metaverse, performing a transaction on an eCommerce website, making a donation in crypto, availing of quick and secure loans, or securely storing capital, DeFi applications are supposedly laying the foundation stones for how money shall work in Industry 4.0.

What does DeFi offer to the Fourth Industrial Revolution?

 

Let us understand how DeFi serves trust-minimized, non-custodial, open, composable, and programmable financial services. 

 

Firstly, let’s get to know the transformations that combat the two major challenges thrown at DeFi – accessible interface and interoperability. 

 

Stablecoins drive accessibility in DeFi by enabling easy cross-border remittances, cryptocurrency trading 24*7, and minimizing volatility. 

 

Additionally, an accessible interface is available even for trading and investing. Trading enthusiasts can route towards Decentralised Exchanges like  Curve (CRV), Uniswap (UNI), PancakeSwap (CAKE), etc to avoid surrendering custody of assets. There are also Exchange Aggregators such as 1inch and Matcha that send trade orders to the exchange offering the best price. Investing in DeFi gets more interesting with Aggregators that mediate activities across the above categories like Yield farming services; optimizing returns from liquidity and collateral provision. 

 

As learned from traditional finance, Interoperability is a must for large-scale transactions. This is becoming possible in the highly fragmented blockchain space with innovations like Inter Blockchain Communication Protocol by Cosmos and Parachain messaging by Polkadot. The best part is the independent functioning, as against traditional finance where exhausting statutory requirements are involved.

 

Secondly, Credit is the backbone of financial ecosystems. Cross-border credits, secured loans against real-world assets, financing manufacturing firms to offering lending platforms are easier & faster to avail on DeFi. Moreover, given the volatile nature of cryptocurrencies, financial services like insurance will soon establish on DeFi. This will be a major boost for businesses, especially SMEs juggling between working capital management and quick credit needs. 

 

How DeFi will facilitate Industry 4.0 and what are the benefits?

 

Large enterprises seek efficiency in transaction services, SMEs require access to credit for continued business operation and survival. According to a 2020 report, the shortfall in financing for SMEs is $5 trillion. So far, traditional finance has not been able to fill this gap.

 

DeFi will be a gamechanger in this regard – thanks to fewer barriers, lower costs, quicker turnaround time, access to cheaper credit, and easy lending and borrowing activities 

 

This also opens up ways to conduct independent banking for all types of industry sectors – and provides them with services of short-term liquidity and cash management, trade finance, payments, escrow services, and custody of assets. The added feature of a smart contracts-driven process, interoperability, and tokenomics, overlook the need for a central authority to participate in a deal. 

 

Some benefits and examples are :

 

  • Enables faster transactions: No centralized authority can control or monitor the transactions, which makes the transaction seamless and fast, without any roadblocks of checks and approvals. 

 

  • Provides flexibility: Being open-source gives companies the freedom to create a robust payment system depending on specific geographies or demographics. This helps to implement automation and provide the best customer experience at every transaction touchpoint. For instance, smart contracts will provide better privacy to stakeholders’ data.

 

  • Offers Transparency: As against the traditional fiat system, DeFi offers true transparency. With DeFi in place, only the given blockchain network has the power to authorize a transaction, unlike a central authority does in traditional finance. You have your own non-custodial wallet to manage your funds. Also, transaction onboarding and market-based risk assessments are much easier to scale.

 

  • Cost-saving: Whether it’s a startup, MSME, SMEs, or an MNC, DeFi promises cost-effectiveness and functionalities like easier lending and borrowing with robust cryptographic verification mechanisms and smart contract integration. 

 

  • Tokenization: Tokenization takes the encryption process one step further and distributes the encrypted data nodes on a decentralized network. Tokenization also help brings real-world assets to DeFi.

Conclusion

So far, we have established that DeFi is here to stay with us. As we head into the fourth industrial revolution, it is imperative that DeFi will blow up to facilitate Industry 4.0 because finance is the backbone of every industry sector.

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Team FrankBanker

From $598 Bn in May 21, Forex Reserves grew steadily, reaching a peak of $642Bn in Oct21. Rising crude, inflation and Fed indicating hawkish views and rate increases in the subsequent months brought Rupee under pressure and RBI interventions. Reserves came ...Read more

From $598 Bn in May 21, Forex Reserves grew steadily, reaching a peak of $642Bn in Oct21. Rising crude, inflation and Fed indicating hawkish views and rate increases in the subsequent months brought Rupee under pressure and RBI interventions.

Reserves came down to $597Bn in May22, although still healthy by any standards.

For more insights subscribe to FrankBanker weekly newsletter https://mailchi.mp/frankbanker/newsletter-signup

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