The Reserve Bank of India recently opened up National Electronic Funds Transfer (NEFT) and Real-Time Gross Settlement (RTGS) facilities to non-banking payment operators.¹ This is the first time that the RBI has opened up RTGS and NEFT to entities outside the traditional banking sector and it confirms what we have known for a while – banking is changing. No longer is the function of banking restricted to the traditional bank or even to the physical bank branch. Banking is now anywhere, any time and via any channel. And the traditional banking sector must modify its operational strategies accordingly.

There is no getting away from the fact that technology has had a tremendous impact on the banking sector. On the one hand it changed customer expectations and on the other it led to the emergence of digital native fintechs who offered customers the kind of uberized services they wanted. And for the first time in their history, traditional banks faced a crisis of eroding customer loyalty. Of course, the banking sectors picked up pace on the digital transformation front, but competition from fintechs is increasing by the day. From increased funding to the emergence of challenger banks to the increasing global scaling of operations, this sector is poised for tremendous growth.²

The RBI announcement is clearly designed to level the playing field for fintechs and to help bring unbanked populations within the larger banking ecosystem. But where does this move leave traditional banks? If anything, the competition for their slice of business will negatively impact revenues at a time when the pandemic has already slowed down growth and led to a deluge of bad loans. The truth is, fintechs are here to stay. Customers are eager to tap into the ease of use and on demand availability they offer. And their relatively easy processes and digitally powered models make them attractive options for demographics previously left out of the banking ecosystem. Traditional banks must now adapt and gear up to work alongside their digital native competition.

Times are tough for the traditional banking sector. The pandemic related disruption coupled with increased competition from fintechs has forced most banks to accelerate their digital transformation strategies. But survival and success in this vastly changed and increasingly complex landscape will depend on more than just technology implementation. Technologies like AI are a tool for banks to leverage effectively and drive greater customer engagement and loyalty.

Despite increasing competition, traditional banks still enjoy significant customer loyalty and trust, and they must build on this. It is time to revamp the way the banking industry worked so far and create empathetic customer centric business models. Data holds the key to a successful customer focused strategy. In fact, in the new digital economy, data is priceless. And banks have an advantage over fintechs in this matter because years of operations have helped create an enviable repository of customer data. Banks would do well to invest in AI solutions to leverage this for intelligent insights into customer behavior and engagement models. This can then form the foundation of their strategy and roadmap – from personalization of deals, offers, pricing and bundles to customized customer connect programs that will drive customer loyalty and retention.

The new era of banking is inclusive of fintechs, tech giants, challenger banks and traditional banks and holds more possibilities for expansion and growth than ever before. Now is the time for banks to relook at their operational models and strategic priorities with a modernized and digitally powered infrastructure.