As we increasingly rely on digital forms of money, the availability and resilience of the underlying infrastructure becomes increasingly important. I recently spoke to Hemakiran (Kiran) Gupta, Regional Head Banking and Financial Services Europe at Tata Consultancy Services to hear how banks are adapting to the expectations of their customers and the latest regulatory requirements.

Welcome, Kiran. Our discussion today will focus on building a resilient financial services enterprise. First, could you share your insights on how the latest regulatory changes affect operational resilience within financial institutions? Additionally, it would be great if you could shed some light on how banks are adapting their risk management, incident response, compliance, and governance practices to account for these changes.

The banking and insurance industry is undergoing a transformation which is leading to an unprecedented evolution in resilience. Two decades ago, it could take up to three days to process payment transactions, and we were still talking about check payments in some countries. In the case of cross-border payments, it could take up to five, seven, or even eight days depending on the country involved. This long period of time between the parties involved in the payment process presented various risks and challenges involving hedging and reconciliation.

Thanks to the evolution of technology and changes in business practices, payment processing times have significantly improved. The faster payment transactions now take only up to 10 seconds, compared to the slower processing times of the past. This has led to a shift in the concept of resilience. Regulators have also adapted their regulatory practices to keep up with the changing landscape. As a result, all enterprises now have equal opportunity, thanks to the support of regulators.

Regulators have introduced the Digital Operational Resilience Act, also known as DORA, which outlines five pillars for enterprises to focus on between 2023 and 2025. These pillars include IT risk management, incident management, testing, third-party information sharing, and information and intelligence sharing. This is an effort to help society and ultimately benefit the end consumer in the value chain. However, the process is becoming increasingly complex.

I'll give you an example. Two days ago, I used my mobile wallet to pay for my dinner. However, even though the mobile wallet deducted the payment from my account, it took 24 hours for the transaction to reflect in my bank account. Previously, it would have taken three or four days, but even 24 hours is a long wait. Now, imagine if there were 100,000 such events happening, and all of them hit the bank without the bank being aware of them because the transactions were made using third-party products. When the events finally hit the bank, they have a very small window to process. But if the bank's systems are down during that window, how will they respond? This simple example also demonstrates that it is increasingly important for banks to predict future events based on past experience by using machine learning (ML), analytics, and other artificial intelligence (AI) techniques.

Exactly. Resilience is all about being prepared for whatever the future may bring. Since TCS has extensive experience in both consulting and implementing solutions across financial enterprises, could you discuss some of the most effective strategies or technological innovations that banks have used to prepare for the future?

It's an interesting question. Nowadays, everyone seems to be talking about GenAI and AI. To put things into perspective, when I completed my computer science engineering degree 30 years ago, AI was a subject of my engineering studies. However, it took around 15 to 20 years for people to start talking about it. Today, AI has become mainstream and GenAI is viewed as a step forward.

At TCS, using ML and AI techniques, we developed Ignio™ 10 years ago. Ignio™ is an AIOps platform that enables resilient and agile IT operations across hybrid (combination of on-premise and cloud) and multi-cloud environments along with business context and AI-powered analytics, delivering better visibility and control over business KPIs. It can also identify and assess deviations in system behaviour, resolve issues, predict the future, and suggest proactive actions to pre-empt operational disruptions. We can deploy this product in any value chain, even in insurance, not just in banking—in fact, Ignio™ is being used across multiple industries including by Fortune 500 companies, global leaders, and innovators.

The small and medium business (SMB) segment is vital for the economic growth of any country; however, this segment is underserved, especially when it comes to credit because SMBs may not have enterprise / financial information structurally available. Banks need to perform significant manual work, such as checking credit scores, evaluating financial performance, and analysing publicly available information including social media posts before they can approve a loan. However, our company has come up with an innovative solution called financial spreading, which is based on AI and ML. This technology can scan the entire marketplace and provide a score to the bank in just 5 to 10 minutes, with an accuracy rate of 85 to 90%. This makes the loan approval process much faster and more efficient.

And the conclusions are based on internal data points of the bank?

The decision on who the bank should extend the loan to is based on external data points. This perfectly aligns with the ideology of open finance.

There is a lot of innovation happening in the market, and many of our clients have introduced multiple innovations. For instance, in Norway, Vipps started as a peer-to-peer payment platform, which has now been expanded to include utility bill payments, wallets, open finance, and many other features. The DNB Bank in Norway built this platform, which is now accepted by more than 100 banks. In the Netherlands, there is Tikkie, and in Belgium, there is Payconiq.

We recognise the need for enterprises to take advantage of these innovations. And this is where TCS can help—as part of our Co-Innovation Network (COIN™), we work with a number of fintechs as well as large enterprises, enabling collaboration between our clients and COIN™ partners.

Do you believe that banking innovation is currently more focused on establishing a strong foundation and ensuring resilience in order to pave the way for future innovations that may emerge? Or is customer-centricity still the central focus of innovation in banking today?

In the banking and insurance sectors, there is a lot of product innovation happening. Banks are able to provide clients with hybrid products that help them save money without customers even realising it. For instance, every time customers use their bank account, transaction amounts are rounded off to the nearest decimal and the difference is transferred to an investment plan. This is just one way that incremental innovation is taking place in the financial services industry.

Another example of innovation in the insurance sector is a company that started by providing insurance to cover roadside assistance but has now transformed itself to offer assistance anytime, anywhere. When customers experience issues with their bookings, they can call the company, which has reworked its assistance program to provide support all over the world. Innovation is happening not only in the customer experience, but also in the core engine and products, and throughout the value chain.

I agree with your observation that the current mantra is to simplify things. In the past, some enterprises may have become carried away with social media and the idea of investing all their money in customer experience. However, true customer experience is not just about flashy screens with ease of use, but encompasses the entire business value chain. This realisation has led to a trend of simplification in various aspects such as work, technology, and business processes. Simplification is a way to bring more value to clients.

Absolutely, I completely agree. And do you think that stability and operational resilience can be elements for banks to differentiate themselves in today's competitive landscape, given the tough regulations that apply to every financial institution?

When booking a flight, the most crucial factor for me is punctuality. Of course, price and comfort are important too, but I don't want to deal with flight cancellations. So, I look for airlines that have a high percentage of punctuality. In the same way, when it comes to banking, I prefer to have a stable and reliable bank. This is why operational resilience and system availability are vital for me. I recently spoke with a bank executive who mentioned that they are required by regulators to have less than four hours of failure in a year, which is great news for consumers like me. These factors are what banks are focusing on to differentiate themselves from the competition.

But as for me, is also an argument to say that it's not a differentiator, because it's the fundament of every single bank. So how can we differentiate in that context, if every bank needs to adhere to those laws or those restrictions or SLAs?

If we view it as a service level agreement, or as a basic requirement, then it doesn't become a unique factor. However, some financial institutions have been clever in bringing their availability and user experience aspects into their investor relations. They talk about it and communicate it to consumers. Imagine receiving information from a bank that not only informs you about their products but also highlights that their availability is superior. This could be used as a selling point. Banks need to communicate it effectively, amplify the message and develop branding around it. This can make it a true differentiator for consumers—in conversations with friends or colleagues, customers may mention that they have constant access, whereas someone else may be complaining about their bank’s performance!