In an exclusive interaction with Adlin Pertishya Jebaraj, Correspondent of Finance Outlook Magazine, Anil Kumar Agarwal, CEO of Technofin Solutions and Seed Investor at Photofin.com, shares how digital transformation in Indian banking and financial services is revamping the customer experience through process improvements and technology adoption. He further discusses the role of AI, automation, and fintech partnerships in improving efficiency and enabling personalized service.

Anil Agarwal is a seasoned finance professional and CFA (ICFAI) charterholder with over 25+ years of experience in fund management, banking, capital markets, and digital transformation. Anil integrates his experience in the banking and financial services industry to transform his clients’ businesses through innovative solutions that generate value for retail customers and drive daily operational efficiency.

How is digital transformation changing the Indian banking landscape today?

Among the most notable changes I have observed since moving out of the core financial sphere and into the technology industry is that digital transformation is reimagining the way services are offered in banking, capital markets, and wealth management institutions.

Digital transformation is an ongoing process whose purpose is to use technology to optimize and streamline internal operations, reduce costs, innovate products, and provide better value to their end customers. It is about reinventing the way service is delivered to their customers.

In terms of transformation, value creation can be bucketed into key dimensions: enhancing customer experience, improving operational efficiency, bringing product innovation, and enhancing risk management.

Technology has transformed the customer experience by giving customers the opportunity to access banking services remotely, a feature that was impossible a few decades ago. Branch banking has been in decline, and mobile and internet banking have taken over as the most preferred channels. Internally, analytics play a vital role by processing large volumes of data and enabling financial institutions to effectively evaluate products and risk in real-time, thereby providing great insights to decision-making and reducing fraudulent transactions. Mobile banking, online trading, and interbank transfers, among others, is now the norm.

An excellent example of the role of digital transformation was clearly witnessed during the COVID-19 pandemic, when transactions in securities markets increased almost manifold, with customers executing transactions and managing investments from home digitally. Moreover, digital transformation has enhanced risk management and data safety, allowing banks to consolidate risks, secure funds, and protect customer information. Automation and consolidation of processes have lowered the cost of operation and increased efficiency to offer services at low cost to be competitive.

In short, digital transformation has entirely changed the nature of the design, delivery, and experience of banking services.

Also Read: How Treasury Leaders Can Navigate Emerging Market Volatility 

What are the main challenges banks are facing in digital transformation?

The digital transformation in the Indian banking ecosystem has been evolving significantly over the last ten years. Private sector banking institutions have been on the leading edge because they are more agile and modern with their technology infrastructure, whereas the Public Sector Banks (PSBs) have been lagging behind and are now trying to make significant investments in recent years to close this digital divide to stay competitive. 

The most pressing obstacle is their legacy systems and outdated underlying banking architectures. The migration to next-generation core systems is an expensive undertaking, both in terms of finances and time. They had lost the race in round one of technology adoption, but better late than never.

Another major challenge in transformation is the disintegrated organizational structure in most banks, where business, operations, and technology segments operate in silos. To achieve success in a digital transformation initiative, the entire organization needs to be strategically aligned, preferably top-down, with the CEO or COO owning and driving the transformation.

Banks also face huge technical debt, where costly legacy architectures make modernization difficult and expensive. Managing human resource concerns is also of high importance to address the needs of retraining staff to fit the new digital processes and comforting them from fears of job loss.

Another emerging concern post-digitization is security threats and cyber risks. With the increase in digital channels, the threat of fraud and data breaches has gone up rapidly, necessitating a well-developed cyber security system to secure customer confidence in digital channels.

Lastly is the challenge of rapidly changing technology. Banks must keep up with the current trend of innovation to stay competitive and relevant in the new ecosystem where fin-tech and private banks are defining new standards in terms of speed, convenience, and innovation.

How are banks using digital platforms to create a better experience for customers?

Customer engagement has fundamentally changed by digital platforms in banking and financial services. Mobile banking, in particular, has transformed the way services are accessed and provided, especially to the younger generation, who rarely visit physical branches.

A notable effect of this change is the fintech ecosystem, which brings a high level of competition and innovation. Fintech companies are not just competing with traditional banks; they are now partnering with them, creating win-win relationships, to bring better customer experiences to the products and services offered.

Government-sponsored ecosystems have also played a major role. For example, the Unified Payments Interface (UPI) has transformed retail payments to near real time, and the Open Network for Digital Commerce (ONDC) is laying the foundation for integrating digital commerce, including financial experiences such as booking fixed deposits across banks via the platform. New technologies such as video KYC and Aadhaar-based identity checks have made the onboarding process extremely easy, allowing customers to open bank accounts remotely and within minutes.

The retail payments market is dominated by fintech applications like PhonePe and Google Pay that have captured almost 80% of the UPI transactions by providing a better user experience. This is a clear sign of how convenience and user experience are being redefined in the banking relationship using the digital platform.

Altogether, with the help of fintech innovation, the government’s payment infrastructure, and sophisticated real-time customer analytics and insights, banks are able to provide personalized, smooth, and effortless financial experiences.

Also Read: Next-Gen GST Brings Relief for Used Bike Buyers

What changes is digitalization bringing to treasury operations and liquidity management?

In the last ten years, retail banking has been the center of digital transformation and consumed most of the budget. In recent years, though, there has been a major investment in digitizing wholesale banking and treasury operations. The Reserve Bank of India (RBI) and other institutions have set up their own innovation labs to encourage the deployment of newer technologies like blockchain AI agents for bill discounting, trade finance, and Letter of Credit (LC) processing. Such initiatives are enhancing transparency, ensuring fewer manual errors, and lessening the risks of fraud.

In the treasury segment of the banks, three primary areas have been improved by digital transformation:

Cash Management: Real-time reconciliation and consolidated cash positions have enhanced the visibility of liquidity forecasting and use, allowing funds to be readily deployed/raised for better returns. Banks can decide on cash management strategies of cash centralization and decentralization due to the easy movement of funds in minutes.

Risk Management: With advanced analytics and automation, a company has real-time access to open positions and exposures, which allows for proactive hedging and the avoidance of massive financial risks. They can track sources of funds and block transfers for any fraud.

Secure Payments: RTGS, IMPS, and UPI provide a more transparent, safer, and faster solution for transferring funds domestically, while blockchain is making cross-border settlements near real-time, something that used to take days.

Real-time data and analytical systems have enabled treasury teams to make better and faster decisions, a factor that has significantly enhanced efficiency, accuracy, and profitability.

What strategies are banks taking to improve market penetration through digital channels?

Artificial Intelligence (AI) and AI agents are becoming a trend within the banking sector to facilitate better customer acquisition and interaction over digital platforms. Most customer interactions that used to be handled only by humans are currently being powered by AI-powered agents and AI chatbots that can respond to customer queries faster and with fewer errors.

These technologies allow banks to understand customer behavior, streamline their service offerings, and provide customized financial experiences. With predictive analytics and social media data analysis, banks are enhancing lead generation, identifying customer needs, and tailoring marketing efforts appropriately.

Besides, AI is useful in cross-selling and up-selling, as it offers a 360-degree customer view and allows banks to monitor and enhance customer satisfaction, wider product usage, and reduce potential service gaps. This integrated knowledge enables institutions to come up with tailored product offerings, thus enhancing customer retention and wallet share.

Finally, digital strategies aim to utilize data intelligence, automation, and omnichannel customer engagement to gain deeper market penetration, attract a younger audience, and increase customer lifetime value.

Also Read: Interest Rate Risk Forecasting: India's Banking Sector

What do you see the banking industry looking like digitally in 5–10 years?

The banking industry will be fundamentally characterized by change over the next five years. The rate of change, enabled by Artificial Intelligence (AI), intelligent agents, and automation, is increasing at a rapid rate than expected.

AI-based systems will immensely lower the number of manual processes, streamline costs, and facilitate hyper-personalized and on-demand financial services. Nonetheless, this development also creates essential issues of data privacy, cybersecurity, and ethical governance. Banks must ensure that the implementation of AI complies with high data protection regulations and structures.

Unlike e-commerce, the banking industry is highly regulated; therefore, AI agents should be used to enable real-time monitoring of compliance to reduce regulatory risks.

The future of banking will be defined by the seamless automation of banking processes, advanced decision-making, improved cybersecurity, and increased regulatory compliance, which will result in a more resilient, customer-focused, and digitally integrated banking ecosystem. Financial services and banking will get integrated into our lifestyle without the need to go to a bank. The future holds for banks and financial services organisations that are agile, tech-savvy and willing to innovate. The winner is the customer.