Navigating the Maze: Four key dynamics that will shape the BFSI sector in 2024
12 March 2024
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About the author

This article is authored by Teng Sherng (TS) Lim.

Teng Sherng (TS) Lim is the Chief Commercial Officer at ADVANCE.AI. He has over 30 years of experience in IT Technology and Services. Working with customers and leading teams across various geographies and functions, TS helps businesses in Asia Pacific and beyond address challenges in Cybersecurity, Financial Crime & Compliance, Fraud & Identity, Enterprise Applications and other business and technological areas.

TS Lim - CCO - 2024

As the first quarter of the year draws to a close, I'm keenly prompted by a moment of reflection on the rapid passage of time. With teams re-energized and plans gaining traction, end of quarter is often an opportune juncture to contemplate the strategies that will define success for the next few seasons of execution. This time, I am reflecting on the evolution of innovation in our industry and how some key dynamics will shape the rest of 2024.

Innovations evolve so fast that old ones are phased out even as new ones are introduced. Few industries are at the forefront of such dramatic changes as the Banking, Financial Services and Fintech Industries (I'd categorically use "BFSI" as a generic term to reference these industries in the rest of this article). Indeed, the industry has frequently catalysed progress, helping organisations and people manage economic and societal changes. With 2024 already in the present tense, what are some trends we can expect, and what can BFSI leaders do to capitalise on them? Allow me to share my own perspective of key dynamics to watch in 2024.

The Gap Between Movers and Laggers Will Widen in 2024

The International Monetary Fund predicts that while Asia Pacific will continue to fuel global growth, regional economic slowdowns are likely to dampen overall growth rates. Additionally, Deloitte forecasts that higher interest rates, increased regulatory pressure, and sustained inflation will pose challenges on the banking, financial services and financial technology companies.

These trends will certainly shift financial behaviour among businesses and consumers, influencing the demand for specific banking and financial products. For instance, financial strains may lead to a rise in demand for loans and credit lines, while higher interest rates and stricter regulations could fuel the demand for fintech solutions that assist financial institutions in managing and mitigating risks.

The Widening Gap: Innovators vs. Laggards

During the 2019 to 2022 period, triggered by COVID, many businesses successfully propelled their innovation. Now that we're completely in a post-COVID phase, this trajectory needs to continue, in order for businesses to stand out against competitors. This is also where the first key dynamic we should watch closely, comes in.

Financial services businesses will face a critical choice in 2024: embrace change and invest in innovation, or risk falling behind in the face of evolving economic realities and customer needs.

There are opportunities to be had even in times of distress. While it is true that the economic outlook isn’t exactly favourable compared to this time last year, the current economic climate forces businesses to leverage diverse sources of data, boost digital capabilities, and build partnerships that will help capitalise on opportunities. Such pre-emptive measures not only spur businesses into action, but they help prepare for the storms ahead too. Conversely, businesses frozen in place due to uncertainty are bound to create self-fulfilling prophecies, which in turn leave them behind when the storms do pass overhead. In short, decisive action, backed by strong data-driven insights, is crucial for success in 2024 and beyond.

Generative AI Will Unleash a Wave of Transformation (But Challenges Remain)

Speaking of digital capabilities, generative Artificial Intelligence (GenAI) dominated much of the conversations in 2023—and for good reasons. While less than one percent of independent software vendors have GenAI embedded in their enterprise applications, the number is set to cross the 80 percent mark by 2026. While the most visible application among BFSI companies is likely going to be in chatbots in the foreseeable future, I would expect that GenAI will be applied in less visible yet equally critical ways.

GenAI in Action: Real-World Examples

GenAI's impact isn't a distant future; it's already making waves:

  • Simplified Onboarding: AI is already streamlining customer onboarding by automatically verifying documents. AI-powered systems efficiently extract details from various documents, including identification cards, passports, and utility bills. This not only expedites the process but also enhances security with features like Multi-Factor Authentication (MFA) that utilise AI for liveness detection, behavioral analysis, and voice biometrics. These layered approaches create a robust system, making it significantly harder for fraudulent identities to slip through.

  • Enhanced Risk Assessment: GenAI can significantly improve risk assessment by generating additional data sets based on various scenarios and market conditions. This allows for faster training of AI/ML models, leading to more accurate and personalized risk assessments. This, in turn, enables institutions to offer more inclusive lending practices while also mitigating default risks.

Further Use Cases of GenAI as a Game-Changer

GenAI offers a transformational potential for the BFSI sector, reaching beyond customer onboarding and risk assessment. Imagine an AI assistant that not only curates personalised investment options but also explains the rationale behind each recommendation, fostering greater financial literacy and engagement. This is just one glimpse into the diverse applications of GenAI:

  • Personalised Financial Planning: GenAI can analyse individual financial data, risk tolerance, and life goals to generate tailored financial plans and investment strategies, empowering individuals to make informed financial decisions.

  • Wealth Management: GenAI can personalise wealth management services by creating custom portfolio recommendations, simulating market scenarios, and providing real-time insights tailored to each client's unique needs. This level of personalised guidance can potentially improve long-term financial outcomes.

  • Regulatory Compliance Automation: GenAI can streamline the complex and time-consuming process of regulatory compliance automation by automating tasks like report generation, data analysis, and anomaly detection. This frees human resources to focus on higher-level tasks and strategic decision-making, while potentially minimising regulatory compliance errors and associated risks.

Navigating the Challenges

Despite its immense potential, widespread adoption of GenAI faces several challenges:

  • Robust Data Infrastructure: GenAI models require vast amounts of high-quality data to function effectively. Building and maintaining this infrastructure can be a challenge for some institutions, particularly smaller players.

  • Ethical Considerations: Concerns around bias and explainability loom large. GenAI algorithms are only as good as the data they are trained on. Addressing potential biases and ensuring transparency in decision-making processes is crucial to building trust and ensuring ethical use of this technology.

  • Job Displacement Concerns: As certain tasks become automated through GenAI, concerns regarding job displacement in the BFSI sector are emerging. Addressing these concerns through reskilling and upskilling initiatives will be essential to ensure a smooth transition and mitigate potential negative impacts on the workforce.

Given the above and more innovations to come, GenAI promises a future of personalised, efficient, and data-driven solutions in the BFSI landscape. However, navigating the ethical and practical challenges associated with its implementation will be crucial for ensuring responsible and inclusive growth in the years to come.

The AI Arms Race in Fraud Management

The potential of GenAI in the BFSI sector is undeniable, but it's a double-edged sword. While it offers numerous benefits, it also equips fraudsters with sophisticated tools to create highly convincing deepfakes, manipulate documents, and launch targeted phishing attacks. This necessitates my predicted reality in 2024 - a continuously evolving arms race in the realm of fraud management.

The Sophistication of Fraud

  • Deepfakes and Synthetic Identities: GenAI could create realistic deepfakes of individuals, including forged documents, signatures, and even voice recordings. This can bypass traditional document verification methods during onboarding, potentially allowing fraudulent actors to gain access to financial accounts.

  • Personalised Phishing Attacks: GenAI can personalise phishing emails, messages, and websites, mimicking legitimate communication styles and tailoring them to specific individuals. This makes it increasingly difficult for users to discern genuine communications from fraudulent attempts.

Fighting Fire with Fire: AI-powered Countermeasures

Fortunately, the battle against fraud is not a one-sided war. The BFSI sector is also harnessing the power of AI to develop advanced countermeasures:

  • Deepfake Detection: GenAI algorithms can analyze vast datasets of real and synthetic identities, identifying subtle anomalies in facial expressions, eye movements, voice patterns, and even typing rhythms. These advanced detection methods can expose deepfakes and prevent unauthorised access.

  • Real-time Fraud Prevention: AI-powered systems can analyze transactions in real-time, identifying suspicious patterns and potentially fraudulent activities. This enables immediate intervention and minimises the impact of fraudulent attempts.

Challenges and the Path Forward

Despite the potential of AI-powered countermeasures, challenges hinder their widespread adoption:

  • Legacy Systems and Resistance to Change: Some BFSI companies continue to rely on outdated systems and are hesitant to embrace new technologies like GenAI. This reluctance puts them at a disadvantage in the fight against evolving fraud tactics.

  • Lack of Resources and Expertise: Smaller institutions might lack the resources and expertise needed to develop or implement sophisticated GenAI-based solutions.

Bridging the Gap

For such institutions, collaborating with third-party vendors offering pre-built GenAI-powered fraud detection solutions can be a viable option. Additionally, fostering industry-wide collaboration and knowledge sharing can equip smaller players with the necessary resources to combat sophisticated fraud attempts.

Rounding up this prediction, I expect that the BFSI sector will continuously adapt to the evolving landscape of fraud, as would the fraudsters. By embracing AI-powered countermeasures and fostering collaboration, financial institutions can mitigate the risks associated with GenAI-enabled fraud and safeguard their customers' financial well-being. However, addressing the challenges of legacy systems, resource constraints, and knowledge gaps will be crucial for ensuring widespread adoption and a secure financial future.

Navigating the AI Policy Maze - Guidelines Over Rules

Governments in the region are on the move regarding AI. For example, the Monetary Authority of Singapore (MAS) completed the first phase of Project MindForge, a risk framework for GenAI in the financial sector. MAS also set up a Cyber Security Advisory Panel to tackle malware scams and AI-related risks in the financial sector.

However, while regulations act as effective guardrails for novel technologies, too much regulation could risk suffocating innovation altogether. To strike a balance between the two, I expect that more guidelines and policies— not rules of law—will be introduced around AI in 2024. I say this because the rules of law around AI are difficult to enforce.

One main challenge to rule-based regulation around AI would be the harmonisation of cross-border enforcement strategies across government agencies from different countries. And the second challenge would be the matter of future-proofing. With AI developing so rapidly, even if the rules of law were somehow agreed upon by all parties involved, they would be obsolete by the time they were implemented.

The case for principle-based approach

Instead of rigid rules, flexible guidelines offer a more adaptable approach, reasons being:

  • Collaborative Development: In-depth consultations with stakeholders from the public and private sectors can foster understanding, encourage responsible development, and address concerns from diverse perspectives.

  • Agility over Rigidity: A principle-based approach focusing on core ethical values and potential risks allows for greater flexibility and the ability to adapt to the dynamic nature of AI. This ensures that regulations remain relevant and effective in a fast-changing environment.

By recognising the complexities of establishing effective AI regulations, businesses can navigate the maze of guidelines and principles that are likely to shape the future of this transformative technology.

The Future Beckons: Navigate the Maze, Shape the Landscape

As we build the path into 2024 and beyond, the BFSI landscape stands at a pivotal juncture. Unprecedented technological potential converges with intricate ethical considerations, creating a dynamic and demanding environment. This calls for immediate action from financial services players to navigate the evolving landscape responsibly and ethically.

Going forward, firms should focus on two primary actions: firstly, invest in AI transparency and security to ensure that technological advancements are both understandable and safe for all stakeholders. This includes the development of explainable AI systems and the fortification of data protection measures. Secondly, fostering proactive collaboration with regulators and industry partners is essential. By engaging in dialogue and partnership, firms can steer the integration of AI technologies in a way that respects ethical boundaries and promotes inclusivity and accountability.

By taking these crucial steps, you can not only navigate the maze of evolving regulations and challenges but also actively shape the future of the BFSI landscape. As a united force, the industry can harness the power of AI responsibly, ensuring sustainable growth that aligns with broader societal values. Remember, the future is not predetermined – it's waiting to be shaped by your actions today.

The utopia will be one where everyone embraces the challenge, seizes the opportunity, and takes on a leading approach to shaping the responsible and ethical future of the BFSI sector.

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