Unit-1

Financial services
Introduction
• Financial services refer to
services provided by the finance
industry.

• The finance industry

encompasses a broad range of
organizations that deal with the
management of money.
• Among these organizations are banks, credit card
companies, insurance companies, consumer finance
companies, stock brokerages, investment funds and
enterprises, some government sponsored.

• The functions of financial services are

• Facilitating transactions (exchange of goods and services) in the
economy.
• Mobilizing savings (for which the outlets would otherwise be much
more limited).
• Allocating capital funds (notably to finance productive investment).
• Monitoring managers (so that the funds allocated will be spent as
envisaged).
• Transforming risk (reducing it through aggregation and enabling it
to be carried by those more willing to bear it).
What Is the Financial Services Sector?

• The financial services sector provides financial services to people

and corporations.
• This segment of the economy is made up of a variety of financial
firms including banks, investment houses, lenders, finance
companies, real estate brokers, and insurance companies.

• As noted above, the financial services industry is one of the most

important sectors of the economy. Large conglomerates dominate
this sector, but it also includes a diverse range of smaller
companies.

• According to the finance and development department of

the International Monetary Fund (IMF), financial services are the
processes by which consumers or businesses acquire financial
goods.
• For example, a payment system provider offers a financial
service when it accepts and transfers funds between payers and
recipients. This includes accounts settled through credit
and debit cards, checks, and electronic funds transfers.
International Monetary Fund. "Financial Services: Getting the
Goods."
• Companies in the financial services industry manage money. For
instance, a financial advisor manages assets and offers advice on
behalf of a client.
• The advisor does not directly provide investments or any other
product, rather, they facilitate the movement of funds between
savers and the issuers of securities and other instruments.
Who offers Financial Services?
• Financial institutions: Specialized service as a product like
Banking, Insurance, Asset Management (Mutual Fund),
Registrar, Depository, etc,.

• Financial Intermediaries: Bridge the gap between the seller

and buyer or demand and supply. Stock Brokers and Forex
dealers are the few to mention.

• Financial Markets: They offer services like Listing, delisting,

online trading, clearing, settlement, risk management in
Equity, Debt, Derivatives and Forex Markets.
Types of Financial Services
• Banking Services

• Insurance Services

• Investment Management Services

• Capital Market Services

• Non Banking Financial Services

• Corporate Services

• Merchant Banking Services

• Global Financial Services

Characteristics and Features of Financial
Services
• Customer-Specific
• Intangibility
• Concomitant
• Tendency to Perish
• People Based Services
• Market Dynamics
Customer-Specific

• Financial services are usually customer focused.

• The firms providing these services, study the needs of their

customers in detail before deciding their financial strategy,
giving due regard to costs, liquidity and maturity
considerations.

• Financial services firms continuously remain in touch with

their customers, so that they can design products which can
cater to the specific needs of their customers.
• The providers of financial services constantly carry out
market surveys, so they can offer new products much ahead
of need and impending legislation.

• Newer technologies are being used to introduce innovative,

customer friendly products and services which clearly
indicate that the concentration of the providers of financial
services is on generating firm/customer specific services.
Intangibility
• In a highly competitive global environment brand image is very
crucial.
• Unless the financial institutions providing financial products
and services have good image, enjoying the confidence of
their clients, they may not be successful.
• Thus institutions have to focus on the quality and
innovativeness of their services to build up their credibility.
Concomitant
• Production of financial services and supply of these services
have to be concomitant.
• Both these functions i.e. production of new and innovative
financial services and supplying of these services are to be
performed simultaneously.
Tendency to Perish
• Unlike any other service, financial services do tend to perish and
hence cannot be stored.
• They have to be supplied as required by the customers. Hence
financial institutions have to ensure a proper synchronization of
demand and supply.
People Based Services

• Marketing of financial services has to be people intensive and hence

it’s subjected to variability of performance or quality of service.
• The personnel in financial services organisation need to be selected
on the basis of their suitability and trained properly, so that they can
perform their activities efficiently and effectively.
Market Dynamics
• The market dynamics depends to a great extent, on
socioeconomic changes such as disposable income, standard
of living and educational changes related to the various
classes of customers.

• Therefore financial services have to be constantly redefined

and refined taking into consideration the market dynamics.

• The institutions providing financial services, while evolving

new services could be proactive in visualizing in advance what
the market wants, or being reactive to the needs and wants of
their customers.
Effect of Technological Trends
• Agile and adaptive banking
• Hyper personalization in the banking industry
• Artificial intelligence in the entire banking industry
• Open banking and embedded finance
• Payments 4.X as a trend in banking
• Hyper-automated banking with Robotic Process Automation
(RPA)
• Low-code or no-code platforms
• Buy Now Pay Later (BNPL) 2.0
• Regulatory Technology (RegTech)
• Metaverse in finance
Technological Trends
• New technological developments are redefining our
approach to finance.

• The role of banking is changing with the emergence of new

technologies.

• This, in turn, is also affecting how companies or finance

departments function daily.

• The concepts of AI transformation, blockchain, NFT, AR, and

VR are becoming integral to conversations about the
sector’s future.
Agile and adaptive banking
• For the financial sector to be agile, it means being competitive while
also capable of launching new products at great speed and efficiency.

• Financial firms, financial institutions, commercial banks, and insurance

businesses who stay flexible and nimble are the ones that will stay
afloat.

• Gartner research indicates that by 2030 about 80% of the traditional

financial institutions will cease to exist.

• Moreover, the Agile banking academic study by the Journal of Business

Economics indicates that about 77% of banks and 44% of FinTech firms
intend to improve their financial services by adopting Agile methods.
Hyper personalization in the banking industry

• Consumers expect highly personalized digital

interactions across all industries, including banking. They
benefit from the right level of service that creates loyalty by
recognizing past interactions and anticipating future needs.

• This level of personalization will increase sales and

engagement, and ultimately revenue.

• Banking-as-a-service and FinTech partnerships can move

users toward highly personalized banking and financial
• Indeed, today consumers, banks and FinTech are
increasingly using application programming interfaces to
exchange information.

• “The formula for growth sounds simple. Customers want to

be provided with personalized experiences, regardless of
wherever they may be on their own digital journey.

• Such activities and interactions are bound to become the

dominant trend, and banking will be embedded in other
elements of everyday reality.
Artificial intelligence in the entire banking industry

• Another of the key banking technology trends we can expect to

see in recent times is the increased use of artificial intelligence in
banking.

• For example, AI-powered chatbots will become even more

common, providing customers with 24/7 support and
personalized recommendations.

• Besides, artificial intelligence is increasingly applicable to

banking, primarily due to its ability to process large amounts of
data and make quick decisions.
• The technology can also help banks improve fraud detection
and reduce financial crime risk.

• For example, with machine learning, banking systems and apps

can analyze real-time transaction data and automatically trigger
alerts or block suspicious transactions if suspicious activity is
detected.

• Another example of an AI application is credit risk analysis.

Thanks to AI-based systems, banks can quickly and accurately
assess customers’ creditworthiness and determine the level of
risk involved in their loans or extending credit.

• AI can also help optimize business processes in banking.

• By automating processes, banks can save time and resources
by reducing costs and increasing the efficiency of their
operations.

• Artificial intelligence is, thus, undoubtedly a banking

technology trend. It can bring many benefits to both banks
and customers. With AI, banks and other financial institutions
can make more accurate decisions and provide better
customer service.
Open banking and embedded finance
• Next on the list is open banking and embedded finance. In short,
the open banking phenomenon has existed for some time.

• However, only recently have financial institutions recognized its

potential. Overall, the concept boosts digital experiences, grants
faster onboarding, and broadens access to alternative asset
marketplaces.

• Open banking delivers a myriad of opportunities to the finance

industry because it grants unprecedented access to banking
customers.
Payments 4.X as a trend in banking

• Over the past few years, the increasing level of widespread

digitization has also caused user experiences and expectations to
dictate the direction of cashless transactions.

• The answer to customer experience and expectations, and as we

know, not only Data is king, but the Customer is the king too, is
Payments 4.X.

• This is currently one of the most critical trends in banking, which

may contribute to changing the way financial transactions are
carried out shortly.
• The concept involves an improved version of traditional payment
methods, such as debit cards and bank transfers, using new
technologies such as blockchain, artificial intelligence, and
automation.
• With Payments 4.X, bank customers have access to more
personalized financial services that are faster, more efficient, and
more secure than legacy solutions.
• In addition, with Payments 4.X, banks have the opportunity to
increase their competitiveness in the market and adapt to the
changing spending needs of their customers, helping to keep costs,
improve the quality of service and increase customer loyalty.
Hyper-automated banking with Robotic Process Automation (RPA)

• RPA and hyper-automation in banking are expected to

reach $4.9 billion by 2029.

• The market will experience a Compound Annual Growth

Rate of 27% between 2022 and 2029.

• In other words, every year the RPA and hyper-automated

banking market will grow by one-fourth of its value.

• What is the reason behind such rapid growth and why are
these technologies coined as financial services trends?
• Similarly to AI, ML, and open banking, the financial services
industry has been using hyper-automation for a long time.

• In short, hyper-automation is now being called upon to increase

the speed of financial and banking transactions.

• Likewise, the instrument can help reduce operational expenses

while reducing the impact of human errors.

• RPA with hyper-automation takes a great deal of time from staff,

thus shifting their responsibilities to core financial tasks.

• The institutions can tap into Big data analytics, thus generating
new revenue streams and making more informed decisions after
getting insights from AI, ML, and RPA.
Low-code or no-code platforms
• The fiercely competitive industry environment in the e-
banking sector requires openness and access to modern
methods to build digital solutions.

• The answer to the need for faster delivery of products and

services in the FinTech sector and beyond are platforms using
a low code or no code approach.

• The software development process using such platforms is

much simpler, as they contain ready-made components to
build a product, process, or service with minimal programming
knowledge.
• According to Gartner forecasts, by 2025, as many as 70% of new

enterprise applications will use low-code solutions.

• This compares with a share of less than 25% in 2020. The trend is

mature enough to support such processes as customer onboarding and

offer a wide range of add-on products.
• FinTechs, among others, are basing their competitive advantage on

such solutions.
• This open-source, low-code platform enables Java developers to build

scalable, extensible, and secure enterprise and SaaS applications more

efficiently.
• Without a doubt, low-code platforms will become emerging in banking

technologies for several reasons.

Buy Now Pay Later (BNPL) 2.0

• While the credit system has existed for decades, the ability
to purchase something by splitting the purchase into
interest-free installments is still new.

• In traditional terms, BNPL was most often used for high-

value items.

• Currently, the phenomenon is spreading to other categories

of goods and entering new industries, including finance.

• This second version of BNPL allows customers to make

online purchases with virtual and physical credit cards.
Buy Now Pay Later (BNPL) market size in USD Billion
• Simply put, the system will work as an ordinary credit card service
with the key difference being that you can deconstruct almost any
purchase into installment-free payments.
• Tech giants like Apple have recognized this trend and already are
reaping the benefits.
• Taking this into account, BNPL 2.0 is expected to be a great customer
engagement opportunity.
• It will create a more seamless purchasing experience and decrease
the card abandonment rate.
• Namely, regulatory bodies are trying to make it bulletproof in
regards to data security and potential financial crimes.
Regulatory Technology (RegTech)
• The RegTech market is growing similarly to global cloud finance
and RPA. The segment is expected to reach a value of $30
billion by 2027.

• What is the key driver behind RegTech? The rising number of

fraudulent activities in the financial sector. Some even
call RegTech a new FinTech.

• It is crucial to explore several key elements so as to determine

whether the concept meets its preceding reputation.

• In short, RegTech is a way of improving compliance by applying

modern technologies.
In recent years, the application of RegTech has increased by 500%.

In short, the approach offers these benefits:

• With growing regulation, compliance personnel cannot keep up with it.
RegTech helps automate the compliance process by processing vast data
volumes at a rapid pace.
• The traditional methods of compliance relied on manual input, which is
prone to human error. In turn, RegTech is based on automation tools and
algorithms minimizing the chance of error.
• RegTech brings higher transparency in connecting people to processes. In this
way, insights can be shared much faster and more candidly.
• RegTech improves risk management. Businesses can use their existing data to
evaluate risks, as well as alert personnel and authorities of suspicious
activities.
• RegTech helps financial institutions keep up with the
increasing pressure of regulation, which makes automation
serve the purpose of better compliance through error
minimization, efficient data processing, and effective risk
management.

• Most notably, it helps avoid massive fines linked to

noncompliance, some of which can be as high as $4.3 billion.
Metaverse in finance

• Perhaps, we could say that the metaverse concept will

forever be associated with Mark Zuckerberg’s promo.

• In a nutshell, the metaverse can be coined as the fifth stage

of the banking evolution.

• The key argument is that it brings the customer experience

in virtual banking to a whole other level.

• Metaverse brings AR and VR into the financial sectors, thus

improving personalized banking as a service.
• It is expected that by 2030, about 50% of banks all over the globe
will use AR and VR as a channel for customer transactions and
employee engagement.

• To illustrate, Bank of America recently launched a VR-based

training program to help their employees prepare for real-life
customer interactions.

• In turn, BNP Paribas launched an app allowing customers to

conduct different banking transactions via VR. These experiments
are not so widespread, yet they show some promise.

• The new generation of tech-savvy consumers will use VR and AR

to a greater extent.