With the advent of the internet, banking has become increasingly quick and hassle-free. Digital banking came with its own set of security apprehensions, thus hampering user experience and thereby limiting customer acceptance. Layered banking evolved as a response to security concerns and to ensure a secure banking environment.
CBS or Legacy Banking Systems has enabled bank branches to network together, thereby enabling customers to operate their accounts in manifold ways. Although this has resulted in increased user convenience, it has also placed unwarranted load on the core system, leading to delays and apprehensions over security. Quick, convenient and secure are all fundamentals of FinTech. However, an excessive load on the core system has caused delays and security related concerns.
This in turn has resulted in low customer experience, thus questioning the basic premise of digital banking. As a result, higher investments into improving operational efficiency of the banking systems seem inevitable to improve declining customer experience and to improve overall banking infrastructure. This is where layered banking comes in. With Digital Retail Banking initiatives taking centre stage in both developed and developing nations, slicing cost/overheads and dicing information to enhance security seems to be the need of the hour for any financial institution.
The advantages of layered banking:
- Layered banking provides a more trustworthy channel to manage finances digitally.
- Layered Banking allows to segment transactions based on volume and type, and thus enhance usage of systems appropriately thereby reducing overheads. This sets the roadmap for enhancing volume and sow seeds of exponential growth in micro transactions by smoothening operations.
- It allows banks to solve technical and security related concerns more efficiently, due to the use of machine learning, and facilitates in the congregation of analytics.
- A layered system establishes customer confidence and helps acceptance of digital banking services. The ‘Layered access framework’ dissects & protects each sub-set of information that is otherwise revealed to various entities comprehensively while doing transactions.
- A layered system reassures the customer about the security element of using digital banking services. The reinforcement of fortified security with every transaction boosts customer confidence and aids a wider acceptance of digital banking services. Banks are therefore able to establish a more comprehensive and dependable CBS system by putting together an array of security measures.
By doing this, they observe:
1. Significant Cost Reduction
Layering a system reduces costs at different levels as well as aids easier management, thanks to the ability to simplify concerns. Layers allow the freedom and functionality to make changes at different layer interfaces without having to disturb the entire infrastructure. This helps to not only keep a check on costs, but also reduces the investment need for expanding IT infrastructure.
2. Better protection of finances
Additional security layers help to mitigate threats to individual transactions or account activity. This creates a positive customer experience and helps banks in reaching a broader customer base.
Layered banking also considerably reduces the strain placed on the Core Banking System. Post demonetization in India, transactions were compelled to go digital, thereby significantly multiplying the transaction load of the Bank systems. A Reserve Bank of India report corresponding to that period, estimates the number of mobile banking transactions in banks at 110.64 million in December 2016, with, 80% of such transactions classified as micro transactions (transaction values of less than Rs.3000). In such cases, layered banking is ideal, as it allows transactions to be segregated before sending it to the Bank systems. For example, if a hundred micro transactions are sent towards the CBS, the CBS will have to handle them individually in normal cases, but with a layered banking solution, these transactions are channelized into the Layered Banking interface which then segments the transactions based on various machine learning analytics.
To sum it up, digital payment solutions should be implemented more and more for reducing various operation costs for banking institutions, including costs of infrastructure, printing, security, logistics and the required man-hours for bank transactions. This will surely increase the efficiency of operations and reduce cost.
The author is CEO, Obopay
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