Unit 14: Emerging Technology In Banking

Objectives

 Recall the basic concepts and definitions of artificial intelligence

(AI), blockchain, and robotic process automation (RPA) in the context of
banking.
 Explain how blockchain technology, including Central Bank Digital
Currency (CBDC), transforms traditional banking processes by improving
transparency, security, and efficiency.
 Demonstrate how cloud computing can be utilized to enhance data storage,
scalability, and operational efficiency in banking institutions.
 Analyze the role of AI in banking for predictive analytics, fraud
detection, and personalized customer experiences, and evaluate its impact
on operational efficiency.
 Assess the challenges of implementing advanced technologies like
blockchain and RPA in banking and evaluate the effectiveness of
cybersecurity measures to mitigate associated risks.
 Introduction
 Payments & Settlement Systems – Ensure safe and efficient fund transfers,
vital for economic stability.

 Financial Stability – Focuses on limiting systemic risks and maintaining

uninterrupted economic activity.

 Electronic Banking – Provides real-time, convenient services with reduced

dependence on cash.

 Retail Payment Systems – Enable high-volume, low-value day-to-day

transactions.

 Paper-Based Instruments – Cheques and demand drafts are declining due to

inefficiency.
 Introduction Contd...
 Electronic Retail Payments – NEFT, RTGS, ECS, and NACH offer secure and
efficient alternatives for both infrequent and repetitive payments.

 Aadhaar Enabled Payment System (AePS) – Promotes financial inclusion by

enabling biometric-based services in rural areas.

 Bharat Bill Payment System (BBPS) – Provides a unified, interoperable

bill payment solution across banks.

 Emerging Technologies in Banking – AI, Blockchain, RPA, and Cloud

Computing are reshaping operations, improving efficiency, security, and
customer service.

 Cybersecurity Challenges – Growing need for strong frameworks to protect

data and digital assets in a connected banking ecosystem.
 Introduction Contd...
Overview an Imapct of Emerging Technologies in Banking
Introduction Contd...
 Artificial Intelligence In
Banking
Machine Learning (ML) – Enables systems to analyze data, detect
patterns, and improve performance without explicit programming.

 Introduction to AI and Its Relevance in Banking: Artificial

Intelligence (AI) refers to the simulation of human intelligence in
machines that can perform tasks such as learning, reasoning, and
problem-solving. In banking, AI enhances decisionmaking, automates
routine tasks, and provides personalized customer experiences. By
leveraging AI, banks can improve efficiency, reduce costs, and address
risks more effectively.

(A) Types of AI in Banking

1. Machine Learning (ML):

 Artificial Intelligence In
Fraud Detection – ML algorithms monitor transactions, identify
anomalies, and adapt to detect sophisticated fraud schemes.
Banking Contd...
Risk Assessment – Assists in evaluating borrower creditworthiness
using financial behavior, transaction history, and market data.

Customer Behavior Analysis – Helps banks understand spending habits

and preferences to deliver personalized services.

Operational Efficiency – Automates and optimizes processes, reducing

manual intervention and enhancing banking efficiency.
 Artificial Intelligence In
Natural Language Processing (NLP): Natural Language Processing (NLP)
enables machines to understand, interpret, and process human language
Banking Contd...
in a way that facilitates seamless interaction between humans and
technology. This technology has revolutionized customer service in
banking through the development of chatbots and virtual assistants.

Predictive Analytics: Predictive analytics involves leveraging

historical and realtime data to forecast future trends and behaviors,
providing banks with actionable insights to make informed decisions.
This approach is instrumental in credit risk assessment, where past
repayment patterns and financial behavior are analyzed to predict a
borrower’s likelihood of default.
 Artificial Intelligence In
Fraud Detection and Risk Management: AI-powered systems detect unusual
transaction patterns, preventing fraud in real time. Machine learning
models analyze customer behavior and flag suspicious activities, such
Banking Contd...
as identity theft or account takeover. Banks like HDFC Bank in India
use AI-driven fraud detection systems to monitor transaction patterns
in real-time, flag suspicious activities, and send instant alerts to
customers, thereby preventing
(B) Applications of AI inpotential
Banking fraud.

Customer Service Through Chatbots and Virtual Assistants: Chatbots like

HDFC Bank’s EVA and ICICI Bank’s iPal provide 24/7 support, answering
queries related to account balances, transaction details, and loan
applications. These virtual assistants use NLP to understand customer
intent and provide instant, accurate responses, reducing dependency on
human agents.
 Artificial Intelligence In
Personalized Financial Recommendations and Credit Scoring: AI
analyzes customer spending patterns, income levels, and credit
history to provide tailored financial advice. It also powers credit
Banking Contd...
scoring systems, enabling banks to evaluate loan eligibility with
precision. Personalized recommendations, such as investment plans or
savings strategies, enhance customer satisfaction and loyalty.

Streamlining Back-Office Operations: AI automates repetitive

administrative tasks like document verification, data entry, and
compliance reporting. This reduces errors, speeds up processes, and
allows employees to focus on strategic tasks. For instance, AI
systems can automate Know Your Customer (KYC) processes,
significantly reducing onboarding time. For example, YES Bank
leverages AI and machine learning to automate KYC and customer
onboarding, using image recognition and document parsing technologies
to verify identity documents in real-time, thereby reducing
processing time from days to minutes.
 Artificial Intelligence In
Expanding AI Capabilities for Predictive Analysis and Market Trends:
AI is set to play a pivotal role in predicting customer needs, market
movements, and industry trends. Enhanced machine learning algorithms
Banking Contd...
will allow banks to anticipate credit risks, tailor financial
products, and optimize investment strategies. Predictive analytics
will further enable real-time decision-making, driving efficiency and
profitability.
(C) Future Prospects of AI in Banking

Ethical Concerns and Regulatory Challenges in AI Deployment: As AI

becomes more integrated into banking, ethical issues like bias in
algorithms, data privacy, and transparency must be addressed.
Regulatory bodies will need to establish clear guidelines to ensure
responsible AI usage. Banks must also balance innovation with
compliance, ensuring customer trust and adherence to data protection
laws.
Decentralization: One of the major features of blockchain technology
Blockchain
is decentralization, which ensures that data is stored across
multiple nodes in a distributed network rather than relying on a
single central authority. Unlike traditional centralized systems,
where a single server or entity holds control over data storage and
processing, blockchain’s
(A) Introduction to decentralized
Blockchain in structure lowers the is
Banking: Blockchain risk of
a decentralized
data leaks,
digitalsystem
ledgerfailures, and manipulation.
that records transactions across multiple systems in a
secure, transparent, and immutable manner. Each transaction, or “block,”
is linked to the previous one, forming a “chain” of data. Blockchain’s
distributed architecture eliminates the need for a central authority,
making it particularly effective for secure financial transactions.

I. Key principles of blockchain include:

Immutability: Immutability is a core feature of blockchain that
Blockchain Contd..
guarantees the data’s persistence and integrity. A transaction cannot
be removed or changed after it has been entered onto the blockchain.
Cryptographic hashing is used to accomplish this and consensus
mechanisms, which lock each transaction into a block linked to the
previous one, forming a secure and tamper-resistant chain.

Transparency: Transparency is another key feature of blockchain,

fostering trust and accountability among participants. In a
blockchain network, all participants have access to the same
information, as the ledger is shared and synchronized across all
nodes. This eliminates the asymmetry of information that often exists
in centralized systems, preventing the manipulation or withholding of
important data by a single entity.
Transparency: Transparency is one of the hallmark features of

Blockchain Contd..
blockchain technology, offering a shared and immutable ledger that is
accessible to all participants in the network. This open visibility
ensures that every transaction is recorded in real time and can be
audited by any authorized party. Transparency significantly reduces
the risk of fraud, as all transactions are permanently stored on the
II. Howand
blockchain Blockchain EnsuresbyTransparency,
are verifiable Security, and Efficiency
network participants.

Security: Blockchain technology is inherently secure due to its

reliance on advanced cryptographic techniques. Each transaction is
encrypted using hash functions, which convert data into unique strings
of characters that cannot be reversed or altered. Additionally,
digital signatures ensure that transactions are authenticated by the
rightful owner, preventing unauthorized access or manipulation.
 Blockchain Contd..
(B) Applications of Blockchain in Banking

1. Cross-Border Payments and Remittances: Conventional cross-border

transactions
are costly, time-consuming, and error-prone. SWIFT is a global messaging
system used by banks to securely transmit payment instructions. However,
SWIFT itself does not move money; it facilitates communication between
banks, which still rely on intermediary (correspondent) banks for
settlement.
This process often involves multiple steps, resulting in delays, higher
costs, and error risks.

Blockchain eliminates these inefficiencies by:

 Making peer-to-peer transactions directly, without middlemen.

 Reducing settlement times from several days to minutes.
 Lowering transaction costs through decentralized systems.
 Blockchain Contd..

2. Trade Finance and Smart Contracts: Trade finance, a historically

paper-intensive process, benefits significantly from blockchain’s digital
capabilities.

 Blockchain digitizes trade documents like letters of credit and

invoices, ensuring transparency and reducing fraud.
 Smart Contracts: Self-executing contracts coded into the blockchain
automate payment releases based on predefined conditions,
eliminating manual intervention and errors.

3. Identity Verification and KYC Processes: Know Your Customer (KYC)

compliance
is a critical but time-consuming process for banks. Blockchain simplifies
this by:

 Creating a shared, tamper-proof ledger of verified customer

identities.
 Allowing banks to access and verify existing records without
Digital Identities: Blockchain can be used to create verifiable digital
Blockchain Contd..
identities for individuals who lack traditional documentation (e.g.,
Aadhaar in India). These identities can be linked to financial accounts,
enabling KYC-compliant onboarding even in remote areas.

(C) Impact on Financial Inclusion

1. Enabling Secure Banking for Underbanked Populations: Blockchain’s

decentralized and tamper-proof architecture offers a powerful tool for
extending
financial services to underbanked and underserved communities,
particularly
in rural and low-income regions. While many blockchain initiatives are
currently
beyond formal regulatory structures, banks can adopt permissioned
blockchain
frameworks (regulated and controlled environments) to maintain compliance
while expanding access.

2. Key benefits include:

Microfinance & P2P Lending: Blockchain supports transparent, low-
cost, peer-to-peer lending platforms, reducing reliance on informal
Blockchain Contd..
credit sources. Banks can use these platforms in a regulated sandbox
environment, partnering with fintechs to safely deliver small loans
and micro-credit products.

Immutable Records: For populations with no formal credit history,

blockchain can record transactional behavior and community-based
reputations, enabling banks to assess creditworthiness in alternative
ways.

Example: While platforms like BanQu (not Banquo) are not banks
themselves, they illustrate how blockchain can create “economic
identities” for the unbanked. BanQu has partnered with global
institutions and NGOs to connect unbanked individuals—such as small
farmers in Africa and South Asia—to supply chains and formal banking
partners.
Partner with fintechs and development organizations to pilot
Blockchain Contd..
blockchainbased identity and lending systems.

Implement permissioned blockchains that meet regulatory standards and

allow for real-time audits.
3. How Regulated Banks Can Use Blockchain for Inclusion
Use blockchain to verify subsidy delivery, savings accounts, and
microloan disbursements in rural areas.

Participate in regulatory sandboxes offered by RBI or global financial

authorities to test innovative blockchain applications within defined
legal boundaries.
Reducing reliance on intermediaries, cutting costs for fund transfers
and
payment processing. Blockchain Contd..
Offering transparent and low-cost cross-border payment solutions for
small
4. and
exporters Lowering Transaction Expenses for Individuals and Small Businesses:
freelancers
High transaction fees associated with traditional banking systems are a
barrier for small businesses and individuals in emerging economies.
Example: Yes Bank in India has used blockchain technology for vendor
Blockchain addresses this by:
financing, allowing corporate clients to pay their suppliers (often
small businesses) more efficiently.
Commercial lending: It provides businesses with the funds they need to
Central Bank Digital Currency
continue operating and to grow. Such loans are commonly used for managing
working capital, expanding business, purchasing equipment and for meeting
(CBDC)
day-to-day requirements. Examples include term loans, revolving credit
facilities, and assetbased financing. Commercial loans are usually
disbursed after credit checks, financial statements analysis, and
collateral
(A) to limit
What risk.These
is Digital loans Issued
Currency promote
bybusiness
Central growth and How
Banks and job Does It
creation, contributing to economic development.
Work?

 Definition
Retail Lending: When –individuals
A Central Bank
take Digital Currency
loans for (CBDC)
personal is for
use or a digital
their
version
households, it is of a country’s
referred to as fiat currency,
retail lending.issued and regulated
Many individuals by the
borrow
funds fromcentral bank.
banks to purchase a house, but banks also provide loans for
other purposes, such as financing freight lorries for groceries. Retail
lending primarily
Difference from Cryptocurrencies
centers – Unlike decentralized
around the creditworthiness of the individual
borrower, cryptocurrencies,
typically assessedCBDCs are credit
through centralized,
score, legal
incometender, and
levels, hold
type of the
same
employment, value
and otherasfactors.
physicalItcash.
includes loans for personal
consumption, housing development, and financial inclusion.
 Usage – Can be used for payments, transactions, and settlements
similar to traditional money, but in purely digital form.

 Comparison with UPI – UPI is a payment interface, whereas CBDC is a

new form of money that combines cash’s trust with digital
convenience.


Syndicated lending: It occurs when a group of banks come together to lend
Central Bank Digital Currency
money to a single borrower as a way of diversifying risk. It is typically
used when the loan amount is too large, or the risk is too high for one

(CBDC) Contd...
bank to assume by itself. Borrowers often create participation loans to
fund a common goal. Typically, borrowers include large corporations and
governments. Every bank contributes a share of the loan, and the risk is
also shared among them. The bank that acts as the lead arranger organizes
How Is CBDC Different from UPI and Other Digital Payment Systems?
the transaction and negotiates the terms.

Project Financing: Loans made specifically for projects are referred to

as project financing. These loans are typically used for large projects
such as energy infrastructure and telecommunications. Commonly structured
as non-recourse (or limited-recourse) financing, these loans rely
primarily on the project’s cash flow for repayment rather than the
borrower’s balance sheet. Examples include financing for power plants,
highways, and renewable energy projects. Before initiating project
financing, careful planning and evaluation are necessary, including a
feasibility study, risk assessment, and regulatory compliance.
 Central Bank Digital Currency
(CBDC) Contd...
1. Retail CBDC

 Definition – Retail CBDC is a central bank-issued digital currency for

use by the general public in daily transactions.

 Functions – Acts as a digital equivalent of cash, enabling payments,

savings, and secure transactions.

 Accessibility – Available through digital wallets and mobile apps for

easy use.

 Benefits – Promotes financial inclusion in underserved areas and

reduces dependence on physical cash with a secure, cost-effective
system.

 Comparison with UPI – While UPI revolutionized payments by being

instant and low-cost, Retail CBDC offers a new form of money with
similar accessibility and efficiency.
 Central Bank Digital Currency
Direct Digital Cash Replacement: UPI still relies on bank accounts
and settlement infrastructure. CBDC acts as digital cash, offering
finality without needing bank mediation.
(CBDC) Contd...
Offline Transactions: UPI requires internet connectivity. CBDC could
enable offline peer-to-peer payments, helpful in remote or
However, there
disasteraffected are a few gaps that CBDC can fill:
areas.

Financial System Resilience: CBDC reduces reliance on intermediaries,

improving monetary transmission efficiency and sovereign control over
digital money.

Cross-Border Use: CBDC could enable instant international remittances

without SWIFT or correspondent banks, which UPI currently doesn’t
offer.
 Central Bank Digital Currency
Programmable Money & Policy Innovation: Governments can issue
targeted subsidies or conditional payments using CBDC (e.g., time-
bound spending), which UPI does not support.
(CBDC) Contd...
Currency Digitization: As cash usage declines, CBDC ensures that
public money (central bank liability) still exists in digital form,
maintaining monetary sovereignty.

2. Wholesale CBDC: Wholesale CBDC, on the other hand, is specifically

designed
for use by financial institutions, such as banks and large
corporations, to
facilitate large-scale interbank settlements and cross-border payments.
Wholesale CBDCs aim to improve the efficiency and security of financial
market infrastructure by offering real-time settlement, reducing
counterparty
risks, and lowering transaction costs.
Tier 1 Capital: Tier 1 capital is the best quality of capital within
Faster
a bank’sCentral Bank Digital Currency
Settlements:
systems, enabling
financial
CBDCs
capital base,
instant
loss. Tier
eliminate
offering
settlements
1 capital
intermediaries
the strongest
is mostly
inagainst
buffer
forcommon
domestic
payment
and cross-border
equity, encompassing
transactions.
common
(CBDC) Contd...
shares, retained earnings, and disclosed reserves. It is the
initial line of defense in taking up losses, thereby ensuring that a
bank can stay in business even during times of financial stress.
Regulatory frameworks like Basel III put considerable importance on
Reduced(B) Benefits
Costs: of CBDC incurrency,
By mandating
digitizing Banking CBDCs minimize costs related
Tier 1 capital by that banks have a minimum Common Equity
to printing,
Tier 1 (CET1)distributing,
ratio to makeand
suremanaging physical
they are money.
resilient.

Enhanced Financial Inclusion: CBDCs provide secure banking options

for unbanked and underbanked populations. With mobile devices as
access points, even those in remote areas can transact seamlessly
without traditional banking infrastructure.
Technological
Tier 1 Capital:Infrastructure:
Tier 1 capitalImplementing a CBDC requires
is the best quality robust
of capital within
a Central Bank Digital Currency
technological infrastructure
bank’s capital
volumes securely
financial and 1
loss. Tier
capable
base, offering
efficiently.
of handling
the strongest
This includes
capital is mostly
highagainst
buffer transaction
advancedencompassing
common equity, digital
ledgers,
common shares,
connectivity.
initial (CBDC) Contd...
real-time transaction
retained systems,
earnings, and high-speed
and disclosed internet
reserves. It is the
line of defense in taking up losses, thereby ensuring that a
bank can stay in business even during times of financial stress.
Regulatory frameworks
(C) Reducing like Basel
Reliance III put considerable
on Cash-Based importance
Systems: CBDCs on
aim to reduce the
Tier 1 capital by mandating that banks have a minimum Common Equity
Tier 1 dependency
(CET1) ratioon to
cash,
makewhich
sure is costly
they to produce and manage. They also
are resilient.
address issues like counterfeit currency and the inefficiencies of cash
transactions. By promoting digital payments, CBDCs support the shift
toward a cashless economy, improving transparency and reducing the
risks associated with physical money.

(D) Challenges in CBDC Implementation

 Technological Infrastructure and Cybersecurity Risks

cyber Central Bank Digital Currency
Cybersecurity
threats,
establish
Risks: AsGovernments
Regulatory Challenges:
clearincluding
a digital currency,
hacking,
frameworks
CBDCs
and central
data breaches,
for issuing,
areneed
banks
managing,and
vulnerable
to
anddistributed
monitoring
to

denial-of-service
CBDCs. Coordinating(DDoS)
with attacks. Ensuring
international end-to-end
regulatory encryption,
bodies for cross-
regular (CBDC) Contd...
audits, and advanced
border transactions
safeguard CBDCs.
cybersecurity measures is critical to
adds complexity.

Monetary Policy Implications: The introduction of CBDCs could disrupt

traditional banking by reducing the role of commercial banks in money
creation and lending. Central banks must carefully design CBDCs to
balance liquidity, interest rates, and financial stability.

(E) Regulatory and Monetary Policy Implications

 Central Bank Digital Currency
Overview: The Reserve Bank of India (RBI) launched its pilot for the
Digital Rupee (e₹) in 2022, targeting both retail and wholesale
(CBDC) Contd...
applications. The Digital Rupee aims to complement the existing
payment ecosystem while reducing reliance on cash.

(F) Global and Indian Perspectives

Key Features:
• Blockchain-based infrastructure
1. India’s Digital Rupee to ensure security and transparency.
• Retail CBDC for secure peer-to-peer transactions using mobile
devices.
• Wholesale CBDC for efficient interbank settlements and cross-border
payments.
 Central Bank Digital Currency
Impact: (CBDC) Contd...
• Improved efficiency in government payments and subsidies.
• Reduced costs for cash management and distribution.
• Enhanced financial inclusion through digital accessibility in
rural areas.
 Robotic Process Automation
1. Savings Accounts: A basic deposit account that allows individuals to
save money while earning interest.
Features: Low or no minimum balance requirements, interest rates typicall
(RPA)
range between 2.5% and 4% annually in India, easy access to funds
through ATMs, online banking, and mobile banking.
Benefits: Encourages saving habits, provides liquidity with interest
earnings.
Definition – RPA uses software bots to automate repetitive, rule-based
tasks that don’t need human judgment.
2. Current Accounts: Deposit accounts designed for businesses and
professionals to facilitate frequent transactions.
Functions – Bots can log into systems, enter data, process
Features: No interest is paid on balance, higher transaction limits
compared transactions, and generate
to savings accounts, reports.
overdraft facilities for short-term
liquidity needs.
Efficiency
Benefits: – Automating
Supports business routine
operations tasks
with high improves speed, accuracy, and
transactional
convenience, allows
reduces easyeffort.
manual cash management for enterprises.

Integration – RPA works with existing banking applications without

major infrastructure changes.

Impact – Frees up banking staff to focus on strategic, customer-

centric activities instead of routine operations.
 Robotic Process Automation
(RPA) Contd...
Usage of RPA in various Banks
 Robotic Process Automation
1. Savings Accounts: A basic deposit account that allows individuals to
save money while earning interest.
Features: Low or no minimum balance requirements, interest rates typicall
(RPA) Contd...
range between 2.5% and 4% annually in India, easy access to funds
through ATMs, online banking, and mobile banking.
Benefits: Encourages saving habits, provides liquidity with interest
earnings.

2. Current Accounts: Deposit accounts designed for businesses and

professionals to facilitate frequent transactions.
Features: No interest is paid on balance, higher transaction limits
compared to savings accounts, overdraft facilities for short-term
liquidity needs.
Benefits: Supports business operations with high transactional
convenience, allows easy cash management for enterprises.
 Robotic Process Automation
(RPA) Contd...
(A) Difference Between RPA and Traditional Automation

 Traditional Automation: Relies on custom software development and

requires significant coding expertise.

 Often involves changing the underlying IT infrastructure.

 Limited to specific, pre-defined processes.

 RPA: Requires minimal coding and can be deployed quickly.

 Works on top of existing systems without altering infrastructure.

 Flexible and can adapt to a wide range of processes across

departments.
 Robotic Process Automation
1. Savings Accounts: A basic deposit account that allows individuals to
Account Opening: RPA bots handle the verification of customer
save money while earning interest.
documents, data entry, and account setup processes, significantly
Features: onboarding
Low or no minimum balance requirements, interest rates typicall
(RPA) Contd...
reducing time and errors.
range between 2.5% and 4% annually in India, easy access to funds
through ATMs, online banking, and mobile banking.
Loan Processing:
Benefits: Automation
Encourages of loan
saving habits, application
provides reviews,
liquidity credit
with interest
(B)
earnings.
checks, and Applications
documentationofensures
RPA in faster
Bankingapprovals and improved
accuracy, enhancing the customer experience.
 Account Opening, Loan Processing, and Compliance Reporting
2. Current Accounts: Deposit accounts designed for businesses and
professionals to facilitate
Compliance Reporting: frequentin
RPA assists transactions.
generating regulatory reports,
conductingNoaudits,
Features: and
interest is ensuring adherence
paid on balance, to guidelines,
higher transaction helping
limits
compared to savings
banks avoid accounts,
penalties overdraft
and maintain facilities for short-term
compliance.
liquidity needs.
Benefits: Supports business operations with high transactional
convenience, allows easy cash management for enterprises.
Fraud
questionableRobotic Process Automation
Detection:
Cost Savings: RPABots
activity,
repetitive tasks,
analyze
reduces the transaction
likelabor
cutting unusual
patterns
need for human
withdrawals
costs
and highlight
intervention
and operational
in
or multiple failed
expenses.
any
For
login attempts. This real-time monitoring enhances fraud prevention
(RPA) Contd...
example, automating backoffice operations leads to substantial
efforts.
savings in time and resources.

Audit Trail Management: RPA ensures that all actions taken by bots
(C) Fraud
are logged and Detection
traceable,and Audit Trail
simplifying Management
audit processes and improving
transparency.

(D) Benefits of RPA in Banking

 Robotic Process Automation
Scalability:
Improved RPA bots
Accuracy: can humans,
Unlike be scaled
AI up or down
doesn’t based
make on transaction
errors due to
volumes or This
oversight. specific requirements,
ensures making
accurate data themerror-free
entry, ideal for compliance
fluctuating
workloads.
reports, and consistent processes.
(RPA)
Integration with AI: Combining Contd...
RPA with AI allows bots to handle more
Enhanced Customer Experience: By automating routine processes, banks
complex tasks, such as decision-making based on predictive analytics,
can allocate
customer more resources
sentiment analysis,to customer-facing
and activities,
chatbots for customer such as
support.
personalized services and faster issue resolution.

(E) Scalability and Integration with AI and Other Technologies

charging
in software
amount
Robotic Process Automation
Bill Discounting: The lender provides funds against bills of exchange,
Implementation Costs:
a discount
licenses,
to the
Initial
fee deployment
upfront
infrastructure,
borrower. This method isand
of RPA
as interest, andrequires
training.
easy These
to use and
investment
paying the remaining
costsfor
popular may
be prohibitive
domestic
(RPA) Contd...
trade.for smaller banks or those with limited budgets.
Factoring: A finance company
Employee Resistance: (the
Automation factor)
can lead topurchases
fears ofaccounts receivable
job displacement
outright and takes
among employees, over collection
resulting responsibilities.
in resistance to adoption.This allows
Banks must firms
to receive cash
(F)these
address immediately
Challenges andreskilling
andthrough
concerns reduces the
Limitations burden of
programs andmanaging
transparent
receivables. Factoring can be with
communication about the value of RPA. or without recourse, depending on
the agreement.
Standardized
account
Robotic Process Automation
Data Privacy:Approach:
Bots handle
details
sensitive
Used externalcustomer information,
credit ratings such as
to determine
risk weights forand personal data. Any security lapse can lead to
assets.
(RPA) Contd...
breaches, damaging customer trust and incurring regulatory
penalties.

Internal Ratings-Based (IRB) Approach: Allowed banks to apply their

own internal modelsData
(G) Ensuring to calculate probabilities
Privacy and Security in of default,
RPA loss
Processes
Security
given Challenges:
default, Ensuring
and exposure atthat bots operate within secure
default.
environments and comply with cybersecurity standards is critical to
safeguarding RPA processes. Robotic Process Automation is
transforming banking operations by automating repetitive tasks,
improving efficiency, and enhancing customer experiences.
 Cloud Computing
Public Cloud: Public cloud services are provided by third-party
vendors and are shared among multiple organizations. Resources like
servers, storage, and apps are included in this model are managed by
the cloud provider and accessed over the internet. Public clouds are
cost-effective, highly scalable, and easy to deploy, making them
(A) Overview of Cloud Computing in Banking: The term “cloud computing”
suitable for non-sensitive operations in banking.
describes the provision of computer services via the internet, including
servers, storage, databases, networking, software, and analytics (“the
cloud”). It eliminates the need for substantial on-premises
infrastructure and allows banks to access resources whenever they’re
needed.

(B) Types of Cloud Services:

2. Private Cloud: A private cloud offers dedicated infrastructure
that is exclusively used by a single organization, providing greater

Cloud Computing Contd...

control, customization, and security. This strategy is especially
beneficial for banks that need to manage sensitive customer data like
transaction and credit history, to comply with stringent regulatory
requirements, or conduct critical financial operations. Private
clouds allow banks to build tailored environments that meet their
specific needs, such as data encryption standards and access
controls.

3. Hybrid Cloud: A hybrid cloud integrates the characteristics of

both private and public clouds, allow banks to leverage the benefits
of each while managing their unique operational requirements. This
model enables banks to store and process sensitive data in a private
cloud while using public cloud services for less critical tasks, such
as app development, testing, or marketing campaigns. Hybrid clouds
provide flexibility and scalability, enabling banks to optimize
resource utilization and reduce costs.
Intervention and Corrective Actions: Authorities were given the
4. Relevance
discretion
growing data
inadequate
Cloud Computing Contd...
toin Banking:
enforce
volumes,
capital
Cloud computing
corrective
or meeting
measuressupports
customer
weak risk
if banksbanks
demands
management
were in managing
found
for real-time
systems.
to have

services, and reducing costs associated with IT infrastructure.

5. The Shift from On-Premises to Cloud-Based Systems: Banks had

traditionally depended on on-premises infrastructure, which
necessitated large expenditures for maintenance, software, and
hardware. Banking has been transformed by the move to cloud computing
by:
• Reducing the need for costly IT infrastructure.
• Enabling rapid scalability to handle increasing transaction
volumes.
• Providing flexibility for banks to launch new services faster and
more efficiently.
6.5.Applications
A cash creditof is a facility
Cloud Computingwhere a business can withdraw money as
in Banking
Credit, market,
per their need and operational
up to a specifiedrisk-weighted
limit. It isassets.
allowed against a
Cloud Computing Contd...
Data Storage, Processing, and Analytics: Banks generate massive
security which is generally a stock, receivable, or any other asset.
amounts of data daily, which can be stored and analyzed on the cloud
Cash credit provides continuous working capital to maintain liquidity.
for insights
Governance into customer
frameworks behavior, risk techniques.
assessment, and fraud
Unlike term loans, itand risk
does notmanagement
have a fixed repayment schedule, and
detection. Cloud-based data lakes and warehouses enable banks to:
interest is charged only on the utilized amount. This is particularly
• beneficial
Process large
for datasets
companiesquickly.
with seasonal cash flows, ensuring the
• availability of funds and
Use machine learning without the need
AI tools to apply
to extract for a loan
actionable repeatedly.
insights.

6. Bill discounting is a facility which involves discounting a bill of

exchange or promissory note at a discounted value, allowing the seller
to receive immediate liquidity. Companies engaged in trading use this
service to convert receivables into cash before their due date. The
bank earns income through the discount rate, determined by the bill’s
maturity period and prevailing market interest rates. Bill discounting
accelerates cash flow, enabling sellers to reinvest cash in operations
(C)other
or meet Enabling Real-Time
financial Customer Service and Digital Banking Platforms:
obligations.
Cloud
computing supports mobile apps, online banking platforms, and chatbots,
ensuring seamless customer interactions. Features like instant account
updates, real-time payment processing, and personalized recommendations
enhance customer satisfaction.
Store backups in multiple locations.
Cloud Computing Contd...
Recover data quickly in case of system failures, ensuring minimal
disruption.
(D) Business Continuity and Disaster Recovery: Cloud solutions provide
robust disaster recovery capabilities, allowing banks to:

(E) Faster Deployment of New Services: Cloud computing accelerates the

development and deployment of new banking products, such as loan
applications, digital wallets, and investment platforms. This agility
allows banks to respond quickly to market trends and customer needs.
Data Security: Storing sensitive customer information on the cloud
increases the risk of data breaches and cyberattacks. Banks must
Cloud Computing Contd...
implement robust encryption, access controls, and intrusion detection
systems to protect data.
Regulatory Compliance: Banks must adhere to strict regulations on
data privacy and security, such as the General Data Protection
Regulation (GDPR) and Reserve Bank of India (RBI) guidelines.
Ensuring compliance
(F) Risks while using
and Challenges of third-party cloud
Cloud Computing inproviders
Banking can be
challenging.

(G) Dependence on Third-Party Service Providers: Relying on cloud vendors

introduces risks such as service outages, data ownership disputes, and
limited control over infrastructure. Banks must carefully evaluate and
monitor their cloud service providers to mitigate these risks.
 Cloud Computing Contd...

Future Trends in Cloud Adoption

1. Multi-Cloud Strategies: Banks are increasingly adopting multi-cloud

environments, using services from multiple providers to:

• Avoid vendor lock-in.

• Enhance resilience and redundancy.
• Optimize costs by choosing the best provider for specific
workloads.

2. Edge Computing: Edge computing processes data closer to its source,

reducing
latency and improving performance. For banks, this means faster transaction
processing, enhanced real-time analytics, and better customer experience.
 Cloud Computing Contd...

 Summary of Cloud Computing in Banking

Cloud Computing Contd...
Rapidly Evolving Cyber Threats and Data Breaches: The increasing
digitization of banking operations has made financial institutions a
Challenges And Cyber Security
prime target for cybercriminals. Threats such as phishing, malware,
ransomware, and advanced persistent threats (APTs) evolve
constantly, making detection and prevention difficult.
Balancing Innovation with Regulatory Compliance: Banks face the
challenge of adopting
(A) Emerging new technologies
Challenges in Bankinglike artificial intelligence
Technology
(AI), blockchain, and cloud computing while adhering to stringent
regulatory requirements. Regulations such as the General Data
Protection Regulation (GDPR) and the Reserve Bank of India (RBI)
guidelines require banks to prioritize data protection and
transparency.

Resistance to Technological Change Within Organizations: Many banks

encounter resistance from employees and leadership when implementing
new technologies. Concerns about job displacement, lack of technical
expertise, and fear of system failures can slow down adoption.
 Challenges And Cyber Security
Contd...
(B) Cybersecurity in Banking

 Common Threats

1. Phishing: Phishing is a cyberattack that entails misleading attempts

to gain
private data, including credit card numbers, account information, or
login credentials, by posing as trustworthy organizations.
Cybercriminals often use fake emails, messages, or websites that appear
to come from trusted organizations like banks or government agencies.

2. Ransomware: Ransomware is a type of malicious software that encrypts

an
organization’s data, rendering it inaccessible until a ransom is paid to
the attackers. For banks, ransomware attacks can have devastating
consequences, including disrupted operations, compromised customer
trust, and financial losses.
 Challenges And Cyber Security
Contd...
3. Malware: Malware encompasses a range of malicious programs designed
to infiltrate systems, steal data, or disrupt operations. In the
banking sector, malware can spread through unsecured networks,
compromised software, or infected attachments. Once inside a system,
malware can capture sensitive data, such as user credentials, or
interfere with banking processes.

4. Insider Attacks: Insider attacks involve employees or contractors

with authorized access to sensitive systems who may intentionally or
unintentionally compromise security. Insiders are particularly
dangerous because they already have authentic access to critical data
and systems, making these threats difficult to detect.
1. End-to-End Encryption: End-to-end encryption is a critical
Challenges And Cyber Security
security measure that protects data throughout its entire lifecycle,
ensuring it remains secure from unauthorized access, even if

Contd...
intercepted during transmission. This method encrypts data at the
source, so it is only readable by the intended recipient with the
appropriate decryption key. The encryption process safeguards
sensitive information such as customer credentials, financial
(C) Importance of Key Cybersecurity Measures
transactions, and communication between users and banking servers.

2. Multi-Factor Authentication (MFA): Multi-factor authentication

(MFA) improves security because it asks users to authenticate their
identity using several techniques before they can access their
accounts. The techniques in use usually consist of something the user
knows (password), something the user possesses (a one-time password
or hardware token), and something the user is (biometric
verification, such as fingerprints or facial recognition).
 Challenges And Cyber Security
3. Firewalls: Firewalls are essential for protecting networks from
Implementation of AI-Driven
unauthorized access Threatattacks
and malicious Detection
by Systems: AI-powered
monitoring and

Contd...
systems analyze
controlling largeand
incoming volumes of data
outgoing in real
traffic. time toserve
Firewalls detectasunusual
a
patterns and identify
barrier between potential
an internal threats.
network Machinethreats
and outside learning
byalgorithms
analyzing
continuously
data packets improve theirwhether
and deciding accuracy,
to enabling
allow or proactive
block themmeasures
in accordance
against cyberattacks.security criteria.
with pre-established

(D) Strategies to Enhance Cybersecurity

 Challenges And Cyber Security
Blockchain-Based Security for Data Integrity: Blockchain technology
provides a tamper-proof ledger for recording transactions and data.
Contd...
Its decentralized nature ensures that no single point of failure
exists, making it ideal for securing sensitive banking operations such
as identity verification and interbank settlements.

Employee Training and Customer Awareness Programs: Educating employees

about best practices, such as recognizing phishing attempts and
securing login credentials, strengthens the first line of defense.
Similarly, customers must be informed about secure digital banking
habits, including avoiding suspicious links and using strong
passwords.
 Challenges And Cyber Security
NIST Cybersecurity Framework: Provides guidelines for identifying,
protecting, detecting, responding to, and recovering from

Contd...
cybersecurity incidents.

ISO/IEC 27001:
(E) Global SetsIndian
and standards for information
Cybersecurity security management
Frameworks
systems (ISMS) to ensure robust protection of sensitive data.
 Overview of International Best Practices and Standards

Basel Committee Guidelines: Focus on operational resilience and risk

management for financial institutions.
 Challenges And Cyber Security
1. CERT-In (Computer Emergency Response Team-India): Coordinates
responses to cybersecurity incidents and issues advisories to
Contd...
protect Indian cyberspace.

(F) India’s Initiatives

2. RBI Guidelines: Mandates for multi-factor authentication and end-

to-end encryption for digital transactions.
Incident: Hackers infiltrated the bank’s ATM switch server using
Challenges And Cyber Security
malware, bypassed the firewall, and withdrew ₹94 crore through
cloned cards in 28 countries within hours.
Contd...
Key Vulnerability: Lack of real-time monitoring and segmentation
between internal systems and ATM infrastructure.
(G) Real-Life Cybersecurity Breaches and Lessons Learned
Lesson Learned: Strengthen endpoint security, implement real-time
 Despite
threat advancements
detection (AI-based),inand
end-to-end encryption,
ensure firewalls are multi-factor
updated with
authentication,
intrusion and firewall protection, the banking sector continues
prevention capabilities.
to face cyber threats. The following cases highlight key breaches and
the lessons they offer:

1. Cosmos Bank Cyberattack (India, 2018)

 Challenges And Cyber Security
AI-Driven Detection: Early identification of abnormal behaviors
could have flagged the attacks before damage was done.

Contd...
Blockchain-Based Integrity: Ensuring secure and tamper-proof audit
trails could have prevented unauthorized modifications.
Training and Awareness: Most breaches involved social engineering
2. WannaCry
or poor internal Ransomware Attack employee
hygiene; regular (2017): This global ransomware
and customer education attack
affected thousands of institutions, including some financial
is essential.
organizations

3. YES, Bank UPI Fraud (2020): Fraudsters exploited UPI loopholes to

initiate
unauthorized transactions, highlighting vulnerabilities in payment
systems.

4. Integration with Strategies and Frameworks

 These breaches underscore the necessity for proactive measures:

 Challenges And Cyber Security
Contd...
Future Directions in Cybersecurity

 Adopting Quantum Cryptography and AI-Powered Security Solutions

 Quantum cryptography offers virtually unbreakable encryption

methods, ensuring the highest levels of data protection. Combined
with AI-driven tools, banks can identify threats in real-time and
respond proactively to evolving cyber risks.

Building Resilient Systems for a Rapidly Digitizing Financial Landscape

 Resilience involves building systems capable of withstanding
cyberattacks without disrupting services. Strategies include:

 Adopting multi-cloud environments for redundancy.

 Enhancing disaster recovery plans.
 Conducting regular stress tests to identify and address
vulnerabilities.
 Let Us Sum Up
 Rapid technological advancements like Artificial Intelligence (AI),
Blockchain, Robotic Process Automation (RPA), and Cloud Computing are
revolutionizing industries, especially banking, by improving
efficiency, security, and customer experience.

 AI is enhancing customer service through chatbots, fraud detection,

credit scoring, and personalized financial services. Predictive
analytics and machine learning enable better decision-making and risk
management.

 Blockchain provides a secure and transparent way of handling

transactions and data. It reduces costs, enhances trust, and is
particularly impactful in enabling faster cross-border payments and
secure record-keeping.

 CBDCs are digital versions of national currencies leveraging blockchain

technology. They ensure secure, traceable, and efficient financial
transactions while addressing issues like monetary policy
 Let Us Sum Up
 RPA automates repetitive tasks such as data entry, report generation,
and compliance management, reducing manual errors, improving
operational efficiency, and allowing employees to focus on strategic
tasks.

 The term “cloud computing” describes the provision of computer services

via the internet, including servers, storage, databases, networking,
software, and analytics (“the cloud”). It eliminates the need for
substantial on-premises infrastructure and allows banks to access
resources whenever they’re needed.

 The increasing digitization of banking operations has made financial

institutions a prime target for cybercriminals. Threats such as
phishing, malware, ransomware, and advanced persistent threats (APTs)
evolve constantly, making detection and prevention difficult. Data
breaches expose sensitive customer information, leading to financial
losses, reputational damage, and regulatory penalties.