A brief history of banking
The nature of money has evolved for a millennia and has now become fully digitized. Thousands of years ago, a bank account — if you can call it that – likely consisted of a bag of coins or shells that were stashed away safely. During the Middle Ages, the double-entry accounting system was established, signaling the emergence of payments and the double-entry ledger then became the norm. This supported the movement of money across great distances. It also enabled money to be stored safely with a central party who could track and access those funds at different locations. This also facilitated the concept of credit, effectively paving the way for modern-day banking.
Fast forward to the mid-20th century and, with the arrival of the IBM computer, banks began using the mainframe (or the mid-frame) to manage the double-entry ledger. As a result, bank accounts were supported by pass books and statements. Additionally, with the emergence of standardized communication protocols, account holders could access or spend funds in real-time. This shifted the account structure into an arithmetic account, meaning it could successfully add, subtract, compute interest, debit funds for spending, and credit incoming funds. This is now the current standard in every bank.
The future of banking
The evolution of the bank account continues however, and Yantra Financial Technologies has re-imagined and redesigned the bank account to truly revolutionize conventional approaches to banking and payments.
In short, Yantra has built a smart algorithmic account by deconstructing and rebuilding the technology infrastructure at CBW Bank. This was possible due to real-time machine learning across data fields, which are available via all channels to access information on each type of interaction with the account. Naturally, this creates large amounts of data that Yantra is able to normalize using proprietary algorithms. From there, a “smart account” is created.
The smart account can offer unprecedented insight on the account holder and incorporates compliance and risk management features to give banks more flexibility for product development and deployment. This kind of regulatory technology, or “regtech,” can significantly improve operations for financial institutions by making them more efficient and cost effective. In fact, according to Juniper Research, multinational financial institutions like Citi have as many as 30,000 compliance staff. Based on average wages, a 50 percent reduction could save a single large bank approximately $1.2 billion per year.
Adopt the compliance first mindset
Traditional approaches for managing risk and maintaining regulatory compliance, such as batch-based, post-transaction testing, are not scalable. Instead, banks should adopt a “compliance first” mindset with regtech that supports real-time risk scoring and can scale with increased transaction volume. As a result, banks can develop and introduce products and services with compliance built in from the outset.
The smart account empowers banks to innovate while helping with regulatory burdens. For example, when approving transactions, the smart account can support event-driven and event-based applications by evaluating contextual information. This can be applied to several different use cases, such as recurring bills. The smart account can be configured to pay recurring bills only if they are within the upper and lower limits set by the account holder, who is asked to approve any amounts outside of those parameters.
For instance, the account can recognize that an account holder’s monthly phone bill has increased by a certain dollar amount and can interface with the latest digital assistant technology to verify if the customer would like to pay it. Similarly, the smart account can understand when a business account holder swipes his or her corporate debit card at a gas station and can trigger an alert to automatically verify the connected card, validate the miles driven, along with the location and then approve the payment. Following the transaction, the account can post the transaction details to the account holder’s corporate enterprise resource planning system for reimbursement.
The smart account can also handle monitoring by tracking paired data statistics to detect fraud across all channels. This enables the account to distinguish a new payroll payment for a corporate account holder and stop to ask the corporate treasurer via chat bot or email if a new employee has been added to the system. It can recognize if an existing employee has a new bank account as a destination and stop to request confirmation. Or, if the payroll amount has changed, the smart account can confirm with the HR department that it is aware of the change.
The next evolution of a banking account: A.I.-enabled smart account
While the smart account represents real-time machine learning aided by algorithms to understand transactions in real-time, the next evolution of the bank account will be A.I.-enabled. Existing technology companies like IBM are increasingly seeking to leverage regtech innovation to diversify and improve their offerings. For instance, IBM acquired Promontory, a leading financial consultancy group, in November 2016, which enabled IBM to develop several regtech solutions, including those based on its A.I. system, IBM Watson.
One of the biggest challenges in banking is the availability of high quality data that can be fed into A.I. systems for deep learning. Yantra’s smart account ensures that data is clean, well-described, normalized, and even generates multiple ratios and outputs of algorithms, all of which are fed into IBM Watson. As a result, IBM Watson now has the power to understand the data more deeply via correlations and covariance matrices across large data sets and can begin to derive deep understanding and learning. Some of these data sets are translated into algorithms that can be fed into the smart account and others as decisions to be made by the customer.
For example, the smart account can determine that a customer has excess cash available and then notify IBM Watson. IBM Watson knows the risk profile of the respective customer and presents appropriate options to help the customer generate higher income via savings or investments.
The capabilities of Yantra’s smart account, coupled with the A.I.-driven capabilities of IBM Watson are far reaching, with the potential to resolve financial pain points for both consumers and businesses in a host of industries.
To begin leveraging these capabilities, register for an IBM Cloud account and read the previous Yantra articleon the Cloud blog.