Our focus will be on leveraging AI/ML for repetitive processes: V. Vaidyanathan, CIO, Unity Small Finance Bank

In an exclusive interview, V. Vaidyanathan, Chief Information Officer of Unity Small Finance Bank, unveils the bank’s transformative journey, initiated in November 2021. The strategic move involved acquiring the dormant Punjab and Maharashtra Cooperative Bank, leading to the establishment of a modern, digital bank with a focus on innovative offerings. Vaidyanathan discusses the challenges faced during the rapid implementation of a new microservices-based architecture, setting a global record for the fastest Core Banking System (CBS) implementation ever. The interview delves into the bank’s ongoing projects, the incorporation of AI and machine learning, and its vision for the future, including the adoption of GenAI and wearables.

Can you share some of the recent important digital or technology initiatives that your company has undertaken and their impact?

The bank embarked on a distinctive journey in November 2021, diverging from traditional banking norms. The pivotal move involved acquiring the dormant Punjab and Maharashtra Cooperative Bank, which had been suspended for almost two and a half years, characterized by outdated technology and a legacy infrastructure dating back years. Embracing a forward-looking approach, our goal was to establish a modern, digital bank with a comprehensive suite of digital offerings. As a part of this transformation, we re-assessed the existing 147 branches, realigned them, and currently operate with around 154 branches. However, our focus remains on achieving a significant customer base akin to larger banks through digital channels, eschewing extensive physical branch networks. This necessitated a robust back-end infrastructure, leading us to confront challenges with the outdated, monolithic core banking system inherited from PMC Bank.

Recognizing the imperative for an agile and modern core banking system, we made a strategic decision in mid-2022 to transition from an old-age to a new-age microservices-based architecture. Notably, this decision was underlined by the necessity to replace the existing CBS and implement a new CBS within an ambitious 120-day timeframe. Among the various vendors, only one accepted the challenge and committed to this demanding timeline. To everyone’s surprise, the CBS was successfully implemented in an astounding 88 days with no revision of dates, thus setting a new global record for the fastest CBS implementation ever. This achievement, involving 111 branches and serving 1.5 million existing customers, was meticulously executed, encompassing data transition, data migration, and comprehensive training programs.

The successful CBS implementation serves as a foundational milestone upon which we plan to build and expand our digital offerings. Currently equipped with a mobile banking app in a closed user group, our next objectives include developing an internet banking module and exploring advanced technologies such as Gen AI, chatbots, and wearables. While these cutting-edge technologies are part of our roadmap, our immediate focus is on ensuring the seamless functioning of our core digital infrastructure. Once this foundation is solidified, we envision entering the next phase of competition with other banks on a technologically advanced platform.

Can you share insights into the incorporation of AI or ML in your daily operations? Are you currently leveraging their benefits, and if not, do you have plans to do so?

In the coming nine to twelve months, our focus will shift towards leveraging AI and machine learning for repetitive processes, aiming to reduce time and enhance efficiency. Data analytics will also be a key area of exploration. However, beyond these aspects, specific plans are yet to be finalized. Currently, we are managing a substantial load of around 40 odd projects running concurrently, each slated to go live soon. The challenge lies in orchestrating all these initiatives within a condensed time frame. Our priorities are aligned with ensuring the successful implementation of these projects, and we acknowledge that certain advancements may need to occur sequentially rather than simultaneously.

One notable change in our infrastructure is the transition from an on-premises model to fully embracing the cloud. The CBS has been shifted to a managed services model, eliminating the need for an on-premise DC and DR setup. This move ensures a robust and scalable platform for our operations. While our cloud investments have been substantial, we are actively addressing the challenge of cloud optimization. This involves optimizing spending on cloud services provided by major providers like Azure, Oracle, and AWS. Decisions on incorporating AI and other technologies into our roadmap are imminent but are likely to follow the establishment of a solid foundation and smooth operation of our current projects.

What, in your opinion, are the potential benefits of implementing GenAI in the banking sector?

The implementation of generative AI (Gen AI) is an ongoing exploration. While many institutions are experimenting with it, it has yet to reach a level where success can be unequivocally declared. Gen AI holds potential, particularly in processes like loan disbursement, where having relevant data enables quicker decision-making. The prospect of disbursing loans within hours instead of days is a promising area where data analytics, AI, and machine learning can play a pivotal role. While the adoption of these technologies is on the horizon, especially for banks at higher maturity levels, it is essential to acknowledge that the transformative impact is still in the early stages.

Considering your mention of GenAI, what impact do you foresee on the workforce if AI, particularly GenAI, comes into play?

Gen AI is expected to transform traditional workflows by automating mundane tasks, allowing existing processes to evolve into more critical and meaningful activities. Rather than replacing human roles, Gen AI aims to augment the workforce, enabling individuals to focus on more intelligent and value-driven tasks. For instance, in the realm of payment systems, the evolution from plastic cards to innovative solutions like wearables or phone-based payments reflects ongoing advancements. The desire for simplicity and user-friendly interfaces is emphasized, as seen in the banking sector’s adoption of technology. While many banks offer similar technological features, the key differentiator lies in how effectively these technologies are utilized to enhance the customer experience. The focus is on ensuring that any technological integration serves a practical purpose for the customer, promoting simplicity and intuitiveness in user interfaces similar to the smooth flow of an Apple iPhone.

Do you have plans to incorporate GenAI or chatbots for an enhanced customer experience in the near future?

As you highlighted, the priority lies in establishing a strong foundation with ongoing projects before venturing into more advanced initiatives. Once these foundational projects successfully reach completion and stabilize, the organization can confidently progress to the next level. This sequential approach ensures that each step is thoroughly executed, akin to building the foundation before building the first and second floors. The focus is on achieving stability and success in the initial phases, providing a robust base for subsequent, more advanced endeavors.

Do you have a roadmap in place for incorporating any new technologies in the near future?

Certainly, the upcoming six to 18 months will involve a phased approach, where we will systematically address and implement initiatives one by one. The initial six months are particularly critical, focusing on bringing ongoing projects to fruition and ensuring their successful completion. The emphasis is on the thorough execution and delivery of these existing projects, laying the groundwork for subsequent phases. This careful and strategic timeline aims to prioritize the completion of current tasks before introducing new elements, fostering a methodical progression in the organization’s journey.

Please talk about some of your ongoing projects.

The ongoing projects include the development of our internet banking and mobile banking modules, along with the integration of an enterprise service bus (ESB) and API for connecting to fintechs and enabling banking as a service. These projects are at an advanced stage in the pipeline, emphasizing the bank’s commitment to modernize its digital infrastructure. However, it’s crucial to note that these initiatives are not short-term endeavors, and their comprehensive execution requires a considerable amount of time. While the CBS implementation was expedited in response to specific needs, the current focus is on ensuring precision and avoiding mistakes in every project, aiming for a right-first-time approach. The landscape of banking technology has witnessed a lack of significant innovation over the last three decades, with existing CBS systems relying on technology that is almost 30 years old. The transition to modern microservices architectures, coupled with advanced analytics, opens up new possibilities, such as hyperpersonalization. Leveraging data analytics for personalizing products based on individual preferences and even creating bespoke products in real-time reflects a vision of achieving hyper-personalization, although this transformative stage will require a dedicated timeframe.

Did you have to make any compliance changes to adhere to the Digital Personal Data Protection Act?

Regarding the Data Protection and Privacy Act (DPDP Act), our engagement is currently a work in progress. While substantial strides haven’t been made yet, the organization is actively and diligently exploring this avenue. The regulatory and compliance team recognizes the imperative nature of their work, operating around the clock to ensure adherence to regulatory standards. Compliance is treated as a non-negotiable necessity, with the team dedicated to achieving a comprehensive 100% compliance rate. Acknowledging the criticality of regulatory requirements, the organization emphasizes the importance of not sidetracking any aspect, making it clear that compliance is a continual and meticulous activity.

As we’re now in February of this year, what trends do you anticipate will shape the technological landscape in 2024?

Our intention includes a focus on GenAI and wearables. There is a notable increase in the expanded use of ChatGPT, with a growing number of individuals, including myself, leveraging its capabilities. A particular emphasis is placed on enhancing loan processing and disbursement through the integration of AI and GenAI technologies. The organization envisions a future where these advanced technologies play a pivotal role in streamlining and improving the efficiency of loan-related processes, showcasing a commitment to harnessing the potential of artificial intelligence for financial operations.

Artificial Intelligence (AI)CIOdigital transformationUnity Small Finance BankVaidyanathan Venkataraman
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