Digital transformation is crucial for banks to remain competitive amid the fintech buzz | Tech Industry

Today’s most attractive customers no longer consider the bank branch as their first point of contact

Since the global financial crisis in 2008, leading Asia Pacific (APAC) banks have outperformed the global banking sector. The region is forecast to continue offering growth opportunities, but traditional banking powerhouses will need to revisit their business models and adopt digital technologies in order to remain competitive with new, non-traditional rivals.

At this previous year’s Symposium on Asian Banking and Finance, Mr. Ravi Menon, managing director of the Monetary Authority of Singapore, gave a number of reasons for the strength of the Asian banking sector, such the strong fundamentals built up by Asian banks following the Asian Financial Crisis of 1997.

Mr. Menon went on to highlight the fact that financial inclusion remains low in many parts of Asia. Although global banks will continue to play an important role in the region, it is the responsibility of Asian banks to expand financial inclusion, especially at the retail and small business level. His opinion is that they can use innovative fintech solutions to bring under-banked individuals and businesses into the financial mainstream.

The question is, are Asia’s banks really ready to respond to the changing landscape?

A new audience: Millennials

The millennial generation is far more open to branchless and alternative banks, according to a study by Accenture. Results show that millennials would be open to banking with technology players such as Google, Apple, and Amazon if those companies offered banking services, revealing a shifting perception of what a bank should be.

Also read: Money is going digital, and the underbanked will be among the biggest beneficiaries

This trend is particularly significant in Asia. A McKinsey study reveals that in developed Asian markets, internet banking is now near universal and smartphone banking has grown more than threefold since 2011.

In fact, the consumers most comfortable with digital banking – digitally savvy customers – are more attractive to financial institutions than other consumers. These customers are more educated than other segments, have account balances that are two to three times higher, and interact with their banks almost three times as often. They also hold multiple banking products – almost six per customer in developed Asia and three to four in emerging Asia – and are very active in online shopping.

A key takeaway here is that today’s most attractive customers no longer consider the bank branch as their first point of contact. To remain relevant, the Asian banking industry must interact with customers in new ways – to connect and engage with mobile-first, potentially mobile-only, customers.

Rise of non-traditional banking companies

Payment or funding services traditionally provided by banks are ripe to be overtaken by mobile payment systems such as Apple Pay, Alipay, PayPal, or Amazon Payments. Braintree, a division of PayPal, is one example of a global fintech start-up in Singapore that provides secure online payments for businesses such as Airbnb and Uber.

Fintech start-ups are hungrily circling the traditional banking heavyweights – which are slower to respond to young consumers’ needs, such as crowdfunding, mobile payments, student loans and remittances – and dozens of lean, nimble innovators in Silicon Valley or Singapore are seeing opportunities to fill these gaps.

“35% of banking revenues are at risk because of disruption from fintech. The time of the fortress mentality is gone. It is time for banks to open up and play with the enemy. We need to ‘Fintegrate’ with start-ups to build new experiences.” said Sanjeev Mehra, Managing Director and Head of Global Product Development of Citi and based in Singapore, speaking at the TIBCO NOW Conference held in Singapore in March this year.

What is holding traditional banks back from fully achieving digital transformation? 

It takes leadership vision and a strong corporate commitment to move on from legacy systems, manual processes, and entrenched ‘old’ processes that have served the banking sector well for decades.

For example, in Hong Kong, long perceived to be a global financial powerhouse, many banks continue to be saddled with manual processes that go against the very grain of the digital transformation phenomenon. Legacy core platforms continue to be the primary barrier, as they are simply not suited to meeting the challenges that banks face in the digital economy. The banking industry’s new generation of competitors are not only offering all-digital services, but also using strong analytics to understand and serve their customers better.

The key insight for the traditional banking sector is that it is not enough to simply embrace digital technologies and carry on with their current activities. They are just delivering the same products and services but via different channels such as mobile, tablet or social media, with the net effect of only delivering them slightly better.

Also read: Is the unbanked sector a real problem, or just a bubble created by fintechs?

Banks must move from siloed digital platforms, processes and initiatives to connected platforms, and from limited analytics to augmented intelligence. This will move financial institutions from being reactive to proactive and predictive, allowing them to build a value proposition that addresses the needs of their target audience, with its digital competence and expectations.

Learning from others

Citi is one of the first banks to embrace fintech, focusing on building simple systems for a remarkable customer experience. Focusing on three pillars – cloud, APIs and micro services – Citi has evolved its IT architecture for open banking.

In the last five years, Citi has standardised their middleware, which is the integration layer, to expose credit initiation and service processes. Next they will move into cloud-ready integration platforms. Additionally, they now have a platform that can analyse and evaluate millions of transactions, and use that data to provide smart, personalised, location-based offers to customers at the right moment.

Improved customer service also comes with the ability to enable straight-through processing for credit card applications. Customers used to get a card in one to two weeks. Now card pre-approval takes 10 to 12 minutes and the card can be delivered to door steps within 2 days.

Other initiatives include the Citi FinTech unit, launched in October 2015, which is tasked to focus on building a smartphone-centric business model by creating and improving mobile-first capabilities across a range of banking services.

Last November, Citi launched the Citi Global API Developer Portal as a platform for developers to connect to the bank directly. The portal was launched in Singapore in November 2016 during the inaugural Singapore FinTech Festival, followed by Australia and the U.S. The bank made the portal available to the Hong Kong developer community in March 2017.

South Korea’s KB Card has also gone a step further to beat out the competition with real-time campaigns. Recognising their old campaign system was not targeting the right segmentation of customers, they embarked on a journey to establish a strong marketing platform that analyses customer card transaction data and sends optimal offers in real time. Today, the system is able to address 300 market segments simultaneously, and saw a US$600 million increased credit card use in first year using the new platform.

Embracing the fintech revolution

Fintech has greatly evolved over the past few years and is undeniably transforming the landscape. Start-ups in this sector are bringing superior agility, focus, cost efficiency, and a disruptor’s mind-set. Financial-services customers in Asia are primed to use digital banking, and research show that a large portion are already using computers and smartphones to access their accounts. The rapid growth in digital banking is likely to continue, and incumbents and entrants will be moving fast to stake their claims. Banks need to keep up with the changing environment, for their customers’ sake as well as their own, especially when they are losing profitability.

Also read: Will Hong Kong top Singapore in fintech innovations this year?

A fully implemented digital experience not only reduces churn and attracts new customers, but it can make the physical assets operate more effectively as an existing channel and – as customer numbers increase – optimises their efficiency for competitive advantage.

Bottom line? Digital transformation is no longer an option; it’s a necessity.

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