How Banks Can Thrive in an Uncertain Future

An Uncertain Future

For a long time, the financial services industry enjoyed high barriers to entry. New entrants were few and far between. Not anymore. Across Asia Pacific, virtual banking is intensifying competition.

Australia. Just this month, Australia issued a full banking license to Xinja, a neobank whose entire banking system runs in the cloud. It now joins three other fintechs in taking on Australia’s big four banks which had few credible competitors for decades. Until now.

Thailand. In February this year, UOB launched ASEAN’s first digital bank in Thailand. Known as TMRW, the mobile-only bank is aimed at millennials. Its most popular feature is a money management game tied to a person's savings goals.

Philippines. ING’s new digital-only bank, unveiled in May, in the Philippines offers higher interest rates. Signups can be done on a mobile phone and completed in minutes. There are no requirements for maintaining balance, lock-in periods or minimum amounts to earn interest.

Singapore. Applications opened for digital bank licenses in August 2019. Already, a number of fintechs, e-payments / e-wallet businesses and telcos, along with existing banks have expressed interest. Come mid-2020, five new players will be announced.

Hong Kong. Singapore’s effort comes after Hong Kong’s news this March, which saw the Special Administrative Region handing out three virtual banking licenses. Mainland China had already issued such licenses since 2014.

Japan. Virtual banking is not new for Asia. Japan’s first internet bank has operated since 2000. But the traction these digital banks are gaining should be a portent of the things to come. Japan’s most popular mortgage lender is not a conventional bank but the online-only SBI Sumishin Net Bank. That ought to say something about the possible trajectory for traditional banks should they not up their game.

Strategic Priorities in the Face of Ambiguity

Faced with uncertainty, how can Asia’s banks ensure a thriving future? A look at the four strategic priorities leading banks are pursuing offer deeper insights.

1. Seamless Connectivity

Consumers – used to the convenience and personalized recommendations offered by Amazon and Netflix – are demanding more from their banks. Today, it’s taken for granted that banks must provide complimentary, partnered offerings such as credit card promotions. To win them over, consumers expect bespoke services presented in a seamless, always available and intuitive manner. 

As banking becomes a customer-experience-driven business, banks must achieve omni-channel excellence. That means analyzing each customer’s behavior across all digital and human channels. So that banks can offer products and services catered to a customer-of-one – when and where that customer wants it.

This begins by integrating silos to create a unified customer view. Then, virtual views across divergent systems – using in-memory and cloud technologies – will allow banks to create outcomes-driven products that the customers desire.

2. Data-Driven Intelligence

To understand every step of the customer journey, banks will integrate experience data (X-data, such as customer feedback) with operational data (O-data, such as costs and sales). This happens across all data sources – from a single source-of-truth that enables decision-making.

Coupled with machine learning and analytics, banks will understand customer and market behavior in the context of their intentions. Thanks to a high degree of automation, banks can respond quickly – to position the right products and services to customers.

For example, X-data is displaying less than ideal feedback from fixed deposits customers. Advanced analytics show this corresponds to customers who have taken out money and not reinvested in another product from the same bank. Machine learning’s algorithms uncover past patterns that have led to this attrition. Based on new customer data, it predicts customers’ needs so that salespeople can intervene with personalized offerings to retain the customers.

Delighted, the customers become advocates. Employees – empowered to turn the situation around – feel engaged. They also achieve performance incentives based on customer satisfaction scores correlated to the customer-of-one model.

3. Operational Effectiveness

To take on the future, banks need intelligent banking operations empowered by big data and machine learning. Automation eradicates repetitive work which inflates costs and exposes banks to errors.

Reducing manual intervention in areas such as trade reconciliation and transaction matching also accelerates process execution. This refocuses the workforce on value-generating activities.

Cognitive computing also enhances talent management and recruitment. By analyzing traits of the highest-performers, and then combing through resumes and vendor systems, banks identify candidates with similar characteristics and experience.

As banks seamlessly integrate finance, risk and compliance systems, they get a connected view of the customer. Real-time customer servicing based on secured data is enabled by the cloud and blockchain.

Rabobank sets a good example in this area. The bank created straight-through processing (STP) for loans. It dramatically reduced the processing time: From weeks to hours. And significantly enhanced employee and customer satisfaction.

4. Financial Insight and Risk Control

In an increasingly complex regulatory environment, banks need a flexible way to comply while keeping costs down. This isn’t the case today – with entire departments driving regulatory compliance.

But this will change as banks migrate to universal journals linked through blockchain and delivered through the cloud. Universal journals eliminate the need for separation made previously between financial accounting and controlling. With reconciliation efforts enforced by design, all accounting components harness data from the same universal journal. Which means a single source of truth can easily be accessible in real-time. This gives banks greater agility for financial insight and control. All the while, reducing errors.

Innovative governance tools allow banks to simulate positions and market conditions in real-time. And accurately forecast business scenarios and financial impacts. As these controls are implemented across borders and time zones, market-specific risk is further reduced.

Acting Now is Key to Thriving

Digital innovation is reshaping the battlegrounds of the financial services industry. To say there is urgency in keeping pace is underplaying the pressure. These four priorities highlighted help business and technology leaders draw up a strategic innovation agenda for change. Time is of the essence. And acting now is the key to thriving – today and in the future.