Our fintech future
'If you can't beat them, join them' is the growing sentiment among banks as they team up with technology specialists to stay relevant
In a digital world where the exchange of money is being revolutionised, banks are stepping up their collaboration with financial technology specialists to shape the future of financial institutions along with their security and data collecting systems.
While the internet has made banking much easier for consumers, it can also be a gold mine for hackers. In the old days they were simply called thieves, and they are breathing down the necks of banks, which are racing to find ways to make security cheaper and more effective. This is where fintech comes in.
Even though they are having a significant impact on the financial services industry, fintech firms lack scale and access to larger customers, as well as expertise in meeting regulations. Consequently, these new specialists need to collaborate instead of competing with banks, experts say.
"Fintech is here to complement, it is not to compete," says Cyrus Daruwala, managing director of IDC Financial Insights.
"[Fintech firms] can never compete because they do not have the licences to compete. They will always complement so they need you, the banks, to be successful," he told around 200 bankers at the recent Asian Financial Services Congress (AFSC).
"It is only the gaps they will steal from you (banks) and the gaps are peer-to-peer payments, peer-to-peer lending, community lending and a couple of gaps that traditional banks will not fill. Other than that, there is no real threat."
In addition to working with fintech innovators on security systems and on ways to make customers' banking experience better and faster. Mobile applications and various other electronic payment systems besides the ATM are the top examples that come to mind.
"Partnership is a must. The old way of banking is history. We have to be in [our customers'] ecosystems and we need to understand them by knowing their behaviour," said Devabalan Theyventheran, senior managing director of group information services at CIMB Group.
The Malaysia-based bank is broadening its fintech reach by joining with the likes of Samsung Pay and Go-Jek, a transport, logistics and payments startup in Indonesia, to provide more payment channels. It is also collaborating with the Thai mobile market leader Advanced Info Service for a mobile point of sale application, an e-wallet system for mobile money transfers, as well as Touch N' Go, whose customers include Malaysian tollway operators, and the shopping portal Lazada for e-commerce payments.
The key to providing better services and staying ahead of rivals in many cases simply comes down to knowing when customers do their banking and online shopping.
"Your banks are now capable of knowing what time you will be free to do some 'recreational banking', such as when you browse through Lazada for what you want to buy. They know this because Google API (application program interface) tells them exactly what (online) stops you go to, how long you travel and when you stop, and every day it is the same pattern which is very valuable digital information that banks did not have before," Mr Daruwala told Asia Focus.
US-based IDC provides market intelligence, advisory services and events for the information technology, telecommunications and consumer technology markets.
"Now they can target any user by sending a message which says 'Hi, would you like to talk about that 50,000-baht deposit that you have?' please click 'Y' for 'Yes'; or "Hi, we can see that your car loan is almost done, would you like someone to talk to you about renewing or refinancing your loan?' The possibility that you will click 'Yes' is very high because the questions were asked at that right time and all of this is what we call a digital matchup."
Artificial intelligence (AI) applications used to collect and analyse this personal information are getting smarter every day, opening more opportunities.
"IoT (internet of things) is now clever enough to understand the fact that you took out your milk from the fridge five times this week means the milk is nearly finished and the fridge has that data and it will send it to your phone and the phone will send it to Lotus," he said.
"This increased use of fintech is already being done in Thailand where people are using Line for payments, WeChat for crowdfunding and crowdsourcing, while Kasikornbank has come up with some very good initiatives on blockchain. Most applications are now blockchain-enabled such as applications that are related to banking and insurance."
IDC expects disruptive technologies including cognitive, automation and blockchain will be utilised at half of all banks worldwide by 2020, accelerating digital transformation by 30%.
PRIVACY AND SAFETY
Banks' ability to understand clients better via big data and IoT can provide consumers with convenience, more diverse offers and greater access to finance based on lifestyle and credit information that consumers have provided via social media and the devices they use.
"Every time you log in and allow Google to serve you better you basically are saying 'I know I am giving you data, I know you will not sell it, and I am also agreeing that you will serve me better.' You have already agreed to it so that is the magic. The magic is the opt-in," Mr Daruwala said.
"Banks are also responsible for [personal data protection] with very strict compliance regulations within, for example, the Bank of Thailand."
Sandeep Bagaria, the CEO of Tagit, a developer of mobile banking applications and payment systems for banks, said different countries in Asia have different levels of adoption of mobile banking. Often it takes only one bank to lead the way, after which rivals move quickly when they see it gaining an edge.
"There is a general readiness across the region in terms of people willing to adopt and use mobile digital banking and I think the banks in the region really need to catch up and be far more aggressive in their mobile and digital strategy," he told Asia Focus.
"Often there is a subtle difference between mobile and internet because the internet is almost like going to the branch as you have to visit a website, so the big difference between mobile banking and internet banking is about the person being mobile, not the mobile phone itself."
Mobile banking applications can be about providing services such as information about exchange rates or locations of businesses since it is not always about money transactions. "The question is what you (banks) have to say and can you say something relevant to the consumer," Mr Bagaria said.
Both he and Mr Daruwala assert that mobile banking applications have never been hacked. Conventional internet banking, meanwhile, is less secure because someone can hack the browser you are using.
"Whereas if you build a native app, which is talking directly to the operating system of the bank, it is actually far more secure," said Mr Bagaria.
"There is some customer education to be done but there is a lot of readiness and there are a lot of people who are starting to use mobile banking because they feel very comfortable with it, so it is up to the bank to incentivise and motivate that first transaction."
Mr Bagaria believes that mobile and digital solutions in Asia are more advanced than in the West, as developed economies had to make the switch from well-established infrastructure such as landlines and branches. But the story is different in Asia where more people have made the jump straight into mobile.
"The industry is less mature and there is much less infrastructure in Asia so banks here are leapfrogging the banking ecosystem right into mobile in terms of digital acceptance," he said.
"It will take some time for everybody to move from feature phones to smartphones but I have not seen any European feature, functionality or capability which is more than what is being done here in Asia."
He cites the example of bKash, the fastest growing provider of mobile financial services in Bangladesh with 11 million accounts registered in just 30 months. Another example is the biometric identifier program Aadhaar, which currently has around 1.1 billion users in India. Most Indian banks are now running transactions on it and Microsoft has also embedded it into Skype.
Aadhaar ("foundation" in Hindi) can verify the identity of job-seekers, authenticate loans, pension and money transfers across India, and similar systems could be applied anywhere in the world where 1.5 billion people can't prove who they are, as a UN study has found.
Sonia Wedrychowicz, managing director, COO and head of solutions management at Singapore-based DBS Bank -- named the World's Best Digital bank by Euromoney last year -- says branches are quickly becoming irrelevant.
"More and more customers are getting online these days because the availability of smartphones is increasing not only for the middle class but also for the lower class where prices are getting lower and lower," she told Asia Focus.
"People would like to meet the bank where they are spending most of their time, and these days they are spending most of their time on social media. So the whole idea of our service is to meet the customers where they are and embed our customers into our banking service ... so we want to be the Uber of banking."
AI, meanwhile, allows banks to be more direct and accurate with the information they give the public. Customer interactions conducted with chat-bots can be analysed daily to learn what customers are asking in order to enhance the experience in the future.
"The trend of a non-branch approach to banking is inevitable and this is what is being seen all around the world. I think banks have changed the way they look at digital from just being an incremental channel for their activity to the core of their activity," said Ms Wedrychowicz.
"Banks are seeing the traditional channels as less and less important in the future, not because the banks want that but because the customers want that, and that is where the customer is."
Mr Daruwala foresees that in the next seven to 10 years, AI and augmented reality (AR) could create new lifestyle-based opportunities for banks.
"In the future, your banks will be able to show you your new house via augmented reality and you do not have to deal with realtors because it is all AR or you can speak to a video expert on demand to talk about your other loans from home," he said.
"The future is completely dependent on the bank's ability to tap on to the changing lifestyle of consumers where people's financial requirements are different and the banks' ability to understand the different lifestyles will make them more relevant to their customers."