Traditional financial institutions have been confronted with many questions in the face of disruption by financial technology. How will fintech affect my organisation? What do we need and and how do we prepare for this change? The effects of fintech are also being felt by other stakeholders from consumers to businesses and regulators.
For a look at how far fintech has come and where it is headed, the Singapore Fintech Festival is a great place to start. The world's largest fintech gathering staged its third annual event in November, attracting about 40,000 participants from over 100 countries, and more than 300 exhibitors ranging from financial services firms to industry associations, regulators, international service and standards providers.
As well, prominent speakers helped broaden visitors' perspective and perhaps even inspired new ideas. Participants learned how each country is embracing and developing fintech to help improve competitiveness as well as close the financial inequality gap.
Ravi Menon, managing director of the Monetary Authority of Singapore, discussed three key initiatives developed in the city-state. The first is SGQR, a standardised QR code that unifies the many barcodes of different financial and non-financial services. This should greatly increase adoption by merchants as they now need to display just one QR code for customers to scan.
Singapore PayNow, similar to Thailand's PromptPay, makes peer-to-peer payments easier by connecting with either an email address or mobile phone number. Lastly, Project Ubin allows local banks to conduct domestic interbank transactions using distributed ledger technology (better known as blockchain), without going through the central bank.
Most CEOs from financial institutions agree that fintech creates both challenges and opportunities for incumbents to improve the customer experience by offering simpler, faster and cheaper interactions and transactions, including customer support and advising on financial services or products and completing business transactions.
Fintech can also be a boon to previously underserved customers, especially those in remote areas who can now make financial transactions using just a mobile phone. Similarly, micro or small businesses, often overlooked as a low-margin segment by banks, can be helped in areas such as account opening, alternative credit scoring and financing.
'BASIC' ELEMENTS
When it comes to the elements that contribute to the success of fintech, think Basic: Blockchain, Artificial Intelligence (AI), Security, Internet of Things (IoT) and Cloud.
Many people still find blockchain or distributed ledger technology difficult to understand, but many organisations are exploring and finding real use cases. For example, the main stock market in Switzerland, SIX Swiss Exchange, plans to introduce an end-to-end settlement solution in mid-2019. The new SIX Digital Exchange or SDX will focus on digitised assets, not trading cryptocurrencies.
Smart contracts, another highly promising blockchain application, are also starting to be used by various businesses, not just financial services.
Compared with blockchain, IoT, security and cloud applications are now mainstream. One interesting IoT use case highlighted in Singapore involves and insurer that uses sensors and drones to help agents in the field assess claims. In addition to speed, the system offers safety in areas such as construction sites, where a drone survey reduces the risk of injury to humans.
When it comes to AI, many business leaders believe its potential is still far from being realised, and that it may ultimately deliver the most benefits.
Research by the World Economic Forum and Deloitte Consulting, based on workshops and interviews with 200 AI experts, sheds some light on what the future might hold.
PERVASIVE IMPACT
Artificial intelligence is a suite of technologies, enabled by adaptive predictive power and exhibiting some degree of autonomous learning, that dramatically advance our ability to:
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recognise and detect patterns;
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anticipate and forecast future events;
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create rules to optimise outcomes;
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make good decisions by applying rules;
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communicate with other people through digital or analogue media.
AI is enabling financial institutions to drive new efficiencies and deliver new kinds of value, ranging from "doing the same thing, better" to "doing something radically different".
For example, in investment management, a firm can use AI to help seamlessly set up accounts and acquire new customers. Smarter decision-making is possible when financial advisers are equipped with highly personalised customer insights based on analysis of individual customer data.
Consumers will one day interact with an AI-based agent offering guidance on complex decisions such as homebuying, retirement planning or corporate financing. At the same time, routine transactions such as bill payment and refinancing will be automated.
In conclusion, the impact of AI on financial institutions as well as regulators and consumers or society as a whole will:
Create new kinds of value: Product and service innovation will lead to greater financial inclusion and a smoother, more personalised customer experience.
Reshape operating models: Financial institutions will become leaner, highly networked and more specialised. They'll also become more dependent on the capabilities of large technology players.
Upend competitive dynamics: Data sharing will become critical to competitive success. The advantage will go to first movers and large-scale players.
Take public policy into uncharted territory: AI will raise questions that prompt the need for a new set of norms to protect humans, regulate machines, and remake the financial infrastructure.
The future of financial services lies in its ability to fully benefit from new technologies. It's a journey subject to the whims of economic, social and political change that no firm should take on its own. Nothing less than a collaborative effort among stakeholders -- financial institutions, fintech, associations and regulators -- will triumph over these challenges and unlock all the benefits for the best interests of business and society.
Somkrit Krishnamra is a partner in risk advisory services and FSI Country Leader, and Narain Chutijirawong is director of business development with Deloitte Thailand.