Financial transformation
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Financial transformation

Consumers, businesses and investors are demanding more digital innovations and greener options from their financial services providers.

The financial sector is on the cusp of yet another transformation. Customers emerging from Covid-19 are demanding new and better sets of services to meet their new consumption patterns, be it how they shop, eat, work or transfer money. It's a dramatic shift that is compelling banks to transform or risk being left behind.

"The traditional business model of banking has changed because customers expect more from banks. It's not just lending and taking deposits, but customers expect them to be an adviser for what they're doing," says Bambang Moerwanto, regional vice-president of the Germany-based enterprise software corporation SAP.

In the past, customers were the ones going to brick-and-mortar banks. But as digitisation is becoming the norm, the bank is becoming more invisible and a service more like a utility. Now it's time for banks to go after the customers, he said at Think 2022, a recent technology conference sponsored by IBM in Singapore.

To reach out to current and potential customers, "banks want to be present everywhere and one way for them to do that is the adoption of open banking", said Kunaciilan Nallapan, vice-president for Asia Pacific, China and Japan of F5, an American technology company specialising in application security, multi-cloud management and online fraud prevention.

Open banking is a system that gives banks the ability to connect with third-party providers to offer a wider range of services. Because consumers generally place high trust in banks, they are more likely to be receptive to third-party providers offering some services in conjunction with or on behalf of their banks. This is technically called an open application programming interface (API).

In any case, banks need to continually adapt to new technologies and trends to stay relevant. Many are now embracing digital assets including cryptocurrency, non-fungible tokens (NFTs), or even various metaverse-linked applications, for example.

And as with many other organisations, more and more of what banks do will be done in the cloud, to take advantage of the speed and agility that is not possible with conventional data centre infrastructure.

"I think that adopting the cloud by banking and financial services organisations is inevitable," said Mr Nallapan.

Cloud services are also scalable as demand arises. "A lot of banks realised, as the pandemic set in, that they were not quite prepared for the scale of remote working, the scale of customer access or online access," he pointed out. "The only way to scale is through adoption of cloud.

The move to the cloud is also being hastened by competition from fintech, "which was born in the cloud", he added.

The challenge for traditional banks seeking to move to the cloud is that they are part of a highly regulated industry and therefore not everything can be transformed at the same speed.

Front-end technologies such as internet banking apps and APIs are better cloud candidates because they are not as heavily regulated as core banking and back-office operations.

Cloud adoption also differs across countries, Mr Nallapan noted. He named Australia, New Zealand, Singapore and Hong Kong as examples of jurisdictions where banks are more ready to move to the cloud because the regulatory framework is very clear about what banks can and cannot do.

The financial services industry is also making more use of artificial intelligence (AI), according to the Global AI Adoption Index 2022 by IBM.

AI is being used to detect fraud and cybercrime as well as to create hyper-personalised services for customers. It can also address labour shortages as it helps to automate tasks. About one-third of companies worldwide are now deploying AI applications such as natural language processing for fields such as marketing, sales and customer care.

"Thirty percent of global IT professionals say employees at their organisation are already saving time with new AI and automation software/tools," the report added.

"AI is a backbone in the industry and it is driven by data," said Tuhina Singh, chief executive officer and co-founder of Propine, a licensed digital asset custodian based in Singapore.

However, finding the right data is what banks and financial institutions are struggling with. "Ninety percent of the data today is unstructured. It's not in any way usable. To get to the right reliable outcomes, having the right data in place is very important," Ms Singh said.

"One solution … is the use of 'data fabric'. What data fabric essentially does is it allows any organisation to use and access data that is sitting in silos across the distributed environment without needing to copy or move it. Privacy and governance are also embedded in it."

In Ms Singh's view, with changing consumer behaviours and advanced technologies, the nature of banking regulation across different jurisdictions, which has long been a strength, "is becoming a weakness".

Innovations that take place only at the margins may not be enough if banks are not innovating at the core, in her view. "Banks are going to get disintermediated extremely fast," she said, as many of the services they have typically offered will be provided by fintech.

Banks are aware of this, so they are moving to a mixed model where they outsource services that they don't have the speed and scale to do, while forming strategic and collaborative partnerships to integrate new infrastructure where needed.

"Sustainability will become a race that banks have to embrace," says Bambang Moerwanto, regional vice-president of SAP. SUPPLIED


The nature of a bank is that it has a large and sensitive repository of personal and financial data. Now with more touch points such as cashless transactions, digital banking and open APIs, cybersecurity risk is a number one concern.

"Authorities are getting a lot more stringent," said KP Unnikrishnan, vice-president of marketing for Asia Pacific and Japan of Palo Alto Networks, a US-based multinational cybersecurity company.

"They're putting a lot more pieces of the puzzle in place … which is making banks more and more accountable and responsible to ensure that they are investing in the right cybersecurity postures.

"The bad news is banks are prime targets of cyber attacks. The good news is they are the most prepared," Mr Unnikrishnan said.

His company surveyed 500 Asean-based organisations in five key industries and found that those in financial services (79%) and fintech (76%) are more focused on cybersecurity than the average of 74%, with malware identified as a top concern.

Cybersecurity budgets have also increased the most for organisations in financial services (81%) and fintech (75%), compared to the 68% average.

"They want to make sure that while they're giving the customer a high level of personalised banking services, it should not be at the expense of security."

Cybersecurity is not just a product that a company buys off the shelf, Mr Unnikrishnan explained. "It needs to be a resilience factor that they can build in" at every step -- for example, when talking with customers, logging into the network or securing data centres.

With remote working now a fact of life for countless organisations, cyber risk is growing because more things are getting done on unsecured networks. This is causing companies to adopt a "zero-trust" approach, in which no device should be automatically trusted and every device must be verified, even if connected to a secure corporate network.

Mr Unnikrishnan described cybersecurity as "a journey we're nowhere near to completion … because we always have to be a couple of steps ahead of the adversary to make sure that we're all safe".

"Banks want to be present everywhere and one way for them to do that is the adoption of open banking," says Kunaciilan Nallapan, vice-president for Asia Pacific, China and Japan of F5. SUPPLIED


Another growing priority for financial services providers is sustainability, as more consumers and investors favour businesses with a purpose-driven agenda when it comes to economic, social and governance (ESG) issues.

As more industries integrate sustainability plans into their business models, banks can serve as enablers, Mr Moerwanto noted.

For example, many banks have already announced plans to stop or phase out lending for activities that pollute the environment, such as coal-fired power plants.

"Sustainability will become a race that banks have to embrace as part of the origination process," he said.

A study by Oxford Economics and the IBM Institute for Business Value, which interviewed 3,000 chief executives in banking and financial markets, found that 80% expect sustainability investments to improve business results in the next five years.

Banks now are developing and launching products to meet green demand including green bonds, climate-targeting industrial investments, personal loans that encourage consumers to be more environment-friendly, and sustainability-focused exchange-traded funds (ETFs).

Amid pressure from board members, investors, partners, regulators and governments, bank CEOs are engaging with their leadership teams to make the right investments in sustainability initiatives.

However, the report also noted that 60% of respondents believed unclear return on investment (RoI) and economic benefits, followed by a lack of reliable data, was hindering their ability to develop their sustainability strategies.

A bank's approach to the cloud strategy can be an important part of its sustainability strategy, the report noted. It sees a multi-hybrid cloud infrastructure as essential, "as it allows for more energy-efficient usage of data centres and computing environments".

"Banks are going to get disintermediated extremely fast" if they cannot produce more digital innovations, says Tuhina Singh, CEO and co-founder of Propine. SUPPLIED


Transformation cannot happen effectively without talent. Finding the right gems in the workforce pool is a challenge these days, when demand outstrips supply for many crucial skills.

"The reality is there are not enough people with the right skill sets, with the right mindset, with the right working attitude who are adopting and adapting to the new ways of working," said Chun Yin Mak, managing partner for business transformation services with IBM Consulting Asia Pacific.

"Talent, skills, culture and adoption are the biggest challenges as well as opportunities" for any organisation to successfully transform, he added.

"So the talent war is not only about fighting over the same people but in terms of exponential increases in costs," said Mr Chun. "How you actually retain, engage and really inspire people to leverage your company as a career platform, as a life platform as well because most people spend most of their living hours at work."

The banking and financial industry requires some specific skills as it moves to be more digitised. In Ms Singh's view, every candidate she would hire today has to be thought of in terms of what they can bring to the organisation in 2030. "These people have to be very comfortable with the use of technology because routine tasks are going to get fully automated," she said.

"That means that the talent that will be in demand in 2030 is going to be people who will have the ability to drive business decisions and business analysis. Second, we need people who understand tech and business better.

"Third, we need talent and people who will be able to drive end-to-end processes across disciplines. Cross-disciplinary knowledge will be in very high demand because that's how we need to develop our own workforces to prepare for doing that."

Soft skills are also as important as technical skills, she noted. Collaboration skills, a growth mindset and the ability to work across the enterprise are all sought-after because innovation cannot happen if everyone is in their own silos.

"The bad news is banks are prime targets of cyber attacks. The good news is they are the most prepared," says KP Unnikrishnan, vice-president of marketing for Asia Pacific and Japan of Palo Alto Networks. SUPPLIED

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