What's Next 2017: Banks waking up to disruptive nightmare from outside the industry
By Dzof Azmi November 10, 2017
- Banks must benchmark themselves against tech companies, do business at their speed
- Maybank working with MDEC, Alibaba to use the DFTZ to ride the e-commerce wave
MICHAEL Foong can't sleep at night. But the group chief strategy officer of Maybank Group isn't worried about what competing banks are doing.
"The players that do actually keep us awake at night are the players that have got the technology and data at their core."
He's referring to behemoths like Google, Facebook and Tencent. "I think the strategic assets that they have are actually quite frightening."
Foong was speaking at the What's Next conference held in Subang yesterday, hosted by Digital News Asia, entitled "The Business Impact of Disruptive Technology". He was elaborating on what it was like being at the receiving end of disruption by fintech innovation.
As an example, he points to Gmail's feature that lets users in the US and UK send money to each other as easily as creating an attachment in an email. "If you have the ability to transfer funds at zero cost with a Gmail friend, can you imagine the impact on banks?"
Google is not alone. Facebook Messenger also has similar features, while Whatsapp is testing theirs in India. "The world of banking is really changing, the thing that scares me is the pace of change," says Foong.
Keeping up with change
"The world is changing very very fast. The amount of change you have seen over the last 20 years, you will probably see the same amount of change in the next seven years," elaborated Foong. "The ground is shifting very quickly."
Foong admits that traditionally banks have been slow adopters, and it's partly to do with the changing nature of the competition.
"In the past, it would have been seen as not too bad because it's benchmarked against other banks. Today it's absolutely unacceptable: We are now benchmarking ourselves against the fintech companies."
In particular, these new upstarts offer similar services at much shorter timescales, and banks need to keep up. "If an approval in principle can be given to an SME for a microloan of RM50,000 or RM100,000, then we have to take that as the new benchmark."
Foong did say that banks are working hard to speed up processes by improving them, striving for operational excellence and even redesigning business models. For example, Maybank customers can now open new bank accounts or apply for new credit cards through the Maybank2U app without physically having to visit the bank.
"Those are some of the things we are trying to do to really change the way customers perceive turnaround time. We have all these capabilities, these products, these offerings, but many Malaysians don't know about it," he bemoans.
Using the DFTZ to embrace e-commerce
In fact, the Maybank senior management have been aware of the potential for digital disruption since 2012. As a result, they can point to some successes, with Foong claiming that Maybank has a 50% share of all Internet banking transactions in Malaysia, and almost a 70% share of that transaction value.
"It is very clear we have to be in the conversation," emphasises Foong. "The recipe that gives us a chance (to succeed) is to absorb what the megatrends are, try to make sense of it and where we should be placing our bets."
One obvious trend is the rise of e-commerce. The Malaysian government has itself attempted to encourage more businesses to go online, most recently with the Digital Free Trade Zone (DFTZ) initiative to connect users with government and businesses over the Internet.
The first phase was recently launched on Nov 3, and aims to double the export growth of SME goods to over RM160 billion by 2025.
"Maybank is trying very hard, working very closely with players such as MDEC and Alibaba to figure out how we can be part of the ecosystem of DFTZ," enthused Foong.
"Moving at the speed that the DFTZ has moved is certainly a challenge to us but (if) government agencies can do that, there's no reason why a commercial entity is not able to pick up the challenge and move at that speed as well."
"If we do it properly, we can get strongly into the e-commerce wave."
Regulations: Protection and obstacles
In Malaysia, the banking industry is regulated by Bank Negara Malaysia, the central bank. Banks are the only entities allowed to collect deposits. "We're quite protected," admits Foong.
He also sees the upside. Regulation means the public has greater trust in the institution, and trust means that banks can roll products and solutions out at scale.
It also means that tech companies will think twice before stepping under the ambit of regulation. "If you become an entity regulated by Bank Negara or the Monetary Authority of Singapore (MAS)... it's very, very onerous." [Paragraph edited for accuracy.]
Yet, he also observes that the perception that regulators are resistant to change may not be true anymore. As an example, he refers to MAS who has recently been exploring the possibility of whether banks in Singapore could match buyers and sellers, or even sell products online. "This is a 180-degree turn (for them)," observes Foong.
Will banks remain relevant?
Despite these challenges, Foong believes banks will remain relevant - or that at least some of their business will not be taken over by software solutions.
"It's very difficult to sit across a table from a CEO of a company that wants to list or issue bonds and have a machine translate what he wants," he explains. "However, on the retail side is a very different story."
He points out that individual customers are part of processes that can be broken down into a clear sequence and this is eminently programmable. "It will for sure be taken over by machines. It's not a question of 'if' but 'when'."
The key is for banks to see how they can position themselves to persuade technology innovators to work with, not against, them. "I think the fintechs, especially the small ones, will be the ones to partner the banks as opposed to disrupting the banks."
"The big ones are the ones we are a bit more worried about."
What’s Next was sponsored by big data and analytics specialist, Fusionex International, Malaysia Digital Economy Corporation (MDEC), Maxis Bhd and Anaplan. Accenture Malaysia was Knowledge Partner, iTrain as Training Partner, Leaderonomics as Leadership Partner and Ansible Malaysia as Digital Partner. BFM was the Media Partner.