Window to leapfrog other competitors in technology is closing
Journey to digitalisation for banks must start now
TODAY, banks are facing increasing challenges. These challenges include competition among local peers, new entrants like foreign banks as well as non-banks offering financial-related services.
In addition, consumers’ demands are also increasing. They demand that banks to process their loan application faster, provide them more flexibility on where, when and how they want to do their banking transaction, and more.
All these factors point to one thing – that banks need to digitalise their business and operations.
“Banks will go extinct or maybe bankrupt if they don’t change. There’s no doubt that banking as an industry is very open to digitalisation, but if banks don’t change, they will go bankrupt. But good news is, the banks are changing,” said Robert Wilson, SAP's global head of Retail Banking, Global Financial Services, in an interview with Digital News Asia (DNA).
Wilson pointed out that one recent trend in the financial services industry is where non-bank organizations are making inroads into offering financial services to customers.
Alibaba, an e-commerce giant, has begun offering wealth management services to its customers. Yu’e Bao, an online investment platform under the Alibaba group, is now China’s biggest money market fund in terms of assets under management.
“In less than a year, Yu’e Bao has grown from nothing to over 81 million customers and more than US$80 billion in deposits.
“There’s no bank in the world that we have ever seen that has grown at such pace. In the digital age, there’s going to be something the banks need to embrace, if don’t, they will be consumed by the new financial powerhouse,” Wilson highlighted.
Window of opportunity to leapfrog is closing
Here’s the bad news for banks toying with the idea of leapfrogging its competitors with technology adoption: the window of opportunity is closing, if it has not already closed.
According to Wilson, some banks were hoping that technology will move faster, and if they waited, they may be able to fast-track the transformation process.
“Five years ago, SAP didn’t have a lot of Internet banking or mobile banking [solutions] but now we do as the market is a lot more mature. If you started five years ago, it will probably take you maybe a longer period of time to transform as compared to now. So, there were benefits to waiting.
“But now, there’re not a lot of new things to wait for and anybody who can transform digitally is already investing in this area. So, I think the period (for leapfrogging) is almost closed now,” he said.
With new banks and financial services providers coming into the market, Wilson believes that banks need to start their transformation journey now, despite having the “data advantage.”
“The new players don’t have the complexity of the legacy. They can start already very quickly to move into new world to satisfy new customers.
“Traditionally, banks have the data advantage, the banks know more about the customers because of the transactions made. Now, the new players can find out a lot about you by tracking you on social media,” he explained.
Globalisation and financial integration
While some banks may feel that it is highly unlikely that central banks will open up the financial sector to the extent of "risking the survivability of incumbent banks", Wilson pointed out that it is only a matter of time before the market opens up, allowing more players into the field.
He said that in Asia, a lot of governments are becoming concerned about international influences. So even large regional banks trying to move into new markets are hampered by economic regulation based on protectionism.
“Actually, the benefit is on opening the market. This will result in the reduction of cost of doing business, it also creates simplicity of doing business and this can help companies to grow easier and everyone is better off.
“Protectionism is only a temporary measure. The speed which digitalization can happen is incredible. Nokia, Kodak, RIM, were once a darling of the market several years ago, now look at where they are. If you don’t innovate, then you are going to end up like them,” he added.
The journey to digitalization means that ultimately, consumers will be able to do more transactions online via the computer, mobile phone or tablet.
In fact, Wilson noted that 10% of transactions are moving out of the branches in Europe and the United States, and these transactions are moving into the digital realm every year.
“This means, people are not going to do much transactions at branches anymore. So it is important for banks to give the same customer experience at the branch that they are having through Internet, mobile, social channels of interactions with the financial providers.
“Also, with people not coming into branches, this means, banks have only two to three seconds to understand what the customers are looking for (on the digital platform). You need a system that can react much quicker,” he said.
While banks have analytics capabilities in their systems, however, the strength may be limited.
“For a long time, banks had the ability to analyse the information that they have. What most banks don’t have is the ability to operationalize the analytics. This means, to put it in an automated process.
“Most analytics are done by manual processes or sending of letters or emails some considerable period after the transaction happens. What banks are looking for today is real time analytics, the ability to analyse all the information they have in real time,” he said.
Wilson also explained how real time analytics can benefit banks and customers. For example, if a customer who normally makes a deposit of US$3,000 a month suddenly makes a US$10,000 deposit, the system will be able to react fast enough and offer the customer a fixed deposit service.
However, Wilson cautioned that transforming the front end (such as an Internet banking portal) alone is not enough and that an efficient end-to-end process is key.
“A lot of people started out by building a small digital bank on top of their existing legacy infrastructure, but that doesn’t help with the complexity of the processes.
“It is about being able to execute in real time, this means they have to make the transformation. This will be a very expensive and time consuming transformation, because they have spent the last 30-40 years on this legacy system. Like oil tankers, it is very difficult to change, but it is possible,” he added.
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