The pace of change in technology continues unabated. Innovations such as artificial intelligence, robotic advisers, and predictive analytics are now nearing mass adoption. At the same time, banks are operating in a competitive, low-interest environment. Against this environment, the focus on cost-to-income ratios and return-on-equity has increased substantially while compliance requirements are increasingly stringent. In Asia, just as Australia, traditional banks are being disrupted by non-bank entrants who cherry-pick high value, specific products and service areas. In addition, customers’ expectations are continuing to evolve, putting them in the driver’s seat when it comes to choosing their banking needs and services.
Banks around the world have responded to this challenge by adopting a more piece-meal approach, adding additional complexity to their IT systems. However, RFi Group data suggests that a customer is considered to have chosen a bank as their main financial institution once they have 3.8 products with a particular financial institution and this suggests that the banks need to adopt an omnichannel approach.
Other studies have shown that while 96 per cent of banks believe that the way forward is a unified digital ecosystem, only 13 per cent of them see their core systems and other systems as ready to deliver such an ecosystem.
As a bank where do you start? How do you know which technologies to bet on? How can you add the new technologies to your existing ecosystem without ripping it up and starting again?
These pertinent questions were the basis of a wide-ranging discussion with key bankers in Malaysia. The issues discussed were certainly relevant to banks around the world including Australia.
RFi Group’s Gerald Ferguson set the scene by providing an overview on the developing interaction between banks and their customers and what they now expect from their banks. Taking a global perspective, the heightened geopolitical risks will also have an impact on the banking and customer relationship.
“We’ve seen Brexit, and the election of Trump (which we won’t spend today talking about). While that doesn’t necessarily have a direct impact on somebody banking in Malaysia, it does have is an impact on how they think about their banking relationship,” Ferguson said.
According to Ferguson, challenges remain around product differentiation and price. “So understanding me as a customer and then giving me the right kind of channel to bank through, whether that’s a priority channel or a preferred channel or a mass market channel, the way you as a bank interact and the information that you can get out to your customers becomes all the more important,” he said.
Having chalked up over 30 years’ experience in Asia including 20 years in banking solutions, Unisys solutions director, global financial services, Ian Selbie delved into his rich history in banking to give a view on just how far banking has evolved – even making a reference to his vintage by acknowledging he knew Ferguson’s father!
“For a long time, banks just pushed product. They were like a factory. I’ve heard bankers talk about themselves as a factory.” Selbie said. He acknowledged the role of the bank manager, however, and in his case, Selbie highlighted examples of how his bank manager would help him plan his finances by suggesting for example, to upgrade his car to save on repairs. However, technology has changed the way banks can assist their customers, in ways that go beyond the advice provided by traditional bank managers.
Customer experience is about taking into consideration all interactions a customer has with their bank - and moulding the banks’ solutions to that insight.
“With smart technology it’s not just about selling products but actually finding out what the customer needs by fitting in with the customer’s life events, goals etc. Customer experience is about taking into consideration all interactions a customer has with their bank - and moulding the banks’ solutions to that insight,” Selbie said. Therefore, it is no longer about selling products, rather technology has enabled banks to engage better with their customers by providing solutions such as suggesting a term loan would be better than a cash advance. Selbie was also careful to note that the concept of channels should not be about silos, rather it is about ‘bridging the silos’. “We’re trying to use technology to bridge technology silos, but it’s not just about technology it’s about all the people and end to end processes involved,” Selbie said.
Navigating the channels
As head of digital innovation and strategy for Maybank, Remy Khoo’s primary task is to consistently grow the bank’s business year-on-year through innovations and improving the customer experience. He does this through promoting the omnichannel to customers rather than through the traditional channel approach. This gives him an interesting perspective on the silo banking structure versus the channel approach particularly in terms of customer engagement. Echoing Selbie’s views, Khoo said that “essentially it’s all about how the customer engages with us, the bank”.
“Back in the day when there used to be no digital channels, you had very good relationship with your branch manager. The branch manager essentially became high-end relationship managers. Now more and more people have smartphones. Particularly in Malaysia there is such a high level of internet and mobile penetration, the time is now ripe for digital channels to become the channel of choice for customers,” Khoo said.
“Now it’s easy to access products and services from my smartphone rather than having to walk over to the bank branch, or pick up the phone to call the bank’s call centre,” Khoo said.
However, even with his digital hat on, Khoo acknowledges that “digital channels are not a pure replacement for conventional channels”.
Particularly in Malaysia there is such a high level of internet and mobile penetration, the time is now ripe for digital channels to become the channel of choice for customers.
“I am mostly a strong advocate for having a customer journey that encompasses an omnichannel experience. It’s essentially up to the customer to how he/she wants to engage with us and we need to give them that option, we need to give them that freedom,” Khoo said.
Head of marketing at HSBC, Abdul Sani Abdul Murad is tasked with bringing customers into both the digital and traditional “bricks and mortar” channels. In his view, banks need to have the right balance. Just like Khoo, Murad is a fan of digital options, however he sees the importance of complementary channels. “For us, it’s interesting as our HSBC branches in the Asia Pacific region are quite small, but yet we are generating huge income and revenue. You need to find the right balance depending on the segments that your customers are most comfortable connecting with”.
CIMB Malaysia’ head of prime business development, Chayenne Tan oversees a large branch network and as such is in a prime position to leverage from the emerging affluent customer in the region. It’s an advantage she understands but it also comes with challenges. “The channel you most advocate for the bank must be done through the voice of the customer. As much as we may want the omnichannel, the major challenge is customer fulfilment. The fulfilment piece is the touchpoint,” Tan said. For Tan, these channels can also be complementary. “When a customer transacts online, when they go to the branch the bank knows what they have done online and they can recommend the right product or services. It’s good use of a customer’s precious time”. However, at the same time, the challenge is that bank staff need to be proactive. “Technology-wise you may be able to provide that service, but people need to be able use that intel. That’s the challenge of having a large network,” Tan said.
Tan’s comments highlighted the issue of selling in branches and for many customers and staff this can be a sensitive theme. According to Selbie, some branch staff and tellers feel pressured to sell and perceive incentives to sell negatively. However, customers don’t need to see bank selling as a negative if the product is relevant. “If you’re going to encourage people to be sales people then give them something specific that they can sell that is relevant to that particular individual. Don’t just tell them to parrot a script,” Selbie said.
With discussions centred around traditional versus digital channels, the obvious next point of discussion was the emergence of “digital-only providers”. The roundtable participants acknowledged that their customers are comfortable with the concept. However, the big question is whether customers use these providers for payments and savings. As RFi Group’s Ferguson noted, Digibank has been quite successful in India. “In comparison, Ferguson said payment adoption in China is relatively high, most notably because of AliPay. “Chinese consumers don’t see AliPay as a fintech. They are used to it and that’s driven the use of AliPay as people are comfortable with it”.
From an Islamic banking perspective, digital also plays a key role in delivering for the customer. CIMB Malaysia head of Islamic Banking Group Syahrul Ishak said it’s not a one size fits all model. “You need to segment the customers and how each segment will interact with your channels. You also need to identify the pain points,” Ishak said. He also believes that digital can “reduce the pain points for the banks as well as the customer but branches remain relevant given that even millennials “still walk into a branch”.
For RHB Banking Group head of group transformation Elaine Lee Siew Hoon, the bank uses both conventional and new channels. For example the bank does provide its customers with an online account opening option but also has conventional branch service option.
Fintechs vs banks
Maybank Group’s vice president of digital banking Lionel Ho believes the sector needs to step back and in fact “hold the horses” as there are a few myths that need to be dispelled around offering the digital banking experience. In particular, banks must not be taken in by solutions that are built around hype. “Everything old can sometimes be new again. We need the actual solutions and products not the hype. For example, big data and customer relationship management are both the same thing. The list goes one. Sometimes the customer may not even be ready for new solutions or they simply don’t prefer those new things,” Ho said. Just as important, Ho added is that chief executives should not be reactive to any trend that emerges. “Basically, any time somebody sneezes a trend comes onto the CEO’s agenda. We are then in the danger of developing a system that we already have,” Ho said.
This issue of the sustainability of fintechs emerged following Ho’s discussion being captive to emerging banking trends. While many fintechs are successful a few have left the market, a development of particular note in China’s peer-to-peer lending market. So how sustainable are these fintechs and the new banks?
Ferguson used an analogy about fintechs and new banks versus traditional banks, adding that the banks were like oil tankers while the newer entrants were like jet skis. “Traditional banks are slow and take a long time to turnaround. They are very stable and have a lot of people and customers on board. The jet skis are very nimble and they’re jumping across the bows of the tankers. Some of those will crash quite spectacularly and quite quickly, but eventually there will be a small quorum of jet skis who will start heading in one direction and that will allow for tankers to manoeuvre themselves into that direction,” Ferguson said.
“To me that’s where a lot of your mindsets sits at the moment in terms of needing to be relevant, having the right product, providing a good digital experience, but not needing to be marketing leading from a digital experience perspective,” Ferguson said.
However, being market-leading can come with risks and sometimes banks need to be prepared to sometime fail in their attempts at innovation, according to Tan. Although it’s not a product she is responsible for, Tan highlighted the example of CIMB Malaysia’s chat banking app. “It was a risky move,” said Tan, furthermore there were some negative reviews on the app. However, after improvements, the app’s functionality improved and the team were even given an award. CIMB Malaysia’s business development head of preferred banking and segments CIMB Malaysia business development head of preferred banking segments Jessica Wee also echoed Tan’s view. “If you don’t innovate, then you will never know. That is why many companies have innovation departments. We don’t have an innovation department but we do have a strong innovation team in our banking business. We are also seeing banks setting up various innovation and fintech teams that are looking at ways to invent products and solutions that customers actually want. We should really be brave and try things out,” Wee said.
The ability of banks to embrace new technologies also comes down to their approach to revamping their core banking systems. “There are plenty of banks that haven’t changed their core banking systems in 30 years or even longer,” Selbie said.
“If I look at internet banks, especially in mobile banking, the banks that I know that are doing well have actually changed their platforms two or three times in ten years, maybe even more. In fact they’re making adjustment every month so their whole approach to the way they’re using that technology is completely different,” Selbie said.
Put simply, banks have to be more agile, according to Selbie. “You have to take a more agile approach and use technology that allows you to refresh your systems. Even if you don’t want to lead on core bank transformation, you still have to be slightly nimble,” Selbie said. Tan acknowledge that view but also noted the big banks face bigger challenges and it’s very hard to be agile. “There are so many moving parts in our tree that often you can’t move everything together at once,” Tan said. Often too banks have to spend a lot of money to address even the simple parts of their technology systems. Selbie likens this conundrum to a “two speed” approach to information technology in banking. “You have to try and leave those legacy systems alone and do the things on the frontend,” Selbie said.
Similar to the two speed IT approach are the traditional IT processes, according to Maybank Group’s Ho and “obviously, that has its own roadmaps and own processes”.
“However, we have dedicated innovation teams that help us test concepts,” Ho said. With these prototype teams, Selbie asked the panel of bankers about how quickly they take these concepts to be used in the wider banks. “Once you test it in your branches and decide to take it further, do you have a challenge to move it over to the traditional legacy processes and wait a year before it is actually rolled to the whole bank?”, Selbie asked. For Maybank’s Khoo it’s not about trialling something for the sake of it. “When we trial something, it actually involves a lot of users. Whether it’s something worthwhile doing or something that we need in order to improve the customer journey,” he said. In essence, it’s really about the whole experience and not just playing with the technologies. Khoo’s colleague, Ho also acknowledged the importance of having “established partners” in any innovation project. “Relying on purely internal resources is quite limiting. Having a strong partner that can really help us expedite things is important,” Ho said.
Ferguson steered the discussion onto the topical issue of open data, a theme that is growing in importance given the move to PSD2 in Europe and the United Kingdom. Even in Australia, the Federal Government has given the green light for an open banking framework as part of its announcement in the May budget. This initiative will of course pave the way for data-sharing. Key to the success of data sharing and open banking is consumer trust and who owns the data. Ferguson highlighted the important role banks will play in a brave new open data world. “When we asked customers about who owns the data and the concept of sharing data, 60 per cent expected banks to be responsible for ensuring the safety and privacy and security of that data,” Ferguson said.
The digital proposition
“Even though banks may go into partnerships with fintechs or third-party providers, that trust still falls back to the bank because they’re the people that they know are going to be around,” Ferguson said.
Even though banks may go into partnerships with fintechs or third-party providers, that trust still falls back to the bank because they’re the people that they know are going to be around.
For Ferguson, this could emerge as an issue if banks encourage their customers to go digital and use their ominchannels. The question then becomes, how much of the bank has to be included in the digital proposition and how far down the road in the partnership before they start to lose the ability that the customer still trusts them?
“I think it’s important when thinking about driving digital and driving channel experience that you don’t want to go too far down the route where you have created a new brand. Maybank is still very much digital driven by Maybank. Ubank in Australia is powered by National Australia Bank. In these examples, the banks still use that trust aspect and expect that partnership aspect to continue,” Ferguson said. He highlighted an example of Bank Mobile in the United States who ensured the trust of the customer throughout the digital interaction with the bank. Bank Mobile was very keen to make sure that customers could open an account within three minutes on their mobile. But the first thing Mobile Bank did when they were designing their app was to make sure that on every page there was a telephone button that customers could press should they want to talk to someone. This gave customers the option to go through to a call centre where the bank could fix whatever went wrong. “This example highlights the importance of giving customers the safety of the brand,” Ferguson said.
Trust is also an advantage banks have compared with the emerging players like the fintechs, a point highlighted by Selbie. “Some fintechs are getting a level of trust, but they’re not going to have that breadth and level of faith,” Selbie said. Another advantage for banks highlighted by Selbie is their ability to provide end-to-end solutions. “One of the things that customers expect of a bank is not just that end-to-end process but end-to-end service. AliPay can do my payments but I’m not going to go to AliPay for a mortgage. I will go to the bank for savings account, current account, credit card, mortgage, personal loan, unit trusts and most of the banks that I know of can provide that service,” Selbie said. Here trust again plays a role. “There’s a level of trust in using those services. I trust the banks for one thing and the more I transact with them - as long as they don’t breach that trust - the more I’m going to continue to trust them. That’s something that the traditional banks still have that the fintechs are nowhere near to having,” Selbie said.
The panel was also keen to discuss emerging trends and themes outside of Malaysia. For RFi Group’s Ferguson, the maturity of the affluent banking segment in Malaysia still lags behind Singapore and Hong Kong. “Here (in Malaysia) it is a little bit more around the product and the service. Whereas we look at markets like Hong Kong and Singapore where it’s an advanced priority market, so they expect more from their relationship managers. They expect more from the engagement from the bank and what they start to look for is not just the product and the service and giving them a better rate or quote. It’s about recognising a total customer. It’s reward me. I think banks in Singapore and Hong Kong actually struggle to communicate to their customers how much they are actually rewarded already,” Ferguson said.
The roundtable also discussed the fact that the affluent customer can also be a business customer or an international banking customer. “Understanding the different facets of an affluent customer and catering to them as a one-stop shop is really, really important and a huge opportunity I think in the ASEAN markets,” Ferguson said.
Indeed, the banks present at the table have vast knowledge and experience in understanding their customer and recognising that they are much more mobile and internationally focused, particularly in Malaysia, Indonesia, Thailand, and Vietnam.
Understanding the different facets of an affluent customer and catering to them as a one-stop shop is really, really important and a huge opportunity in the ASEAN markets.
“There is now a huge number of emerging middle classes that are travelling more and are keen to hold money offshore in safe havens effectively,” Ferguson said.
“You are already recognising those customers and providing them with the products and services they need. But the benefit you give them is all your knowledge across all of the banking products and eventually you will become a one-stop solution. That for me is a trend that I would imagine will grow more and more as this market becomes more sophisticated in terms of understanding the customer and what they can get from the bank.”
For more information about how Unisys can help your bank with creating and securing an omnichannel experience, please contact Ian Selbie on: firstname.lastname@example.org