The next wave of innovation that will take financial services across the Asia Pacific region to a new level will require re-imagining finance and fully leveraging a new wave of technology. That was the message from a distinguished panel on the opening day of this week’s Fintech Festival in Singapore.
Piyush Gupta, chief executive (CEO) of Singapore multinational banking group DBS, Harvard senior fellow Peter Sands and IBM chief digital officer Bob Lord shared their insights about what comes next for fintech.
The global landscape
Gupta sees two main factors driving change. First is “the smartphone is a game-changer”, in making location and context irrelevant so that banks can integrate financial services into peoples’ daily lives. By fully leveraging both ‘on-us’ and ‘off-us’ transaction data as well as the connective shared economy, banks can reimagine banking and make it invisible. The second is cloud, because it changes the cost entirely. Companies can “buy technology on tap”, so small companies can be global and “everything is up for grabs.” These leading-edge developments “change the customer journey.”
Lord said that companies can use massive computers to go after operational data not being used – aka “dark data”; get at the big data problem; employ data in new ways; and use augmented intelligence to help people make different decisions. The result will be better insights and solutions that streamline customer service.
With retrospect, Sands identified that the first wave of fintech was actually the digital internet, which put services on the internet and made them digital. “Where we’re going now is more fundamental. It’s about information flow, property rights.” While it is more exciting, he said, it is also accompanied by “lots of hype”.
Reinventing financial services
Sands believes that the biggest changes in financial services will come in payments. The entire nature of financial intermediation is being challenged by peer-to-peer (P2P) services, he said, using tools that try to make better use of information. Blockchain will also be important, although it needs to develop beyond a solution looking for a problem.
Taking a different tack, Lord singled out the know-your-customer (KYC) regime that the financial services sector must comply with as the biggest pain point that can be solved. He added that a key issue for KYC now is that the technology is moving faster than the regulatory paradigm.
Using his company’s digital bank as an example, Gupta agreed that KYC is indeed fundamental. One reason that DBS chose India for the launch of its new digital bank is that the Indian government recently allowed electronic identification to be acceptable for KYC and for opening an account. Beyond KYC, though, the bank is paperless and employs chatbots using natural language for handling 96% of queries, so the cost point is lower. There are massive cost reduction opportunities and banks can pass the benefits of those efficiencies back to the consumer.
Changing the infrastructure
Gupta singled out three priorities for digital transformation. The first is rethinking the technology architecture and replacing core systems that can sometimes date back 50 years. The second is reimagining the customer experience – similar to what Airbnb has done for hotels and Uber for transport – while the third is a culture challenge, of changing peoples’ mindsets.
For Lord, siloes in organisations are the biggest inhibitors of change. To overcome the silo mentality, he believes that companies need to “support the customer journey. It allows you to cross organisational boundaries. You can get alignment, without having to change the organisation.”
One advantage for companies based in Asia is the attitude of the region’s regulators, who Gupta commended for being embracing of technology.
Taking advantage of fintech innovation
Asked how companies can make full advantage of labs such as accelerators or incubators, Sands first acknowledged that nine in 10 start-ups fail. “If you take a business proposal to management in your bank and say there’s an 80% chance of failure, it’s unlikely to be approved.” Yet he argued that what’s needed in banks is “a culture of failure. Management needs to give a signal that when things go wrong, people don’t get beaten up.”
Sands is also convinced that the economics of digital are going to be concentrated. Financial institutions have a huge customer base and understand regulation, he noted, and “the proportion of fintechs that have decided their future lies in working with incumbents has gone up.”
Gupta added that using the customer journey is helpful. “Last year we ran a thousand experiments. A lot of them failed.” What’s important, he said, is the “tone from the top.” “We’re running 350 journeys. We set up a culture to recognize and reward failure.”
The next step
What’s clear from the insights is that massive changes are underway in financial services, driven both by fintechs acting independently as well as in collaboration with banks. In this new environment, financial institutions that maintain their siloes and existing technology are likely to lag, while those that take advantage of game-changing innovation have tremendous opportunity.
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