The changing faces of financial services

What financial institutions have been trying to engineer for years, the coronavirus did in one: Push towards a cash-free society. As online shopping and demand for food and grocery delivery increase, users are learning the joy of digital payments. As cities around the world plan their exits from the pandemic, governments and corporations speak to a “new normal”. What will the new normal look like? For one, we will not see banks in the same way again.

The Financial Services Industry (FSI) which includes banks, investment houses, lenders, finance companies, real estate brokers and insurance companies have been headed for an overhaul for some time. Some disruptors have also joined the game: Grab—previously thought of as a transport provider—has progressed to the next stage in its application for a digital-only bank licence with Singtel¹. Hong Kong welcomed its first virtual bank, ZA Bank in March 2020² followed by Airstar Bank in May³. The digitalisation of finance services will change the way we transact with merchants, and point towards better (round-the-clock) customer service, interest rates and more security around our money.

Asia is ripe for this development, with 63% of users in Asia-Pacific ready for digital banking. It is a wake-up call for banks to adopt a digital-first strategy. Due to the crippling extent of COVID-19, more than 25% of respondents across Singapore, Hong Kong, China and Australia said in a survey⁴ they are anxious about their financial future. It has also driven them to push for insurtech, where insurers like Singlife that can process claims and allow people to purchase policies online are viewed more favourably.

Financial regulators in Singapore and Hong Kong are also encouraging FSIs to adopt Regulatory Technology (regtech) and digital technologies to counter increasing reports of pandemic-related fraud and financial crime. A S$125 million commitment from the Singapore government to boost FSI technology is a welcome sign to the community⁵. This could prove to be a turning point for financial services companies to leapfrog traditional banks to the unbanked in Philippines and Indonesia. Employing a strategy of prepaid and debit cards, as well as loaded spending cards, they can reach out to a potential 438 million unbanked customers in Southeast Asia. 

The building blocks of digital-first financial services are defined as ABCD—Artificial Intelligence (AI), Blockchain, Cloud computing and Big Data. Over the last couple of years, banks have invested in bots to service their clients. Moving on, we will see fully automated investment and trading decision-making software, as well as better robo-advisors.

Big Data has been big news for a while now and it is only going to get bigger. Financial institutions use it to understand customers’ spending habits, break users into specific demographics, cross-sell products and more. It is no wonder market intelligence company IDC⁶ reports the banking sector is one of the top investors in Big Data and Analytics. The Wall Street Journal⁷ reported FSI in Manila, Philippines have used it to assess a person’s credit risk based on his social media, email and mobile phone behaviour.   

Blockchain will also push forward in the era of digital banks. It is a more secure and efficient way forward for payments and transactions—and does not require third-party intermediaries. This will go a long way in cost savings that will be passed to consumers. In fact, the World Economic Forum forecasts up to 10% of the world’s GDP will be stored on blockchains and its ilk⁸. Decentralised ownership with blockchain, using the Interplanetary File System (IPFS), will make data more secure, faster to pull out, and more resistant to failures.

Banking-as-a-service (BaaS) platforms will also allow players to get a foot in the door by partnering with traditional banks. To benefit from these developments, financial services should partner with a technology expert like Singtel with deep roots in cloud, security and connectivity — as well as branches in new tech such as 5G — to fuel its march into the online realm. To safeguard data, they should invest in a hybrid cloud solution with highly secure on-site data servers and the public cloud for speed and agility.

Topping the many benefits of going online is the advent of 5G connectivity. Wearable tech, Internet-of-Things are just some of the technology that have been waiting for faster connection speeds. Data exchange on 5G will transform the finance industry. The faster speed will aid digital payments from wearables using the cloud. Improved speeds will also make security more robust through authentication using biometrics such as fingerprints and face recognition.

The high bandwidth provided by 5G will also make data collection more robust, letting the FSI do more than just protect accounts. Personalised payments and transactions will reduce the need to step into bricklined branches; banks and payment providers may connect between devices in the Internet-of-Things (the days of your fridge ordering groceries from online suppliers are drawing nearer); and high-frequency trading are just some possible use cases of high-speed connectivity.

It is not just for customers, 5G can be a great tool for financial consultants. Damage appraisers can process claims based on photos that are sent on-the-fly instead of waiting to do so at the office. This reduces the time and anxiety of customers, while making insurers more palatable.

However, while the pandemic has created immense opportunities, it has also provided an uncertainty in the market. This has led companies to take a cautious approach to digital investments. This is despite advancements in cloud-readiness as more people work from home. It may be unwise to reduce or even stop investments in technology. The Asia Cloud Computing Association (ACCA) warned markets that have stopped investments in digital infrastructure may lose out on post-pandemic recovery. Companies in emerging markets that take a bold stand with a Cloud-First policy could get a leg up over mature markets.

For finance companies that are continuing to build on the cloud for greater agility and flexibility, they also need to recognise that there is a huge security risk. Besides defensive strategies using blockchain, companies should also beef up their security with software such as Trustwave’s AppDetective Pro. The solution offers security without the need to hire an additional specialised IT team. It also provides a foot in with other Trustwave’s solutions to protect data, mitigate cybersecurity risk as well as conduct trainings to bring your internal IT teams up to speed.

COVID-19 has brought about uncertainty to every sector, including FSI. Finance companies that adopt a digital-first strategy and leverage game-changing technologies will be better poised to recover from the COVID-19 crisis and stay resilient against future disruptions.

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¹ The Strait Times, MAS says 14 of 21 digital bank applicants eligible for next stage of assessment, June 18 2020.

² PYMNTS, First online-only bank opens in Hong Kong, March 24 2020.

³ Finews.Asia, Hong Kong’s second digital bank enters the market, June 12 2020.

⁴ Swiss Re, COVID-19 Consumer survey, April 29 2020.

⁵ MAS, Launches S$125 million package for financial institutions and fintech firms to strengthen long-term capabilities. April 8 2020.

⁶ IDC, Asia/Pacific* Big Data analytics solutions’ revenue will increase by US$ 41.9 billion by 2024, January 14 2020.

⁷ WSJ, Companies use social media and email to determine credit, March 2016.

⁸ WEF, Building block(chain)s for a better planet, September 2018.