Asian banks deploy smart branches and digital tools

41% of customers now prefer to interact with their banks online.

When a customer steps into a concept branch by an Asian bank, it is hard not to linger. From UnionBank’s The Ark branch in the Philippines where customers can lounge and connect to WiFi to UOB’s fresh bank layout in Singapore where carved-out spaces enable clients to seek financial advice in private, Asian banks are evolving their branches to suit the shifting digital inclinations of its customers.

They do it by using technology to revamp transactions in their branches, whilst bolstering thier online and internet banking platforms. “Given that the popularity of branches as a distribution channel of choice is declining, their footprint is also shrinking in parts of Asia Pacific, as selected outlets get shuttered,” said Jan Bellens, EY’s Asia-Pacific and emerging markets banking and capital markets leader.

Bellens cited the EY Global Consumer Banking Survey which showed, on average, that 41% want to interact with their banks online and 33% via mobile channels in the next 12 months, with Chinese customer preferences rising to as high as 50%.

"The branches that remain will need to be redesigned – either as flagship branches (where customers can access specialists to help with complex transactions) or smaller satellite outlets (with minimal staff)," said Bellens. For the former, key features will include interactive touch panels, digital queuing, virtual assistants with artificial intelligence, videoconference lounges, and merchandising displays designed to entice customers to linger. Smaller branches, meanwhile, could function as automated self-service kiosks, providing routine transactions for simpler products.

But Bellens warned that reducing branches and converting the remaining into smart branches could intimidate and marginalise less tech-savvy demographics, such as the older generation, and drive them to bank with competitors.

In January, UOB piloted a new branch concept in Singapore focused on the millennial crowd, setting it up in a branch in Tampines where residents aged 25 to 34 have risen 13% over the past decade, and now account for 15% of all residents in the area, said Susan Hwee, head of group technology and operations at UOB.

Given this more digital-savvy customer base, and data that showed they prefer to bank through digital channels or by using self-service machines, the new branch layout did away with traditional teller counters. Instead, the bank created private spaces to accommodate customers that troop to the branch mainly for financial advice. It also set up five self-service machines in the branch lobby that are accessible any time of the day for more common transactions.

UnionBank of the Philippines, for its part, launched The Ark, the first fully digital bank branch in the Southeast Asian country where customers can have coffee or log on to the internet to get some work done, shifting the role of branches from transactional spaces to “interactional” spaces, said UnionBank of the Philippines’ spokesperson.

"The bank branch is not going away but its role and purpose will shift from a space to simply process transactions to a venue for advisory conversations, digital channel onboarding, self-service banking, and interactive experiences," the spokesperson added.

In The Ark, 30 branch transactions were digitised and offered to customers, including product applications for credit cards and loans. A typical day would see customers filling out transactions via a tablet and receiving confirmation receipts via email or SMS, the spokesperson said, and the digitisation effort reduced transaction processing time, especially in account opening, from an average of 1 hour to around 15 minutes.

In more advanced markets like Singapore, smart branches are further gaining traction but banks are also doubling down on mobile and internet platform investments.

"Bank branches have become less about transactions and more about a positive customer experience as well as more engaging self-service. This is why we are gradually introducing more interactive digital experiences and self-service automated technologies at our branches such as touch-enabled ATM kiosks and iPads," said Susan Kwek, head of operations and technology at Citi Singapore, which was the first bank in the island to introduce a smart banking branch as early as 2010 in Orchard SMRT station.

But Kwek noted that due to digitisation, more transactions are taking place outside the branch, as seen in the increased adoption of Citi's digital and mobile platforms for conducting banking activities. This prompted the bank to introduce Citi Bot on Facebook Messenger in September 2017, allowing customers to receive answers on queries via the social media platform either on mobile or on the PC.

"We will still open smart branches but we will now be more selective in where we establish them given that our customers' preferences are pivoting more and more towards mobile,” said Kwek.

Sales and customer service boost
Other banks are also leveraging on technology not only to evolve their branches, but also to bolster their sales and customer service teams. RHB developed a quality sales force tool called iSmart, a tablet-enabled web tool, which helps match customer requirements with the bank's products, and is part of the bank's broader digital transformation programme launched in 2017, Jeffrey Ng, head of group business and transaction banking, commercial banking at RHB Banking Group.

Ng said the bank’s smart application feature is the first in Malaysia, and has cut down processing time since it advises customers on the documents needed and even simulates products to show customers how these work on the spot. One month after the iSmart’s launch, the preliminary result in January 2018 saw sales productivity—defined by value of loan acceptance per salesperson—rise by 9.3% compared the the year-ago period.

Bank of China (Hong Kong) Limited, or BOCHK, also plans to launch a chatbot service in several channels including online banking, mobile banking and the bank’s WeChat official account this year.

“Through natural language processing, customer inquiries can be analysed effectively, thus providing standard and quality responses and improving the efficiency of customer service,” said Michael Wang, deputy general manager of e-finance centre of BOCHK, adding that the best thing about the chatbot is how it uses machine-learning-based technology to further ramp up its response speed and accuracy.

"The mass adoption of smartphones and tablets with their intuitive, touch-enabled experience has redefined the meaning of the term convenient,” said James Griffith, director, head of international media relations at Citi Asia Pacific. He said Citi in Asia draws some 20 million visits to its online consumer banking properties every month, and that between 90% and 95% of the bank’s transactions already happen outside a branch.

Griffith said that in 2018, Citi is focused on using its own big data to create more personalised client experiences. It also launched a Citi branded interactive experience within a social platform on WeChat in China and Line in Thailand as part of efforts to stay on top of the banking technology curve. "Whilst there are many unknowns, one thing is sure: the pace of technological change shows no sign of slowing,” he said.

Risk and reward
Technology can be enabling, but it can also be source of risk, according to Asian banks, especially as it infiltrates more areas of the business and exposes the enterprise’s valuable knowledge, financial and customer information.

"Asia-Pacific banks need to focus on mitigating emerging technology risk in a digital world,” said Bellens. “They need to strengthen their cybersecurity strategy through cyber threat intelligence, security operations centres, identity and access management, security awareness and training. They also need to manage emerging vendor risks.”

With global regulations focusing on the risk and compliance strengthening in recent years, the expected standards for Asian banks have risen as well. Their data and cyber security are particularly pressured to meet regulatory and compliance requirements, and these should remain unchanged in 2018, said Wang Chaoming, deputy chief executive and chief information officer at ICBC (Asia).

Big data, artificial intelligence and advanced analytics tools are important in reducing behavior risk and enhancing network monitoring, thereby preventing financial crimes, he said, adding that “regulatory and compliance are the foundations of banks' operation, and technological innovation is the driving force behind the development of banks.”

Is fintech still a threat?
Sweeping technological change has also presented a competitive threat to Asian banks, but many are coping by either cooperating with their supposed rivals or also accelerating their own innovation drives to keep up.

In Thailand, regulation has until recently focused on financial institutions and banks only, which meant there was room for non-banks to offer financial services beyond what banks could offer - basically faster, cheaper and more suitable to customer needs, said Silawat Santivisat, executive vice president, corporate and SME products division at Kasikornbank. “The strategy is to bring those non-banks in to co-work and co-develop to derive the most optical solution for customer,” Santivisat added.

"Whilst we have seen a shift towards a more collaborative approach with fintech companies and banks partnering together to leverage each other's strengths, banks should be a little more worried about their future positioning," said Sangiita Yoong, analyst at East & Partners.

Yoong said more than three-quarters of global businesses see fintech taking market share from incumbent suppliers over the next five years, with the view being more aggressive amongst Asian markets including Singapore, China and Hong Kong with up to 91.5% of treasurers in these regions forecasting a market share loss for incumbent financial institutions at the hands of fintech start-ups.

"The main reason behind this is that Asian corporates have already experienced the positive effects of fintech. They find that fintech are making it easier to run their businesses and banks are somewhat lacking in their ability to keep up with the innovation,” said Yoong.

But Dennis Khoo, head of regional digital banking and strategic initiatives at UOB, reckoned a technology company cannot change its business model suddenly to that of a big bank without it first having all elements of risk management and regulatory compliance in place.

“There is much more to banking than technology alone," he said. "What is important is for banks to focus on the customer experience and use technology and digital solutions cleverly. The risk is that banks don’t do this well enough and others do.”