The biggest challenges Southeast Asian banks are facing today

Banking executives today not only have to deal with running the bank, but also transforming it to grow in a sustainable manner. Banks have to balance these goals against the exigencies of the day, and those that are able to do so will be amply rewarded. This holds true for all banks, even those operating in Southeast Asia (SEA).

This transformation is far from easy as banks come to grips with challenges such as complex and diverging regulations, legacy systems, disruptive models and technologies, new competitors, and a diverse customer base that has increasing and greater expectations.

This article explores the challenges most banks face in balancing the need to restructure their foundations for the long-term with finding near-term growth.

Fintechs and customer-centricity
In just a few years, fintechs have defined the direction, shape, and pace of change across the financial services industry. Whilst they may not dominate the industry today, fintechs have succeeded as both standalone businesses and vital links in the financial services value chain.

Once considered a threat, fintechs represent a great opportunity for incumbents on multiple fronts: modernising business functions to improve efficiency and helping banks serve their customers, both through emulation and collaboration.

In Southeast Asia, national banks are recognising these opportunities and benefits fintechs can bring. Take for example OCBC in Singapore which has tapped on artificial intelligence (AI) and machine learning to combat financial crime. The use of AI to monitor suspicious transactions will help cut down the time that typically takes several analysts a few days or up to a week to do, depending on the complexity of the transaction, to just a couple of hours. Another example is Kasikornbank in Thailand – they have digitised their Letter of Guarantee process using blockchain. The transparency provided by blockchain can help eliminate forgery and improve efficiency.

Long-term sustainable growth in the banking industry is possible if banks are willing to do away with a traditionally sales- and product-obsessed mindset to one of genuine customer-centricity backed up with strategies to target the right markets, customer segments, and solutions. Customers now expect seamless digital onboarding, rapid loan approvals, and free person-to-person payments (all innovations that fintechs made popular); proving that it is possible to meet, and even exceed, customer expectations.

Singapore’s DBS, OCBC and UOB have successfully leveraged on big data, biometric and AI to make banking simple and seamless for its customers. DBS bank introduced a chatbot, POSB digibank Virtual Assistant, which allows customers to do transactions via Facebook Messenger. OCBC launched an algorithm-based robo- advisory service for its wealth management arm.

UOB rolled out contactless ATMs where users can withdraw cash by holding their phones to the contactless reader and verifying their identities with their thumbprints.

Regulatory recalibration
After a decade of intense scrutiny by regulators globally, Deloitte predicts a slowdown in the pace of regulatory integration and a focus on supervision. Higher capital and liquidity requirements, stress testing, and recovery and resolution planning will take precedence. Compliance expectations around fair treatment of customers and executive accountability are expected to stay elevated.

2018 presents an opportunity to modernise regulatory compliance and bring together disparate silos created for individual compliance goals. Banks should consider integrating regulatory compliance goals with strategic initiatives such as growth, operational simplification, risk management, and cost efficiency. Regulatory compliance should be aligned with business strategy. Not doing so could put banks at risk of unmet regulatory expectations and poor performance.

Technology management
To help banks become more agile, bank CIOs should manage their portfolio of technology assets to emphasise activities that truly differentiate the bank. Externalisation efforts should be focused on generic functions with an emphasis on cost efficiencies. Modernising core operating infrastructure is also an obvious priority.

CIOs have to ensure that new solutions sourced from multiple vendors are integrated to maximise value creation and minimise internal disruption. In their drive to simplify and modernise, and to build technology agility, banks should ask themselves three important questions:

• How can they best manage the portfolio of technology assets to deliver the most impact for businesses?
• What is the right level and type of technology externalisation (i.e., the use of third-parties to design, develop, and manage technology solutions)?
• How do they direct development resources toward only the activities that truly create competitive differentiation?

Undoubtedly, externalisation is not the answer for every core activity: there will still be some activities, such as compliance and risk management, that will usually be maintained internally, and for which internal technology support would remain critical.

Mitigating cyber risk
Financial services innovation and digitisation are certainly being encouraged by regulators and are being advanced by financial institutions. In Southeast Asia, this is particularly so in Singapore, Thailand, and Indonesia. With this development comes increased cyber risk.

In Southeast Asia, regulatory frameworks and supervisory approaches for addressing cyber risk are evolving. Financial institutions are focused on building cyber resilience, where the emphasis is not just on preventing cyber-attacks, but being able to respond, recover and adapt. Importance is being placed on enterprise-wide cyber risk programmes that are continually being tested and updated to allow for agility and swift recovery, and that are overseen by the executive and board, and underpinned by strong governance.

The widening of the regulatory lens to capture system-wide resilience will not translate into less focus on banks. An important element of systemic resilience is consistently strong and active cyber risk management on the part of all players within the ecosystem. 

Reimagining the workforce
Banks should consider rethinking their workforce strategy given how work is evolving with increasing automation. As a start, bankers would need upskilling to work more effectively in a digital environment. For example, Singapore’s DBS Bank is investing S$20 million to train its existing workforce in digital banking and emerging technologies, via an artificial intelligence-powered e-learning platform, curated curriculum, and module delivery.

Banks will also need to reorient existing workforces to be collaborative and inclusive, whil providing them with more integrated employee experiences. This workforce experience would have to be designed to accommodate a work-life balance, a purpose-driven career, and be digitally enabled.

Conclusion
2018 could be a pivotal year for banks in accelerating the transformation into more strategically focused, technologically modern, and operationally agile institutions, so that they may remain dominant in a rapidly evolving ecosystem.

But technology is typically only part of the solution. The core objective for most banks is to achieve organisational agility, and to do so they should consider embracing innovation, managing talent differently, and pursuing key partnerships within a broader ecosystem to manufacture and deliver solutions for customers.