FIs use emerging technologies to provide seamless, secure and inclusive financing

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Interviewed By Foo Boon Ping and Mathew Welch

During The Asian Banker Financial Technology Dialogue, experts from leading institutions discussed emerging issues in the financial services industry amid the pandemic and the technology innovations that are changing the financial landscape.

The COVID-19 pandemic has created an unprecedented disruption and transformed the financial landscape, bringing home the point that the future is digital. The financial industry has witnessed an acceleration in the digitalisation of businesses, products, processes and experiences, which has also meant a push towards more agile, scalable technology and a stronger data foundation. Meanwhile along with the digital acceleration also came the unintended but expected escalation in cyber threats, attack and fraud cases. During The Asian Banker Financial Technology Dialogue, financial technology experts from leading institutions shared their thoughts on the opportunities and threats to the financial services industry.

Financial institutions (FIs) have accelerated their digital transformation, turning to technology to enable end-to-end automation of workflows and processes, and the integration of transaction, behavioural and risk data to deliver safer and better customer experience. Suteera Sripaibulya, senior executive vice president and manager of the technology division at Bangkok Bank, revealed the challenges they faced in upgrading the technology across branches in and outside Thailand, especially for the payment system, which she considers the “heart of the bank”.

There is a need for banks to be more agile and accelerate products through their digital channels, driven both by the pandemic and the evolving customer demands. Henry Aguda, chief technology and transformation officer of Union Bank of the Philippines, pointed out that customers are demanding more digital channels. Ramprasad Venkataraman, head of Southeast Asia sales, Infosys, noted the importance of partnerships with banks to execute digital transformation, including the migration to the cloud, with customers in mind.

While FIs are developing technology to meet customer needs, the adoption by customers itself should not be left to chance. Ng Lee Peng, vice president for digital business consumer financial services, OCBC Bank, highlighted the challenges of migrating customers from physical branches to digital channels.

RCBC saw the opportunity to bring the underserved customers into the formal financial system. Lito Villanueva, chief innovation and inclusion officer, RCBC, discussed the need for financial inclusion through financial education and digital literacy. While banks have advanced in pushing for digital innovations, customers need to be educated on the benefits of going digital.

Enabling technologies such as cloud, big data, and artificial intelligence (AI) are critical for a digital and mobile first approach. At the same time, they also present more complicated IT risk and cybersecurity challenges. Richard Zhu, managing director, strategy and execution, APAC, at Finastra, proposed a step-by-step approach and the use of lean technologies. Kanv Pandit, head of sales Asia Pacific, FIS, noted that FIS had significantly invested in new platforms and markets, focusing on cloud-first and API-first approaches.

The dialogue highlighted the importance of security, which must be constantly monitored and developed alongside the digital ecosystem. Cathay United Bank set up a new type of identity verification that integrates online and offline channels. It offers consistency, convenience and security. Claire Wu, senior deputy manager, digital banking department, Cathay United Bank, noted the bank’s were to combine fintech and build core ability. The bank imported facial recognition technique in 2019, whereby customers no longer need to memorise passwords or bring bank cards for withdrawals or transactions.

The pandemic has accelerated the digital transformation in many institutions, and with it is the coming of age or the maturation of many enabling technologies. At the same time, there is also emerging technology that create opportunities for the future, namely crypto, blockchain and distributed ledger technology. Furthermore, central bank digital currencies (CBDCs) may become a not-so-distant reality that will redefine finance altogether.

One area that will be impacted by the financial disruptors is supply chain financing. Aguda noted that Union Bank has been experimenting with the use of blockchain for integrated supply chains with the prospects of embedded banking.

Banks have an important role to play in terms of enabling a trusted framework to undertake the deployment of new technologies. Angus McDougal, regional vice president, Asia Pacific, Entrust, believes that blockchain and crypto are potentially threats to banks’ traditional revenue and profit streams. However, he thinks these might present opportunities if banks can find a way to put a trust framework around the new platforms.

David Gyori, The Asian Banker international advisory council member, stressed that CBDCs will be extremely important in the next five to ten years. While all the large central banks globally are currently working on CBDC projects, it is still under-researched. The linking of multiple CBDCs will revolutionise cross-border and wholesale payments.

The following key points were discussed:

Below is the edited transcript of the dialogue:

Foo Boon Ping (FBP): Welcome and good afternoon, ladies and gentlemen. Matthew and I are very excited and happy to be your host for The Asian Banker Financial Technology Innovation Dialogue. 

Matthew Welch (MW): It's been more than a year since the pandemic struck and created unprecedented global mayhem. We hope you're continuing to keep safe through these extraordinary times. The pandemic has utterly brought home the point that the future is digital. In the past few months, we've witnessed an acceleration in the digitalisation of businesses, products, processes, and experiences as consumers have been forced to observe stringent social distancing and remote working measures. With it, of course, came the unintended but expected escalation in cyber threats, attacks and frauds. But despite these disruptions and challenges, the industry has demonstrated remarkable operational resilience to provide consumers with uninterrupted access. Financial institutions have accelerated their digital transformation, turning to technology to enable end-to-end automation workflows and processes, and the integration of transaction, behavioural and risk data to deliver safer and better customer experience.

FBP: Despite the disruption caused by the pandemic, financial institutions have proven to be extremely resilient and are operating close to normal as before COVID-19, enabling customers to transact and facilitating access to financing and liquidity.

MW: In this period of increased market volatility, mounting credit and liquidity stress, as well as heightened cyber security threats, financial institutions have strengthened their digital capability, automation, risk management infrastructure, and data aggregation capabilities to better manage and mitigate the diverse range of potential risk vectors that have arisen. What are the key trends for you? How has COVID-19 impacted your institutions? And what do you think of some of its more permanent effects? There are three topics that we would like to discuss today. Firstly, the roadmap for holistic digital transformation. Secondly, cloud, big data and artificial intelligence as enablers for a digital-first strategy. And finally, blockchain cryptocurrencies, decentralised finance (DeFi) disruptions, and how will traditional banks react.

FBP: Matthew mentioned earlier financial institutions have accelerated their digital transformation, turning to technology to enable end-to-end automation of workflows and processes and the integration of transaction, behavioural and risk data to deliver safer and better customer experience. Now we would like for our innovation and technology leaders to give us an insight into how the pandemic has impacted your own digital transformation roadmap. Before the pandemic, what were your strategies and priorities, and as you are going through the pandemic, obviously, those who are ahead of the curve in your digital transformation journey will reap returns in terms of being able to meet customers’ changing transaction needs as social distancing and remote working measures kick into gear. We would like to hear from Suteera Sripaibulya, head of the Technology Division at Bangkok Bank, about COVID-19 and its impact on your digital transformation journey or the digital transformation journey of Bangkok Bank. 

Roadmap for holistic digital transformation

Suteera Sripaibulya (SS): As you know, at Bangkok Bank we have branches in Thailand, it is more than 1,000 branches, and we also operate in 14 countries. To highlight the challenges that we are facing, how do we make the so-called digital transformation and standardisation across our local or even overseas branches. We worked very hard to try to upgrade the system, and to serve the customer and our staff can continue to work across the location that we operate. For this case, we have been changing the payment system, and this is the heart of the bank, because as you know, the situation is very difficult to get the fee or revenue to the bank. So that is why we are choosing the payment platform and working together with the vendor, like FIS, to make sure we are successful. 

FBP: Thank you, Suteera for sharing the perspective of how COVID-19 has impacted the bank and how you have to update your own digital response to it. Next, we would like to hear from Henry Aguda from Union Bank. We know the bank has gone through its digital transformation and has gone to the cloud. How has that impacted your response during COVID-19?

Henry Aguda (HA): COVID-19 accelerated most of our digital platforms. Union Bank has actually been on this journey for several years. And we've had most of our digital platforms in a year before the pandemic, and then when the pandemic struck, it actually allowed our platform to scale very fast, you would say the pandemic, unfortunately, was the pandemic that gave us a lot of the push in terms of seeing the hockey stick. So, it has affirmed the digital transformation plan that we've undertaken several years back, and things that won't change are that customers are now demanding more in terms of digital channels, and you don't see the behaviour changing. In fact, in the bank, we're seeing that we need to move much faster, we need to accelerate the way we deliver products in the digital channels. And I think that's what's going to happen in the near to medium term where most of the channels right now are going to be moving to the digital space. 

FBP: Next, we would like to speak to or get a perspective from Lito Villanueva who is the chief innovation and inclusion officer at another Philippine bank, RCBC. Your role includes bringing more of the underserved into the formal financial system. What's the impact on them with COVID-19? And how has your own digital transformation journey facilitated a greater role for technology to reach out to this segment of customers?

Lito Villanueva (LV): Well definitely we all know that we are living in a disrupted environment right now. And I think that's why we have to do extraordinary things during extraordinary times to come up with extraordinary results. So, for us in the Philippines, having to push for what we call financial inclusion, of course, aside from going digital, what is really prime as well would be to give some premium when it comes to financial education and digital literacy. Because, of course, while we have been quite advanced in so far as pushing for all of these digital innovations, at the end of the day, we have to educate the consumers as to the benefits of going digital. Because no matter how sexy your app is, no matter how robust your platform is, if there is no adoption by the consumers, because of lack of understanding, or awareness, then it could be a futile exercise. I think the whole proposition here is to really make sure that all stakeholders would work together and to collaborate with each other. With the ultimate goal of ensuring that we scale the adoption among consumers when it comes to digital transformation.

FBP: And COVID-19, the thing is, it’s a health crisis unfortunately, but in a way, it's moved a lot of consumers to adopt digital channels and online tools, which during more normal times they wouldn't. So, next in terms of moving customers from over-the-counter transaction to more digital devices. We like to hear from Ng Lee Peng, head of OCBC digital business, whose focus is really moving towards a branch digitisation process. How is that going on at OCBC?

Financial education and digital literacy are keys to inclusive customer uptake 

Ng Lee Peng (NLP): Basically, OCBC embarked on its digitisation journey a couple of years ago. It has been a long journey because I think at the beginning it is, to be honest, not easy to actually migrate customers from the branches to the digital channels. But this particular pandemic has certain benefits, not in terms of the virus. But basically, customers are in a sense forced to actually adopt digital channels. As a result, the pandemic accelerated our branch digitisation journey. We also took the opportunity to actually educate our customers and raise awareness, such that they are able to use digital channels to perform their transactions. There isn't a need to actually return to the branches anymore. So as a result of this, coupled with the entire digitisation journey, we managed to successfully migrate customers out of the branches, especially during the lockdown period. And customers have since continued to embrace and use digital channels to perform their transactions.

FBP: And then with digitisation with consumers and the rollout to using digital channels and online tools, a lot more than data is captured in real-time. The leveraging and optimisation of data is one of the key areas around this whole digital transformation. And we would like to hear from Claire Wu at Cathay United Bank, and they have a few initiatives around the use of data and building an ecosystem around consumer data.

Improved security is a must with convenience

Claire Wu (CW): Thanks to digital development trends and internet portable devices that have become popular in recent years and other tech tools, our priority is to combine fintech and build core ability. And we helped to set up a new type of identity verification that integrates online to offline channels and provide the experience of consistency and create the value of convenience and security. Our bank imported facial recognition technique in 2019. One ID will only register one face like biometrics in iPhone, which is more secure than other identity verification. And when clients need to transfer or withdraw, they don't need to memorise passwords or bring bank cards after they import their facial recognition. And for safety, we keep testing the new version and increase safety protection to minimise the risk of identity misuse. Our facial recognition techniques provide for four channels and serve over 1 million users. Last year, we also focused on setting up video financial services. There is no more time and distance limits, it is quick and easy to use our mobile banking app to connect the video services besides our branch to apply for higher value services. The video service served more than 14,000 times in June and saw month-over-month growth of about 90%. 

FBP: We are really moving forward in our digital journey and the whole use of technology or facial recognition makes the experience not just more convenient, but also safer.

MW: The next question is about cloud, big data, and artificial intelligence being used to enable a digital-first strategy. Of course, these are all important enabling technologies that are critical for digital and mobile-first strategies, the scale, agility and efficiency afforded by the cloud, hyper connectivity through APIs, as well as the ability to deliver contextualised and personalised experience through advanced data analytics via artificial intelligence and machine learning. But at the same time, they also present more complicated IT risk and cybersecurity challenges. For example, third-party provider and concentration risk. For our next question, how do you grapple with these issues using these important new enabling technologies? I think we'd like to start with Richard Zhu from Finastra, if you can give us a sense of the use of these enabling technologies. 

Cloud, big data and AI are key enablers for a digital-first strategy

Richard Zhu (RZ): From our perspective, what we have seen the most from the customer, which we talked to, were open to move the data into cloud. The simple reason is because most of us now are remotely working, and you cannot travel. One of the things we do for customers is looking at how we can support their systems effectively. Now, one of the challenges, obviously, is when you put more things into the cloud, the next question is how are we going to make our data secure. We have been working with our partner, and also with our customer, to look at what are the key priorities for them. Maybe we start with something not really core to start with to make sure that they are comfortable with what we are doing. And we improve the security from time to time. Or with some other customer looking at setting up the private cloud instead of public cloud to start with to make sure that the systems, their procedures and regulatory requirements are in place, in order for them to move more cautiously into the cloud. This is a trend and we see more and more customers talking to us, in fact, to look at how they can move their system into the cloud space. What we are doing from a financial perspective, we actually have more than 85% of our API open in the cloud so that not only the customer can assess it, our ecosystem partner, for example, a fintech company, can work with us to offer a combined solution to secure and to also provide a more comprehensive solution to our customers.

MW: Perhaps now we can ask Kanv Pandit, group managing director of FIS. Can we have your comments on the use of these enabling technologies? 

Kanv Pandit (KP): We've seen with the pandemic an acceleration of what had already become a key imperative for the financial services industry, which is the rapid digitisation over the last couple of years. Certainly, the emergence of the pandemic and then its deep impact has seen a significant amount of activity that it has caused. We, from an FIS perspective, had been working with and significantly invested in newer platforms that are completely new to market, built ground up, which were cloud-first and API-first. And from a timing standpoint, it was to the advantage of our clients that we were looking to take transformative action to be able to not just address the key imperatives in the short term, but also then seize the moment and use this as a key event and inflection point, or an opportunity to really pivot their focus, their investments and gradual evolutionary transformation of the systems to really revolutionary transformation. 

We've been able to capture the moment, so to say, with clients across the world. A key example would be our modern banking platform, for instance, which is a completely new core, which is cloud first. It is API-first, built on robust technologies, which we work together with our cloud partners, and the uptake of the modern banking platform for both deposits and now increasingly for lending as well has just been phenomenal. It goes to prove a point that transformation really needs to be taken on as a revolutionary and transformative activity. It is sometimes difficult to achieve it in small steps. At the moment, we’re very pleased to see the response in the market and the work that we're doing with our partner institutions. Certainly from an APAC standpoint, as well, we've had the opportunity to work with key partners like Bangkok Bank (BBL), Khun Suteera is here representing BBL. 

Over the last couple of years to really standardise and deliver a service quality experience or a service experience to their clients, which has been completely unhindered and unimpacted. And perhaps in many ways, an improved service level post the pandemic. I think that is really coming from the leveraging of technology building blocks that have been put in place by BBL together with us, and the ability for the bank to really leverage data, not just to improve service delivery but also really shore up their digital capabilities. I'm confident that we are going to continue to see the use of these technologies and capabilities that we will bring into market to our clients and Bangkok Bank to see improvements in how we're delivering digital and transformation to our customers. 

MW: There is obviously this theme throughout that we used to be in an evolutionary change. And because of the pandemic, we're in a transformational change. It's like a sort of revolution. And I think we hear that again and again. Perhaps we can ask from Entrust’s Angus McDougal. Can you give us your sense on the use of these enabling technologies?

Angus McDougal (AM): It's been a really interesting discussion. So far, I will say that there was a couple of phrases that stuck in my mind about the importance of customer engagement. And you know what that means in terms of the overall experience. Banks had a really important role to play in terms of enabling a trusted framework to undertake deployment of new technologies. We’ve talked about blockchain, we’ve talked about crypto, all these different dynamics. These are potentially a threat to banks’ traditional revenue and profit streams. But if they can find a way to put a trust framework around these new platforms, then it's clearly a massive opportunity there. And that's definitely the case of what we're seeing. So, I think this is an incredibly exciting time for people to be working in the ecosystem with these new initiatives that are coming through as a result of the pandemic. Lots of opportunities out there, and how we as an industry can put in place an ecosystem to respond to this is really the question, but from what I've heard today is some encouraging science. 

MW: Same sort of idea, isn't it? It's a threat or it's an opportunity. And obviously, all of those of you that are here today are seeing it as an opportunity. It's also interesting how it is right across the region. Perhaps now we could move to Ramprasad Venkataraman from Infosys Finacle. Can you let us know how you are seeing these enabling technologies being used? 

Ramprasad Venkataraman (RV): The way we are seeing it is the adoption of digital across the different financial institutions has accelerated in some way due to the current situation. And we are also seeing the banks trying to reach the different segments of the market through more digital means now and that in turn is kind of helping companies like ours to partner more on the digital transformation. I can see that Union Bank of the Philippines has taken a lot of initiatives, and certainly one of our long-term customers. We have been partnering with Union Bank for over close to two decades now. And thanks to the strength of this partnership, we have been associated with several initiatives, including the migration to the cloud journey and also the digital transformation. The way we see it is this acceleration of digitalisation with many of our existing customers, as well as with the new financial services institutions that we are engaged with, is on the rise. In a way it is similar to what the discussions have been with the other panellists here, in terms of the innovations that are happening in the space. It is quite interesting that across this region, especially in Southeast Asia, there has been a lot more adoption of these digital technologies that we are seeing from an Infosys Finacle perspective. 

FBP: We've seen that the pandemic has accelerated a lot institutions’ digital transformation. And with it, it has also resulted in a coming of age or the maturation of a lot of enabling technologies. If we do a survey now we know that more institutions are migrating to the cloud, are using APIs, open banking, AI, machine learning, and so on and so forth. But at the same time, as Angus mentioned, there is also new emerging technology that creates opportunities for the future. Here we are talking about crypto and blockchain and distributed ledger technology (DLT). There's been a lot of trials, use cases, proof of concepts in the regulated space, mainly around payments and trade, in terms of bringing greater efficiency and creating trust in an environment where there may not be trust between parties. And it appears that central bank digital currencies may become a not-so-distant reality that will redefine finance altogether. At the same time, the DeFi world is also pushing their own version of digital finance payments and crypto assets with some success. How would this disrupt the banking industry? Will it be the next wave of disruption? What will the future be like in an era of cryptocurrency, hyper connectivity and heightened cyber threat? Henry, if we can get your perspective with this new blockchain and DLT technology? How do you see that disrupting traditional business? How does it create new a business model? 

Disruptors to finance such as blockchain can be leveraged to build better platforms

HA: Blockchain is a big technology shift. Essentially, it is the one that is going to change a lot of supply chain platforms. In Union Bank, we have been experimenting the use of blockchain for integrated supply chains. And we noticed that with the immutable ledger, which basically embeds the provenance of everything that goes through a supply chain. Anything from medical to construction to whatever, which has a supply chain, we've figured out at Union Bank that you can use blockchain there. And the nice thing about it is that you can embed banking. I think that's going to be a tectonic shift in how banks would approach supplier financing. So that is one example of how it is going to change the landscape of finance.

LV: Just to add on to what Henry said, the word that you said a while ago was actually disruption, and disruption has been part of the DNA now of most organisations. You cannot overemphasise enough that you really have to make sure that you are working in a pandemic-proof environment. What we have seen thus far is that with all of these disruptions that we are seeing in our environment, especially in the banking and finance industry, coupled with the aggressiveness and dynamism of our regulator, for example, saying, we have multiple circulars or regulations that have been in place by the regulators at the height of the pandemic, such as the digital banking, digital bank licencing framework and the open finance framework. For example, for RCBC, as I've said, we have launched the first Taglish (Tagalog/English) inclusion superapp called DiskarTech at the height of the pandemic last year, registering exponential growth in terms of financial transactions up to a four-digit jump in some of those use cases.  

But the thing here is that on top of that is on how we could also leverage each other’s strength. For example, having to also roll out what we call SynerFi Open Finance Network, where we now enable as well rural banks or alternatives and FIs, and other smaller players in the industry to be able to cope with the demands of massive digitalisation. Because we are all in accord with the vision of the regulator of the Bangko Sentral ng Pilipinas (BSP) in so far as having to help to fulfil that goal of digital payments transformation roadmap of enabling 50% of our financial transactions to be in the form of digital and having at least 70% of adult Filipinos be part of the formal financial system by the end of 2020. 

FBP: We have David Gyori from our Financial Technology Innovation Council of Advisors. David, we will give the last word to conclude. How will technology like blockchain disrupt finance?

David Gyori (DG): I believe, and I am certain, that central bank digital currencies (CBDCs) will be extremely important in the future in five to ten years approximately. This is an innovation in monetary policy, which is very rare. Monetary policy is usually very stable, very conservative. So, this is something unique. And all the large central banks globally are currently working on CBDC projects. It is under-researched. What we have to keep our eyes on as bankers is the differentiation, very important differentiation, between local circulation CBDC, that is, a national monetary tool and system versus global or international circulation of CBDCs. These are two different topics, extremely hard and challenging to coordinate. If we look at the People's Bank of China (PBOC), this is exactly what we see. They are working on coordinating these two aspects of CBDCs, just like the Bank of England, the Federal Reserve, the European Central Bank or the Bank of Japan. This is very exciting. This is cutting edge. It is in the pipeline and it will come to us. 

FBP: The linking of multiple CBDCs (m-CBDC) is something that will revolutionise payment, for example, cross-border payments, wholesale payments, and there are some exciting projects going around the world where they are linking such CBDC initiatives. Very exciting indeed. Now thank you for all the interesting comments and examples. I hope that we have all benefited from the exchange of insights and sharing of experiences. 

Keywords: Blockchain, Cybersecurity, Digital, Digitalisation, Disruption, Distributed Ledger Technology, Ecosystem, Inclusive Finance, Security, Digital Transformation, Fraud, Machine Learning, Processes, Risk, Technology, AI, API, CBDC
Region: Asia Pacific


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