“You’re only as fast as your cloud infrastructure”

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Senior executives in technology, operations and digital banking from the Philippines discussed the different cloud migration strategies adopted by banks in order to provide a more seamless experience to their customers.

Henry Antonio of RCBC, Henry Aguda of Union Bank of the Philippines, John Howard Medina of Philippine Bank of Communications (PBCOM), Arivuvel Ramu of Tonik, Noel Santiago of Bank of the Philippine Islands (BPI), and Rajashekara Visweswara Maiya of Infosys Finacle talked about the opportunities created by moving to the cloud and what is next for the Philippine banks in their digital banking journey.

Aguda shared that the cloud was instrumental for their bank’s digital acceleration, providing their system with speed and agility to scale at will. Medina noted that moving to the cloud has been the natural direction for PBCOM since the bank moved its servers to a digital environment a decade ago. “We created a bank within the bank that was on cloud,” added Medina.

Antonio, on the other hand, revealed that the pandemic has accelerated their use of robotic process automation functionalities, adding that they are still fairly conservative with their approach to artificial intelligence. The other speakers also spoke about the challenges of having an existing legacy, the IT concentration risks and the different models that are used for cloud adoption.

The following key points were discussed:

Here is the edited full transcript of the session:

Neeti Aggarwal (NA): Welcome to our RadioFinance virtual dialogue, “Scaling digital transformation amid strong regulatory impetus in the Philippines”. We have with us a distinguished group of senior executives in technology operations and digital banking from leading financial institutions in the Philippines. They will share with us their perspective on the next steps in digital transformation journey and how they are redefining technology processes and customer experience. I am Neeti Aggarwal, Senior Research Manager at The Asian Banker and I will be your host. So in today's session, we will take a deeper look into the opportunities created by the emerging technologies and we will discuss how the progressive banks in the Philippines are designing their digital strategy to better position themselves in the coming decades. The topics that we'll cover today are: how banks are enhancing operating model by utilising cloud becoming digital-first, how they are leveraging advanced technologies such as artificial intelligence (AI), artificial programming interface (APIs), robotic process automation and real-time collaboration to accelerate the digital transformation, and what is next in digitisation of core banking services such as lending deposits and payments. So we hope to have a very engaging and interactive discussion.

I will take this opportunity now to introduce our guests. We have with us Henry Rhoel Aguda. He is senior executive vice president, chief technology operations officer and chief transformation officer at the Union Bank of the Philippines. John Howard Medina, he is chief operations officer at Philippine Bank of Communications. Noel Santiago, he is chief digital officer, senior vice president and group head of digitisation and channels at Bank of the Philippine Islands. Arivuvel Ramu, he is chief technology officer at Tonik, which is the first digital-only bank in the Philippines. Henry Antonio, he is advisor to the chairperson on business transformation projects at RCBC. And we have Rajashekara Maiya, he is vice president, global head for consulting at Infosys Finacle. Thank you so much everyone for joining us today and I look forward to a lively discussion. 

The Philippines financial sector emerged as a hotbed for innovation driven by strong digital growth and regulatory matters. Over the last few years, banks in the Philippines have been digitising rapidly to thrive in an increasingly complex and competitive environment. The industry dynamics are changing. The country grapples with significant low financial inclusion with 70% unbanked population, 69% of adult population in the country have access to mobile phones, 53% use internet but less than 10% use it for financial transactions. The central regulator Bangko Sentral ng Pilipinas (BSP) has now said the target for digitisation is 50% of the country's retail transactions and financial inclusion of 70% of Filipino adults by 2023. Towards this, the regulator has also paved the way for the entry of new digital banks that disrupt traditional models with agile services and lower operating costs. There is also rapid growth of fintech that address customer pain points, innovatively use data more effectively, and forge new business models. All these have changed the customer expectations towards more personalised and contextualised and seamless service experience from their banks. Meanwhile, the digital transactions and e-payments have surged amid the pandemic. Insure pay transactions grew by over 450% and PESONet by 375% in 2020.

To succeed and scale in this dynamic environment. The holistic transformation that encompass mindset and cultural change and the shift to customer centric processes. More importantly, this needs the foundation of agile, scalable and secure technology to meet the evolving customer and efficiency needs. BSP has also been quite proactive in supporting the adoption of emerging technologies such as cloud and electronic know your customer (eKYC) to enable banks for digital future. The first topic that we are looking to discuss today is how banks are enhancing their operating model by utilising cloud. Events of 2021 have actually accelerated supporting the adoption of emerging technologies such as cloud and eKYC to enable banks for digital future. Now, as you seek to speed the digitisation, and enhance customer engagement, I want to ask banks, how they are adopting cloud technology to drive the digital-first operating model, deploy new applications and to improve their scale and efficiencies. So perhaps, Henry Aguda, can you share with us what has been the experience at your bank with cloud-based implementation? And could you also share some of the tangible success stories with us?

Henry Rhoel Aguda (HRA): On the cloud, it's been a very instrumental thing for us in Union Bank in order for us to accelerate and make our infrastructure resilient. You know what they say, you're only as fast as your infrastructure. So this will give you an idea five years back, Union Bank owned its data centres. So 99% of our computing platform were on premise. Then we started moving out from our physical data centre, outsourcing it to eventually having a cloud-first policy, where we've started moving our computing packages to the cloud. And the promise of our technology team is in two years’ time, we will now have cloud-only infrastructure. I think the only thing that we've not moved to the cloud is our main casa. And our friends from Finacle, they were hard at work trying to move the core banking in front of the cloud. And we feel that once it's been moved to the cloud, we’ll claim that our infra’s purely in the new generation infra. Now the advantages of which is, then, during the pandemic, it has really helped us with our work from home infrastructure, allowed our employees to connect their current broadband services from home directly to the cloud, instead of going to the data centres that we have, and allowed us to put server bandwidth. And I can talk enough about how resilient the cloud infrastructure is. So when it comes to speed in being able to be agile, as well as being able to scale at will, our cloud infra actually helped us a lot.

NA: That is a very important point. You are only as fast as your infra. So tell us, this is a big journey moving totally to a cloud-only infrastructure. What were some of the significant challenges that you faced in this journey? 

Moving into the cloud is easy for a greenfield 

HRA: The biggest one, it's not so much the infra as the readiness of the systems themselves five years ago and not the infrastructure that are ready for cloud or the cloud native ones, most of them are productivity tools. It's only in the past three years where the core systems are now adapting to the cloud. So the biggest challenge is that the migration of an existing system to the cloud, in fact, it's easier to move to the cloud if you're greenfield. But if you're an operating bank like ours, where we have a lot of legacy, infra and database, and we're it's like changing your wheels while driving 90 miles per hour. So that's the biggest problem. And that's the biggest fear we have. It's a problem to the migration if we encounter any.

NA: I'd like to invite John to also share about how Philippine Bank of Communications. How are you shifting your system to cloud? What has been your experience and do you also face some of the challenges that Henry talked about? How are you addressing those challenges?

John Howard Medina (JHM): Well, Henry was correct. When you were saying it's easier to spin off a greenfield instance, on the cloud, rather than moving the back. So what we did was a hybrid approach. We spun off a separate instance of our core, into the cloud, on a latest release, so that we could service our newer initiatives. So in effect, we created a bank within the back that was on the cloud. We did this in 2019. And this was just in time for the pandemic because we went live at the end of 2019. And when 2020 came around, it was easier for us to fit but several of our products and services on this cloud instance. And when there was a spike in electronic transactions during the lockdown last year, it was easier for us to scale up in terms of capacity and bandwidth because we had a separate instance for a lot of our retail initiatives on the cloud. 

NA: That's true, especially during the pandemic, as Henry mentioned that, as you also mentioned, it's the bandwidth and the scale and the agility with which you could bring about the change that's quite important. So have you adopted a hybrid strategy? Is it also a multi-cloud strategy? 

JHM: No, we are running on one of the major cloud providers, the SAS model, which makes it easier for us to, I guess, pivot from one side to the other.

NA: Ramu, I would love to hear your comments on this. So you launched first digital bank in the Philippines which is also primarily cloud-based. And we heard that it's relatively easier for a greenfield project rather than, as previously mentioned, for an existing bank. Share with us how are you implementing your first strategy? How do you plan to differentiate your service and customer experience to achieve scale? And how are you building the technology as an enabler for this traditional strategy? 

Arivuvel Ramu (AR): Tonik, as most of you know, is the first digital-only neobank in Southeast Asia, and we are operating in the last six months in the Philippines and probably won't bank and we had to do is based out of Singapore. I proudly say the bank was born in cloud and I designed from day one, zero on prem infrastructure specific to customer. We put the infrastructure only for the employees to connect and operate and work. But the customer gets 24/7. It's built on multi-cloud strategy from day one. What does it mean? So, we looked at the customer centric design, not started from technology but start trying to look at solving. Real people are looking at massive loan and financial inclusion. Today, people need help for saving, not buying cars account, coming to brands with a good press waiting in a queue opening filling the forms. So you have to fix the KYC problem. Need quick cash? It means underwriting problems, but not in days waiting for banking procedure. It is easy to move money. Seven years coming back and forth in the Philippines and my first customer is Henry of Union Bank. So, if you look at the design experience in Philippines for opening an IP registered account, I need to go to the branch and fill the form adding the pay. How painful it is. 

We looked at the customer centric. I want to design a bank which is mobile-only. This forced onboarding, higher interest rate so people get a better benefit, no fee model, easy to move money and localised hyper personalised experience and product. This problem we tried to put it into technology, oneness. The key thing always starts with lowering the cost that can pass the benefit to customer and that require agility and innovation. So now if I put that into customer centric way, the customer wants to be reflected first, what it means I need to get the customer feedback, build it in a technology, which can be agile in mode, that means every two weeks I am able to encourage a customer wise bullet or a new feature I am able to roll out that means I need the infrastructure and development process, which can do the faster rollout, development. And second design thinking and customer empathy, they need someone quick prototype test, pilot scale, fail fast adaptation. Now that I will bring the agility and speed which is key for innovation which tightly coupled with the infrastructure. When I say infrastructure, we chose cloud native and multi cloud best in breed. And if you look at it, I have workload running in AWS and Google Cloud and Azure in a secure way. For example, to increase the speed, we use a CI CD pipeline for the dev sec ops, for the bluegreen deployment. And auto scalable infrastructure, we call it as infrastructure as a code average to terraform. All of these are one click deployments, so it can reduce greatly the deployment time, a cloud security, especially non dedicated instances to ensure the production environment is safe. And not easily touchable, open API's are built and exposed to all micro services. So it's all containers. And you know, if you hit about serverless architecture, which has been built, most of the APIs can perform in a higher thing, and sock two compliant to ensure you're not compromising on security, even though you're running. This is the next before our cost, which is I worked with a vendor who can do hosted managed service, where I'm taking one piece of component, the engagement layer can be built by us, because that's our heart and soul our brain, but the second time the system of records an operation can be given to hosted managed service so that the low reduced OPEX and optimistic capex, so it will, I can say, you know, very, very minimal capex and reduced OPEX in a tear based pricing, which gave you the better benefit, which means you can say a bank launch less than few million dollar. Okay, that makes a history. So this helps that all goes to cloud based technologies today. 

And we have an expert this whole pandemic. Luckily, we build that whole thing is virtual based mode. So when the pandemic comes in the whole bangs built in remote location and launched it, which is a historical event for us even we couldn't believe it. Without seeing each other we are able to build and launch something, a new bank.

NA: So hyper personalisation design and agile, definitely, those are very important things to address. Also, tell us briefly about the business growth and customer attraction you've received since you've launched. How are you addressing the challenge of building trust among the customers to shift towards your digital model?

AR: The initial biggest challenge in front of us is that traditional banks are building with the big buildings and multiple branches and human touch point to build trust is a big challenge. The trust building is multiple angles. Number one is customer centric, hyper-personalisation service, which I talked about content delivery. How you connect the customer to the virtual bank to make them feel this bank is for me. That is the message you need to be connected. One aspect we did a lot of research about the focus group and things. For example, if you see most of our people call zoso. Love you. So this is the very connective juicy words to connect people personally. Number two, the application builder with internationalise the secure technologies, for example, when they put mobile first I didn't put just by word. If you look at it, the whole mobile app is secured with a class, a technology from the app is completely secure. So second, even for onboarding we used different technologies for example, loneliness detection, it can detect you are a real human or not. And second time, when you come back, I can detect you whether you already have a bank account or not with the same face, which is all advanced technology. We call it us 3d liveliness predictions through mission engines. So then we have duplication check that are not based on your IDs, but based on your face. Biometric. This is the kind of technology that helps fraud management, and trust building for a safe third message. The last one is giving the control to customer today, if you want to lock, you can also unlock any part of your applications. 

NA: So, Noel, if you can also share with us, your first proposition entering the market. How are you building your cloud strategy? And also, there's this question about IT outsourcing and concentration risk, because, as we've heard, it's not always multi-cloud or different. It could be so there's a risk element attached to it as well. Can you address that, briefly? 

Noel Santiago (NS): We started IT outsourcing for the last five years, my main research in the last 20 years. And BPI has been one of the first to embrace the web and that was even before cloud computing came into the picture. So we embraced that outsourcing, with its promise of efficiency, better run capabilities coming from the people who does that for a living. So it's more like getting the best people to run your infrastructure. The world has changed since then. Now, we are taking an opportunistic approach in the way we will enhance our capability to deliver products and services to the customer by looking at what are the platforms and systems that is just for replacement? And take that opportunity to make a as a service? And if possible, I mean, the extent is as a service? And if not, if it's still our own run platform, how can we move them to the cloud. So that's on the production side. We also look at capabilities from within our own internal needs, office automation tools, and workplace solutions. They're all moving into the cloud right now as we speak. We're replacing all our internal platforms into our cloud-based solution. Our customer servicing platforms right now from the contact centre all the way to the branches. And the various touch points are now running on a software as a service solution. Our technology development environment, it's been moved to the cloud. Now, what we are still looking at is some of our legacy systems. A 170-year-old organisation carries a lot of tradition and prized possessions. Some of them are legacy platforms that were architected and developed way before cloud computing was foreseen. So we have to look at that and say, can we chop it down into smaller pieces that would allow us to progressively move with the minimum risk in customer disruption. So that's the strategy that we're working on, opportunistic in the new things that we need to put forth. And then the big ones, we bite the elephant one piece at a time. 

NA: So one piece at a time. You thought about the very important thing that we've heard earlier, also about the legacy technology and the challenges that come with that. Maiya, can we get a perspective from you on how to handle this kind of challenge that comes with the migration of technology? When do banks have an extensive legacy technology? How can that challenge be addressed?

Rajashekara Maiya (RM): From our own experience, we have seen that there are two sets of banks which basically look at in terms of how to transform themselves in the larger context of a digital transformation. In the journey, cloud is one of the primary elar, you can call it as. So there are two sets of banks. The first set of banks is a traditional bank. As you all mentioned about, banks which have a lot of legacy environment are not ready to move into a cloud overnight. In one weekend, all customers all branches, all transactions are moving, because it requires that kind of risk management and many other applications are not built for cloud as Noel mentioned. So these banks, what we are witnessing is they're taking a progressive modernisation approach, a component by component or module by module kind of a movement to our cloud. And that also happens with respect to looking at whether those applications that have been there in the bank, at landscape for a long time, can they convert it to be a microservices based architecture or can APIs be built around it. So all of those experimentations are happening. And it takes time when these set of banks are looking at a progressive modernisation. 

Taking a more progressive approach in moving to cloud

The second set of banks that we are replacing are banks which are digitally native. That means they are from day one, wanted to be on a latest technology. They don't want to carry anything which is not core competency to them. And these banks are looking to offer limited banking functionality. But starting with technology on a big scale. And today, compared to five years, 10 years kind of a scenario, you have all the elements that are available in terms of what it requires for you to be digital native, whether it is in terms of the cloud infrastructure, service providers, whether in terms of the application service providers, the entire ecosystem of the fintechs and the startups, which was missing five, six years back. They're all available now in a ready-made kind of a plug and play kind of association. So we are seeing these kinds of banks are much faster in their adoption to the latest technologies and in their digital journey are being digital native. And cloud still plays a major role in their environment. And for them also, it is equally important to be the cost neutral artist of the most cost effective because they will not be able to afford an on-premise environment to be maintained and run by their own IT staff or somebody else. So they want to make sure that whatever caught with them, they return it to themselves and what are not owed to them. 

They want to know also to the cloud service providers, and this also provides them the assurance in terms of the safety security, because many of these hyper scalers have invested huge billions of dollars in making sure that their technology landscape is secure. And they have communities which support them on a split-second basis in a real time basis. I think that is what's also coming into help these smaller banks to looking at moving into that scene, the smaller banks journey. We've also seen some of the traditional banks trying to test the weather by putting in a bank or an offshoot of their environment. So that's all the new options, new customers, new processes can be carried out on a new environment which does not have any dependency on the legacy or does not carry any baggage so that they can start up the journey and slowly when they are moving towards the transformation model by model. A component to the new technology landscape. So we have the traditional banks looking at progressive modernisation, also trying to test the weather. Having a digital native by then you also have a completely different breed of banks, which are digitally natives, challenger banks from day one utilising cloud. And this is what we have been witnessing in the last two and a half years. 

NA: So that gives a good summary of different models that banks could be adopting in terms of their digital journey and adoption of cloud as to how they would go about it. Now we’re talking about implementing AI and RPA effectively in your digital transformation journey. So I’d like to hear Henry Antonio's view here. Can you share with us some of the tangible stories as to how you have implemented these technologies to improve your customer experience and customer convenience at the bank?  

Henry Antonio (HA): Specifically on AI and RPA. The bank has taken an approach on RPA, specifically to improve a lot of our internal deficiencies. In terms of processes, particularly, when there's a lot of manual processing involved, whether it's in the controllership department, whether in terms of processing customer transactions. So we've been looking at specific processes and functionalities where we can automate those functionalities so that we can remove the manual intervention of individuals, or even actually, those kinds of processes, which will require batching processes. And we could actually do it more real time. The pandemic actually is a great example of where we've had to very quickly do some changes, using RPA, to help us improve, and to try to manage the provisions of the Bayanihan Act, which allowed a lot of the consumers to defer their payments. And so you can imagine if you had an existing system that have a fairly structured way of computing, interest, penalties and whatnot, and then you had to apply laissez faire on an optional basis, all the provisions of the deferment of loans as required by the Bayanihan Act. It creates a lot of chaos in terms of managing our loan books. And so what we've been able to do is use RPA, essentially, to help us automate some of these functionalities without disrupting our core systems in loans management. In terms of AI, I would say we're fairly conservative in terms of our approach in terms of artificial intelligence. We're using more and more technologies particularly in the customer experience, to sort of help direct a lot of the routinary questions to chatbots to some managed services. We don't have to necessarily use individuals to essentially do these kinds of tasks. 

NA: So it's towards improving your operational efficiency and digitising the entire conversation with the customers. How do you measure and balance your risk appetite implemented in the cloud? 

Migration with the least risk

HRA: It's actually a mindset because some people have the mindset that going into the cloud is riskier. In Union Bank the reason why we're moving to the cloud is we feel that more so because of the pandemic. It is the safer choice. Imagine how many banks have we heard having problems because they had to manage their on-premise data centre during the pandemic. Since most of our processing packages are on the cloud, we didn't have to worry about the infection rate about our people are up against and risking their lives going to the data centre. So balancing risk, actually, if you implement it correctly, of course, there's a risky way of going to the cloud. One is go with a very trusted cloud provider that has been vetted and acknowledged by our regulator. A safe and permissible, have a very experienced partner to do the migration and have a strong risk organisation internally in the back that would oversee all the changes that you will do. So, if you do it right from a risk standpoint, going to the cloud this much is a much safer and more sustainable approach. 

NA: So there are different angles suppressed to it. While it has, as I was mentioning earlier, there's also that risk of concentration with regards to IT vendors. So you have to keep that in mind as well as when risks need to be balanced with the customer convenience when you are implementing these technologies as well.

HRA: That's a very good point. That was inflation risk is also something that we're concerned with. That's why it is also recommended for you to diversify your cloud provider. So no cloud provider will be good for everybody. And no cloud provider will be good for everything that you need. So you're right, that's one way of mitigating the concentration risk. 

NA: So, John, perhaps we could hear your views about API and open banking for innovation and how to deliver a personalised engagement using this open banking. And how do you address these challenges with regards to infrastructure connectivity when you're building your technology around open banking?

JHM: Our experience with exposing banking services to our partners via APIs was interesting. For the last two years, because you take the telecoms infrastructure for granted, nationwide, you have a very strong cloud backbone. You have good connectivity with your partners. But when your partners have four or 500 branches, across the country, the last mile to the consumer is the critical failure point that you don't really see. When you expose backing services via APIs, because they're at the point where in a physical location, you're going to consume a service. But that service is not getting to them because of the last mile. And we've had that as an interesting, I guess, lesson in providing open banking. Also, what we noticed when the open banking extends beyond the device screen or the web. The website, when the open banking services are now consumed at a physical location, you now have to work with your partner in terms of the customer experience because of customer that is doing a payment or drawing against the loan at a physical location by an API thinks that service, end to end is the back, not just the partners as the last mile. So you work with a partner also in improving the customer experience because in their mind, unlike MSME, that's paying for inventory via a web service or an API at the delivery point. That's the backing service, when in fact, there are many intermediaries, the logistics, the fulfilment, the ordering of the partner that come into play. And so you have to work with all of them, and managing the customer experience and improving it and learning from it. So we've had to adjust APIs and web services based on the feedback of customers in the front lines. And so that is the lesson that we've taken away in the last few years. It's a different ballgame when the consumption of open banking is bridging virtual to physical. 

NA: So, when we talk about open banking, the other angle that relates with cloud as well and one of the questions that come from the audience as well, is around data security and data privacy, especially when you're using cloud and when you're using open banking as well. So how do you handle that? 

JHM: Well, we've never really been alien to the concept of cloud because over the last 10 years, PBCom has not had a physical data centre. We've outsourced our data centres and we moved our servers 10 years ago to a virtual environment which in effect is an on-premise cloud infrastructure. So for us, it was a natural extension to move into the cloud for several of our applications. And because we were in that mindset already, before that we don't own the entire picture in terms of infrastructure. We've taken steps over the years to address data security leaks, third party risk, redundancies, etc. which become very  glaring when you're first moving into the cloud instance, because you're not built for that as an organisation. But for us, because we've taken a 10-year journey from virtual environment to cloud it wasn't a quantum leap. It was a gradual progression. So the risk management was always there. The recognition that the risk of a cloud provider is not much different from an outsource data centre.

NA: So that's true. I mean, well, the fact is that banks have to look at risk from a variety of angles. It's not just the technology or the angle, data privacy, but it's also the fact that the whole migration acts as an exercise. The way you're shifting to these new technologies, you've got these emerging technologies but how to implement them in such a way that the potential risk for the organisation is especially things like cybersecurity risk, which we all saw really surge during the pandemic. 

JHM: I don't have to do it. I'm not supposed to do this journey alone, you're supposed to work closely with your regulators. So you have your government agencies for data privacy. You have your regulators for the banking industry. You also have third party associations that manage cybersecurity risk, etc. So you don't do this journey alone. You have to leverage the people who regulate you and the people that can help you address the different risks.

NA: And you have to also meet the evolving regulations with speed which is also a challenge. 

JHM: But you're not surprised about any changes in regulation. They actually vet the regulations with the banks in advance, so you're not going to be surprised when they come out. And there's a collaborative interaction where the banks also give feedback to the regulators in crafting these regulations.  

NA: Maiya, can you give a brief comment on the potential risks that banks need to be cognisant of when they are implementing these new technologies? And how do they build their technology and processes to adapt to these new applications security?

Security is a journey

RM: I think I completely agree with what John mentioned in terms of the collaborative way to look at security. Coming from a background of serving banks in 100 countries, we have seen various ways the security elements can be addressed. And as you rightly mentioned during the pandemic, because more and more things are moving towards digital. The other element of that is the cybersecurity issues also cropped up big time. I think there are two things that banks need to do. And this is the practice that we have seen from our implementation experiences. One is in terms of a comprehensive, holistic education both inside and outside of the bank. About the security threats outside, with retail consumers or corporate consumers in terms of how to use, how to protect their identity and how not to reveal some of the limits that bank provides in a confidential kind of thing. 

The second thing that banks also need to look at is in terms of always looking at security as a journey. No bank in the world can claim that they have reached the destination, as when it comes to in terms of security. So it is a journey. You have to keep experimenting if you now look at in terms of our 10 years back, it is all that was required for you to withdraw cash from a bank is either a signature that matches the signature when you open the account or if you go to an ATM. It is basically the pin that but today, most of the global regulatory agencies have come out with a multi factor authentication or two factor authentication, so that you are able to manage the additional risk factor by having one more authentication provided by the customers. And at the end of the day, if you look at the security is a matter of three things. It's basically verifying what you are, what you have, and what you know. So if among these three things, if banks can select any of the two things and make it as a workable solution, the convenience because security should not become an impediment for bankers to offer it. And it could be a convenient marriage between the security and the convenience coming together. And we have seen that there is significant development in this area. As John mentioned, there are a lot of ecosystem partners who take care of the security, the hyper-scalers. When it comes to in terms of the cloud environment, they have built worthless securities in terms of logical access control, physical access, control, and the data transmission layer. They also have huge investments either in the community or on the infrastructure itself, which should provide the required confidence for the banks to go ahead and implement things on clouds, because that is the way forward for the banks will be more effective, relevant and contextual, in the changing dynamics of the global banking environment.  

NA: I also want to talk about the impact of digital transformation on the business. How do you design or digitise your core business of lending deposits and payments and move towards to see the actual business impact that you're looking for? So, perhaps Noel a perspective from you, or this edition is really a moving target. All banks have set up a promising target or targets to achieve in terms of digitisation. How do you actually achieve them? Where are you on this journey? And tell us a bit about that. 

Accelerating lending capability through data

NS: Yes, talking about the lending space. If you look at most of the players, they tend to draw their lending business from the accumulation of data. It's more of a data driven kind of a business model. And with the amount of data that they're collecting, both within their ecosystem and partner ecosystem, that's how they're able to determine the viability of that business. And this is where AI, analytics and all this technology come into play. So everybody is banking, that with the richness of the data that they're getting their ability to understand the credit, the credit risk that they're taking against the opportunities in the market, would have higher chance of success. So, again, everybody is looking at data as a way to accelerate and make their lending capability more accurate and predictable.

NA: That's true data. But data is the state data is the new oil, or probably the most important resource for the bank. So because but the question is also, to have the right data infrastructure and how to utilise that data infrastructure effectively to have that kind of a business outcome. And that's always been a challenge. It's actually a moving journey for banks, especially the amount of data that they have access to now, both structured and unstructured. So to have that kind of infrastructure around it, to be able to bring the business impact from that huge amount of data that they have. That's also a challenge for banks.

NS: Yes, and the key there is, the data is only as good as the people were asking the question. And people were looking at what does it mean? Sometimes you get swarmed by or you get overloaded with so many data that you don't really know what you're looking for, unless you ask the right question. So it requires certain maturity as well within the organisation to start asking and also appreciate what are the findings and insights that our data scientists are giving you. So it requires a two-prong or a multifaceted approach. Somebody else from the business side was asking the right question. And the inciting coming from the data scientists and say, this is our findings, both from the direct data, the aggregated data and the proxy data that we have, I mean, anything you derive value in this kind of data.  

NA: So, we would like to get the insight from RCBC. We have seen talks about robotics. How do these things from various specialties, they've seen this thing. In terms of practical cases where the bank is leveraging this.

HA: I mean, I could give you at least three examples. A very simple one that we've done is in terms of internal processing on withholding certificates. That's withholding certificates. This is in the controllership area, one of the things that you could do very quickly is you pretty much have a consistent list of alpha, a list of people that you withhold from. And there is a whole process of actually performing the data entry into the forms, as you know, the BIR still requires us to do that. And then physically providing this forms to the vendors, or to the people that we've withheld amounts to. And so we essentially use robotics to pull this data, put it into these forms, and then trigger that so that it sends. So that there's no more individuals actually stuffing envelopes and sending them off. That's a very simple, very useful and very productive way of using RPA. And very simple processes within internally and within the back. Another way is essentially, obviously trying to put AI and RPA in use in terms of the customer service. I mean, there are many, many basic processes that the banks have to essentially respond to with customers, its statement of accounts, requests for certain things. And we were able to use robotics, essentially automate our chat buttons to be able to answer these things. It seems it takes out quite a bit of the resources necessary to manage our customer service. And then our people can move to a higher level of services, where you have more complicated transactions, where you actually need individuals to look at it uniquely, and then address the client's requirements. So it could span those different kinds of requirements.  

Finding the right strategy

The other thing I want to share here, because I'm more of a strategy guy and a finance guy before technology. And so my approach is a little different. When we talk about regulations, and we talk about technology and applying technology, I think the biggest risk for us really is to find how we define our strategy. Because, as I agree with my colleagues to say, if we were a greenfield operation, and we're starting today, it's easy to make a decision to do this, this and that. And then just be at the cloud, do everything streamlined, no paper, etc. But when you have a legacy business with brick and mortar branches, with individuals working there with clients expecting a certain service, it's a hell of a lot more complicated than just moving everything into a digital space. And so fine tuning that strategy, managing the resources. And actually, making sure you understand what the shareholders are willing to risk in terms of resources, in terms of investment, because technology is changing very quickly. And you might not have 10 years for an ROI to make sure that everything is paid for. And so you just can't talk about concentration risk. Well, this is one concentration risk that will hit you hard if you don't spend enough time thinking about strategy, and making sure that you use those dollars, where they come the most for everybody. And unfortunately every bank will have a different approach.  

NA: That's true. So, in fact, when we talk about risk, one other angle is fraud risk. And that's been troubling. I mean, that's one fact that a lot of banks have been bothered about that sort of the top of the mind priority. So facing the rise of social engineering fraud is to pay sufficient two factor authentication.  Or shouldn't banks look for three factor authentication using biometrics such as behavioural biometrics?  

AR: I would strongly recommend to move slowly into multi-factor authentication. One of the key aspects is biometric. The simplest thing to go to market is your touch IDs. Using your finger a second, if you can enable face detection, because most of your technology, both web and mobile can allow you even your ATMs can be enhanced with face based biometric. There's a second or third advantage if you can have a little more high technology sophisticated customer base mobile device. Today, all these three technologies are enabled. All you need is a better algorithm to build apart from your SMS, OTP and pin. You can bring this biometric on top of organisations if you can bring time together with the different use cases. It will be the end user touch points are much more secure. 

NA: How can we leverage technologies such as AI to better manage or prevent the emerging incidence of fraud in digital banking?

HRA: So for our bank, we apply AI in terms of usage patterns, and we don't just use it for fraud. We also do it for AMLA monitoring. And the problem for detecting fraud is the number of incidents you have to go through before you find the proverbial needle in the haystack. So AI allows us to optimise the limited resources we have, and they filter away the ones that are going to be false positives. So that's one very good use of AI allowing us to filter away the non-critical transactions, that our people can concentrate on the ones with the higher chance of being fraud.  

NA: The resistance to change in digital transformation initiative is a challenge which almost all banks face. Somehow to speed the adoption of these changes that you brought about? And this was their resistance to change? And what steps did you take to ensure that such initiatives met the expected outcome that you were targeting? 

NS: So internally, we have seen minimal resistance. We have more resistance in getting the vaccine than the digital transformation. So because our own internal people have seen the value of what it's doing, not only for them, but also the client. Their client is telling them that what we're built for them really helped in their day-to-day activities. And by doing so, they also become the embrace. They embrace the digitalisation, the transformation, thereby creating them as our evangelists. In fact, some of the people who were most resistant in the past after they have learned, after they've listened to customers testimony, ended up being our evangelists and really showcasing their experience of a certain age group. They say it's as easy as watching Netflix. No you can view Facebook, you can also do Netflix. It can be done. So resistance wise, it was never an issue for us.  

HA: From from a midsize bank that is very focused on very defined niche in terms of clients, we do experience resistance. And the one thing that we do in RCBC, is to make sure that people are exposed to the technology that we're developing, because we can't sell what we don't know. And therefore, all relationship managers, all people in the back office, they have to have the online banking accounts. They have to utilise the various web portals. We used to update customer information. We made sure that they experienced all the applications that we're setting up. I don't think there's a short way, or short circuiting that process of maturity. The only best way to do it is to really expose the people and make them feel comfortable, and make the application very user friendly. And that's really been our focus more and more now is to ensure that everything that we do is extremely user friendly. It's extremely intuitive, even when we're using productivity tools for our relationship managers. We want to make sure that they focus not on the technology or the functionality, but they focus on the job which is really to serve our clients and do more acquisitions.

NA: So essentially focused a lot more, channelising the entire processes towards customer centricity and to ensure that there's a better acquisition of customers and better convenience for customers and personalisation. That's true. A quick question to John about the kind of business impact that they have been able to bring about with digitising of the core finding deposits and payments. And if you could just talk about the areas where you've done. How do you bring about the maximum impact and were you able to achieve your targets that you've set about for digitisation? 

JHM: It was all about flexibility and agility to adapt to the requirements of our customers and partners. We've reinvented ourselves over the last five years and as an ecosystem bank. And so in order to be successful at that, we've had to serve as the different requirements of different conglomerates and corporates in their upstream and downstream financial transactions, upstream to suppliers and their own ecosystems and downstream to their retail or corporate customers. So, the financial flows, the flows of information had to be facilitated by laying the groundwork via digital infrastructure, independent of the traditional brick and mortar touchpoints that we had to end. In fact, extending that so that we can service the ecosystems.

NA: So upstream and downstream digital extension. I mean, so integration. That's quite an important part. So Maiya, a quick comment from you as well. And talking about moving towards the future that for Philippine banks specifically, I would love to hear from you a quick wrap up comment about how banks could be digital future ready in this evolving dynamic environment operating environment that they have. So we have heard various insights, views from bankers, as well as the challenges that they face with various aspects of technology, the business requirement, the resistance to change. So a quick comment on you as well.

RM: It seems from our own experience, what we have seen is two important trends are taking place. One is in terms of increasing the power is perfect to the endpoints. When I say endpoints, it is basically the end consumers or the retail corporate recipes. The second trend that we're observing is banking is more of an experience and less of banking. So with these two things, and combined with the global population demography, more than 60% of the global population is less than 30 years of age, and it is even more skewed in countries in Southeast Asia and Philippines is no exception to it. And when these people have about 80% are connected to the internet and to social media and things like that, they would expect that a similar experience is provided in their banking journey also. So banking has to be part and parcel of their day to day life. And they did not have to go to a bank, or go to a branch or go to an ATM, it should be just like how easy for them to order something using an app on their phone, either for a taxi hailing or in terms of the food delivery, or in terms of groceries, in terms of movie tickets. I think the life of banking will become like that. So from that perspective, the banks are now looking at moving towards that kind of an expectation matching by the infrastructure. When I say infrastructure, it includes two sets of infrastructure. One is in terms of market infrastructure, which is the basic responsibility of the local regulatory authorities and the government to provide in terms of proper broadband network and in terms of the regulatory environment. And we have seen this happening in India, with the market infrastructure, like a single identity electronically, you can come do a KYC. And because of which entities are able to now add more than 100 billion, 200 billion customers within two or three minutes for each customer. And similarly, we have also seen leveraging the network in terms of the broadband in terms of the bandwidth. So this all coming together for the customers expectation to be met. And banks cannot stay behind in this journey. It is the requirement of day that they need to meet the trend of increasingly power going to the endpoints. And making sure that banking is more of an experience and this of banking. These are the two things that we're looking at digital taking to the next step.  

NA: So it's been a very wide ranging and engaging, insightful discussion, I would say. So we've covered a variety of topics. It's clear from our discussion today that banks in Philippines have been very progressive in their digital transformation in cloud adoption. Many of the banks are, and this is driven by the strong regulatory support that banks have been getting as well. So they have adopted to cloud transformation quite progressively and aggressively. The institutions are actively shifting that cloud migration towards core banking and core technology to be migrated to cloud for greater efficiency, scale and agility. Of course, there are challenges that we heard about, especially if it's an existing bank with the legacy. So therefore, there are a fair amount of challenges that need to be addressed in the process there. We also talked about the IT concentration risk, different models that banks are adopting with regards to cloud adoption, whether it's additional arm or a completely new digital bank, or just shifting a part of your technology onto cloud. So there are various models that we talked about as well. We also talked about emerging technologies such as AI, RPA, open banking, and how these are being used by banks to bring about the business impact and the customer experience that they are looking for.  Interestingly, the fraud risk is another area and that's where the cybersecurity risks. So those are some of the other risks that banks are talking about. So that's the other angle we covered. During our session, we did a survey and we asked our audience if they are investing into digital transformation and 88% said yes. This shows that there's a very strong focus across banks especially in Philippines towards digital transformation. With that, I would like to end today's session. I want to thank Ramu, Henry Aguda, Henry Antonio, Noel, Maiya, and all the guests for joining us today. We hope that our audience have benefited from your insights and your experience. So thank you so much, everyone. Have a good day. Stay safe. 


Keywords: Cloud, Ecosystem, Risk, Security, Migration, Data, Digital Banking, AI, API, RPA, Technology, Customer Experience, Digital Transformation

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