How a digital bank revolution is transforming banking and financial services in Asia
Asia has become the hotspot of digital innovation in the global financial and banking sector. From backend services to front-end interfaces, and from seamless payments to credit experiences, Asian banks and financial service providers are harnessing the power of artificial intelligence (AI) and digital banking technologies to stay on top of their game.
The global Covid-19 pandemic has accelerated the pace of digitalisation in Asia, as more central banks embrace digital banking to drive higher financial inclusion in their countries.
According to Bain and Company, banking penetration is only about 50 per cent in Southeast Asia. This underbanked and underserved market comprise micro-enterprises and SMEs and rural populations and is poised to become the growth engine for digital financial services in the region.
OneConnect, a global fintech company that has been helping banks in the region to digitalise, sees a key trend in the market: digitalisation is transforming the region’s financial services industry and can drive greater financial inclusion. In Southeast Asia, Singapore leads the way, with the award of four digital bank licences (two full banks and two wholesale banks) announced by the Monetary Authority of Singapore (MAS) last December. Following in the footsteps of Singapore, Malaysia and the Philippines have recently approved licensing frameworks for digital banks for up to five digital bank licences.
Covid-19 has also brought about what Tan Bin Ru, CEO, Southeast Asia, OneConnect, described as a “hyper-acceleration of digital adoption” among banks and financial service providers and a shift towards digital banking. But she stressed that digital banking goes beyond providing free apps or cheaper services to drive customer adoption. Customer experience will be the key differentiator that would determine the success of digital banking service.
“End users are expecting new products that meet their lifestyle; products they have never seen before. A lot of banks have mobile apps that are not exactly friendly… and customers don’t feel served by the bank,” said Tan.
While banks and financial service providers recognise the importance of providing good digital services, this is easier said than done.
“Many banks have tried to do things on their own, only to realise that it takes a long time to build up that internal expertise,” noted Tan.
Finding the right talent and the suitable solution is time-consuming, and organisational hurdles such as lack of management support can lead to further delays in digitalisation.
Since its founding in 2015, OneConnect has supported the digital transformation journey of financial institutions across nearly 20 countries and territories. The company offers a range of market-ready, modular and customisable digital banking solutions, from digital lending to cloud-based core banking systems.
Above all, the fintech firm understands the challenges associated with digital banking intimately, as it runs a full digital bank – Ping An OneConnect Bank (PAOB) in Hong Kong. It is also an associate of Ping An Insurance (Group) Company of China, a Fortune Global 500 company with 33 years of experience in the financial industry.
“I think it is important to understand the pain points of a bank. We pride ourselves in bringing a lot of domain knowledge to this area. Half of our people are bankers and we work with the banks to understand their journey,” said Tan.
For clients, working with a one-stop strategic technology partner like OneConnect instead of scouring for multiple vendors has not only saved them time but also enabled them to create new products and expand into new markets, while still running their core business.
In 2019, OneConnect and UBX Philippines Corporation (UBX), the wholly-owned fintech subsidiary of Union Bank of the Philippines (UnionBank), launched SeekCap, the country’s first lending platform that helps the underserved micro, small and medium enterprises (MSMEs) manage cash flow and grow their business. Lazada, a leading e-commerce platform in the region, is onboarded as the channel partner, allowing their sellers (merchants) easier access to financing with multiple credit options across several lenders.
SeekCap took just nine months to complete. Within the first three months of its launch, the platform saw a 300 per cent increase in loan application. About 90 per cent of its customers are new to the bank and onboarded digitally through the platform. By tapping OneConnect’s expertise in artificial intelligence (AI), SeekCap was able to offer same-day loan approval and disburse loans within three working days while providing more accurate risk assessment.
While the use of AI has become commonplace in digital banking, Tan observed that AI “is still an evolving technology”. Hence, continuous research and development (R&D) is needed to enhance the AI modules in any digital banking solution.
OneConnect’s strong focus on high-quality research and development (R&D) investments, amounting to more than RMB3.8 billion from 2017-2020, has enabled it to expand both its portfolio of products and client embeddedness.
“In the wake of the Covid-19 pandemic, it is important that your solutions remain agile, and R&D continues to be pumped in to mature the solution that you are implementing,” noted Tan.
Besides the ability to invest in continuous R&D to upgrade solutions, what else should financial institutions look for in a fintech partner to support their digital banking plans?
Tan’s advice is to choose a partner with good domain knowledge to support their business. OneConnect, for instance, focuses on technology and finance and serves mainly the BFSI (banking, financial services and insurance) sector.
The ideal fintech partner should also be able to offer a breadth of solutions so that it can grow and scale with the company’s digital transformation journey.
