The RBI Asia Trailblazer Summit 2016 – hosted in Singapore – featured panellists from start-ups and banks operating across the region, who discussed the banking model of the future in Asia. Xiou Ann Lim reports on their thoughts regarding the region and how it is moving forward and what needs to be improved

The increasing popularity of fintech players that are more agile and experimental has altered the landscape of retail banking in a major way. Often regarded as agents of disruption and change, there is mounting pressure for banks to keep up as consumers expect to receive the same experience when they deal with their banks. How will banks evolve to meet these expectations? What does the banking model of the future look like for Asia? More importantly, why aren’t we there yet?

The new economy
The viability of the neo-bank model was heavily discussed at the RBI Asia Trailblazer Summit 2016. Its low cost of operations – relative to traditional banks – and ability to reach more consumers through its mobile model might prove to be successful in Asia, where there remains a large unbanked population. But John Hogue – head of Consumer Innovation Labs at Citi FinTech – doesn’t think bank branches are going to go away anytime soon: “People will always need that physical connection. But how branches operate and the technology that drives them will change.”

“Also, physical interaction is what banks have as a strength when compared to fintech companies. We have a physical network that we can leverage on,” added Ryan Jonghoon Kim, head of digital and alliance, retail banking at Standard Chartered Bank Korea. So, perhaps bank branches are really here to stay.

With so many examples of challenger banks and fintech start-ups operating at half the cost and twice the agility, why aren’t banks replicating their models to get ahead? According to Sanjoy Sen, managing director of retail banking Asia Pacific at ANZ: “The banking industry is highly regulated, which is why the development or the Uberfication of banking is not happening as quickly as other industries. Banks are also trying to revolutionise themselves to be technology companies and that is not easy.”

Apart from regulation, chief fintech officer at the Monetary Authority of Singapore Sopnendu Mohanty added that new banks do not have the burden of legacy infrastructure. “The technology that existing banks are carrying are outdated – they’re heavy and they’re not agile – which takes them a long time to change.” He pointed out that new banks can source for open API platforms and build functionalities more quickly.

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Meanwhile, Hal Bosher – CEO of Yoma Bank – pointed out the challenges of keeping up in emerging economies such as Myanmar by adding that the plumbing is often not in place and that national borders remain one of the biggest constraints to achieving great cross-border reach in an industry that’s highly regulated by supervisory bodies that are working independently of each other.

How can banks then respond to disruption? Mohanty believed that focusing on being banking-driven rather than bank-driven is the way forward: “Banks used to build loyalty through pricing. The new loyalty is built through experience – if you provide a good experience, customers tend to stick with you.” Similarly, Sen added that banks are very introspective about what they can give to their customers and that consumers should be allowed to decide what they want instead.

Apart from that, Bosher weighed in by suggesting that banks should learn to share: “Perhaps that’s not in a banker’s DNA … but we’re going to have to share with a telco, another bank or a third party.” Yoma Bank itself is partnering with Myanmar-based telco Telenor to develop Wave Money, which allows users to receive and transfer money using their mobile phones – without necessarily opening an account with Yoma Bank.

On the same note, Reynold Wijaya – co-founder of lending platforms Modalku and Funding Societies – also highlighted the importance of creating a partnership between fintech start-ups and banks as this can leverage off the reach and ease-of-use offered by fintech start-ups as well as the advantage of customers’ trust that banks have built.

Speaking on this culture of collaboration, Mohanty pointed out that ‘there’s a bit of a myth out there that’s slowly being corrected because when we looked at fintech growth in 2015, we saw fintech companies out there trying to disrupt’. But recent times have indicated that fintech companies realise that they can’t be out on their own because they need customers and trust, he added. “Trust is something that banks have built for many years … and they are opening up to bring the outside in through collaboration with fintech companies and opening of innovation labs,” he concluded.

Innovation and design in banking
While banks have never been traditionally regarded as frontrunners of innovation and design in creating cutting-edge user experience, they are beginning to pick up the pace.

Customarily dismissed as being somewhat inconsequential – the importance of designing a seamless and intuitive user experience to attract, retain and engage customers is gaining traction within the industry. But how do they recognise a successful design and how is the return-on-investment measured? “No one knows until a quality product is actually produced,” said Steve Monaghan, regional director and head of Edge (Group Innovation) at AIA. “Now, you’ve got the same people who believed it to be a waste of time saying they wished they executed it sooner,” he added.

Jurgen Meerschaege – head of Business Analytics and Decision Support at DBS Bank – believes that successful design can be measured financially through sales of individual products. Other forms of measurement such as net promoter score, repeat customer rate, retention rates and qualitative data can also be put in place, said Todd Kurie – vice president of marketing at RedMart.

But beyond exploring what it means to have created good design, Monaghan also believes that there is a sizeable difference between what banks think their customers want versus what their customers actually want. “Our ability to start assimilating that information and utilising it correctly is really the challenge,” he said. Dr Koson Sapprasert – head of innovation at Siam Commercial Bank – concurs: “We’ve simply stopped listening to bank executives because they’re not our target customers.”

So, the industry really has shifted gears in recent years to catch up in this space. But Rana Peries – director of Innovation & Digital Services at Barclays – cautioned against mistaking action for success: “Falsely, we assume that just because we set up an innovation team in the bank we instantly become the most innovative organisation tomorrow.”

Keeping up with a new generation
Although the theme of the summit revolved around catching up with emerging trends and enabling technologies, one important aspect to bear in mind was the people the industry serves – especially the emerging affluent, which is an increasingly important segment in fast-growing Asia.

However, the cost to serve this particular segment has long been a consideration for retail banks. Moving away from the high-volume and low-cost model of the average retail segment but also falling short of the high returns banks can reap from private banking clients, Choong Wai Hong – head of Regional Premier & Affluent Banking, Group Community Financial Services at Maybank – said that many of these relationships are managed by relationship managers (RMs). This is a challenge in itself as banks struggle with the competency, consistency and attrition of RMs.

“I think the affluent segment is a very interesting and profitable segment, but the cost to serve is an important concern,” he added.
Can this conundrum be remedied with the introduction of robo-advisors? “I think this particular segment is definitely ready to look into robo-advisory for certain products, but the future is going to be a combination of both,” said Matthew Read – head of Affluent Banking & Branch Network, Retail Banking (Asia-Pacific) at ANZ.

Thomas Martin – WW lead of Wealth & Asset Management Investment Analytics at IBM – agreed. “People see technology as a distribution channel, but they don’t want to take away the face of relationship managers either,” he concluded.

The face of retail banking has probably changed considerably over the last five years or so. Allowing customers to determine the type of services and experiences they want from banks is going to ensure that the industry is kept on its toes.

From bank branches to mobile banking and robo-advisory, the need for innovation and an intuitive understanding of what customers want is real. But as long as the industry is able to keep up, there is no reason why banks will lose out to other players.
As Mohanty said: “The construct may change, but banking is here to stay.”