Customer Retention – Source: Freepik

Customer retention is the outcome of a strong and healthy relationship between banks and customers. One of the key defining aspects of any relationship is longevity. A good relationship is expected to last for a certain period of time or meet the terms of agreement of said relationship. That is the prerequisite condition for a relationship to flourish and mature to its maximum benefit for the parties involved.

Let’s look at an example from the dating world: a lady, let’s call her Jane, might be interested in pursuing a relationship with a partner, if a set of qualifying factors have been fulfilled. According to Psychology Today, there are 4 factors (clues) that would indicate a potentially healthy long-term relationship Jane could use as a benchmark:

1. Mutual feelings: Jane can use this as a starting indicator: Does that person like me? Or would he like me if we were on a date?
2. Trust: there is a certain risk factor in every relationship. Jane could ask in a vulnerable moment: Can I trust that person?
3. Future outcomes: Jane is an intelligent person and has a set of end goals for the relationship. She can ask: Are my end goals aligned with that person’s goals for this relationship?
4. Satisfaction: The million-dollar question is: Am I going to be happy, and fulfilled with this person? Can the results have greater benefits than risks?

The answers to Jane’s questions are often complicated and cannot have a binary outcome. Yes, there are two default outcomes: success or failure, however, there are many variables that could turn things around. For example, if children are involved in the relationship. What if time passes and some goals become miss-aligned with the agreement, what is a tolerable level of compromise? What are the possible remedies to rescue or dissolve the relationship? 

The answers often fall on a scale from (0) for the most miserable outcome or (10)  for the unsustainable level of happiness. Among other things, a relationship is a real investment. Jane is most likely interested in retaining that relationship until all possibilities are exhausted.

Let’s translate that to the banking industry

The same rules apply here. Let’s try it in the context of a fictional bank in Malaysia, HeyBank. In this case, HeyBank is looking for a customer to establish a transactional relationship with satisfactory outcomes. However, HeyBank needs to look into the same factors:

1. Mutual feelings: HeyBank can choose a customer if the customer likes the bank’s offer and is willing to accept their terms.
2. Trust: there is a certain risk factor that HeyBank can tolerate. HeyBank uses methods like Credit Score to assess that customer. A more extensive method HeyBank can use is eKYC. We talked about it extensively here.
3. Future outcomes: HeyBank wants a healthy relationship with the customer to achieve profitability and provide a financial service to the customer. In return, HeyBank expects to get paid for the services they provided. Financial compensations are the primary measuring stick of such relationships.
4. Satisfaction: HeyBank wants to have a healthy relationship with the customer and the customer is expected to be satisfied with the services provided. The customer is likely to come back and use HeyBank financial services like loans and credit cards, again. That is retention at its finest!

Image source: pixabay

Why is retention important for banks?

Retention is the future of the banking industry and every other industry in the wild. The impact of retention is to be measured by considering the following:

1. Impact on revenue: losing customers means loss of revenue and dissatisfied customers will cause a severe problem because they can influence other customers to jump ship. 
2. Customer satisfaction and advocacy: satisfied customers are loyal and will influence their family and friends to use the services of that bank that made them happy.
3. Long-term savings: according to Forbes, it is cheaper to nurture and retain existing customers through personalised services, enhanced experience, VIP perks and other strategies than to invest in attracting new customers regularly. It can be quite costly to acquire new customers, and the risk of switching is high.
4. Performance and profit: a relation between a bank and a customer only becomes profitable after two years, according to professionals monitoring the industry. This means that banks need to maintain the relationship for more than two years to realise good performance from every new customer they acquire. Therefore, retention is needed to minimise the risks associated with churn. It is logical to assume that among HeyBank’s biggest concerns is making the customer happy.

Retention in other industries – a brief overview

Statista Retention rate 2018

Statista.com published customer retention rates for various industries around the world. The banking industry ranked 11th among industries like retail, hospitality, manufacturing, customer services, financial services, telecommunications, health care, etc.

Both banking and financial services have customer retention rates at 75% and 78% respectively. Is that good? Maybe. It is logical to assume that banks want to increase retention rates. According to a publication by Harvard Business School, a 5% increase in retention can increase profits by 25% to 95%. This study might be dated, but it remains relevant. At the bare minimum, banks in Malaysia should aim to increase their retention rate by 5% within the next 3 to 5 years in order to maximise the outcomes. 

Images source: pixabay

Better service means more customers: How do traditional banks compare to digital banks and eWallets in terms of the number of customers over time?

Digital banks, not digital banking, are a new and different kind of financial institution. Essentially, they offer similar services as traditional banks, but customers get to deal with these banks entirely online. These banks would not have physical branches (maybe just a headquarter). Being online enables them to serve customers 24/7, all year long.

In Europe, many digital banks are known as mobile banks. The best mobile banks in Europe became successful because they were able to pull off a masterpiece of innovative financial services powered by advanced technology with state-of-the-art capabilities. 

Revolut is considered one of the best mobile app banks licensed in the EU, not yet in the UK, with some 12 million customers as of 2020. Let’s look at something interesting here: since 2015, this bank grew from 100,000 customers to 12 million. That is an astounding growth rate. Revolut is able to cover all of the EU territories, deal with countries that have trade agreements with the EU like Canada, Japan, and Australia, and users are able to transfer in 29 currencies and withdraw money into 130 currencies, according to Business of Apps.

BNP Paribas is a French bank with a long international experience, more than 200,000 employees, and nearly $US53 billion in revenue. It is worth noting that this bank is more than 150 years old. The Group serves nearly 33 million clients worldwide in its retail-banking networks and BNP Paribas Personal Finance has more than 27 million active customers.

If we compare the two: a digital bank founded in 2015 versus a more traditional bank founded in 1848, the new player is able to successfully attract 12 million users in 5 years, while the more established player has 33 million. That is an indicator that technology is moving the banking industry far and beyond name recognition and reputation.

We can assume that both banks have a retention rate of around 75% if we are following industry numbers. This is a mere assumption because it is really difficult to find public numbers released by banks or other organisations that document banks’ retention rates and practices.

In contrast, Maybank is the biggest bank in Malaysia with some 22 million customers. Touch n Go eWallet has 6.5 million users in early 2020. In the same period, Boost reported 10 million users. Maybank eWallet has nearly 2 million users by Q4 of 2020. Financial institutions in Malaysia seem to exhibit similar conditions as their European counterparts. New technologies and innovations seem to attract more customers going beyond name recognition and reputation.

Acquiring these customers is not an easy task. It is expensive and requires unprecedented technical feats. If financial institutions do not work on retention, they risk losing a significant amount of customers, which would translate into a loss of revenue and ultimately loss of profit. Retention isn’t easy. There are many factors that influence customers’ stickiness with their bank or digital financial service providers. Let’s look at some of the challenges to the retention problem.

Image source: pixabay

What are the primary challenges to better retention? 

In a 2019 post published by a reputable consulting firm in Europe, retention goes beyond customer onboarding and the perceived satisfaction process. A comprehensive view of customer behaviour is needed to provide the right services and keep customers happy.

Personalisation: it will be the primary driver of retention by 2025. Banks need to develop and stay ahead of the curve to stay relevant to the needs of their customers. Personalisation requires powerful technical capabilities such as artificial intelligence and machine learning to perform data analysis and create much-needed personalisation in areas like customer journey, product offerings, and customer experience.

Quality of service and risk of substitution: a study published in 2010 explored the factors determining customer satisfaction in the Malaysian banking sector observed two important behaviours: 

1. Current loyal customers may not be truly loyal to their bank
2. Current customers may not be committed to their financial service provider in the future due to cost, location, convenience, and the range of services provided. 

This is a complex issue and the study found that relying on historical loyalty data is insufficient to understand how to retain customers. The study also points to the likelihood of substantial customer mobility between banks due to customer’s perceptions, values, financial returns, and risk assessment.

The study also suggests that in a knowledge-based economy, customers are becoming more knowledgeable and cautious buyers of financial services.

Additionally, anecdotal evidence suggests that customers are equipped with the knowledge and digital skills that enable them to find more options for financial service providers and product preferences. If customers are not happy or satisfied with the level of service offered by one bank, customers can and will make a move to other banks that meet their demands, easily and quickly.

Image source: pixabay

What’s the solution to customer retention according to experts?

McKinsey’s research states that Banks need to rethink their competitive components and start thinking of retention as an integral part of their growth strategies. Give the customers what they are looking for and meet their demands, and exceed their expectations. Highly satisfied customers are 250% more likely to remain with the bank and expand their dealings. Customer experience and customer satisfaction are the keys to move forward:

1. Developing strong customer journey(s) and sub-journey(s): 

While primary journeys must be laid out clearly, sub-journeys (for example account activation) have the most significant impact on customer satisfaction for most products. Research shows that the “onsite search” function is a sub-journey with eight times more impact on customer satisfaction than opening a new account sub-journey.

For financial institutions, solutions don’t have to be complicated, and they don’t need to reinvent the wheel. Banks can focus on their priorities and delegate the responsibilities of designing journeys and optimising digital processes to technology partners like JurisTech. Fixing such issues is expected to increase customer satisfaction by 15-20%, according to McKinsey.

2. Developing a strong customer engagement strategy: 

A relationship is a defining element between customers and financial institutions. That relationship covers after-sales services, upselling, financial advice, problem-solving, wealth management, and more.

Banks can invest in and deploy the right technologies and tools to empower their officers to play a more advisory role mixed with digital recommendations generated by algorithms and artificial intelligence tools.

3. Developing personalised, data-driven financial products: 

Financial institutions have access to a colossal amount of data about their customers or prospects over the years. The leading challenge banks face is making useful and actionable insights from the data they have acquired over the years.

Armed with actionable insights, financial institutions can create highly relevant products and offers for existing customers and prospects. Banks today can use behavioural science to develop products and services with the right incentives for the right customers at the right time, delivered through the customer’s preferred channels.

Examples of application:

According to BCG, innovative customer journeys help increase customer satisfaction and lower cost. This conclusion is valid for one retail bank in Australia. The bank worked with BCG and concluded that to improve both the customer experience and its overall performance, they needed to go through a radical digital customer-journey transformation. The expected results were the elimination of siloed delivery practices, deliver a better customer experience, and reduce costs.

The bank also established that among the many journeys they could potentially map, three stood out. In a retail bank, the following journeys need to be transformed and must be exceptionally executed: 

• consumer onboarding, 
• credit cards, and 
• property ownership.

The results speak for themselves:

By improving the customer journeys, the bank improved customer experience, reduced cost base, reduced turnaround time, reduced time to open an account, and improved Net Promoter Score.

This is a useful example for Malaysian financial institutions. All the evidence presented here indicates that if Malaysian banks invested in technology partners and solutions with a specific focus on delivering customer-centric results, they will be able to have the retention targets they need.

Closing remarks

The moral of the story can be summarised as follows:

• Make the right changes based on customer preferences
• Keep an eye on every customer journey and its impact on acquisition and retention
• Banks need to be agile and flexible in terms of their ability to make the needed changes quickly
• Banks, big or small, need to have a reliable technology partner that would help them achieve the targeted goals
• Banks need to look out for customer needs and prevent customer switching by ensuring that customers are happy and satisfied
• Banks need to realise that a significant portion of their customers will switch to other financial service providers if financial institutions did not align with customer values.
• Retention is significantly cheaper than acquisition

About JurisTech

JurisTech (Juris Technologies) is a leading Malaysian-based fintech company, specialising in enterprise-class software solutions for banks, financial institutions, and telecommunications companies in Malaysia, Southeast Asia, and beyond.

To explore more on our product suite that will help in customer retention, check out our end-to-end digital banking platform, Juris Spectrum; digital onboarding solution,  Juris Access; and artificial intelligence (AI),  Juris Mindcraft to achieve your goals.

References:

• https://www.mckinsey.com/business-functions/operations/our-insights/elevating-customer-satisfaction-and-growth-through-service-to-solutions#
• https://www.mckinsey.com/industries/retail/our-insights/the-three-cs-of-customer-satisfaction-consistency-consistency-consistency
• https://www.reviewtrackers.com/blog/bank-customer-retention
• https://mb.com.ph/2020/10/22/cimb-bank-philippines-partners-with-moengage-to-drive-digital-first-customer-engagement/
• https://www.mcmc.gov.my/skmmgovmy/files/attachments/ContentCode.pdf
• https://uplandsoftware.com/localytics/resources/blog/mobile-apps-whats-a-good-retention-rate
• https://www.prnewswire.com/il/news-releases/mobile-banking-apps-score-highest-user-loyalty-level-new-report-from-adjust-and-app-annie-reveals-856249061.html
• https://www.paymentscardsandmobile.com/the-mobile-finance-report-2019-banking-and-payment-apps/
• https://topmobilebanks.com/usa-digital-banks/
• https://www.forbes.com/advisor/banking/best-online-banks/
• https://ampleinvest.com/best-digital-banks-europe/
• https://www.gfmag.com/magazine/september-2020/worlds-best-digital-banks
• https://www.retentionscience.com/blog/customer-retention-should-outweigh-customer-acquisition/
• https://www.paymentsjournal.com/7-effective-bank-customer-retention-strategies/
• https://www.researchgate.net/publication/308229902_Customer_Retention_by_Banks_in_New_Zealand
• https://surveysparrow.com/blog/heres-something-didnt-know-average-customer-retention-rate-industry/
• https://www.profitwell.com/customer-retention/industry-rates
• https://www.businessinsider.com/largest-banks-europe-list?op=1#2-bnp-paribas-sa-fra-196343-billion-2

The post Customer retention is the primary driver for lower cost and higher profitability for Malaysian Banks appeared first on JurisTech.

Customer acquisition in the digital world is getting more complex but opens more opportunities. One of the biggest field experts, McKinsey, investigated the root causes impacting customer acquisition and retention in the banking industry. Their extensive research points to critical elements that we will examine in the context of their relevance to banks within Malaysia. We will also study cases where Malaysian banks fall behind non-financial institutions in terms of applying the knowledge referenced in this research.

But before we take a deeper dive, let’s set the scene, if you will, for this discussion. Let us take a look at the VIPs (very important points) of the banking industry: customers, banks, and relationship status.

The customer

Customers are individuals, small businesses, large corporations, and any other entities in the need for financial services. The largest segment is direct consumers in the form of individuals, small, and medium businesses.

When choosing a bank, customers look for one that matches, as close as possible, their needs. Smart customers will research and make a list of the banks they recognise and begin to evaluate each one of these banks based on offer, expectations, ease of access, and other parameters of preferences.

Customer preferences are changing drastically as they get access to better tools like advanced technology. Customers today prefer faster service, easier interactions, and more personalisation. Banks around the world are innovating their approach to customer experience. It is a race!

The bank

Banks are profit-oriented financial institutions. There are different types of banks around the world serving various purposes. According to TheStreet.com, the majority of banks are retail banks as their primary target is customers in need of the bank’s services for personal finances, investments, small business loans, mortgages, etc. Retail banks do not offer large business loans or corporate financing; this is a segment handled by commercial banks, another type of bank. Central banks, on the other hand, are a type of bank that are non-profit-oriented because they serve as the stabilisers of their national economy. Of course, there are more types of banks, but that is for a different discussion. For this discussion, we will focus on Malaysian retail banks and their respective market segments.

The early relationship

A regular relationship between a bank and its customers is a contract or a formal agreement stating the duties, responsibilities, expectations, and outcomes of a short-term or a long-term engagement between a customer and a bank.

For customer acquisition, the initial steps prior to the relationship are as crucial as the relationship itself, to determine the position and ability of a financial institution to acquire their customers.

Now that our ground is laid out, let’s get to the meat.

Source: Pixabay

Navigating the concerns with customer acquisition

What are the concerns with customer acquisition?

To understand the problem, we need to examine the banking experience, customer preferences, and a bank’s ability to acquire customers.

a. The experience with banks is still old school

In the old school experience, customers open a new bank account when they go to the local branch of a bank, meet with a bank officer, and submit the required document. The bank conducts the basic investigation and some background checks with eKYC, and makes a decision to approve the account or not. If approved, a customer will get a bank account within minutes, hours, or days – depending on regulatory policies and the bank’s locality/territory. In hindsight, this experience works and provides a certain level of trust and confidence.

The problem is: customer experience is not static. It is an ever-changing exercise with diverse and unpredictable factors influencing different customers.

Customers these days are accustomed to fast and straightforward digital transactions. If customer experience is outdated or inadequate, financial institutions will suffer the consequences in the form of higher abandonment and missed revenue opportunities. According to a report published by MoneyWeb, even with digital banking experience, the abandonment rate is high:

• 89% abandonment of current account applications
• 93% abandonment of credit card applications
• 85% abandonment of loan applications

Those numbers are in the context of US banks. However, it doesn’t take a genius to figure that a complex experience will only increase these numbers.

An argument that could be made is that digitisation might not be suitable for all users. Let’s talk about understanding customers.

b. Customer preferences keep changing

Banks, through their experience dealing with customers, understand that customers are different, and it is critical to understand what customers need and want. It is essential to make a distinction between traditional customers and digital/tech-savvy customers.

Traditional customers still prefer in-person interactions with a bank. However, evidence suggests that this segment is shrinking. Digital customers, on the other hand, are the most significant and the most-growing segment in the global market. Researchers found that as of 2019, 64% of the global population are people born after 1980. This segment of customers is the most tech-savvy and digitally engaged segment.

In Malaysia, 70% of the population is between the age of 15 and 64 years. 90% of Malaysian households have internet access and nearly 100% access to mobile phones. According to Internet Users Survey 2018 (Malaysia), 85% of the population have internet usage experience of over three (3) years. Over 90% of users spend a minimum of 1 hour and a maximum of 18 hours on various online activities.

Malaysian users’ online activities as of 2018 include nearly everything from texting to trading. However, online banking and activities associated with online transactions stand out:

• Online banking: 54%
• Online entertainment: 78%
• Online shopping and booking: 53%
• Music streaming: 46%
• Government services: 44%
• Online gaming: 35%
• Selling goods and services: 17%

93% of Malaysians have done all these activities at least once a month. This data is an indication of three (3) things:

1. Majority of Malaysian customers are tech-savvy digital customers.

2. On par with the rest of the world, it is reasonable to assume that Malaysian customers are accustomed to simple user experiences like the ones offered by Netflix, Spotify, and the like.

3. It is reasonable to assume that customers are more open and willing to adapt to more sophisticated digital financial services.

Based on the research, retail banks need to take into consideration the definite increase in the number of digitally savvy customers in the coming years.

Before we look at the solution and examples of real applications, it is important to consider the size of the bank (hold on to that thought). Let’s examine the competition.

c. Competition is strong and the cost is high

According to Bank Negara Malaysia, there are around 56 licenced banks in the country owned by both local and foreign entities. While that number doesn’t seem so big, the competition is intense and gives customers more banking options. Hence, customer acquisition gets harder, complicated, and needs to be more creative.

A difficult acquisition can bloat the cost. Malaysian banks need to spend more money than expected to attract and acquire customers. Due to the operational cost, it is expensive to attract customers by traditional means. Adopting digital strategies to improve acquisition has become a staple of the banking industry in Malaysia.

With intense competition, higher marketing spending, higher operational cost, and external politics, among other issues, banks’ financials don’t look so hot. In 2019, Malaysian banks have been performing below expectations. It is imperative that these institutions manage their cost and change their ways to attract more customers and improve profitability.

So, where is the size of the bank in this puzzle?

Acquisition for local Malaysian banks and foreign banks in Malaysia is different.

The size of the bank matters

We need to consider something when we talk about banks: size matters. Banks are segmented based on size (in terms of assets) and operational market. According to McKinsey, the following attributes can define the bank’s size:

Megabanks

• Have large capital assets (more than US$1 trillion),
• Operate globally,
• Have a diverse product portfolio,
• Have a large marketing spending, and
• Have a large physical presence.

Regional banks

• Have a smaller asset value,
• Work regionally or at local/smaller communities,
• Have selective product offerings,
• Have a limited marketing spending, and
• Have a limited physical presence.

But why does size matter?

It matters because there is a clear gap between regional banks with limited capabilities and megabanks with deep pockets. And the numbers do speak for themselves. In 2018, Extractable reported that there are around 44,000 banks and credit unions around the world.

Only 28 of those banks have over US$1 trillion in assets and serve audiences globally. The vast majority of the 44,000 financial institutions are smaller and focus on catering financial products to small communities in both rural and urban localities. The gap provides a unique advantage to megabanks, for apparent reasons.

There are exceptions. For example, Maybank is a market leader in Malaysia and is among the top 5 banks in Southeast Asia with an international network of 2,200 branches and offices in 20 countries. This doesn’t make Maybank a megabank (by assets), but it also doesn’t make it a small bank either.

The majority of Malaysian banks are considered small and regional banks. Here is a comparison between some of the largest local banks and the largest foreign banks in Malaysia:

Source: Google and Investopedia

In order for Malaysian banks to compete with megabanks, if necessary, they need to innovate. With new technologies and digitisation of manual processes, Malaysian banks can follow in the footsteps of successful international banks and establish:

• A smaller physical branch.
• An expanded digital presence with digital marketing and analytics.
• Digital capabilities that will drive good ROI versus marketing spending.
• Digital capabilities that will enable Malaysian banks to reach more customers locally and regionally.
• Digital value proposition offered directly to their customers.

The above helps Malaysian banks play a bigger regional role and compete with megabanks.

So, what’s the solution to the customer acquisition problem?

Source: Pixabay

Solving the acquisition problem

In a detailed article published on McKinsey.com, to encourage greater engagement between a bank and its customers, the bank needs to examine the combination of products, services, functions, and access. There are four (4) factors that will have a long-lasting impact on customer acquisition:

1. Going digital in the face of shrinking physical branches:

While branches are still essential for banks, their impact seems to have lessened over the years. The scale of a bank’s physical branch is no longer an indicator of the effectiveness of that bank. Additionally, the coronavirus situation forced banks to temporarily close their branches nationwide.

This is not a threat. Most Malaysian banks don’t have a large number of branches. For instance:

• Maybank has 402 branches in Malaysia (2,200 in 20 countries).
• CIMB Bank has 234 branches across the country.
• Public Bank has 259 branches.
• RHB Bank has 278 branches.
• Hong Leong Bank has 300 branches.

The opportunity here is that in the face of uncertainty, going digital is going to be the way for sustainable growth.

2. Digital maturity of Malaysian banks:

Most, if not all, banks in Malaysia have deployed one form or another of digital banking services and shifted a large portion of their marketing spending on digital advertising. However, digital onboarding and digital account opening are perhaps one of the biggest hurdles. You see, what’s the point of seeing an ad online if the customer still needs to go to or call the bank for further action? It has to be instantaneous. I see the ad, I click it, I get the offer.

Bank Negara Malaysia (BNM) earlier this year published guidelines on Electronic Know-Your-Customer (e-KYC) and how it will accelerate acquisition and improve competition. The opportunity here is that banks in Malaysia can finally employ their digital experience to implement innovative solutions and increase their digital footprint.

Malaysian banks are working on catching up to both regulations from BNM and technology advancements. For example, non-financial institutions like Grab are ahead of the game with their eKYC capabilities for their e-wallet and ride-hailing services.

3. Advertising and marketing spending

If you ask people on the street “Where do you see bank advertisements the most?” the answer would likely be online. However, researches from S&P Global Ratings found that banks in Malaysia are underspending on technology and innovation. This may include technologies that would drastically improve marketing spending and ROI.

The bottom line here is that for more effective and efficient marketing spending and ROIs, Malaysian banks need to invest in solutions and have the right approach to their adoption of technology to get the most out of digital marketing efforts.

4. Creating the right customer experience

Digital onboarding and digital marketing spending are an integral part of the banking experience. For Malaysia, creating customer experience to reduce in-person interactions and enable acquisition at a greater rate, is critical. A superior customer experience addresses the various demands through personalisation, automated services, and self-service. These efforts increase the likelihood of acquiring new customers and retaining existing ones.

Source: Pixabay

Key takeaways: customer acquisition is a long-term battle

For Malaysian banks: to have a healthy competition, improve the chances of growth, reach more customers, and provide the right offers, they need to keep the following in mind:

1. Understanding the customer is critical to acquisition and growth.
2. The current banking experience has some digital elements like online banking. However, it is nowhere near a truly digital experience. The situation needs to change quickly.
3. Malaysian banks need to accelerate their digital presence by selecting technology partners that would provide the needed support and innovations.
4. If Malaysian banks neglect change, they risk losing to disruptors like digital/virtual banks.

As technology evolves, the cost of new solutions decreases and solutions that were once expensive and unappealing for small banks, like the ones we have in Malaysia, are now more affordable.

Malaysian banks are finally able to invest in their growth initiatives and close the gap with big banks. JurisTech can and will enable Malaysian banks to make the needed changes, adopt new technologies, and acquire the customers they need to play the long game and compete with megabanks.

Juris Access is a customer digital onboarding platform. The purpose of Juris Access is to create the digital channel(s) for customers to engage with the financial institutions, as well as reduce the cost of operations by digitising and transforming user acquisition journeys.

Additionally, financial services marketing is the transformation Malaysian banks need, to achieve the following mission:

• Instantaneous acquisition process
• Customer sees the ad
• Customer clicks it
• Customer gets the offer.

JurisTech’s acquisition of iMoney fulfils all the points mentioned above to solve the acquisition problem:

• We can help Malaysian banks put less focus on physical branches.
• Juris Access and iMoney’s solutions help boost Malaysian banks’ digital maturity.
• We provide digital capabilities that would improve marketing efforts and ROI visibility.
• We create a truly digital experience that Malaysian customers deserve.

The post Decoding Customer Acquisition in the Digital World for Malaysian Banks appeared first on JurisTech.

“Is your business ready for another potential lockdown?”

SOBA LAB Panel

The subject is on the minds of many entrepreneurs, employees, essential service providers, public health professionals, medical professionals, schoolteachers, students, and every living human on Earth.

The online event was held on 13th August, 2020, via Zoom and Facebook Live, is part of the SOBA LAB (Learn, Aspire, Build) knowledge session, and has been viewed by more than 4,400 concerned viewers. The event lasted for two and a half hours and was separated into two sessions.

• Session One – Is your business ready for another potential lockdown: the panel discussion addressing the topic and taking some questions from the audience.
• Session Two – SOBA Success Stories: a sharing session of some success stories from award-winning entrepreneurs.

The Panellists:

1. Dato’ Michael Tio, Group Chief Executive & Managing Director of PKT Logistics Group Sdn Bhd
2. See Wai Hun, Co-founder & Chief Executive Officer of JurisTech
3. Selva Nagappan, Managing Director, Knowledge Group of Companies

The Moderator:

• Arlene Tan, Partner of Ng, Arlene Tan & Leong; and Secretary-General of PUMM (Malaysia Entrepreneurs’ Development Association)

This piece summarises some of the points discussed during the first session and will cover some of the points raised by See Wai Hun on the panel.

COVID-19 Impact: panel discussion

The subject on people’s minds is the outbreak of COVID-19 and the impact it has had on our daily lives and the extended impact it will continue to have on the global economy. Malaysia implemented a Movement Control Order (MCO) on March 18th as a preventive measure and entered the recovery phase on 10th June, 2020 after seeing a drop in the number of new cases. During this time, all non-essential businesses and services were ordered to close down their operations, and many restrictions were put in place for essential services, to control the spread of the disease and serve the interest of the public. Every industry remains to be affected by the outbreak and the lockdown measures.

It is estimated that the impact on the Malaysian economy is RM172.8 billion losses over 72 days (RM2.4 billion per day). However, the financial impact extends to the economic stimulus package, an increase of unemployment rate, business closures, and more. As a result, many businesses had to innovate and find ways to operate and sustain themselves one way or another.

Source: Pixabay (for SOBA LAB series)

On the subject of MCO-proof

The moderator began by asking the panellists the following questions:

“How has the earlier lockdown impacted your business? Did you try to MCO-proof your business or did you foresee the impact that the MCO will bring on your business?”

While the answers differed from each other, the subject revolved around the transformation of business practices. All panellists agree that constant change is needed to continue operations in the case of another potential lockdown.

See Wai Hun highlighted that due to the nature of JurisTech’s operations and clients, the company needed to adapt quickly to support the clients’ needs as the Malaysian government introduced new regulations.

See Wai Hun, CEO of JurisTech (for SOBA LAB series)

“In terms of operations, since we work with financial institutions and banks, and as soon as the moratorium kicked in, we had to figure a way to support the clients and enhance the software to suit the new requirements,” Wai Hun said.

“We managed to prepare well. We created a BCP and provided VPN to our staff. So once the MCO was announced, our staff was able to work from wherever they were. Also, since our company runs on sprints, we moved our physical kanban board to a virtual kanban board. We had to prepare our staff to support the financial institutions on site. At the same time, we asked our clients for infrastructure support to allow them to work from home.”

The operational strategy pivot has allowed JurisTech to be MCO-proof in the case of another lockdown.

However, in terms of revenue growth, Wai Hun spoke about taking a step back to re-evaluate the situation as banks, and financial institutions were also evaluating their position in light of the new regulations.

Dato’ Michael Tio, who helms the operations of PKT – an industry leader in logistics, stated a similar sentiment but has expressed that while his operations made the needed changes, he feels that there is more room for improvement to truly MCO-proof his organisation’s operations.

On the subject of recovery strategies

Different businesses may have different strategies to enable them to recover, sustain a profitable performance, and survive the long winter.

Arlene posed this question to the panellists:

“What are your recovery strategies to mitigate the impact of lockdown on business growth, and resiliency [strategies] to respond to unforeseen future potential disruption?”

Dato’ Michael Tio mentioned that such strategies need to be in place before a potential lockdown.

“To go into an online business, you don’t do it overnight. We were planning under our vision for a long time. We just executed it during that period.”

The move for Dato’ Michael and his organisation grew his business threefold. However, his organisation faced new challenges due to the closure of automotive maintenance and repair workshops. The unique challenges are driving his organisation to explore new ways to transform and enter new markets such as e-commerce and F&B.

Mr Selva Nagappan is in the business of big events. Events and public gatherings were not allowed during the MCO period. Such events and meetings are still not permitted during the ongoing recovery phase. However, for Mr Selva, the realisation he and his partners had is that their organisation has great content and partnerships from around the world. The natural pivot was to take advantage of their assets and provide them in a more meaningful way by distributing their content online. For him, the new challenge was the technology platform. It was apparent to him that his audience was not ready for the move to receive training from subject-matter experts via online platforms. From a revenue perspective, this was especially challenging. The solution, however, was to create various technology verticals to deliver quality content.

On the subject of flexibility and new challenges

Wai Hun mentioned that flexibility proved to be valuable currency.

“We need to understand what the customer really needs and have the flexibility to help them.”

She spoke about how flexibility began to shape the foundation for a resilient operation in the face of a potential second lockdown. Flexibility is expected to be a significant part of solving existing problems as well as the new challenges.

An example of the new challenges facing salespeople was collecting and managing documents from their customers. Businesses and their sales representatives needed a solution that would enable them to obtain customer documents securely. It was an opportunity for JurisTech to develop a solution and allow the clients to do what was needed remotely.

On the subject of business resilience

Wai Hun spoke about the need for a resilient business model where the experience of dealing with customers can be transformed from physical presence to online.

Over the years, as part of building a resilient business model, JurisTech has developed a range of products that allowed the company to diversify and attract new opportunities. Being creative is important for business resilience; it is particularly helpful for entrepreneurs because it enables them not to put all their eggs in one basket.

Agility and flexibility in the business model help retain customers, generate recurring revenue, and have a sufficient cash flow to survive a potential lockdown.

Source: Pixabay (for SOBA LAB series)

On the subject of customer behaviour as a driver of change

It was highlighted that COVID-19 has helped change the mindset of users. According to a report published by The Star, contactless payment usage skyrocketed due to people’s concerns about handling cash with their hands, given the fact that the transmission of COVID-19 could happen from handling potentially contaminated money.

Wai Hun gave three examples of how customers are driving businesses to innovate and keep up with market demand:

• Older people are learning to use new technologies and avoid going to a bank branch, for example, and opting for internet banking for their fund transfers or transactions. The change in user behaviour from the older generation is a driver for banks to consider an easier digital customer journey.
• Customers expressed interest in buying cars without going to dealerships. This is driving companies to innovate and build infrastructure and solutions to keep up with this requirement.
• Customers are increasingly interested in marketplaces and online portals, including services that require human interaction, and this is driving companies to change the user experience and have a full digital transformation in areas like:
  • Video conferencing with customers
  • eKYC processes
  • Online loan applications
  • And more.

Audience questions

The session moved on to answering some questions from the audience.

Source: Pixabay (for SOBA LAB series)

On the subject of automation and job loss

From the audience: “The MCO/lockdown is another test to a company’s arrangement between machines versus human labour. What is the opinion of the panellists on this matter?”

Mr Selva said this question has been in the spotlight for some time. It is not a subject of replacement; it is a subject of reskilling the workforce. All these machines and automated production facilities still need people to operate them, he highlighted. Such reskilling is also aligned with the government’s vision moving forward.

Dato’ Michael seems to agree. He gave an example: his organisation gets supplies from all over the world. The organisation still needs to recertify the equipment and supplies they get. It is an area where automation will not replace the people. It will certainly reduce the number of people, but it is not a replacement. He highlighted that it is inevitable for robotics and advanced technologies to come in and replace some of these jobs. Such changes could be helpful for the workforce to do more work remotely and provide necessary protection from getting infected by a potentially deadly disease, which can protect employees from loss of jobs in the future if a second lockdown was to happen.

Source: Pixabay

On the subject of businesses that require in-person interactions like hospitality and tourism

From the audience: “How about the sectors that depend on ‘in-person’ interaction such as hospitality, tourism, and hotels if the second wave of disruption is predicted to happen? How will a second wave of infections affect the business? What measures should they take to secure the business?”

While “modern” sectors, such as ICT (information and communication technology) and financial services, will probably do better as COVID-19 leads to more digital operations, other companies will have a harder time carrying out some of these changes.

Wai Hun, along with the other panellists, spoke about a few elements that could be helpful:

1. Cost analysis: she advised businesses to start evaluating how to manage areas where they have high operational costs. Entrepreneurs need to ask, “What can we do to minimise or control our costs?”
2. Finding a new source of income: transformation and new business ventures could help create a sustainable operation with existing resources.
3. Utilising existing resources: since businesses already have essential resources and capabilities, entrepreneurs and managers should re-evaluate their strengths and see if they can create unique business models that rely on these strengths.

With that in mind, businesses that require in-person operations need to innovate and brainstorm to figure out what are the best ways for them to move forward.

Source: Pixabay

On the subject of positive impact from COVID-19

“What are the major positive impacts of the lockdown that we can view clearly in terms of business idea planning, profit, and production?” asked a member of the audience.

COVID-19 lockdown brings not only negative impacts but also some positive impacts as well. Positive impact presents opportunities to companies and they need to take advantage of these possibilities.

Wai Hun brought practical insights into the discussion. She spoke about changing how business planning is done where there is a lot of focus on agility and the capacity to have quick changes and implementing new strategies.

In terms of profitability, she spoke of looking at where does profitability come from, assessing the short-term returns, and evaluating long-term profit sources. Besides that, businesses need to take digital transformation more seriously during these times.

Digital transformation is accelerating, and a lot of businesses are trying to think about how to go online and create online customer journeys. The acceleration has given birth to many new types of job opportunities that people can skill themselves in and grab.

Source: Pixabay (for SOBA LAB series)

On the subject of a second potential lockdown and the preparedness to work from home

“What will happen to the business production if the lockdown forces business to work from home? Are businesses ready to face the potential risks of running a business from home?” – from the audience.

It is clear at the time that companies must prepare for the second wave of disruption that may lead to another lockdown.

Wai Hun stated that the most important question that SMEs need to ask themselves is:

“What are the tools that would enable me to work from home?”

During the first lockdown, we’ve seen that many businesses struggle to cope without physical activities.

“I believe there will still be struggles if we are to face a second wave.”

Some companies came out stronger from the first wave and quickly innovated.

Dato’ Michael mentioned that not all businesses could operate remotely or implement work-from-home policies. Certainly, in the field of logistics, there are still many procedures that must be conducted at the premises. Therefore, businesses need to master the SOPs and adhere to the guidelines and recommendations from public health authorities.

Mr Selva mentioned that for some industries like digital services, businesses have learned that it is indeed easier to do work remotely or operate from home. However, other factors need to be considered that may cause disruption or operational inefficiencies. Some of the factors include environmental distractions. However, these factors are not impossible to work around, and employers need to keep such challenges in mind when working from home.

The session covered other topics related to business models and training of new entrants, and discussed future opportunities. The panellists gave more examples and covered a wider range of topics that SMEs would find extremely helpful.

To watch the full event on Facebook, click here.

What is SOBA?

The Star Outstanding Business Awards (SOBA) are The Star’s efforts in recognising up-and-coming enterprises and their contributions towards the Malaysian economy. In view of the government’s commitment to developing homegrown enterprises, SOBA seeks to inspire and encourage local businesses to promote Malaysia and showcase their products and services to the world.

Moving along that line, this year’s SOBA LAB (Learn, Aspire, Build) will be conducted and managed via a series of webinars addressing invaluable business insights on how to alleviate business adversities stemming from COVID-19.

About JurisTech

JurisTech (Juris Technologies) is a leading Malaysian-based fintech company, specialising in enterprise-class software solutions for banks, financial institutions, and telecommunications companies in Malaysia, Southeast Asia, and beyond.

The post SOBA LAB webinar: Is your business ready for another potential lockdown? appeared first on JurisTech.

Source: Pixabay

Introduction to KYC and eKYC

KYC (and eKYC) stands for Know Your Customer. It is a method used by financial institutions and other companies to learn about and verify the identity of their customers.

The process consists of checkpoints set in the early stages of the relationship between a bank, for example, and the customers. These checks are designed to verify that a customer is a person or an entity, with valid documentation and legal responsibility.

In the context of a bank, checkpoints include the collection of legal documents and information for verification of customer identity. The bank may also require additional information to create a risk profiling assessment if the customer is considered ‘a high risk’. The manual process can be complicated, prone to errors, and has unique challenges.

Such challenges include inconsistent data quality, time-consuming and tedious onboarding process, complex ownership structures, and growing regulatory demands to monitor customer risk at all stages. Therefore, this process needed to be digitised to solve data accuracy issues, reduce errors,  save time, and cope with evolving regulation.

Over the past decade, and with the impact of technological advancements in areas of artificial intelligence, machine learning, and mobile technology, electronic Know-Your-Customer (eKYC) solutions began to formulate in one way or another. Experts from various industries studied and examined the efficacy of said solutions and concluded that eKYC is the way to move forward.

An example of a digitised KYC (eKYC) can be seen in GrabPay. The user needs to input the full legal name, birth date, place of birth, nationality, and home address, plus upload an image of a valid government ID and take a selfie for further authentication.

Source: Pixabay

The technology that led to eKYC

It is unclear exactly when eKYC started. However, it is fair to assume that eKYC climbed to the spotlight in the past ten years. eKYC also came into prominence during the ongoing health crises of COVID-19.

Smartphones with cameras

By examining the way some companies developed their technology, we can pinpoint to the exact moments that changed the game. One moment was mobile devices with cameras. The camera, among other features in smartphones, solves a big part of the problem: seeing the customer face-to-face.

Source: androidauthority.com, phonearena.com, Wikipedia

The first smartphone with a camera was introduced in May of 1999 in Japan. The Kyocera VP-210 was the first such phone with a built-in camera that was sold commercially to the general public. Not long after that, Nokia 7650 and Sanyo SPC-5300 were introduced in 2002. That was the moment when institutions began to investigate the digitisation of specific processes for a wide range of industries.

Facial recognition technology

Another moment in time is facial recognition technology. By 2002, it had already existed in some commercial applications and some government agencies like law enforcement. An example of use was in 2002, during the Super Bowl, where facial recognition technology was put to the test to recognise petty criminals. This test wasn’t as successful as anticipated, but it open doors to further investigate the flows and assess ways of enhancements.

Another defining moment in time was in 2010 when Facebook used facial recognition for the first time to detect people with featured faces in the photos updated by Facebook users.

Now the game is changing in unprecedented ways. All the elements that would transform KYC came into play, and eKYC began to emerge slowly. As with most new technologies, eKYC is designed to simplify the complex process by adding digital innovation to KYC’s legacy process.

By 2020, ten years of development and innovations made a fully functional and automated eKYC process for verifying customer identity, possible.

Source: Pixabay

Why is eKYC important?

The role of eKYC is to verify the identity of customers to indicate the start of a specific relationship. However, the extent of the importance of eKYC is immeasurable. It is critical to areas that include the prevention of identity theft, money laundering activities, financing of terrorism, and financial fraud. The effect of eKYC provides an exceptional level of protection for customers’ properties and assets.

It does not stop there. eKYC protects national security and interest by preventing high-level crimes. eKYC contributes to regulatory bodies like the Central Bank of Malaysia (also known as Bank Negara Malaysia or BNM) on matters of policy development and setting standards for a trusted market, which in return would create a stable economy that is attractive to foreign investments.

For financial institutions, credit agencies, insurance companies, and other industries, eKYC is vital for secure business practices, creating industries driven by profitable performance, and leading to better and healthier competition. eKYC helps with significant time savings for companies, reducing the cost associated with human errors and lack of workforce, and faster customer acquisition due to efficient application processing and customer onboarding.

Thus, impacting the customer, yet again, by providing more competitive choices and offerings.

Source: Pexels

How does eKYC help financial institutions?

Discussing the subjects above gives us a great understanding of technology and the value of eKYC. But a tool is not useful if we don’t know how to use it. On an organisational level, eKYC features and tools get integrated with the most critical systems a financial institution has. Some of these systems are loan origination systems, digital financing systems, debt collection systems, financial evaluation systems, document management systems, and more.

eKYC has many features and technologies, including:

1. Facial recognition technology: face detection, face image retrieval, face comparison capabilities, liveness detection
2. Optical character recognition: ID document recognition, passport recognition, driver’s licence recognition, recognition of other documents
3. Gender and age identifier
4. Video call verification process

The importance of eKYC is not limited to financial institutions. Other organisations that might need it may include digital payment companies, ride-hailing companies, telecommunication companies, insurance agencies, and government agencies like National Registration Department (JPN) and Road Transport Department (JPJ).

Source: Pixabay

eKYC is key to survival

We can cite many sources that point out the obvious: what happens when companies fail to keep up with technology and resist the early adoption of critical innovations? The answer is clear; they get left behind.

The fact is technology is evolving at a rapid scale. And with such rapid evolution, some people tend to get creative, particularly criminals. With COVID-19 still raging across the world, cybercrimes and fraudulent financial activities are on the rise as the situation allows criminals to capitalise on people’s fears. For example, multiple media outlets in Malaysia reported an increase in cybercrimes by 441.7% since MCO.

Such crimes wreak havoc in the market and lead to decreased trust between businesses and their customers. It drives many companies to work with local governments to implement new regulations and practices to prevent crimes for the survival of companies and the economy. eKYC is an essential solution needed to stop cybercriminals at their tracks.

Additionally, eKYC features increase accessibility to financial and other services by having platforms compatible with all kinds of devices a customer might have. It can eliminate the need for a physical presence to authenticate the customer. It is the perfect bridge between financial institutions and their customers during the ongoing crisis.

Source: Pixabay

Challenges facing the implementation of eKYC

If eKYC is essential, why isn’t everyone who needs it, implementing it?

Well, it is not that simple. Numerous challenges affect the implementation of this technology. In Malaysia and other countries, the problems are self-manifesting in four areas: the legal provisions which are critical for privacy and data protection, high cost of implementation and user training, system security, and the transition period.

Bank Negara Malaysia issued guidelines highlighting an overview of eKYC, policy requirements, and regulatory process. Those guidelines provide the ultimate opportunity for financial institutions to get in on the action and accelerate their eKYC implementation.

JurisTech is among the pioneers to bring in truly integrated, end-to-end banking solutions to acquire and onboard customers, provide a range of financial services remotely, and approve loans within minutes, instead of days.

Source: Pixabay

Closing remarks

An opportunity might not present itself twice. And collectively, institutions and businesses on planet Earth do not want a prospect that comes in the form of a severe threat like COVID-19. Therefore, eKYC is vital for the survival of a massive segment of the Malaysian and global economy because it:

• Provides a solution to manage operations during a severe public health threat
• Contributes to the longevity of business survival
• Contributes to the fight against cybercrimes
• Protects national interest
• Connects customers to financial aids and other essential services without the need to be physically present
• Saves time and cost

The government is taking positive steps for the required legal provisions to implement eKYC in the financial industry in Malaysia, impacting the entire national economy. It is indeed the way to move forward.

About JurisTech

JurisTech (Juris Technologies) is a leading Malaysian-based fintech company, specialising in enterprise-class software solutions for banks, financial institutions, and telecommunications companies in Malaysia, Southeast Asia, and beyond.

References:

• https://www.infrasofttech.com/digital-onboarding-and-ekyc-is-the-only-way-forward/
• https://www.grab.com/ph/blog/activate-your-grabpay-basic-wallet/
• https://www.grab.com/my/pay/guide/get-started/
• https://ctmfile.com/story/the-problems-with-kyc-too-long-inconsistent-security-no-standard
• https://blog.instantor.com/the-big-challenges-faced-in-kyc-implementation-today
• https://www.maybank2u.com.my/WebBank/FAQ__KYC_0111.pdf
• https://www.androidauthority.com/first-camera-phone-anniversary-993492/
• https://www.facefirst.com/blog/brief-history-of-face-recognition-software/
• https://www.nst.com.my/news/crime-courts/2020/05/594436/cybercrime-penang-shoots-4417-cent-mco
• https://blog.deemoney.com/what-is-ekyc-and-why-do-i-need-to-know/
• https://readwrite.com/2020/03/12/history-of-facial-recognition-technology-and-its-bright-future/
• https://www.interpol.int/en/Crimes/Cybercrime/COVID-19-cyberthreats
• https://www.cbc.ca/news/technology/5-major-moments-in-cellphone-history-1.1407352

The post eKYC is critical for national security and a healthy economy appeared first on JurisTech.

JurisTech entered into a partnership with WISE AI to change KYC to eKYC processes in banking, insurance, fintech, telecoms, and other industries in Malaysia.

What are KYC and eKYC?

KYC (know-your-customer) is a process used by financial institutions, credit bureaus, insurance providers, and organisations of a similar nature to execute regulatory guidelines designed to prevent criminal activities such as money laundering, fraud, and other unlawful acts. It is also a process mandated by financial institutions to understand and authenticate their customers and their financial dealings to manage and mitigate various types of risks.

eKYC is an entirely digitised form of KYC utilised to on-board customers by increasing convenience and reach, as well as reducing costs incurred by financial institutions. According to Bank Negara’s eKYC guidelines draft, an essential aspect of digitisation entails the delivery of end-to-end financial solutions through online and mobile channels, supported by the adoption of financial technology.

JurisTech solutions with eKYC

With this partnership, eKYC features will be available with a selected suite of banking software solutions developed by JurisTech. These solutions are designed to accelerate digitisation initiatives pursued by local banks and play a significant role in the launch of the digital banks in Malaysia. The AI-powered proprietary tool developed by WISE AI partnered with JurisTech solutions will provide end-to-end, comprehensive software solutions fit for the needs of any financial institution, fintech company, insurance agency, credit agency, or a similar organisation.

eKYC features in Juris Access, one of JurisTech’s solutions, are utilised to on-board customers by speeding up the process of authenticating their identity.  The new features include face detection, face image retrieval, face comparison capabilities, liveness detection, ID document recognition, optical character recognition, gender and age identifier, and a video verification tool for a live call authentication process. Authenticating customers used to take days or longer; now it could take a few minutes.

“Being in the thick of the action and seeing the evolving landscape, we understand the needs of financial institutions, particularly the customer on-boarding process. For that reason, it is our responsibility to build something truly powerful, bringing in eKYC and integrating it into our existing digital solutions. If a bank needs a loan origination system, JurisTech has a powerful suite that includes eKYC, application processing, loan origination, and even disbursement. That is the level of commitment we want to provide for the Malaysian market for digital customer on-boarding,” said Naaman Lee, COO of JurisTech.

Serving Malaysia’s interest

The combination of eKYC and JurisTech solutions is among the first of its kind, locally developed technologies approved by Bank Negara Malaysia. This combination not only provides superior customer experience, but also shortens the time of requesting and applying for financial assistance, insurance policies, and other types of applications involving financial institutions. Moreover, JurisTech solutions featuring eKYC will rapidly increase customer acquisition for financial institutions and digital banks.

The ongoing COVID-19 crisis is providing the perfect opportunity for financial institutions to accelerate their digital transformation. JurisTech strongly believes that digitisation of legacy processes, and the inclusion of eKYC features, is the way to move forward. Therefore, JurisTech continues to boost technological readiness to serve the Malaysian financial industry through developing the infrastructure that would create self-sufficient, reliable, and world-class banking solutions.

For more information, request for proposal (RFPs), and enquiries, please reach out to:

Tel: +60 3 2723 8600
Fax: +60 3 2723 8699
Email: contact@juristech.net
www.juristech.net

The post JurisTech solutions have new AI-powered eKYC features appeared first on JurisTech.

Digitisation is the conversion of data from the analogue form to digital with the adoption of technological advancements. Such transformation impacted the banking industry significantly over the past 60 years. It improved customer service, saved time, lowered operational costs, created convenience, reduced human errors, and built customer loyalty.

In the past ten years, the world has witnessed a drastic, yet, consistent change within the banking industry. Customers of various financial institutions began to experience some changes in the way they used to conduct banking activities. For instance, making payments through online banking and eWallet has become a prevalent practice in recent days. Digital banks, where banking services are delivered over the internet, are becoming a reality as technology improves. Physical presence in a branch is increasingly becoming a thing of the past and fund transfers, retrieving monthly banking statements, and payments of bills and credit cards can now be completed with a couple of clicks or taps on your mobile phone or your personal computer.

A brief history with a Malaysian context

In 1953, the first bank mainframe was built by the Stanford Research Institute to process cheques for customers of Bank of America. 

In 1959, the Malaysian government established Bank Negara Malaysia (The Central Bank of Malaysia) as the main regulatory body of the financial industry in the country. Malaysia began to take after the model of convenience from different advanced nations around the world. 

In the 1970s, Malaysia began to take serious action to connect rural areas to banking services and introduced mobile bank services (bank on wheels) to address rural demand.

In 1981, Maybank launched the first ATM at its Ampang Park outlet, changing the daily relationship between banks and customers forever.

And as the 1990s arrived, Stanford Federal Credit Union became the first financial institution in the US to offer internet banking to all of its customers.

In 2001, the Bank of America reported that over three million of its customers now use online banking. In the same year, Malaysia was taking steps to go digital. Maybank had already begun to offer online banking services and was considered the first in the nation to do so. After that, online banking began to be adopted widely by several banks in Malaysia.

In 2007, Apple Inc. launched the first iPhone, and the game began to change drastically. The launch of the iPhone can be a subject on its own. However, the iPhone ecosystem puts the internet in everybody’s pocket. Even if users didn’t use the iPhone, the Android ecosystem, which was introduced a year after iOS, borrowed many of the iOS features. With this much power in people’s pockets, financial institutions began to develop apps for their services, banking websites became responsive to mobile browsers, and customer experience changed forever.

By 2010, banks around the world had implemented some form of digitisation like online banking, mobile banking, digital currency, and other types of digitisation of banking services. Some banks even began to examine the adoption of cryptocurrency as a new form of service.

The present state of digitisation and why many banks are behind on technological innovations

Today, a significant portion of the global population has access to banking services around the clock due to online and mobile banking solutions. Managing a large amount of cash is much more comfortable through the facilitation of cashless transactions. However, there are still issues to address.

It is fair to assume that every bank in the world today has online/internet banking, and mobile banking in some form. It is also reasonable to think that some banks recognise some types of cryptocurrencies and digital wallets (also known as eWallets).

So, why didn’t banks go fully digital yet?

There seem to be some setbacks that put many banks behind the advancement of technology:

• Lack of customer understanding: many banks have problems understanding the needs of the customers.
• Focus on flows, not needs: banks tend to focus on business systems and workflows and do not put much focus on customer experience.
• Stuck with legacy systems: traditional banks still operate hard-to-transform legacy systems that have been in operation for a long time.
• Cost of change: changing the existing IT architecture, implementing new banking systems, and adopting new technologies can be painful, costly, and slow.
• Lack of trust: financial institutions are known to be risk-averse when selecting IT vendors, which might be the biggest obstacle for them to catch up.
• Internal culture obstacles: it is reasonable to assume that the natural state of banks lacks the agility to make far-reaching changes in their culture or operational structures.

These issues do not represent all the problems and obstacles. However, expert observers argue that such complications stand in the face of change and create a sense of conformity that keeps the struggle of banks with innovations and technological advancements a real problem. 

The future and the anticipated, accelerated digitisation

The banking landscape is rapidly changing now as a new wave of technologies revolutionise the way customers engage with financial institutions and do their finances. As a result, banks are facing the reality of having to rethink the way they do business and deliver a better experience to their customers. Additionally, many countries are changing their regulatory structures to adapt to the “new normal”.

Such changes are accelerating the transformation and placing some of the power back into the customers’ hands. Convenience, speed, and flexibility are no longer considered attractive add-ons, but instead becoming a standard that a customer expects a bank to provide as part of the service.

Understanding customer needs will be the primary measure of success for financial institutions. Therefore, banks need to keep pace with customer needs and demands and embed appropriate services into the broader ecosystem of digital products.

The direction that financial institutions need to consider to accelerate digitisation may include:

Autonomous banking solutions:

Financial institutions need to understand the customer needs without relying on direct feedback from the customer all the time. To do so, this requires significant investment in technological capabilities that allow financial institutions to become more intelligent. Such solutions include artificial intelligence and machine learning.

Much like the technological advancements that led to autonomous vehicles through artificial intelligence (AI) and machine learning, it is reasonable to assume that the finance industry should also have similar progress. Many banks do rely on artificial intelligence in features like chatbots to interact with their customers. However, artificial intelligence and machine learning can take this much farther than mere intelligent interaction tools. Virtual financial assistance, automated credit scoring, predictive analytics, shorter processing time, and cost-efficiency can and should be the hallmark of superior banking experience.

Leveraging on smart data:

Customers are becoming more tech-savvy. They are increasingly seeking tailored experiences for their particular needs. Leveraging on big data and intelligent ways of processing it are vital to the success of future digitisation. Investing in data processing, data visualisation solutions, collecting quality data, and capturing the right data is essential to maximising the effectiveness of smart data to tailor the experience for customers.

Some experts in banking, insurance, and technology industries stated that a gradual evolution is no longer feasible. It would require a leap or a jump for a faster response to the unprecedented changes the entire world is facing. These experts point out critical elements that financial institutions need to put under serious consideration. Such elements include:

• Leveraging on cloud technologies to reduce data centre costs and move to more flexible and scalable operational models.
• Rethinking operating structure and business processes with the implementation of work-from-home practices.
• Thinking of adoption of technology and working with IT vendors, as an asset to differentiate and not a risk to be managed.

Opportunity in times of crisis

COVID-19 is, without a doubt, changing the world as we know it. It is not only impacting all businesses in all industries, but it also presents unique challenges to different sectors. Enforced social distancing, unprecedented fiscal/monetary stimulus from governments, drastic fall in energy prices, mass adoption of digital tools, and rapid transition from physical to digital interactions, are just among the many changes that happened quickly and unexpectedly.

The financial services industry is no exception. The banking industry must now adapt to a remote employee and consumer base, pushing the role of a banker into a purely digital experience. The question now is: what do banks need to do to help their customers and employees while addressing remote interactions?

The answer lies within the responsibilities of banks to help their customers and assist in reviving global and local economies. They need to adapt to the new normal, proactively change the way customers interact with banks and provide an experience that gives customers the best possible solution to their financial problems.

Another question that needs an urgent answer is how financial institutions can operate under the assumption that there will be no physical branch?

Accelerated digitisation of banks

According to data published in the Payments Journal reflecting on the digital banking report, 17% of banks have been successful in deploying digital transformation at scale, and only 43% have a clear digital strategy and vision with a well-defined road map for digitisation. Over 50% of customers still need to visit physical branches, and banks are focusing on improving customer experience in areas of front-end web design.

However, there seems to be a lack of focus on building the infrastructure to support real transformation.

The above is proof that many banks do not have a clear direction for rapid digital transformation. However, this is the time for financial institutions to grab the opportunity to explore solutions to solve the digitisation challenges. Banks that have already made that leap will have an advantage over their competitors while people clamber to get their payments made.

Access to critical tools

It is clear at this point that many banks want to transform and attempt to improve some of their online interactions with their customers. However, there seems to be a lack of educational materials to help customers figure out how to navigate and access credit and insurance services, portfolio management, and what services are available digitally such as payments, mobile deposits, credit lines, and loans.

Experts highlighted that such transformation attempts are not a mere trend. It is a significant change in the workforce and customer experience, with their impact extending to road traffic and environmental issues.

These are real problems that require radical solutions and cannot be ignored.

Digital Banks: more to come

Many countries around the world are taking active steps to go beyond the digitisation of existing and legacy processes that come along with traditional banks. There is a significant move towards having fully-fledged actual digital banks. Among the world’s most popular banks, here are the top ones: Tide, bunq, Crypterium, Atom Bank, ANNA Money, Monese, Starling Bank, Mettle, Monzo, and Revolut.

In Malaysia, Bank Negara Malaysia announced its intention to award up to 5 new digital bank licences by 2021 to drive further innovation in the market. There is a very similar situation in South Korea, Hong Kong, and Singapore.

Bank Negara Malaysia has indicated that the award of digital bank licences should focus on financial inclusion and the underserved, such as the B40, micro-SME, and SME market segments, addressing the need of a significant consumer segment.

To conclude

1. While banks have digitised some parts of their legacy practices, such practices are no longer sufficient to acquire more customers and participate in the future stimulation of the global economy.

2. Banks need to shift their focus from workflows, business processes, and product-centrism to a comprehensive customer-centric approach to solve broader problems and provide customer-based solutions.

3. Financial institutions should turn to active collaboration with solution vendors and rely on them as partners and not as risky organisations to manage. They should build strong relations to bridge future challenges and solve the new-age problems that would come along with full digital banking experiences such as digital money laundering, fraud, cybersecurity, and privacy issues.

4. Financial institutions should work with regulatory bodies to help economies bounce back from the current crises, such as creating policies that support small businesses, provide training and new job opportunities for new staffing strategies, and allow new businesses to thrive and compete in a healthy market.

References:

1. https://www.verdict.co.uk/retail-banker-international/comments/history-digital-banking/
2. https://ringgitplus.com/en/blog/banking-technology/a-tribute-to-malaysias-banking-history.html
3. https://www.hcltech.com/technology-qa/what-are-the-advantages-of-digitalization-in-banking
4. https://www.ukessays.com/essays/information-technology/history-of-internet-banking-in-malaysia-information-technology-essay.php
5. http://www.icommercecentral.com/open-access/ebanking-in-malaysia-opportunity-and-challenges.php?aid=38622
6. https://www.finextra.com/blogposting/16029/5-reasons-why-banks-still-struggle-with-digital-transformation
7. https://www.raconteur.net/sponsored/digitalisation-driving-future-banking
8. https://worldfinancialreview.com/covid-19-how-the-economic-impact-is-pushing-banks-to-digitise/
9. https://www.paymentsjournal.com/how-economic-impact-of-covid-19-is-pushing-banks-to-digitize/
10. https://www.pwc.com/gx/en/issues/crisis-solutions/covid-19/covid-19-accounting.html

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