Last week, I had the good fortune of spending time at the Singapore FinTech Festival, the largest event of its kind in the world. There, I met with business leaders from the financial services industry, including many Microsoft customers and partners, and gave a keynote on how banks can use Data, Cloud and Artificial Intelligence to successfully transform in this highly-disruptive digital age. Here are some thoughts from my conversations at the Singapore FinTech Festival.
The scale of disruption I am seeing in the banking industry across Asia Pacific today is real, unprecedented and accelerating. Simply put, banks face major customer, competitive and operational challenges.
From a customer perspective, technology is driving higher expectations from the banks, as well as introducing increased competition from new, innovative and agile industry players and new business models.
Customers’ expectations of their bank today are not driven by other banks; they are driven by industry digital disruptors like Netflix, Airbnb and Grab. That’s the benchmark today when it comes to customer service. Customers expect banking to be an instant-access, mobile-first, omni-channel and highly-personalized experience. And the harsh truth is – most banks today don’t meet that standard.
At the same time as these changes are taking place, banks are also under operational pressure to deliver on increased regulatory compliance. For example, the Australian Government is rolling out its new Consumer Data Right (CDR) legislation to ensure that consumers have control of how organizations are using their personal data.
Finally, banks today face increasingly sophisticated fraud and cybersecurity attacks that have the potential to undermine the trust that their customers have placed in their business and is at the heart of the financial services industry as a whole.
But that’s just looking at the challenges and not the opportunities. In Asia Pacific, there is plenty of potential for banks to grow, especially if they are digitally relevant. In fact, I believe that the Asia Pacific region – with its huge, digitally-connected youth population – will shape the future of banking globally.
Why? Some 60% of the world’s millennials are living in this region today, with a disposable income of US$6 trillion (Accenture, 2016). It is estimated that 55% of millennials are making their purchases digitally (Asia Insight, 2018) and 53% of customers in Asia prioritize security over convenience (Asia Insight 2018).
To capture this opportunity, banks need to focus on three strategic imperatives to help them transform and meet these new industry realities:
1. Data & Artificial Intelligence (AI): The fuel for digital transformation is data. Banks need to build a data-culture based on a clear governance model that enables its workforce, across all ranks and files, to have real-time access to reliable data. It is only with a solid data culture that banks can harness AI to help make better decisions.
AI will increasingly move to the center of the banks’ digital transformation efforts. In fact, IDC estimate that by 2019, 40% of all digital transformation initiatives will be supported by Artificial Intelligence and cognitive capabilities.
As an example, Microsoft recently partnered with the National Australia Bank to harness AI and image recognition and create a breakthrough in customer experience with a proof-of-concept card-less ATM. This is an example of how AI can transform customer experiences or even create new business models for companies (see video below)
2. Trust: History has clearly demonstrated that people will not use technology that they do not trust. And one of the key elements of trust in the banking industry is cybersecurity.
At this year’s Singapore FinTech Festival, Microsoft launched a study, conducted with leading technology analyst Frost & Sullivan that shows that more than half of financial services firms surveyed have either experienced a security incident (27%) in the last year or are not sure if they have had a security incident as they have not checked (29%).
(Click here to read more about this study: “Understanding the Cybersecurity Threat Landscape in Asia Pacific: Securing the Modern Enterprise in a Digital World”)
At Microsoft, customer trust in our platform is our highest priority. That is why we invest more than $1 billion each year on cybersecurity so that our customers can enjoy a safe, secure and reliable digital experience. Microsoft has unique visibility into the evolving cyber security threat landscape due to our Intelligent Security Graph which provides insights informed by trillions of signals every month, including scanning 1.2bn devices and analyzing 400bn emails for security threats.
3. Partnerships: No bank can build its digital business without a trusted ecosystem of partners. And choosing the right technology partner is certainly of huge importance. Naturally, banks need to have trust in the security of the partner’s technology platform; but there is another kind of trust which relates to the partner’s business model and how they use the bank’s data. Increasingly, many banks are concluding that they do not want to have a technology partner that is a potential competitor to them in the future.
When I looked at the incredible innovations at the Singapore FinTech Festival, I am excited about the future of banking for consumers. One of our customers recently reminded me of what Bill Gates said in 1994 – more than 20 years ago – about digital disruption and the banking world: “Banking is necessary, banks are not.”
There are two things that I am certain about when it come to the future of banking. Firstly, banking will be drastically different for all consumers in the near future; and secondly, not all banks will survive this wild ride.
For forward-thinking banks, the time to act is now.