The Taiwan Banker

As technology continues to evolve, digital transformation also requires continual evolution and embedding of a bank’s digital implementation strategy. Unlike a project or business transformation, a digital transformation may include a bank’s digitalization agenda and requires a long-term focus on embedding technologies across its business to drive efficiencies and value for customers, employees and shareholders. Digitalization, which is the use of digital technologies to provide new revenue streams and business models, is having both a continual and transformative impact on the way banks can attract and retain customers. Increasingly, banks are using integration with their card provider offerings to drive enhanced customer experiences. In more developed markets, well-defined card strategies increasingly tie in with banks’ digital transformation agendas, resulting in improved customer experiences. At the same time, for a number of reasons (including existing infrastructure that is costly to transform and organizational culture that is mismatched to customer needs), the cost pressures that can be brought to bear from newer and fintech banks can have a real impact on traditional banks’ ability to retain customers. Newer banking sector-entrants, such as fintech banks, remain nimble and are generally better able to adapt to the needs of their customers, whereas traditional banks often have greater difficulty keeping up. This is particularly relevant to younger and millennial customers that, as a group, are particularly sensitive to a bank’s digital offerings. Card businesses of fintech banks have been increasingly taking customer market-share from traditional banks by improving their use of customer data, i.e. data derived from card offerings (such as spending activities), in order to fine-tune their products and to cross-sell other products such as secured lending, deposit products and insurance. Research has also clearly shown that those banks that are slow to embrace digitalization and adapt their businesses to align with customer data are likely to continue to lose customers and have longer-term declines in profitability. Building and retaining an enhanced card strategy with clear digitalization objectives is, therefore, often an essential part of a bank’s digital transformation. Some clear trends in the ASEAN region include: 1. Digital Identification. The days of the 16-digit Payment Account Number (“PAN”) are numbered. Instead, merchants will use personal biometrics to determine who you are. A customer’s eyes, face, fingerprints, behaviours, and habits will serve as their credentials and digital identity. Biometrics is already being used to pay vendors – for example, the fast-food chain KFC uses “smile to pay” where facial biometrics can be used to take payment from customers in China and South Korea. In some countries, government issued-IDs will also be linked to an individual’s biometrics, creating a seamless experience. A number of economies are already moving towards the development of public key infrastructure (“PKI”) to enable use of a digital electronic ID (“eID”). Singapore’s SingPass is one example. Some other countries developing PKI infrastructure to enable use of eID include Indonesia, Singapore, Malaysia, Thailand and Vietnam. 2. Empowerment of Individual, Nano-Merchant and MSME Customers. Currently, the customer onboarding process for merchants can be lengthy and cumbersome. In future, the customer onboarding and merchant services will be transformed. Any individual with a bank account will be able to start accepting payments, as the use of digital identification along with biometrics will negate the need for both physical infrastructure and long onboarding processes, enabling micro-merchants and individuals to sell at scale. Know-your-customer (“KYC”) processes will happen automatically and empower an individual to become a seller if they wish to. In the last few years, we’ve also seen the ease at which marketplaces, MSMEs and nano-merchants can accept digital payments. Social commerce in China is a notable example of digital wallets being used for payments through WeChat. In terms of buyers, Thailand has among the highest number of social commerce buyers in the world. 3. Merchant Infrastructure Phased Down. Digital interfaces will sit behind consumer payments and transform merchant services affecting customers and vendors. In future, we will see physical merchant terminals phased down or out completely. This will reduce bank and merchant costs – i.e. no need for more physical technology upgrades, for example. The customer experience will also be enhanced, as there won’t be hardware failures and payments will be able to made seamlessly through biometrics and with a greater variety of payment options. And, unlike physical infrastructure, digital interfaces can be instantly upgraded. 4. Artificial Intelligence. Artificial intelligence (“AI”) is affecting all industries to some extent and whilst there are preliminary issues with this relatively new technology we are seeing use-cases of this technology globally as it is applied to enhance business growth strategies and customer offerings. Organizations are also increasingly embedding AI into their digital transformation journeys. For banks particularly, AI can provide immense support with customer acquisition, KYC, customer engagement, data analysis and fraud detection, among other uses. Caution is still needed, and the way AI is used may entail ethical implications, but we may eventually see full automation of some advisory services. 5. Embedded Finance. Embedded finance has been defined as the integration of banking and financial services into non-financial services such as online shopping platforms – for example, Shopee, a common shopping platform in Taiwan and a number of other countries regionally. Another example of embedded finance is Uber (and Grab, a similar service operating in Southeast Asia), whereby customers can use rideshare and food delivery services without having to engage with their financial institution. We will increasingly see banking and financial services embedded into customer experiences. Embedded finance will also continue on a rapid growth trajectory, both regionally and globally. The above trends should be noted with some caution as technologies, ethical considerations, the regulatory environment, and customer needs continue to evolve. On that note, banks that build an effective card business strategy into their digital transformation agenda are more likely than not to experience better alignment with customers over time, and increased customer retention, loyalty and cross-selling opportunities. Fergus Clark is an international banker with over 20 years of specialist and senior-level expertise across Australia, Asia and Europe. He is an independent non-executive director of Southeast Asia Commercial Joint Stock Bank (SeABank) Vietnam and has led the risk transformation of a commercial bank in Asia including reviewing card business strategies.