One of the biggest opportunities to come out of the Covid-19 crisis is the rapid uptake of digital banking. Stay-home orders have compelled many customers to start using online financial services. And this shift is unlikely to reverse, especially with digital banks coming on the market as early as next year.
The big leap has come for digital banking. Banks are now focusing on digitalisation, recognising that this is the only way forward.
“The global Covid-19 pandemic is changing our behaviours … we may be ushering in a new virtual century where anything that can be done virtually will be done in this space. Digital interactions will continue to increase amid physical restrictions. Now, there is a focus (among banks) on revamping advanced technologies and tools for online customer service such as chatbots and data analytics.
“We see financial services institutions increasing the adoption of collaboration platforms, for example, video conferencing and live digital interaction with customers,” says Audrey Yap, managing director for financial services at Accenture Malaysia.
Before the pandemic, digital financial services were seen as the solution to financial inclusion. While this agenda is still a priority in the new normal, banks are accelerating their digital transformation journey to better serve existing customers by augmenting their digital products and services and improving the customer experience online or on mobile platforms.
“The current environment has demonstrated the need for an accelerated digital transformation, not only for financial services, but for many industries as well. Digital banking has been revolutionary in transforming the financial landscape globally, empowering customers and corporations with access to transact seamlessly and in real time.
“Innovation and investment in technology have and will continue to create new platforms and digital services, which can be further customised and targeted at the various economic levels in society,” says Elaine Fan, consumer business manager at Citi Malaysia.
Citi, she adds, has a huge focus on accelerating its digital transformation in order to provide a delightful client experience with the best-in-class mobile banking.
Citi Malaysia saw a growth of 11% in mobile adoption and an increase of 10% in transactions on Citibank Online and Citi Mobile App from April to July this year. Active mobile users increased by 52% from April 2019 to March 2020 and more than 70% of the bank’s products are currently available online.
Maybank, the largest bank in the country, also saw a significant increase in the number of digital transactions that took place during the Movement Control Order (MCO). Datuk John Chong, group CEO of community financial services at Maybank, notes that the volume of zakat payments in the month before Hari Raya surged 227% y-o-y.
Usage of Maybank’s QRPay in May and June grew significantly with a y-o-y transaction volume growth of more than 650%.
“We have been preparing our digital banking services in the last few years to ensure that our customers have an equally or even better experience via our digital platform. One of the key learnings from the MCO is that digital banking will continue to grow stronger. We must always have the user behaviour in mind when we are creating new digital services and/or products. This was especially obvious during the stay-home order when customers were happy with our digital offerings,” says Chong.
In June, 57% of all Maybank’s SME deposit accounts were opened online while financial process exchange (FPX) services grew by 100% y-o-y. Meanwhile, active mobile users grew by 34% and total Maybank2u (M2U) monetary transactions grew by 100% y-o-y.
“Digital banking became extremely important especially during the MCO when we had to safeguard our employees while ensuring our essential banking services were available. Customers did not want to leave their homes to bank, therefore our M2U services proved to be extremely useful. Increased use of our FPX services also shows that customers were going online for their shopping,” says Chong.
Rapid adoption of digital offerings by customers and SMEs indicates that preference for digital banking will continue in a post-Covid-19 world. Domenic Fuda, group managing director and CEO of Hong Leong Bank, adds that the MCO is the catalyst that spurred customers to adopt a digital-first or mobile-first mindset for their banking needs.
Hong Leong Bank closed almost half of their branch operations and restricted opening hours in branches that stayed open during this period but found that this did not disrupt customer service as many customers opted to use online services.
As at the end of May, almost 80% of Hong Leong Bank’s customers were regularly using HLB Connect, the bank’s mobile banking app. Moreover, customers aged above 50 recorded the biggest y-o-y increase of 42%. Total transaction value for mobile banking transactions surged by 80% while the number of transactions grew by 75% y-o-y.
The bank saw an 11% increase in total transaction volume during the MCO and Conditional MCO.
“The MCO showed individuals and businesses how digital platforms, including digital banking and payments, could help them live and run their business without interruptions. Greater digital adoption and digital transformation of the economy make it even more important for Malaysians to be more agile, adaptive and digitally minded,” says Fuda.
“A big jump in cashless adoption during this period showed how quickly our customers were adjusting to the new normal. This was also driven by an increasing number of vendors and merchants adopting cashless payment options. For instance, we saw a 13-fold increase in the total amount of e-wallet top-ups from March to May, compared to the same period last year. As we settle into the new normal, everything we touch and do will involve a digital element. The need to be digitally-savvy and competent is no longer a choice. Now, it is a necessity,” he adds.
Digital but also human
Even as demand for digital banking soars, banks still emphasise the importance of face-to-face interaction and personalised services for certain customer segments. Before the pandemic, the 2019 Accenture Global Financial Services Consumer Study found that 76% of Malaysian consumers preferred such on-site interaction although 65% were open to transaction on a blend of physical and digital platforms for a seamless experience.
This blend is the balance between digital and personal services that traditional financial service providers are looking to strike in an increasingly digitalised banking industry.
“The banking industry has always been an early adopter when it comes to digitalisation. Digital engagement with our customers, employees and stakeholders is now business as usual for us.
“At the heart of our digital innovation is the relentless pursuit to offer products, services, solutions and engagements that are built around the customers’ requirements and delivered in a simple, seamless, straight-through and sustainable manner, combined with the human touch and empathy to understand their needs and desires,” says Fuda.
Citi’s Fan notes a preference among the high-net-worth individuals to directly engage with their relationship managers, especially for complex financial matters.
“Citi provides cutting-edge solutions and ease of banking through digital engagement with a human touch. We believe that this is the way to connect with clients moving forward. The human element in banking is the key to building and sustaining relationships. As such, one of the biggest challenges is to craft a digital experience that conveys the right tone and experience that is very close to real human interaction,” she says.
“One of the core strengths of financial services institutions is their footprint and their people. Citi has one of the largest regional and global networks with highly skilled relationship managers and service staff.
This will continue to be an important foundation in our digital transformation journey … we believe we are continuously mastering the art of balancing human engagement while co-existing in this digital ecosystem,” she adds.
“One of the biggest success factors of digital transformation is to make the digital sales journey more human, more proactive and having relevant conversations with our clients within the app or outside. We ensure that banking experiences are digitally led but backed by people,” says Fan.
Technology such as artificial intelligence (AI) is expected to help banks strengthen relationships with customers. It eliminates the scope for human bias, intervention and errors while providing actionable insights, tailors recommendations and encourages good financial habits.
“The banking industry will mostly be driven by new technologies over the next five years and beyond. We believe AI will be the biggest game changer as banks seek to improve the client experience through personalisation,” says Abrar A Anwar, managing director and CEO of Standard Chartered Malaysia.
The entry of digital banks
The banking industry in Malaysia is attracting much interest with the digital banking licences to be awarded by Bank Negara Malaysia. The central bank had extended its deadline for the industry to provide feedback on the proposed digital banking licensing framework to the end of June because of the disruptions caused by the pandemic.
The application process for a digital banking licence is anticipated to start as early as next year once the central bank finalises its guidelines. According to news reports, non-bank companies including technology firms have expressed interest in pursuing a licence. These include Grab, Axiata Group, Sunway Bhd, Green Packet Bhd, Razer Inc and Hong-Kong based investment banking firm AMTD Group.
“The banking landscape is becoming more competitive than ever with the entry of big technology players, digital start-ups and traditional rivals upping their tech game with new tools and services,” says Accenture’s Yap.
“(The entry of non-bank companies holding digital banking licences) will be an interesting play and helps ensure that our customers gain the most out of this competitive landscape. It will drive more innovation and ingenious methods of solving user issues. This will result in more options for our consumers. At the end of the day, digital banking providers who provide the best user experience and can solve customers’ problems will continue to be relevant,” says Maybank’s Chong.
Yap adds that the winners of a crowded banking industry will be the digital leaders that are less reliant on physical distribution and a physical workforce and have already established the mentality and approach to serving customers remotely.
Traditional bricks-and-mortar banks are poised to meet heightened competition by leveraging on their existing competitive advantage. Standard Chartered’s Abrar notes that incumbent banks already have the capital, a culture of compliance and their customers’ trust. “With the right strategy, banks have a unique opportunity to succeed. Technology is key to success as it helps banks drive efficiencies, weather the storm and redefine their values to customers in a shifting market.”
He adds: “As trust in fintechs grows, the convenience offered by traditional banks is improving. At Standard Chartered, we work much like a fintech to offer the same convenience and speed. We group our teams into ‘journeys’ to solve problems faced by our customers. Each journey consists of people in charge of market research, UX and UI design, compliance, risk management and developers. This way, the bank performs much like 50 fintech companies, each working on different aspects for our clients,” adds Abrar.
Banks have long recognised the advantages and know-how offered by fintechs. Most have established partnerships to develop new solutions. “Both can co-exist. Fintechs will cover niches banks cannot or choose not to cover. Banks can use their large networks, capital and solid risk and controls foundation to provide the right level of service across the board while providing more sophisticated product needs. There are mutual learning opportunities around product features, journeys and elements in an experience,” says Citi’s Fan.
Standard Chartered has been working with fintechs on solutions that are not currently offered by the bank. “Typically, we use a solution by a fintech in an internal sandbox environment for about half a year. Within two to three weeks, we test their technology in a safe environment. If it turns out to be viable, we will integrate them (into the bank). The fintech must meet all the requirements that we comply to. Once we have tested a fintech solution, we may opt to use its services or even take an investment stake in the company. To date, we have invested in a blockchain start-up, Ripple; an information management company, Paxata; and a cash distribution start-up, soCash,” says Abrar.
SMEs get a helping hand to digitalise
Many banks have launched digital innovations for small and medium enterprises (SMEs), the backbone of the country’s economy.
Cisco’s 2020 Asia Pacific Small and Medium Business Digital Maturity Study has forecast that the digitalisation of SMEs will add US$19 billion to US$24 billion to Malaysia’s gross domestic product (GDP) by 2024. The challenge is in getting these businesses to make that digital leap.
Pain points felt by SMEs in their digital transformation journey include a familiarity with cash usage that is hard to change, the cost of implementing systems, a lack of expertise as well as security concerns. To address these issues, banks have developed digital tools and solutions for SMEs, a process that accelerated during the Movement Control Order. Maybank, for example, was the first in the market with digital solutions for SMEs.
“We introduced the Maybank QRPay app, where merchants can enter their details; our instant transfer network capability with other banks enables us to validate and onboard the merchant within minutes. We removed the friction that most merchants have with regards to receiving funds. Prior to Maybank’s QRPay, merchants in the country only received their funds in a day or two, maybe even a week later. With QRPay, merchants get their funds immediately. This is important especially for smaller merchants that need to manage their cash flow carefully,” says Datuk John Chong, group CEO of community financial services at Maybank.
Maybank launched a digital platform, Sama Sama Lokal, to enable small businesses and micro-SMEs to digitalise their operations without incurring a sign-up fee or transaction costs. “This service is currently available on the web and on an app. It creates a new vertical within Maybank’s digital platforms while addressing the needs of the underserved SMEs in the country. We continue to look at ways to help this segment and there are more offerings being developed to solve challenges faced by SMEs in the coming months,” he says.
Hong Leong Bank Bhd also has a range of digital solutions and tools for SMEs. “SMEs want to quickly adopt digital solutions and tools. We are in a good position to offer our support and partnership as we have set a clear value proposition and digital strategy in our SME Digital Business Solutions platform. This consists of a broad range of cost-effective solutions to help them run, control and grow their businesses, including connecting the SMEs with an ecosystem of suppliers, distributors as well as other SMEs.
“One of the key initiatives carried out by the bank in response to the coronavirus outbreak was to simplify and digitalise the application process for Bank Negara Malaysia’s Special Relief Facility for SMEs,” says Domenic Fuda, group managing director and CEO of Hong Leong Bank.
“We allowed for the applications with digital signatures to be submitted via email, SMS or WhatsApp. This move secured a total of RM1.36 billion for over 2,200 SMEs. The bank provided an additional RM500 million from our own funds to supplement this relief facility for SMEs to stablise their finances and reboot their businesses,” he adds.