Fortifying the core of banking and capital markets for the next wave of disruption
As we ring in the new decade, we are accompanied by a new wave of disruption more forceful and more pervasive than we have ever experienced. Malaysia has 26 commercial banks, 16 Islamic banks, one international Islamic bank and 11 investment banks. All these banks have one thing in common. They all need to evolve with the times and adapt to the changes in the future.
The combined effects of technological disruption, sweeping changes to the nature of work, demographic shifts, climate change, and possible Japanification could have serious implications for the banking industry. To maintain long-term sustainability, banks will have to sacrifice their short-term gains and reprioritise their role in society. These forces will cause banks to become more open, transparent, real-time, intelligent, tailored, secure, seamless, and deeply integrated into consumers’ lives and institutional clients’ operations.
According to the recent Deloitte 2020 banking and capital markets outlook, the majority of banks are far from where they would like to be in their digital transformation, despite an increase in new technology investment. Banks may need to shift attention and adopt a back-to-basics approach in 2020 before they can fully reap the rewards from advanced technologies.
As a first step, institutions should tackle their technical debt, which is typically caused by past underspending and layering newer technologies on top of aging infrastructure. Legacy systems are among the biggest barriers to bank growth.
One of the strategies gaining popularity is establishing a new, parallel, cloud-native core banking platform. This is because it is seen as less risky, reduces time-to-market, brings results, and allows core banking functions to be migrated over time. Digital transformation is not limited to technology and data.
As technology gets cheaper and is readily adopted by the industry, the initial advantages may decrease over time. This is why it is also essential for banks to learn how to use technology to develop new customer insights and deliver contextual offerings. Another equally important aspect to consider will be culture.
More often than not, the success or failure of a digital transformation effort may depend on cultural issues rather than technical ones. To make transformation happen, leaders may need to focus on developing a new mindset for how best to use technology, people, and processes. Financial institutions that build a collaborative and innovative culture to drive change can achieve real returns on their technology investments in the next decade.
Growth in corporate banking globally has been a mixed bag in 2019. Global deposit growth over the last year has been relatively flat, with a 1.3 percent decline as of mid-year 2019. Corporate banks are expected to provide high-quality, tailored, seamless services to their customers amid the prevalence of digitally enabled services.
Faced with more competition from this shift, many corporate banks are putting an emphasis on digital transformation. Change is on the horizon, and the future landscape for corporate banks will likely be marked by evolving client expectations, business model and workforce shifts, and disruptive technologies.
Focusing on Malaysia, two out of the seven topics identified by Deloitte’s 2020 banking and capital markets industry outlook appear to be the most relevant and prominent – fintech and privacy.
Fintechs: Banks’ new best friends!
“Comparing fintech trends across regions, it is clear that Asian fintechs have become the new venture capital darlings, garnering a bigger piece of the funding pie each year,” says Anthony Tai, Financial Services Leader of Deloitte Malaysia. In support of the advancement of fintech in Malaysia, the Ministry of Finance has implemented the e-Tunai Rakyat initiative, which entitles eligible Malaysians to obtain RM30 each in their e-wallets. This initiative aims to lower barriers to access digital technology and to make the digitalisation process inclusive for all.
Among e-wallet applications, Touch ‘n Go eWallet, Boost and Grab were selected for the e-Tunai Rakyat initiative. According to the New Strait Times, in 2019, fintech has noticeably been taking stronger roots in the conventional banking scene with CIMB, Affin Bank Bhd, Hong Leong Bank and AMMB Holdings Bhd. The banking and capital market industry is working towards a technologically advanced future, and is taking the steps to do so.
Privacy in the digital age: The new frontier for banks
With the increasing amount of personal information that is released into the world, consumer privacy has become a topic of concern due to its complexity and contention. Consumers are now more cautious and observant about how personal data is collected. Such concerns are impacting the banking industries, where the storage of consumer data is an area of focus.
“The industry will likely need a more robust, forward-looking framework to successfully navigate the evolving privacy landscape. Banks should rethink privacy as a value exchange that mutually benefits consumers and companies without compromising trust, their reputation, or regulatory compliance,” comments Anthony.