The digital journey of ASEAN financial institutions

Managing change and risk in the age of digital transformation

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For almost two decades, digital has driven incremental change in financial services throughout the ASEAN region. However, this process is reaching the limits of its ability to help FIs shorten time to market, lower cost and manage a growing compliance burden.

Based on interviews with senior executives from banking, insurance, wealth and asset management institutions across ASEAN, we’ve identified major roadblocks to, as well as challenges and risks of, digital transformation. We’ve also examined how financial institutions are responding.

Staying connected and relevant to customers is a top challenge for FIs, given the speed at which customer's needs, preferences, and attitudes are changing. As other industries have raised the bar in customer experience, consumers have come to expect a relevant, personalized, interactive and immediate relationship with their bank, via a channel of their choice.

“Any design should start with the customer and then work backwards to the product or service.”
Steve Monaghan, AIA

The industry has to aim for a much deeper understanding of its customers leveraging transactional, social and other external data, and move beyond the basic segmentation widely used today. FIs need to move beyond mere speculation about customer needs and towards truly understanding their requirements.

This will mean asking different questions and looking at different sets of data that shine a light on customer behaviors, attitudes and perspectives – and how they change over time. To unlock the value of such data and leverage insights in real time, FIs need to build new data management and data analytics capabilities.

Monetizing the digital business will challenge FIs as long as value propositions, sales channels and business models remain focused on the physical world. Monetization will require FIs to change existing products, distribution strategies, and marketing/sales capabilities to fit a digital environment.

To date, digital channels have largely retained a transactional nature and FIs have not redesigned their products to suit digital distribution. As a result, FIs are struggling to transform digital from a cost center to a revenue driver. In future, data will be the key to every customer engagement, making analytics critical to targeting customers with relevant products at the right place and at the right time.

At the same time, FIs need to focus on creating customer journeys that specifically translate to revenue growth and a better customer experience. Innovation for its own sake will not do.

Creating an operating environment that drives productivity, speed, and innovation is critical to deliver the instant nature of a digital experience while keeping operational cost in check. FIs still locked into aging legacy technology, complex process architectures and a culture of incremental change, will struggle to be relevant to customers and monetize digital.

One of the reasons for the slow pace of change in the financial services industry is that executives often view digital transformation too narrowly.

“Banks do not lack the vision, ideas or desire, what slows them down is the capability to execute.”
Amran Hassan, Maybank

Many digital initiatives introduce a digital capability at the front end, but do not touch back end processes and technology.

That said, technology alone cannot break this impasse. FIs need cultural change to become an agile, automated organization.

Managing compliance in an era of rapid change is crucial. Despite regulators becoming increasingly open to the industry’s need to digitalize, we see considerable potential for closer collaboration and policy alignment.

The relationship between regulation and digitalization is complex and sometimes ambiguous. Digitalization can improve regulatory control by increasing transparency and auditability, and reducing manual errors. On the other hand, regulators fear that digitalization may fail to protect customers and come at the expense of security, compliance and business continuity.

That said, the biggest barrier to digital transformation is unlikely to be the regulator, but the way compliance and risk is managed internally.

“Inaction is the biggest risk for financial services institutions. The problem is that most companies focus on cost and corporate productivity. Our approach instead focuses on the value of the design, the customer experience and customer productivity. 
Steve Monaghan, AIA

Dealing with the new dimension of digital risk is more important than ever given emerging threats, such as disintermediation, and intensifying existing threats, such as cybercrime, data loss, technology outages and third-party risks. The policies, frameworks and technologies that have guarded the industry so far may not be sufficient to address these new and intensifying digital risks.

What FIs must do to succeed in the age of digital transformation

When developing or refining their digital strategy, FIs should consider:

  • Who it’s for and what is needed
  • How digital can be monetized
  • How to deliver a digital experience in the most efficient and productive way
  • How to manage risk and ensure compliance in the process

To learn how we can help, download and read the full version of our report.