Article:

Is digital banking slowing down?

26 February 2020


 

The rush for digital banking, artificial intelligence, cloud based platform, big data, robotic process automation, application programming interface, blockchain, digital currency,  internet of things, digital lab and sandbox seen to be at the peak in 2017/18 when there was an unprecedented huge amount of investment pouring in by various governments and financial institutions all over the world.  However, with the trade disputes started two years ago, have the digital banking been slowing down?

For the digital banking and economy to grow, some prerequisite conditions must be established. These include good telecommunication & logistic infrastructure, high penetration of internet & smart devices, good pool of science & technology labor and strong influence from the government.

Blockchain and digital currency were once the hot topics in many financial institutions. However, as blockchain needs the buy in from all parties in the transaction to reach its full potential, the adoption rate has somewhat been slower than expected. Take an example of the trades finance blockchain, the initiate is to have better tracking of the underlying goods and eliminate the rechecking of various trades documents by different parties in the supply chain. The concept works well until someone in the supply chain (more often from the negotiation bank) decided not to join the blockchain group. As a result, some parts of the transactions need to go back to the traditional process.

As to the digital currency, most regulators are not yet ready to give up their control over their currencies, not to mention that there are huge concerns over tax evasion and money laundering. 

Robotic advisory was taking off well but has not been a big success. The returns of investment have been varied and most wealth is still held by the baby boomers, who in certain extent prefer to invest traditionally.

On the other hand, there are some successes in the artificial intelligence trading, especially in the stocks, commodities and fixed income areas, which the development of algorithm coupled with artificial intelligence and big data is settling in. Cloud based solutions are also proven popular for many banks which are trying to offload some of the capex and to stay agile.  Banks however must understand what are the core areas that they need to retain to stay in control. Despite of the market trend to adopt asset light, shift to the vendor applications and cloud based storage, banks must take ownership of their data and the security.  

Many banks are also trying to enhance their digital banking experiences by making the transactions fun, easier and personalised by investing heavily in the technology.  These enhanced experiences are not necessary money making but with the purpose to enlarge the market share. As a result, there are many digital banking initiatives offered by different banks, creating unnecessary confusion and inconvenient to the customer who have multiple bank accounts. With the market which is unwilling to pool the resources to achieve economy of scale and standardisation, the development of digital banking has substantially been slowed down.

To be successful in digital banking, one must link the banking activities to the daily life.  Just like in China where transfer of money, on-line shopping, ordering groceries, buying air tickets, paying the meals, splitting the bills and sending red packet money can all be done through the super applications like WeChat pay & AliPay.  While said, most people in China are still keeping bulk of their money in the banks and only maintaining enough cash in the electronic wallets due to the perceived stricter regulations and security imposed on the Banks.

 

What is the main reason for China's success in the digital economy?

While China has the advantage to adopt the latest technology instead of developing it from the scratch in the last decade, the main reason for its success in the digital economy is due to the strong influence and direction from the government.  The personal data is a lesser concern when it come to the advancement of technology.  Looking around in the Asian region, Singapore could have a similar advantage due to the strong dominant political party, but unlike in the past where the government tend to decide everything, the current party seen to be taking a softer approach.  As a result, some of the initiatives like e-payment has been taken a longer time to standardise and centralisation of know-your-customer shared services was dropped due to the feedback from the banks.

With the promotion of digital economy, banks are facing fierce competition from other sectors like telcos, ecommerce players, tech giants and Fintech companies, especially in the electronic wallet and cross boarder remittance area.  Some of these players have the advantages of large customer base and lesser regulations than the traditional banks. 

The adoption of digital banking and economy should match the life cycle and development of the country. For a country with relatively small population and limited resources, it is difficult to reach the economy of scale like a bigger nation. Smaller countries can choose to be the innovators in some areas while be the adopters in others. 

The is no right or wrong decision but just how one country would like to balance the development of digital economy versus the security, data protection, regulations and employment rate. More importantly, education system requires a drastic change if we truly want to move into a full digital economy. The era for one to memorise all textbooks will no longer necessary due to the abundant of on-line information. The new education system needs to focus on the science, technology, engineering & mathematic (STEM), basic & specialised digital skills, adaptability, lifelong learning, collaboration and how to find the right resources from various channels instead.