Digital banks may take several years to build trust

Customers would ‘think twice about putting in big deposits, salaries or borrowing money from new players’

by ASILA JALIL & ANIS HAZIM / pic by BLOOMBERG

NON-BANK-BACKED digital banking players will take years to catch-up with incumbent banks to build trust before customers confidently deposit a big amount of money into the virtual platforms despite Covid-19 leading many to become accustomed to the convenience of digital services.

“It will take a lot longer for customers to put their salaries or savings in digital banks because it is not just about convenience. Trust is also required.

“Customers might feel more comfortable with the traditional way because there is a very strong trust between the customers and incumbent banks, which took a very long time for them to build and strengthen,” OneConnect Financial Technology business development head (Singapore and Malaysia) Yao Jing told The Malaysian Reserve (TMR) in an interview recently.

He said customers would definitely “think twice about putting in big deposits, salaries or borrowing money from new players”.

Bank Negara Malaysia was reported to have received some 29 applications for a digital banking licence during a six-month application period that ended June 30, 2021.

A diverse range of joint-venture bidders have applied for the licences on offer, ranging from banks, conglomerates, technology firms, e-commerce operators, financial technology players, cooperatives and state governments.

The central bank might issue up to five licences and notify successful applications in the first quarter of 2022.

Yao said there would be greater loan availability, as digital banks vigorously offer more lending facilities such as personal or cash loans to attract customers and cement their position in the banking system.

“They will not promote mortgages or hire purchase loans, but instead will focus more on personal loans for customers.

“Customers who could not make loans with incumbent banks previously may be able to borrow from digital banks because they have a new way to assess risks or new ways of offering products to customers which will be at a competitive rate,” Yao said.

OneConnect Financial Technology (Malaysia) business development GM George Lee said incumbent banks have brand recognition and customers generally view them as a safe place to place the bulk of their savings.

However, he said digital banks could entice customers for daily transactions.

“One expectant client behaviour could be crediting their salary into incumbent banks, but every month they would transfer a certain amount into the digital bank account because the latter offers a better promotion and convenience in payment methods.

“So, you could see digital banks having more transaction types of deposits,” Lee told TMR.

Despite the incumbent banks’ competitive advantage in customer trust, Lee said digital banks would push traditional lenders, to further tap into their other strengths, to compete with the new digital players.

He said incumbent banks would leverage their omnichannel competitive advantage to make their services widely available on other platforms, beyond physical branches, to enhance their presence.

“This is something digital banks cannot replicate overnight. The omnichannel journey starts with the salesperson telling a client about a product the bank offers, and the conversation would move on to the mobile application and then the bank’s main website.

“It is an evolution where you see incumbent banks really use digitalisation in their main business instead of opening a side system and treating digitalisation like an experiment,” he said.

He said more of this omnichannel experience will be created in the markets, and banks weave in digitalisation in their main business.

OneConnect is a technology-as-a-service platform provider under Ping An Insurance (Group) Co of China Ltd.

Its wholly owned subsidiary, Ping An OneConnect Co Ltd, has received a virtual banking licence to operate in Hong Kong by the Hong Kong Monetary Authority in 2019.

Lee said each non-bank player would have different starting points to begin their digital banking services.

He said those with a long legacy of serving customers might look for partners who can contribute the technological expertise for the financial business.

“Technology savvy players will be more selective. They might need partners with a long list of clients to kick start their journey,” he added.

A VMware Digital Frontier 3.0 study found 55% of Malaysians prefer to engage with their banks via apps rather than visiting a branch in person.

The study also revealed 66% of Malaysians are happy to interact digitally with financial services firms and 56% were excited for the digital services provided by the financial services firms.

“This is a clear call-out for financial services firms to harness frontier technologies to deliver superior digital offerings and consumer experiences as more than half (59%) of consumers surveyed will switch to another brand if their digital experiences do not live up to expectations,” VMware stated.

VMware stated that it is vital for financial firms to rethink their core processes and operations that will empower superior digital experiences for their consumers with a high level of security and protection of data (60%), ease of use across all devices (48%) and faster speed of service (43%).

VMware Malaysia country manager Devan Parinpanayagam said Covid-19 has permanently transformed the consumer landscape in Malaysia.

“To drive a successful transformation, financial services organisations must create a trusted digital foundation to leverage cutting-edge frontier technologies such as Cloud to accelerate innovations and deliver digital experiences that will excite Malaysians,” Devan said in a virtual media briefing yesterday.

Devan said this will be an opportune time for financial services firms to harness next-generation technologies and shape new direction and growth for the industry as Malaysia prepares the ground for digital banks.

The study found consumers were gaining a better fundamental understanding of the value of digital products and services over the past year and also embracing newer technologies more than ever before.

“Around 60% stated that digital engagements with financial services organisations have freed up their time to focus on other priorities, while 57% expressing their trust in artificial intelligence, and 35% would allow an app to help make investment decisions over an individual that works for the bank,” Devan said.

VMware also found that 63% of respondents said their mobile phones are now more important than their wallets when conducting financial transactions.

Malaysians also continue to show their readiness in embracing next-generation technologies with 64% expressing trust in 5G, while 61% in facial recognition.

“More than one-third (40%) believe 5G can make banks more efficient, for example, enabling them to process applications credit checks faster,” Devan said.

Eighty percent of consumers said security is the No 1 priority when choosing a financial services provider, while more than half (59%) trust financial services to secure their personal data and information.

“There is plenty of room for improvement for financial services organisations to not only deliver superior digital consumer experiences but also secure digital experiences that will not compromise consumers’ privacy,” Devan added.

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