• Machine learning and advanced analytics enable unique insights
• AI advances personalized service, expansion to voice
• Driving digital engagement through new models

Financial service is witnessing a paradigm shift as disruptive technologies bring radical transformation at an incredible speed. Transformative artificial intelligence (AI), machine learning and blockchain technologies, fintech competition and emerging ecosystems force banks to rethink and reimagine their service propositions.

For our annual Financial Technology Innovation Awards, we received over 100 submissions across different countries for projects completed in 2018.

We see the top six trends in the financial services technology adoption.

1. Machine learning and advanced analytics enable unique insights

Fintechs have proven themselves to be nimble and agile in effective use of big data, challenging banks. Machine learning-based models, deep learning through unstructured information are facilitating banks to strengthen their real time business intelligence, predictive insights and precision marketing which improves through smart self-learning capability. The application potential is plenty including customer acquisition, credit analysis, differentiated services and fraud analysis and prevention among others.

For instance, China CITIC’s “Brain” platform intelligently empowers business lines with machine learning based models for anti-money laundering (AML), loan lending, mobile banking transaction fraud control and electronic account impersonation account opening warning and more. OCBC Bank’s machine learning based AML platform proved to be 4.5 times more accurate than a traditional model.

AI and machine learning is increasingly used to identify fraudulent behavior, detection and prevention of cybersecurity threat.

Institutions are increasingly exploring machine learning and big data to improve financial inclusion and credit analysis. Myanmar’s Yoma Bank, for example, implemented a machine learning-based micro-lending model, achieving a significant uptake of customers. A Thailand-based bank developed an automated property valuation and mortgage reappraisal platform using machine learning. Several other applications can be seen in the industry.

The technology is still early stage but progressing rapidly and the potential is evidently immense. However, the differentiatiing success factor will be the agility in adoption.

2. AI advances personalized service, expansion to voice

AI has found applications in multiple forms in financial institutions.

Customer service: Playing a significant role in customer service, AI with its natural language processing (NLP) enables personalized service through human-computer interaction. The text-based bot interactions, have now graduated to voice-based services. Institutions are identifying users’ needs and emotions through deep machine learning, improving insights and therefore their service.

A leading bank in China implemented a smart customer service project that integrated AI with voice recognition, machine learning,precision marketing and smart voice bots. Through voice bots it could increase the outbound calls by 60% achieving notably higher returns.

Experience in inbound calls is being improved through voice-bots. Emirates NBD launched its first voice-based AI chat interface in UAE while Kotak Mahindra Bank launched ‘Keya’, India’s first bilingual voice bot that replaced its interactive voice response, reducing the wait time for customers.

Robotics based automation: Robotics based advisory is gaining traction wherein algorithms facilitate investment management and lending models to remove human bias and work on rules-based decision making.

The other leading application of AI is in robotics process automation that brings intelligent automation reducing operational inefficiencies.

3. Driving digital engagement through new models

Digitisation of customer transactions remains a key priority with institutions. The leading ones such as PingAn Bank has almost 95% and HDFC more than 90% transactions through digital channels.

Banks continue to launch innovative mobile apps, for instance, instant payments and credit approvals, peer-to-peer payments, mortgage assessments using geographic information, lifestyle features, personal finance management and many more.

For holistic digital transformation, leading banks are implementing microservices architecture and agile processes for faster digital integration. This also requires a cultural change to ingrain innovation and technology within operational processes, which is often seen as a challenge.

New digital-only propositions have emerged that aim to service customers with speed and operate on a more nimble and agile infrastructure. Completely digital models are seeing success such as DBS Digibank in India and Indonesia, Kakao bank in South Korea, WeBank in Hong Kong, Paytm Bank in India, TMRW by UOB, Jenius by BTPN, and the list continues. Hong Kong, for instance, announced eight new virtual banks.

“There is no one digital banking model. Across digital banks in the world, if we look at underlying technology and their models how they are being used, it is different. I think we will see a lot of different business models come out. There will be more niche use cases around products and the reasons why people want to use them,” said Tyler Aveni, head of international partnerships, products and innovation, WeBank.

4. Shared ecosystems get increasingly embedded

Open banking platform and application programming interface (API) networks are facilitating them to integrate new service offerings in their portfolio that differentiate their experience for customers. DBS for example has 350 APIs to connect with various partners while Connect2OCBC offers 200 APIs. Emirates NBD launched an API-based sandbox, one of the firsts in the Middle East that has over 200 APIs in production.

Banks are developing ecosystems that can facilitate greater industry collaboration as well as access to new customer segments and data. For instance, a bank in Malaysia developed a digital mortgage origination app ecosystem for lead referrals while another bank in Thailand developed a university innovation platform through mobile app across educational institutions. Fintechs are expanding ecosystems through APIs that is expanding their customer reach rapidly. For example, OVO has partnered with Tokopedia and Grab to expand its digital wallet acceptance to become the number one wallet in Indonesia.

5. Blockchain: Growing  use cases

Institutions continue to explore new proof of concepts as they realise the effectiveness of this technology in traditionally inefficient areas such as trade finance and international payments.

“The good news is that the hype is over. People are not just focusing on ‘investment in blockchain’ but instead now, the technology is being really adopted as enabler to solve a problem,” pointed Evans Munyuki, Group Chief Digital Officer, Emirates NBD.

Among the leading examples is the HKMA eTradeConnect platform launched in October 2018, to bring efficiency in trade finance in Hong Kong. It has currently 14 entities on the network. Among other examples, CITIC innovation lab launched a blockchain forfeiting trading system and a pilot project utilising blockchain for supply chain finance.

Blockchain found increasing application in payments as well. Ripple expanded its cross border payment network with several institutions. Bank of Canada and Monetary Authority of Singapore tested cross-border and cross-currency payments. Smart Dubai with Emirates NBD implemented a reconciliation and settlement platform. Myanmar’s Shwe Rural & Urban Development Bank is partnering with Thailand’s Krungthai Bank to offer faster and cheaper cross-country international remittance and payment services for Myanmar migrant workers.

“We are currently in the early stage of this technology, still more use cases are developing,” said Tim Scheffmann, project director, International Banking, Myanmar Shwe Bank. He added, “We want to create value. We are discussing with several regulators how we can utilise blockchain and how can we control it.”

Blockchain applications are rapidly evolving, however there are still hurdles as interoperability standards and regulations are evolving while the readiness of banks varies. For instance, it is being used in fraud reduction in niche areas. Emirates NBD launched ‘Cheque chain’ towards reducing fraudulent cheque transactions and strengthening authenticity resulting in 70% drop in frauds.

“Biggest keyword is ‘use case’. Figure out if there is really a need to use blockchain. Only if institutions find that blokchain can really solve a key pain point then they should invest in resources, discuss with regulators, educate them and keep them in the loop. For execution, institutions should try to be nimbler in their approach” said Sagar Sarbhai, head of Regulatory Relations, APAC & Middle East, Ripple.

6. Cloud based system  gets more integral

Over the last few years, cloud-based Software as a Service (SAAS) systems have increasingly found acceptance in non-core systems. Institutions are still cautious but gradually cloud technology is finding its way in core systems as well.

In 2017, 66% of DBS’s open systems were cloud-ready and by end of 2018, this has risen to over 80% with cloud native applications doubling to 60. These systems improve efficiency while reducing the deployment time. Australia Military Bank, for example, implemented core banking system on SAAS model, implemented within 10 months, facilitating the bank to fast track its growth. Institutions are also developing open sourced, inhouse developed private cloud platform for easier deployment.

Financial technology is rapidly evolving in this transformative phase and institutions are continually challenged to keep pace with the change. The role of institutions is changing from mere service providers to partners in customers life cycle. It is imperative that institutions adapt these changes with agility to maintain their relevance in the future.