As new technologies rapidly transform and disrupt the financial services and the customer expectations, leading banks of the future are likely to look very different from today. Customer service and their experience will be one of the key deciding factors in future success. Banks not only need to re-design their strategy, technology and processes but also break away from their age-old organisation’s cultural mindset. The leaders will be the ones that start early on this journey.

The first bank in Singapore – and among the early ones in the region to focus on innovations through a dedicated centre – was Oversea-Chinese Banking Corporation (OCBC). In 2016, the bank launched its innovation centre ‘The Open Vault’ (TOV) that has since been focusing on experimenting and promoting new technologies to improving the journey of its customers.

Experimenting continually with new technologies and building a strategic ecosystem with fintech and partners has been the core of its strategy. Taking a step further in 2018, it set up the first artificial intelligence (AI) Lab in Singapore to focus on this emerging technology and drive its future growth.

Challenges

One of the biggest challenges faced by banks is the rapidly changing customer expectations as they seek a more digital, frictionless and agile experience in their banking transactions. OCBC recognised that it needed to redesign its technology capabilities to meet the futuristic demand.

“We know that in the ‘bank of the future’, everything will need to be end to end digital, customer experience will have to be seamless, voice enabled and digital with ‘on the go’ services. Second, banks will need to drive operational efficiency using the power of extensive data that they possess. Third, the walls are crumbling and banks cannot go alone”, said Reuben Wakeley, head of innovation and fintech at OCBC Bank.

With rapid technology development and pace of change, identifying and adopting the right technology with speed remains a difficult objective for most banks. The other key challenge is being able to develop in-house skill sets and build the right innovation culture within the bank. Often it is a struggle to bring a change in their deep-seated cultural mindset towards imbibing and accepting new innovations, which demands a gradual and continual process.

The solution

The evolving technology landscape brings new opportunities that banks can capitalise upon. Banks have the advantage of customers’ trust, a large product portfolio, channels and customer relationships while fintechs bring with them agility, new innovations without any legacy baggage. Bank-fintech partnership can thus bring strong mutual benefits to both.

OCBC recognised this early. Over the last few years, it has been engaging and evaluating hundreds of fintech products to embed selected new services in their portfolio through TOV. The strategy has been focused on customer experience as it experiments with technology and agile mode of development to solve the business challenges.

Its innovation centre works on four key pillars:

Innovative initiatives with fintech

OCBC invites fintechs to participate in an annual programme – the TOV Innovation Challenge – where fintechs and business units work closely together to co-develop new solutions in a secure environment, leveraging the bank's data sandbox and application programme interfaces (APIs)

The strategic approach of the bank is different from a traditional accelerator, it does not take equity in start-ups, rather focuses on working with them and commits to commercialise solutions in partnership with them. Furthermore, to integrate fintech solutions with speed, the bank created a fintech accelerator group that skips the processes required during the selection of large technology vendors.

The small four-member team at the start at TOV has grown three times since, yet despite being a small team, to date they have managed to engage with over 1,000 fintech companies, conducted over 50 experiments and commercialised multiple solutions.

Among the first projects to be developed and commercialised by TOV was “Emma”, an AI-based virtual assistant, jointly developed by its home leans team and an accelerator programme start-up, CogniCor. This was the first AI-powered home and renovation loan specialist in Singapore, which was also equipped with a total debt servicing ratio (TDSR) calculator. The co-creation process took three months, where ‘Emma’ was trained to deal with a comprehensive list of scenarios and suggested responses.

The chatbot has been able to answer over 160,000 customer queries and has garnered more than $200 million loans since its launch in April 2017. It shortened the wait time from previous by up to two working days (for an email reply) to just few seconds.

Another notable project developed was the OCBC ThetaRay machine learning based anti-money laundering (AML) platform. It pioneers to deliver a more comprehensive and intelligent AML system through transaction monitoring and anomaly detection. By being able to fuse multiple data sources and analytics in a few hours, it enabled the bank to respond more effectively to changing money laundering activities.

Impact from two recent projects

Fig 1: The commercialised projects bring notable business impact

Source: OCBC

The bank now has over 20 other on-going unique projects at its innovation centre.

These include a completed proof of concept based on the deep learning satellite-based imaging technology to reduce risks in financing of crude oil. On another project, the bank is working with a fintech to transform data into deep consumer insights that can enable companies to niche markets to a specific group of customers. The banks is also developing a project in partnership with a Spanish fintech to reduce business complexity for small and medium enterprises (SMEs) with a one-stop portal that can track, manage and analyse their finances.

The next frontier: AI Lab

Developments in artificial intelligence are transforming the banking sector, its potential being increasingly recognised and explored within the industry by not just fintechs and banks, but also regulators.

Singapore’s regulator Monetary Authority of Singapore (MAS) has been collaborating with selected agencies to facilitate research and development towards development and adoption of AI products and strengthening capabilities. It is also working together with thought leaders and practitioners of data analytics in the financial sector to co-create guidance towards responsible use of AI and data analytics within the industry as it realises the potential of its misuse.

The use of artificial intelligence, machine learning and new data sciences can yield deeper insights and automated processes. Aiming to proactively exploit the power of data and AI for competitive advantage, OCBC’s AI Lab focuses on development of in-house AI capabilities.

“The AI lab is the biggest graduate from all the programs that TOV has brought in. We believe this technology is going to fundamentally change how we work within the banking sector. We realised that many start-ups are already working on this and if we do not build our own capabilities, we will be locked into a block box. While we share data to these companies and they build application upon that, however we also need to build our own capabilities,” said Ken Wong, head of AI Lab, OCBC.

The scope of the bank’s AI lab currently includes building the AI applications for the bank, co-defining the architecture and processes for deployment of these applications while also building the AI skills within the bank. Natural language processing, machine learning and perception technology are being used as building blocks by the bank for future transformation. The bank is focusing on cognitive intelligence through partnership with technology companies. Second, it is building organisational intelligence using the proprietary bank data that technology companies do not get access to. It plans to build a micro-service model based on this.

Spearheading an innovation culture

One key focus of the bank’s innovation centre has been to provide the platform to develop a new way of thinking across the entire bank and to continually educate, re-skill and empower its workforce. The centre undertakes multi-fold initiatives to take forward this gradual learning process. It invites guest speakers on emerging fintech topics to bring an outside perspective to its employees and holds deep dive workshops on hot topics. It organises lean workshops that train senior level staff on rapid iteration launches and agile experimentation. Notably, it also promotes and recognises the employees that take up an innovation initiative on top of their regular business.

The activities at TOV have collectively given over 5,600 employees out of 6,800 total employees in OCBC Singapore access to new ideas, insights and innovation methodologies – and its recognition is growing within the bank.

Industry comparison

Several leading banks have established innovation centres to improve their customer offerings and experience. Their strategic and tactical approaches however vary.

Commonwealth Bank of Australia’s innovation lab showcases new technologies and focuses on developing innovative products for the bank and also providing tools to develop unique solutions to challenges faced by small companies and helping them solve those issues. Since its launch in 2014, it has facilitated over 70 projects, along with many co-creation activities, successfully developing solutions based on blockchain, rethinking the intranet and social robotics engagement. It also organised hackathons and industry events for collaboration.

DBS’s innovation centre DBS Asia X (DAX) showcases new solutions and has co-working space to foster collaboration across bank employees, fintech start-ups and social enterprises. Its innovation team engages with several business project teams actively to help them develop prototypes, connecting them with start-ups, experimentation and testing with the key focus of ensuring the right customer journey. It also runs an internship programme called DBS UNI.CORN management. Among the notable projects is POSB Smart Buddy programme that created a contactless payments ecosystem within the schools to help cultivate sensible savings and spending habits among students in an interactive manner through portable or wearable devices.

China Merchants Bank introduced a “lean innovation” method, establishing incubator support for fintech innovation, covering business analysis, user study, digital design, product planning, and technical architecture. A number of centres of excellences on emerging technologies such as big data, robotic process automation and application programming interface have also been established. The bank has successfully implemented several projects including machine learning based fraud detection, big data-based credit platform, fraud detection in debit card transactions.

The Asian Banker SWOT Analysis of OCBC’s innovation centre

Fig 2: The centre solves business pain points and brings new opportunities for building ecosystem

Source: Asian Banker Research

To succeed in the evolving scenario, banks need a combination of right people, process and technology transformation. They need to rethink their architectures, redesign processes and execute solutions with agility to match the speed of fintechs with their strategy centred on customer convenience to competitively differentiate.

OCBC has strategically focused on fintech collaboration, new emerging technology executed through agile development. The bank is moving ahead with a focused innovation strategy but there will be challenges as the pace of technology change continues to gain momentum.

As the bank rapidly adopts new technologies, it might also face the challenges of a talent crunch. Besides re-skilling of staff, it will become increasingly important for the bank to continue to embed the culture of innovation, not only to be able to compete, but also to be able to acquire and retain the right talent for its future growth.