• The pandemic not only led to unexpected challenges in meeting customer digital requirements with speed and need for efficiency, agility and new revenue streams but it has also accelerated the adoption of cloud technologies 
• Cloud strategy of a bank needs to have a strategic top down approach, be flexible and use market available technologies cost effectively 
• Fintech collaboration in APAC has increased with 90% of financial institutions looking to adopt open banking in the coming 12 months

Changes in customer behaviour during the pandemic will redefine the future of financial services. This is driving the shift in the financial industry towards greater adoption of efficient and scalable technology infrastructure and setting up open banking collaborative platforms that also capitalise the power of data more effectively. 

Wissam Khoury, head of international at Finastra, shared that the key challenge for financial institutions is the change in requirements from their end users and the need to adopt to that rapidly. Secondly, cost structure of banks in a downturn becomes a heavy load on financial institutions, especially the larger ones. Thirdly, institutions have witnessed a loss of revenue as new players entered the market. He emphasised the need for institutions to accelerate their digital journey and cloud adoption.  

The following is the edited transcript of the interview:

Neeti Aggarwal (NA): What are the biggest technology priorities you see among banks today?

Wissam Khoury (WK): Obviously, what's been happening post COVID is that the acceleration for digital has really picked up. So it has really brought the future forward. COVID-19 restrictions have changed mostly the customer experience and customer expectations, and changed the business models of certain banks in order to be able to adopt to what's been happening to say the least. During COVID, branches were shut down. Governments were encouraging cashless payments and even some retail shops refused to receive cash. So the acceleration for digital is profoundly seen in the market. Even the people that are not technology savvy, even the elderly people, or people that never trusted technology, are now even forced to use that. And if you think of it post COVID-19, we will not go back to the way we were before. Once customers’ expectations have changed and business models have changed, the new world will look different even if branches do open tomorrow and even if some people will still prefer to go to a branch. Many of the users have already been digitalised. They've seen the added value of using online banking, online payment, have access to everything in real time. They would not give that away. So that's why it's very important to note that the changes that are happening now and redefining how finance is going to look like, not necessarily only in payments, is here to stay. This change is not going to disappear. 

So if you look at it from that perspective, what are the main things that have really pushed the market forward in terms of technology? Before we discuss that, what problems are we trying to solve? If you think of it, post COVID, and how are the banks looking to accelerate their digital strategy? 

There are many challenges the financial market is trying to overcome these days. In my view, number one would be customer experience. The biggest challenge is that the requirements from their end user has changed and they need to adopt to that fast. It's almost overnight. Many banks have started this journey a couple of years back. It’s nothing new to move to a digital world but they were not expecting this to happen as fast and they were not expecting this to be at that pace. 

So number one is customer experience and we'll talk about it with more details. Number two is the pressure on cost. The cost structure of banks, especially in a downturn, becomes a heavy load on financial institutions especially the larger ones, the incumbent banks. That's why they need to invest now and utilise technology in order to lower the total cost of ownership and be more operationally efficient. 

The third is loss of revenue. These financial institutions, not only because of the downturn in the market, but because of the new players that entered the market such as the giant IT companies that are competing and offering online payments such as Alipay, and others, plus the new digital banks and neo banks. On top of that, interest rates are down and the fees are being challenged. So banks are in search for new revenue streams. So if you want to look at these three, let alone the pressure of regulator, compliance, and all of these things forced this industry to move to certain technologies much faster than originally planned. 

The pandemic accelerated adoption of cloud technologies

Number one is cloud and I believe cloud can really solve many of these issues. Because one of the most difficult things for these banks is to manage their cost base and be able to be agile, offering new solutions. Digital is not really just about having a channel or an online banking or an app. Digital has to go from front office client facing all the way to the back office so that it can capitalise on its entire benefit, be it cost efficiency, be it agile and be able to react to the market in a very fast and very fast way. So this push for cloud and cloud adoption and financial services is, in my point of view, one of the most accelerated technology that the bank should be embarking on as we move forward, not only cloud can be more cost effective and can result in a huge operation efficiency. But if you think of it, moving to cloud also is in line with what's been happening today about working from home or working remotely, being able to access your infrastructure without being physically present in the institution. So that also helps in the area, which we're talking today about the restrictions, the lock downs, the move to the latest technology. 

Cloud is an answer not only for cost and operation efficiency but also it makes perfect sense in order to deploy it and capitalise on it. The third advantage of cloud which touches the other two points which has cost and revenue is to be able to attract new revenue streams. You need to offer solutions in a very fast way and win the entire economy or sector into cloud. Then trying to add solutions to your existing infrastructure on cloud becomes much easier. So you become much more agile and much more cost efficient, and you will be able to generate or come up with new revenue streams by utilising this technology. 

I'll be dismissing if I stop here, because the second part, which is extremely important on top of cloud, is creating a platform or creating a marketplace where we can connect the financial institutions with the new fintechs that are offering really innovative and cost effective applications on top of the infrastructure of banks that can be delivered via cloud. This is an extremely important technological enhancement that comes in aligned with the objectives of banks to really partner and collaborate with fintechs to be able to provide a new way of how we address finance, a new way of how we address customer needs and customer expectations. 

NA:What type of cloud technology are you finding more widespread application among banks? How cloud ready are they? And what are the biggest challenges for banks?

WK: Moving to cloud, obviously, should be part of a strategic initiative by financial institutions where they have a strategy on how to move to cloud. They try to standardise on one deployment approach, let's assume internal cloud or on private cloud or as your cloud or AWS. 

A cloud strategy that works

In my point of view it might not be as easy, as financial institutions believe, to adhere to one cloud strategy. In my point of view, the cloud strategy of the bank should be flexible enough to be able to utilise whatever is available in the market in the most cost effective way. 

Technology at the end of the day should be an enabler rather than being a hiccup. So, in our world, we should be agnostic of which cloud do you use. 

But what matters for the bank in order to manage cost and be operationally efficient is that they should have a strategy that's built on either one cloud strategy or multi cloud strategy, depending on their aspirations, existing infrastructure, geographical reach, regulations, because it has data consistency in it and all the rest.

To answer your second question - what are the difficulties and how are the banks addressing that.

All banks realise that this is something that they have to embark on. If you look at the Asia Pacific region, if you combine cloud with the collaboration idea that I've just described, in terms of infrastructure, some of the statistics that we've had is that probably more than 88% of banks believe that they're going to be investing in open banking, and open application programming interface (API) platform in the coming 12 months, which ties quite closely to moving into a cloud strategy.

In my point of view, this is not the issue. The biggest issue is a change of mindset. Moving to cloud requires a top down strategy from the financial institutions that will force any organisation to rethink their technology business model and force them to rethink how they need to accelerate that journey, which some of them have already started. And the biggest challenge would be the migration, the change of people's mindset, and the capitalising on the power of the partners that they have in the market. 

NA: A lot of banks are talking about application of artificial intelligence (AI) technology. In what applications are you finding use of AI technology more effective? And where do you think its application will be more in demand among banks? 

WK:  First of all, we all know the added value of AI and machine learning and that everybody talks about data being the new currency of the world and all the rest. If I want to talk two years back or three years back, I would have said banks and financial institutions have more data on any individual than any other organisation or market. So if you go today to Amazon and you buy a book on Amazon, you will be bombarded with very relevant marketing material in order to complement taking into account what you have done as last transaction. The banks know everything about you. They know what time you drink your coffee, if you pay online, they know where do you travel? What are you? 

Very rich data. And two years back, I would say they would never use that data in order to provide better customer experience. These days, I want to even augment this and add that there are also missing data that banks don't have that could also help them provide better services. And I'll come to it in one second. But before doing that, let us answer your question. 

AI today is mostly used to enhance customer experience. And, in certain areas, also create operation efficiency. And I'll give you three examples.

First example is the data that we have discussed. Using AI and machine learning, financial institutions cannot only rely on the data that they have which is very rich data to come up with insights. They also can rely on data that's coming outside the market to penetrate new markets. Let's talk about financial inclusion. Especially in Asia and in different markets, we have markets that have more than 70% of the population which is underbanked, or unbanked. Which means these banks will not have this data on these individuals. And if we want to encourage financial inclusion and we want to provide banking services to these individuals, number one, we have to accelerate our digital strategy. Which is fine. You accelerated digital strategy, you go on cloud, you offer online banking and open an account in one second, rather than a few minutes or rather than days, you can do all of that. But if you want to provide a loan service, or lending, or you want to provide a credit card for individuals that you do not have data on, how can you do your credit assessment? What models do you use? 

This is where the second part comes in which is predictive insight. So what do you do? Will you rely on other data sources so you might integrate with the mobile provider to see the individual's payment habits on the telephone? There's so many data that's available outside the bank that the bank will need in order to come up with a better financial model and credit analysis and all the rest. 

This is the next part which is the platform with the banks being able to open up through open banking information to third parties. It means banks among themselves and third parties can share this data. Now, the power of AI becomes amazing because you have the data of the bank or the external data, and you can really create insights, data analytics, and you will be able to provide better customer experience. This is possible.

NA: Tell us more about your outlook for 2021. What are the key areas where you are investing now to evolve your products to meet these changing customer needs?

WK: If we look at the outlook or trends for 2021, especially in Asia Pacific, we are moving obviously to a digital first economy and you can see this happening in the entire market. 

Rising need for collaboration between banks and fintechs

If we read some of the statistics that we've got during our analysis, based on the latest research by EY, the consumer usage rates of fintech-powered services have doubled in the past two years. And in some cases have tripled in key Asia Pacific markets such as Hong Kong, Singapore, and South Korea. Here they have 67% of fintech adoption and Australia now stands at 58% of fintech adoption, which means that financial institutions are already using fintechs in order to provide better services. 

We have done our own survey. Actually, this survey was done pre-COVID so the numbers have even increased post-COVID you could assume that. The survey shows that there is increased appetite for fintech adoption and collaboration in the region. In Hong Kong alone, 95% of financial institutions agreed that collaboration with fintechs has been a driver for success in their business. In Singapore, 89% believe that collaboration with fintechs has made their business much more efficient. If you go back to Hong Kong and Singapore, nearly 90% of financial institutions have either adopted or are currently looking to adopt open API's in the coming 12 months. 

So we can see that looking to the future and looking at outlook for 2021, we believe that's going to be a rise in the marketplace of solution with much more leveraging of the open API platform. The next wave of innovation in finance and financial services, and our point of view will be created on open platforms using open API's and open software solutions. 

NA: Thank you very much.