How the financial services industry is evolving

In the Asia-Pacific region, spending on enterprise IT by banking and investment services is expected to increase dramatically, with over 90% of banks projected to expand their cloud footprints in the coming months. This reflects the significant technological transformation taking place within financial services institutions (FSI).

Although the industry has seen incremental change, it is also facing disruption from fintechs and digital-first banks, which bring new technologies and diverse business models. Established banks are also turning to data-driven applications to improve resilience and efficiency, while seeking leading-edge technologies to secure their future and maintain a competitive edge.

I had the privilege of participating in several events, including an illuminating panel on re-imagining the customer experience, at last year’s Singapore FinTech Festival. It was a valuable opportunity to reflect on the massive changes shaping the industry. With nearly five months already gone in 2023, which changes will have the most significant impact?

  1. Banks will focus on digital perseverance: It’s a challenging time for banks. While the IMF predicts that Asia is likely to avoid a recession, sluggish growth, higher rates, and inflation could still have an impact. It’s a complex time for banks, but the challenges need not be insurmountable.

    Cloud services and “digital perseverance” can make banks more resilient and efficient in the face of challenges. Many financial institutions, such as Brunei’s Baiduri Bank, have already moved mission-critical and core banking workloads to the cloud, and are also using SaaS solutions to achieve more with less and provide better service to their customers.
  1. More AI and big data: To stay competitive, banks are using data and AI to rethink the customer experience. Financial institutions must drive insights from their data to reshape customer engagement. Already, the majority of large banks are using AI and big data, and customers now expect the kind of personalization that these technologies enable. Customers expect banks to have a 360-degree view of their relationship based on real-time data with predictive capabilities using AI. According to a recent study by TABInsights and FICO, 64% of customers in Asia already receive personalised products, while 71% responded positively to personalised products from banks.

    Technology companies have been partnering with banks across the region to leverage these new technologies. Recently, a strategic partnership was announced between Australian bank Westpac and a cloud solutions provider to drive efficiency and provide customer insights. Additionally, Japanese bank SMBC Group has partnered with a technology firm to help transform its operations.
  1. There will be a growing focus on security: Cybercrime is expected to cost the world US$10.5 trillion annually by 2025. The increasing emphasis on the cloud makes security more important than ever. Customers should be able to trust their bank when it comes to security, privacy, and transparency, and they demand ownership and control of their data.

    In Asia, organisations like Japan’s Mitsubishi UFJ Financial Group and National Australia Bank are already taking advantage of new technologies to ensure they can better manage risk, improve security, and set new standards for compliance.
  1. Banks will focus on hybrid work and digital skills: Expectations about flexible work have changed in many industries, and FSIs are no different. For me, my team and I constantly have discussions with our clients about the best way to enable collaboration across mobile, online, and the in-office environment in the most secure manner. For FSIs they must do so to mitigate risk and align with regulatory frameworks.

    At the same time, HR departments at banks will continue to face challenges finding the skills they need. And while digital banks can build their new tech stack from scratch, more established banks sometimes need to hire for old systems while they also try to build new ones.
  1. The regulatory environment will shift: Asia’s regulators have been pioneers in establishing frameworks for regulating digital banks. The COVID-19 pandemic accelerated the shift towards digital services, with the Monetary Authority of Singapore and the Hong Kong Monetary Authority (among others) assisting FSIs in delivering new services that enable customers to overcome restrictions on movement.

    The region’s regulators increasingly see the value of a more open framework which will support cloud solutions, innovations, and cross-collaboration business models. They will look towards a “principles-based” system, which means the rules will deal less with the minutiae and more with the broader principles governing the way banks should operate. As a result, we’ll see better fintech, regtech, insurtech, and digital banking frameworks.
  1. Banks will look to frontier technologies: Banks could eventually use decentralised ledger technology for clearance and settlements, fundraising, securities, loans, trade finance, and fraud prevention.

    Banks may also turn to vastly more powerful forms of computing in the years ahead. Already, a number of them are looking towards quantum computing and even optical computing, which tackles problems where even quantum computing falls short.

    For example, HDFC Bank, which is India’s largest private sector bank, is developing in-house intellectual properties as a part of its Future Ready strategy, as well as partnering with several companies including FinTechs to co-create technology IPs. This kind of co-creation of technologies is expected to grow in the future.

Failing to act is a greater risk

The finance industry is changing rapidly, and it’s happening during a time of global economic uncertainty. Banks need to keep up with the latest technologies more than ever before, as competitors will take the lead otherwise.

Embracing technology will enable FSIs to become more resilient in the long run, while customers will reap the benefits of better services. In the end, everyone benefits.