Authored by: Dev Dhiman, Managing Director of GBG Asia Pacific
2020 catapulted financial institutions forward in their implementation and optimisation of technology. According to 71% of Asia Pacific (APAC) technology decision-makers the pandemic has caused their organisations to step up digital transformation, while 70% of financial services organisations in APAC believe innovation is now a “must”, reflecting the impact of COVID-19 in shifting consumers and businesses to being digital-first.
When looking ahead at how financial institutions (FIs) will be impacted by these trends in 2021, there are six key ways in which FIs are expected to evolve.
COVID-19 drove a dichotomy in fraud technology investment
There is a distinct difference in investment between FIs in countries still heavily impacted by COVID-19, and those in the stages of emerging from the pandemic.
For countries which have yet to enter a stable recovery period, FIs will be making a more conservative approach to overall investment and sustaining cashflow, but deprioritising investments in fraud technology could leave them unprepared for the potential rise in financial crime and fraud during financial hardship.
FIs in Malaysia, which has now seen the reinstatement of the Movement Control Order (MCO 2.0) across most of the country, may become even more hard-pressed for stronger fraud prevention technology to combat an increase in financial crime, as basic fraud systems may not adequately protect them against emerging and complex fraud typologies.
Digital customer experience expectations will continue to skyrocket
The new normal has set expectations around customer experience (CX) including same-day delivery services, real-time shipping tracking, and more, in turn significantly impacting customers’ CX standards for FIs. A recent study showed seven in 10 customers demonstrated a deeper loyalty to financial services and insurance companies that heavily invest in CX.
In 2021, FIs and fintechs will continue racing to deliver instantaneous services through new financial products. In GBG’s latest research, over 25% of Malaysian FIs plan to ramp up their rollout of instant banking and credit facilities, particularly instant bank account application, instant loans and instant credit card application. To take CX to the next level, there is a probability that the financial services sector will explore the replication of successes from other industries, such as retail businesses that have effectively used augmented reality (AR) and virtual reality (VR) technologies to re-create in-store experiences, which could be used by banks to create virtual in-branch experiences.
Cross-vertical collaboration and consumer data drill-down are re-shaping digitalisation standards
Collaborations amongst major enterprises demonstrated the investment across industries in working together to effectively serve customers at scale, such as ride-hailing company Grab teaming up with Singtel to launch their own digital banking license in 2022.
This collaborative mindset is likely to continue in 2021 and beyond. FIs have already reinvented partnerships to form new market propositions. This openness and innovation would spill over into fraud management, propelling them to leverage an expanded ecosystem to layer their data with intelligence from specialists in various technologies to more effectively equip FIs with appropriate fraud prevention capabilities as the world becomes increasingly digital-first.
Expanding availability of shorter-term credit offerings across SEA
The rise of Buy Now, Pay Later (BNPL) businesses has disrupted the credit landscape with shorter-term credit services for everyday purchases, faster or no credit checks, instant approvals, and “zero interest”. New BNPL players across APAC including in Malaysia are quickly catching onto opportunities to offer new and more agile types of loans.
FIs need to remain vigilant in how BNPL products are rolled out, credits are distributed, and debts are managed. This ease in obtaining credit can lead to more exposure to higher risk borrowers. FIs focusing on growing their BNPL offerings need to build in stronger measures to onboard consumers who have the ability and intent to pay back what they have borrowed while keeping the standards of BNPL experience to ensure this revenue stream does not go sideways in the long term.
Mobile-first technology and data intelligence as fundamental building blocks for dynamic digital onboarding and transacting
Mobile devices are widely used to accelerate the digital onboarding and transacting process. FIs are automating the identity verification journey and streamlining biometric and facial verification, document verification and data match altogether in instant KYC.
Today, mobile devices do more than enable the identity verification process. In South East Asia, seven in 10 adults are either “underbanked” or “unbanked”and excluded from many traditional financial services. FIs have begun to ascertain the quality of consumers with limited identity documentation, or thin file clients, leveraging their mobile phones as a personal identity verification device.
Mobile metadata, device usage patterns and SIM card records are alternatives to traditional verification methods, datasets and data sources. These alternatives offer data intelligence which FIs could use to fill gaps in physical records, providing assessment and validation to the authenticity and quality of consumer profiles and borrowing intent of these untapped segments.
Socially engineered first-party fraud and identity crimes taking on a new level of complexity
Bringing together the above trends and predictions, the combination of accelerated digital transformation among businesses, skyrocketing consumer usage of social media, e-commerce, ebanking and online platforms, and increased collaboration across FIs and non-bank organisations result in growing opportunities for fraudsters and crime syndicates to mine data.
Consequently, socially engineered first-party fraud, identity crimes like synthetic ID and impersonations would take on a new level of detection complexity. FIs have a responsibility to counter these attacks, proactively manage the growing volume of channels where bad actors can access personal information, and guard against financial crime and identity theft. As such threats continue to broaden alongside other industry-wide trends, consumers’ expectations of FIs’ commitments to protecting and futureproofing their financial services and products will also grow.
Organisations will need to reflect their commitments to customer satisfaction and retention with more sophisticated and agile approaches to fraud prevention and fraud technology investments.