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CO-WRITTEN / PARTNER | Tim Charlton, Singapore
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Deloitte industry leader on COVID-19, digital banking, and organisational transformations

Ho Kok Yong will also be part of the Asian Banking Awards judging panel for 2020.

Ho Kok Yong, Financial Services Industry Leader for Deloitte Southeast Asia, has joined the esteemed judging panel for the Asian Banking and Finance Awards in 2020.

With more than 25 years of experience in public accounting in Singapore and Australia, Ho has extensive expertise on financial audits and regulatory reviews of institutions of all sizes in the banking and capital markets. His specialty knowledge extends to client support with applications of both traditional and digital banking licences, and he is extremely conversant with the requirements of the Monetary Authority of Singapore and all relevant legislation such as the Securities and Futures Act, and the Banking Act in Singapore.

Ho sat down with Asian Banking and Finance recently to discuss the rapidly changing banking environment in Asia Pacific, as well as the long-term implications of the COVID-19 pandemic on the sector. This exclusive interview also touches on his career to date, and the need for digital transformation within many banking businesses in the region.

Can you share with us your work experience or any backstory that has contributed to your professional career?
I joined Deloitte in 1994 and was admitted into partnership in 2005. During my career with the firm, I had the opportunity to work in many different countries, including a secondment to Deloitte’s Australian practice for 2.5 years where I specialised in financial statements and technology audits of the financial services industry. I also had the opportunity to be exposed to many different types of work such as due diligence reviews, investigation audits, IPO and regulatory reviews. These exposures allowed me to have a more rounded experience, and I use this experience in my current role as Financial Services Industry Leader for Deloitte in Southeast Asia.

Outside of Deloitte, I am an Adjunct Associate Professor with Nanyang Technological University, teaching Masters of Science in Accountancy students. It is a role that I enjoy, as it allows me to interact with the Gen X and Y students, and I get to better understand their thinking and priorities when it comes to their career development.

As COVID-19 accelerates the uptake of digital payments and channels with more people shopping online and staying at home, how can financial institutions leverage digital transformation, and what are the common pitfalls that they could face?

Across Southeast Asia, financial institutions are experiencing a condensation of years’ worth of changes into months, if not weeks, as consumers shift their purchases online, and businesses race to set up e-commerce capabilities amidst social distancing measures. Indeed, for many financial institutions, COVID-19 has unlocked the hidden potential of digital transformation and stripped away many of the barriers – whether it is risk aversion, a lack of commitment, or other forms of inertia – that they have traditionally faced in realising the digital promise.

As the pandemic continues to accelerate front-end digitisation, the customer experiences that serve as differentiators today – digital account opening and on-boarding, straight-through lending, and remote claims – will soon become table stakes, and investing in these areas will be essential for financial institutions to attract and retain customers. In particular, the “last mile” of digital services will likely become the next battleground, as financial institutions look to make digital interactions more personalised and human-like.

But given the new industry economics with possible near-term reduction in market size and increased margin pressures, financial institutions will need to maintain a laser focus on cost-to-serve at the heart of all their digital transformation efforts. In fact, we are already witnessing how the renewed emphasis on cost efficiencies has given some players more latitude to implement cost reductions that would have previously been considered too bold, and drive greater automation across their value chain on both the revenue and cost sides of the equation.

Marketplace examples include the use of application programming interfaces (APIs), intelligent automation, cloud, and robotic process automation (RPA) in streamlining middle-office processes such as on-boarding, Anti-Money Laundering and Know Your Customer (AML/KYC) processes, as well as the use of artificial intelligence (AI) and machine learning (ML) technologies in loan processing and customer service operations, such as AI-powered virtual assistants.

With decisions being made and solutions being implemented in real-time even as we speak, we have yet to experience the full effects of these efforts. In the long run, however, we believe the success of a financial institution’s digital transformation agenda will hinge on several factors. These include their willingness to commit to making permanent changes in their digital strategy beyond mere bolt-on solutions; ability to implement new approaches to tackle the inherent cyber and compliance risks that come with increased digitalisation; and ability to evolve their third-party risk management strategy for greater collaboration within the ecosystem.

What has been the impact of COVID-19 on digital bank licence bidders? Are there specific services that digital banks should consider offering given how the pandemic has changed the way people live and bank?
Within the Southeast Asia region, the pandemic has resulted in the rapid acceleration of digital payments on the back of public health concerns. Increasingly, there is a consensus that digital banks are no longer “good to have”, but in fact crucial for the long-term viability and sustainability of the financial services industry.

But even prior to COVID-19, Southeast Asia has already been a hotbed for digital payments. Unlike many other global markets, however, the digital payment providers dominating the landscape in the region typically operate within a wider digital ecosystem, where they offer a variety of differentiated services backed by technological innovation, such as food delivery or ride-hailing, in a network designed to function with their proprietary e-wallets or other digital payment methods.

For some players, this unique model could pave the way to a new type of digital bank. For example, earlier in January 2020, a ride-hailing player and a telecommunications giant formed a consortium to apply for a full digital bank licence in Singapore. By combining their capabilities, they aim to cater to underserved markets, such as digital-first consumers and small-and-medium enterprises who may be facing difficulties in obtaining credit.

Several other cross-industry consortia who have also submitted applications include one consisting of a gaming company, supermarket chain, insurance player, venture capital, and used car marketplace platform; as well as another consisting of a lifestyle and wellness player, digital payment provider, and real estate player, amongst others.

While it remains to be seen how COVID-19 will impact their funding and profitability plans, we can nevertheless expect that the emergence of these consortium-backed bids will unveil a whole new generation of digital banks in Southeast Asia. These digital banks will be unlike the pure-play digital banks that we have seen dominate markets such as US and Europe, but are likely to be entire ecosystems of cross-industry partnerships that seek to offer consumers integrated and seamless end-to-end services – a model that we believe will continue to take off in light of the accelerated digitalisation as a result of COVID-19.

Aside from providing payments services, where are the new opportunities for FinTechs after COVID-19?
The COVID-19 outbreak has significantly impacted the FinTech community, and exacerbated some of the existing difficulties that several players may be facing in obtaining financing. Nevertheless, other FinTech players who have been engaged in some form of collaboration or strategic alliance with incumbent financial institutions are faring better.

Looking ahead, one important outcome of the COVID-19 pandemic may well be an acceleration of such partnerships with financial institutions that can offer FinTechs urgently needed revenue streams in return for highly sought-after digital solutions. Beyond payments, potential future areas of collaboration also include, but are not limited to, RegTech, digital KYC applications, and peer-to-peer lending.

In Singapore, for example, where eight out of ten FinTech firms in Singapore currently provide technology designed to enhance the product offerings of banks, there has been a recognition of the need to fast-track partnerships between FinTech companies and financial institutions. To facilitate this process, the Singapore FinTech Association has introduced a digital self-assessment framework to help FinTech companies understand the minimum compliance requirements and expedite their on-boarding with potential banking prospects.

Indeed, partnerships and collaborations between FinTech companies and financial institutions continue to be fraught with compliance and regulatory challenges. For instance, many financial institutions find themselves having to educate FinTech players on what it means to work with a regulated institution, while trying not to impose unnecessary security and other procedures. FinTech companies who wish to pursue partnerships with financial institutions will therefore need to find ways to engage their stakeholders in dialogue earlier rather than later, and with greater levels of transparency.

What would digital transformation success look like for financial institutions?
Digital transformation can be better understood as a transformation of the entire business, and not a single transformation project. Financial institutions have adopted a number of different approaches towards digital transformation, with some choosing to drive digital transformation from within the organisation, while others create ring-fenced teams or units with separate goals and performance metrics.

Overall, however, when asked to define what digital transformation means to their firm, nearly all executives that we spoke with emphasised the importance of customer centricity. They see customer centricity as a driver of digital transformation, with digital technology and tools used to create a better, more efficient customer experience.

In terms of the infrastructure, they envision an open, modular framework that allows firms to take advantage of developments in modern technology, and positions them to create new products, new forms of customer engagement, and new ways of working with external partners. However, digital transformation in financial institutions often runs up against legacy technology platforms. Creating a modern technology stack built on technologies such as AI, cloud, digital identity, and open APIs is therefore a central challenge in many digital transformation initiatives.

Empowering and equipping employees to think digitally is also key: some financial institutions have taken the creative approach of letting employees operate at flexible or reduced capacity to carve out the spare time and headspace to innovate. Fundamentally, however, leaders recognise that empowering employees to take calculated risks and delegating decision-making authority are key enablers to digital transformation.

Last but not least, financial institutions also need to proactively engage with their regulators, and collaborate with them to overcome some of the challenges that they may encounter in their digital transformation journeys, particularly in the context of new or novel technologies, such as AI and data analytics.

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