Banks must rethink offerings and unlock new value amidst shifting macro forces, says Deloitte's Ho Kok Yong

Rising geopolitical risks, reduced global integration, and fragmented payment systems are driving a shift toward a new global economy.

Technological advancements and shifting market dynamics have driven the world of banking towards profound transformation. At the heart of this transformation lies Asia, a region known for its diverse markets, cultural nuances, and rapid technological adoption.

As the banking industry adapts to these changes, professionals like Ho Kok Yong, a Partner at Deloitte, provide insights into both traditional and digital banking landscapes. Kok Yong, an esteemed judge at the Asian Banking & Finance Awards 2023, has over 28 years of experience and expertise in financial services, across audit and advisory.

Having served as the leader of Deloitte Southeast Asia's Financial Services Industry division from 2011 to 2021, Kok Yong played a pivotal role in shaping the financial landscape. With a strong foundation in public accounting, including a secondment to Deloitte's Sydney Office in Australia, Kok Yong has demonstrated his prowess across a range of domains, including financial audits, regulatory compliance, and due diligence, amongst others. His in-depth knowledge of regulatory frameworks, such as those set by the Monetary Authority of Singapore, underscores his commitment to upholding industry standards and promoting financial stability.

In an interview for Asian Banking & Finance, Kok Yong reiterated the need for financial institutions to reimagine their offerings to create new sources of value and capitalise on the distinct ways various banking businesses will be impacted by several forces. He also underscored the region’s interest in fostering digital banks, highlighting that these platforms can extend banking services to underserved populations.

With your extensive experience in the Asian banking and finance sector, what are the key trends or developments that you find most exciting or promising in the industry? How do you foresee these trends shaping the future of banking and finance in Asia?

The era of cheap money is over, and the cost of funding is likely to remain elevated. At the same time, the escalation of geopolitical risks, de-globalisation, and fracturing payment systems are also pushing the world towards a new economic order.

To navigate through this muddled outlook, banks will need to reassess their traditional product, service, and industry offerings to create new sources of value – taking into consideration the different ways in which the various banking businesses are likely to experience these macro forces.
Retail banking
Retail banks should prioritise developing customer experience strategies that are data-driven, consistent across channels, and offer consumers personalised advice to navigate difficult economic conditions.
This may require front- and back-office harmonisation as well as an overhaul of branch infrastructure.

Consumer payments
In the face of the growing popularity of super apps, issuers will need to think outside the box to elevate their customer experience, for example, by offering value-added features and personalised rewards.
Collaboration and/or acquisition of FinTechs could also help firms expand their value proposition. In a rising rate environment, issuers are likely to have a competitive advantage due to their low cost of funding and scale of operations.

Wealth management
The democratisation of advice highlights the importance of hybrid digital advice models as an economical way of delivering scalable customer journeys and personalised advice.
As clients rebalance their portfolios in favour of alternatives, such as private equity and real estate, firms will also need to work with third-party platforms to gain product access and provide their advisors with the right resources and training.

Commercial banking
Banks should expand their share of wallets with non-lending, transaction banking products as an anchor to retain corporate deposits and deepen relationships.
Robust forecasting models powered by alternative data and artificial intelligence or machine learning technologies can also help banks better predict deposit outflows and identify at-risk clients.

Transaction banking
On the technology front, banks should focus on building a modern, efficient, and scalable platform to provide a holistic, real-time view of client transactions and leverage insights and innovation to serve clients better.
At the same time, new operational capabilities are needed to minimise the risks around custody and counterparty services related to digital assets.

Investment banking
The race towards net-zero has opened up tremendous opportunities for investment banks, but this would require rejiggering product portfolios, targeting new customers, and modifying their geographic exposure.
As regulations become clearer, banks should also be ready to seize opportunities in the digital asset space by building scalable infrastructure and partnering with FinTechs/BigTechs.

Market infrastructure
By shifting the focus from trade execution to offering end-to-end services, exchange operators are diversifying their capabilities to become more resilient to fluctuating trading volumes. Over the next five years, exchange operators should prioritise the building of cloud-based infrastructure and the expansion of applications through proprietary APIs. 

You have been involved in providing advisory services to clients on the application of banking licenses, both traditional and digital. Could you share some insights on the regulatory landscape for digital banking in Asia and how you see the emergence of digital banks shaping the future of the banking industry in the region?

Regulators across the Asia Pacific region have shown a marked interest in encouraging the growth of digital banks. Licencing regimes have been introduced progressively over the years in Hong Kong, Singapore, Taiwan, Malaysia, and Thailand. Fully digital banking services are also operational in South Korea, Australia, Japan, and India, in addition to some of the countries mentioned above.

The approach to digital bank licencing varies across markets. In general, financial supervisors have taken the position that digital banks have the potential to promote better outcomes for customers by extending banking services to unserved and underserved populations, spurring innovation, and increasing competition. All this is, of course, premised on digital banks placing the same importance on risk management and compliance activities as their traditional competitors to maintain the stability of the financial system, mitigate financial crime, and protect customer interests.

Non-bank market participants have been keen to make the best use of this new type of banking licence. The high smartphone penetration rates in Asia have made it both possible and convenient to serve clients via wholly digital channels. Partnerships between traditional financial services providers and other companies, such as fintechs and telcos, can extend customer reach and lower acquisition costs. Advancing technology, including a cloud-native approach, allows digital banks to harness customer data in new ways to deliver customised services. The recent COVID-19 pandemic has provided added impetus for digital transformation. Whilst digital banks tout the advantages of their technology-first approach, serious questions remain about the ability of these lean organisations to both manage their risks and maintain profitability as regulators provide little leeway in meeting regulatory requirements.

With your expertise in Technical/Accounting & Valuation Advisory, particularly in relation to International Financial Reporting Standards (IFRS) and IFRS 9 (Financial Instruments), what are some key considerations and challenges for financial institutions in Asia when it comes to implementing and complying with these standards? How can they effectively address these challenges whilst maintaining transparency and accuracy in their financial reporting?

IFRS 9 introduced a new methodology for financial instrument classification, and the incurred loss impairment model is replaced with a more forward-looking expected loss model. This is all in addition to the major new requirements for hedge accounting. It is the most complex accounting standard.

Coordinating multidisciplinary efforts, including finance, credit, risk, IT, and resource constraints, is one of the key challenges for IFRS 9 implementation. The fundamental changes in methodology call for careful planning. With the implementation of IFRS 9, companies will need to assess the people, processes, technology, and controls that will be necessary to drive an effective roll-out. The implementation of IFRS 9 will undoubtedly bring about a closer integration of different functions and skills, the inclusion of new instruments, particularly under the new impairment framework, and the preparation of a new methodological framework, policies and processes.

In your opinion, what are the key advantages and opportunities that digital banks bring to the banking landscape in Asia? How can traditional financial institutions leverage these opportunities and adapt to the changing market demands?

Some opportunities and outcomes have been highlighted in our response to question two – bringing banking services to unserved and underserved populations, lowering acquisition costs, and delivering customised services with the aid of digital transformation.

Many financial supervisors in the region use a similar narrative to describe their rationale for creating digital bank licences – financial development supports the local economy by improving outcomes for customers. The benefits include more and better choices as well as enhanced competition and coverage, enhancing financial inclusion. Often, and as is the case with digital banks, this is achieved by leveraging improvements in technology like smartphone capability, 24x7 mobile data access, data analytics, and cloud computing.

This is a virtuous cycle where an eye for economic development entails regulatory support for enhanced competition from new entrants. This can generate better customer outcomes and increase financial inclusion, fueled by innovation by new entrants and incumbents responding to the new competitive landscape. In turn, economic growth spurs further investments in improved technology and data analytics, contributing to further development and competitiveness in the financial services industry as a whole.

The Asia Pacific region is known for its diverse markets and cultural contexts. In your opinion, how can financial institutions in Asia leverage this diversity to drive innovation and develop tailored financial solutions for different market segments?

With the growing bifurcation between different groups in society, financial institutions will need to re-examine their customer segmentation strategies and rethink the value narrative for each of them. This could lead to the development of new offerings for wealthier segments, such as self-directed, digital-led advisory services, as well as micro-financial products that are tailored to segments with lower levels of financial inclusion.

Based on our observations in Southeast Asia, we have seen players in the ride-hailing segment offer their freelance drivers insurance policies for earnings protection or accident coverage.

Financial institutions in Southeast Asia are also becoming acutely aware that having a global brand and reach no longer guarantees success on a regional or local scale. Looking ahead, several advancements in the regional financial system will further amplify the need for financial institutions to develop and execute hyperlocal, synergised strategies in order to remain competitive. These include initiatives to encourage greater financial integration within Southeast Asia, such as the promotion of cross-border payments between different regional markets under the ASEAN Payment Connectivity Initiative. As regional banks double down on serving their local markets with highly tailored offerings and strategies, global banks operating in Southeast Asia will also need to re-evaluate their competitive positioning to ensure that they remain relevant.

What are the specific qualities and achievements that you, as a judge at the Asian Banking & Finance Awards, consider when evaluating nominees?
I will consider whether the initiatives are innovative, can deliver the best services to clients, and enrich the customer experience. They should also be exceptional performers and have significant contributions to the industry.

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