From new competitors to emerging technology to ever-evolving customer demands, the financial services industry faces plenty of disruptions. However, those disruptions also present opportunities for Asian financial institutions to reinvent themselves and amplify or redefine their role in building a more digital, connected, inclusive and sustainable future.
Here are five trends in 2022 that will influence how financial institutions in the region can achieve those goals, according to industry leaders.
Digital assets are here to stay
From cryptocurrency to central bank digital currencies (CBDCs), digital assets have significantly disrupted the industry. Alex Manson, who heads SC Ventures at Standard Chartered, explains that the power of digital asset technology lies in its ability to enable transactions that would typically require some level of oversight by a third-party institution, thus facilitating decentralisation.
While digital assets are most likely here to stay — perhaps more so with the rise of the metaverse — Manson cautions that they “pose a significant risk as the awareness is low and regulation around this asset class remains uncertain”.
“To capitalise on this opportunity, banks need to be equipped to service, safeguard and trade digital assets. To that end, we will launch additional ventures through the course of 2022 to essentially build infrastructure for digital assets (from brokerage and exchange to tokenisation) in a safe and compliant way,” he says.
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Anton Ruddenklau, partner and head of Financial Services at KPMG in Singapore, also foresees CBDC adoption and development to accelerate next year. “CBDCs will deliver an ecosystem of services that will move cryptocurrencies past its tipping point for widespread adoption for consumers and the wholesale markets.”
“Many governments and central banks around the world, including the Monetary Authority of Singapore (MAS), are also exploring the use of CBDCs. With 39 markets having launched, piloted, or in the process of developing CBDC, we project that the rise of CBDCs will attract further research and development efforts, funding, and publicity in 2022.”
Go beyond good customer service
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Being client-centric is no doubt a business necessity amid continuously evolving customer needs, demands and expectations. Many financial institutions have leveraged technologies, such as chatbots and AI-powered robots, to enable a better customer experience. However, those tools should not serve as a replacement for the human touch.
Melita Teo, chief customer and digital officer at AIA Singapore, advises financial institutions and especially insurers, to focus their digitalisation efforts on gaining or improving their ability to identify customers’ preferences. That way, they can better anticipate their customers’ future needs and deliver a more personal and empathetic customer experience.
“Digitalisation strategies should be people-first so that customers can enjoy a personalised interaction that they greatly appreciate, especially when it comes to making purchasing decisions for life insurance. This is why AIA Singapore’s digital-first strategy focuses on providing our customers with high tech, high touch and high trust,” she says.
Financial institutions should also build an embedded finance strategy if they have not done so, as another way to compete on customer-centricity. In embedded finance, financial services are seamlessly integrated into non-financial digital platforms like e-commerce platforms.
KPMG’s Ruddenklau says 2022 will be the year embedded finance comes of age. He adds: “This is seen with the opening up of technology stacks that drive innovation via the humble API (Application Programming Interface), the rise of private capital being injected into fast-growth technology companies, and a shift in the real economy sectors — such as retail, healthcare, manufacturing, and telecoms — that are augmenting their customer journeys with financial services.”
But to achieve this, financial institutions need to open up across several levers — talent, technology, data and business models — to embrace embedded finance. “The biggest opportunity and barrier for the financial services institutions is culture, mindset and skill base that has largely been inward-facing for decades. The industry needs to actively invite new sources of talent to move its culture along and skill up for horizontal, collaborative, and iterative evolution of its business and operating models.”
Cross-border payments to evolve
As cross-border businesses and travel resume, it is likely to spur the emergence of new financial products and services to address that demand. “[For example, we can expect to see] smart cards that can help customers save on foreign exchange fees when they travel, and improved mobile applications that help consumers and businesses make payments overseas seamlessly — all to ease travel arrangements and deliver great customer experience,” says Yogesh Sangle, global head of cross-border payments company Instarem.
Lawrence Chan, group CEO of NETS, also foresees a greater push towards digital cross-border payments. Singapore, for instance, will be linking up its national real-time payment systems PayNow to Malaysia’s equivalent infrastructure DuitNow. By doing so, residents in the two countries can transfer funds via their mobile numbers and pay for their purchases by scanning Singapore’s NETS or Malaysia’s DuitNow QR codes in partner merchants’ stores.
He adds: “Digital payments used to be re served for the bigger, established merchants that can afford international payment schemes. With real-time payment systems and QR payments, small business owners who used to worry about the [huge] cost of accepting digital payments now have the option to extend cashless payment to their customers, which is a prerequisite for doing business [today and in the future].”
Cybersecurity and cyber insurance
With cyber threats aplenty, banks and payment providers will need to explore more ways of securing their data. NETS’s Chan gives the example of enabling payment credentials to move safely and securely through tokenisation, or leveraging blockchain to gain greater transparency through smart contracts.
The increasing concern around cyber threats also presents an opportunity for general insurers to provide insights on the value and often overlooked benefits of cyber insurance. “[Cyber insurance can help organisations] identify protection gaps and mitigate risks pre-loss. It can also provide critical support in the face of an immediate threat or when dealing with long-term con- sequences post-event, providing financial support and access to services, such as legal counsel, forensics and crisis communications and PR,” says Ronak Shah, honorary secretary of the General Insurance Association of Singapore (GIA).
Sustainability no longer a slogan
Following the many discussions around sustainability this year, it is high time for financial institutions to act on their promises to transit to a net-zero carbon economy in 2022. “However, financial institutions must manage the transition in a manner that continues to drive development and progress, especially in emerging economies where dependency on fossil fuels remains high and necessary to quality of life. This is precisely why we are taking approaches that extend beyond the emissions targets, with finance and partnerships to scale impact,” says SC Ventures’s Manson.
He continues: “The Asia Pacific region — home to the largest and fastest-growing mobile-first generation, the largest supply chains and some of the world’s largest carbon-emitting economies — is rife with opportunities for technology and innovation. The challenge for financial services players will be creating space for innovation in a credible and complementary manner that is also commercially viable.”
Meanwhile, GIA’s Shah says the general insurance sector will play a crucial role in helping to meet national environmental and sustainability goals across the region, through risk management and protection capabilities that promote a more resilient and sustainable existence. “In Singapore, aligned to MAS’s green finance vision and one of the key targets of the Government’s Green Plan 2030 for Green Economy, the insurance industry (comprising life, general and reinsurance sectors) has come together to form the Sustainability in Insurance Committee.”
As the Republic works towards becoming a leading green finance hub in Asia, Shah says “we expect to see increased public-private partnership and industry collaboration to develop a more climate-resilient and environment-friendly financial system across the region.”
Photo: Unsplash
