SINGAPORE (Nov 11): With the adoption of technology, banking has evolved from physical branches with human tellers to automated teller machines to online platforms where transactions are carried out without entering a bank branch.
Today, banking is undergoing yet another evolution with digital technologies, which have enabled some banks to be wholly digital, without any physical presence. These changes in banking are the result of the availability of data and the ability to interpret the data, according to Daichi Iwata, director of the digital integration division at NEC Corp.
“Some people say digital banking is an extension of the current banking through the smartphone, but I think it is going to be totally different. It will be based on a deeper understanding of people and businesses, with data to provide services on demand,” says Iwata in an interview with The Edge Singapore.
Banking is about understanding people and businesses, and technology is about providing better insights and more information for banks and financial institutions. Technology is providing more precise and cheaper analytics, which can help financial institutions identify customers better.
“You can identify people through digital channels much better than through physical channels. By combining insights, information and identity, product generation and delivery for banking is going to change,” says Iwata.
Data science and automation will be the driving forces for the changes banks will face as they turn digital. Data collection is going to get easier, and integrating the data, including data other than banking transactions, will also get easier. The hard part, according to Iwata, is the ability of organisations to automate data science.
“There are only a few people well versed enough in data science and analytics to understand people and create new products. But if you automate the data science process, more people can be involved in digital banking product generation and offerings. Offering such automation is going to change a lot of things,” says Iwata.
While not all banks might need to go digital, the opportunities might prove hard to miss out on. Iwata notes that going digital might help bank the unbanked, which makes up a significant portion of the Southeast Asian population.
“[The unbanked] have a hard time identifying themselves; this can be solved with a digital identity. If they can prove who they are through the data they generate from working or payment or other exchanges, banks can start offering them new services,” he says. “These are new opportunities for banks to capture, and I know some banks are opting for these opportunities and some are not. This is dependent on the bank’s strategy.”
AI to the rescue
Going digital can prove to be lucrative for banks and financial institutions, but there are limitations to their digital push: the tight talent pool of data scientists and analysts. “The issue here for banks is to hire top talent for data analytics. Even in Singapore, it is getting harder and harder to find top talent,” says Iwata.
The competition for top talent has driven salaries sky high. Banks are competing with other industries, including hot start-ups and tech companies from Silicon Valley. NEC is focusing on finding a solution by providing and automating data analytics services.
“The issue is the high cost for data science talent — there is more demand than supply. We are trying to tackle this issue by providing a service to automate the data science process so that entry data science analysts or engineers can perform and get results like top data scientists,” Iwata says.
NEC, one of the largest and most renowned technology companies in Japan, is already providing such a service to banks in its home market. The company has integrated its data science automation software with banking services. This integration and automation will allow banks and financial institutions to unlock new opportunities from understanding their customers better, improved credit assessment and matching businesses. According to Iwata, these are basic functions for banks.
Traditionally, understanding the customer meant segmenting them into age bands, sex, marital status and income level. This meant products were more general than specific to customers.
“It is like providing clothes that are sized S, M and L. But what data analytics can do for customer profiling is really understand who the customers are. Rather than provide clothes sized S, M and L, you can provide clothes that are the correct fit for the customer,” says Iwata.
This is what artificial intelligence (AI) and data analytics can do for financial institutions. With deeper insights into customers, more products and services can be tailored for each customer.
This, then, leads to better credit risk assessment as financial institutions get a better understanding of customers. This will allow customers to get the best interest rates, based on the financial institutions’ understanding of them. “You will be able to get the best interest and credit rates for the customers,” Iwata explains.
Leveraging the data would also allow financial institutions to match businesses through a digital platform, he says. This opens up opportunities for small and medium-sized enterprises (SMEs) through financial institutions.
“We started offering this business matching service in Japan, and it is one of the things financial institutions can do. SMEs have great products, but lack resources. But if you can match their supply and demand through digital channels and AI, you can help them have access to the right customers, with low marginal cost,” says Iwata.
To him, digital banking would be a combination of things such as risk assessment and helping businesses grow through matching them with customers on a digital platform. “Banks are in the best place to understand what the business is doing. Human research has limitations, and that is where technology can come in and understand each business more easily and match their needs in a cost-effective way,” he says.
These are also part of the broader digital trends NEC is seeing from its banking customers. As financial institutions turn digital, it would result in a win-win situation for both the customers and the institutions.
Ensuring security
In this day and age of data breaches and hacked servers, going digital will also require financial institutions to consider security. Digital banking requires not just digital solutions but also a community to support financial institutions as they go digital.
“Banks want to go digital to serve customers better and grasp new opportunities. But there is a risk in cybersecurity and data governance. If there is a community to support the banks to go digital — people who care about security and data governance issues, a community around the banking ecosystem — banks can easily go digital. Without people playing that role, it would be harder for banks to go digital,” says Iwata.
NEC has a huge portfolio of technological capabilities. One key area is its strength in cybersecurity, using technology such as biometrics. The company is also enhancing its solutions with digital identity, security by design and data governance, so that banks can go digital more easily without overthinking the risks.
“Our goal is to be a leading player in the digital banking solutions space, through data science automation, banking as a service, data governance and security by design. We have strong assets and good customers; with our banking-as-a-service software solutions, we have data science services, and cybersecurity as our strength. By combining these good assets and collaborating with fintech start-ups, we can offer digital banking services that [prioritise] data governance and cybersecurity,” says Iwata.
Along with these services, NEC is also in the cryptography space, with R&D focused on improving encryption. This is one of NEC’s strong suits, according to Iwata. Private and public key encryption as well hash encryption are methods to ensure data integrity.
“Crypto is a combination of technologies such as signatures, hash, encryption and keyless encryption. We have combined these technologies to better suit the increasing risk of cyberattacks,” says Iwata.
Ensuring cybersecurity is a challenge that never ends, with new threats constantly on the horizon. Iwata’s solution is to cultivate resilience, as financial institutions continue to fight against these threats. “It’s about fixing systems to become better. I think it’s a cycle, to understand and detect what happens and become more resilient after that. It’s not about a one-time solution but a life cycle of security,” he says.
Digital banking opportunities are for all, not just financial institutions. Customers benefit too, as the case of the unbanked population shows. For example, NEC has a financial inclusion gateway in India, for which a handful of banks signed up. Another example — citizens in India can do banking transactions using their biometrics. NEC’s solution can also help other countries looking to solve this problem as well. “NEC wants to do more in this space and will be doing more in the coming years,” says Iwata.
