We are now entering the digital business era, where companies are increasingly experimenting and deploying new technologies to stay competitive in a time of economic uncertainty. Here are some areas they should prioritise in 2024 to improve operational efficiency and resiliency as well as build up innovative capabilities.
The high interest in generative AI is expected to continue next year as the technology could add up to US$4.4 trillion ($5.9 trillion) to the global economy annually, according to the McKinsey Global Institute.
Specific to the banking sector, generative AI can potentially deliver US$200 billion to US$340 billion in value, largely from increased productivity. For instance, employees of United Overseas Bank U11 (UOB) can use generative AI to retrieve and reference information within the bank quickly, while app developers at the Oversea-Chinese Banking Corp (OCBC) are leveraging generative AI to generate, debug and improve computer codes automatically.
“Many AI solutions (including generative AI) facilitate back-office automation, resulting in streamlined processes, reduced headcount and lower labour costs. In the current uncertain economic landscape, the imperative to improve operational efficiency and curtail costs positions this as one of the key focus areas for banks next year,” says Meng Liu, senior analyst at market research company Forrester.
Besides boosting productivity, generative AI can help banks revolutionise the customer experience. “Front office and servicing transformation needs to leverage customer intelligence to enhance the customer experience. Generative AI can help deepen a bank’s understanding of its customer circumstances by streamlining processes such as know-your-customer, complaints and knowledge management,” says Dayan Koven, managing director of financial services for Singapore at professional services firm Accenture.
He continues: “Future success hinges on banks becoming life-centric, fostering meaningful experiences through hyper-personalisation, innovative operations, and customer engagement. In the evolving human-machine work landscape, generative AI serves as a linchpin.”
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Continued focus on decarbonisation
Faced with increased pressure from regulators and customers to be sustainable, banks must further leverage technology to meet their carbon-neutral and net-zero goals.
“The adoption of appropriate technologies and digital tools will further sharpen the focus of decarbonisation processes, particularly when monitoring the process and corresponding results. Cloud computing, data analytics tools, and optimised supply chain logistics can streamline workflows, minimise energy consumption, and reduce waste generation. These efforts not only contribute to global decarbonisation goals but also help to ensure cost savings and improved operational performance,” says Shinichi Tonomura, head of financial services for Asia Pacific at Capgemini, a tech and consulting services company.
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Meanwhile, Seah Li Yun, EY Asean banking & capital markets leader, encourages banks to continue developing sustainable financial products and services next year.
He says: “Banks need to increase their commitment toward sustainable banking, and customise their products and services to support their environmental, social and governance targets. Through partnerships and collaborations, this could create solutions to achieve these goals and help to address legacy infrastructure issues that inhibit the flexibility and agility to meet customers’ needs.”
Web 3 and digital asset tokenisation
As the saying goes: “Insanity is doing the same thing over and over again and expecting different results.” Banks that want to thrive will therefore need to redesign or significantly transform their operations instead of simply making incremental changes to existing processes. McKinsey believes those that successfully do so will be more profitable and grow faster while leading to a value-creation opportunity of up to US$20 trillion.
One area that banks should look at is Web 3, which is said to be a decentralised and more democratic version of the current Internet. In Web 3, control is no longer centralised in large platforms and aggregators, but rather is widely distributed to users through “permissionless” blockchains and smart contracts.
This can help tackle some pervasive issues in banking such as slow and opaque processes leading to poor customer experiences and high costs to deliver many services. In short, Web 3 is believed to be able to make banking services faster, less expensive, and more transparent for customers while improving resiliency for banks.
“Web 3 looks set to unlock greater affordances for local banks to boost their efficiency by building up their capabilities in several aspects such as the facilitation of high-velocity money and the concomitant quicker settlement near real-time, and empowering customers with full autonomy to manage their digital identities in a decentralised manner through self-sovereign identities, among others. Digital identity solutions, implemented with interoperability and regulatory standards, combined with Web 3.0 can further democratise the value exchange mechanism and scale adoption of digital tools,” says Capgemini’s Tonomura.
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In line with this, banks should focus on digital asset tokenisation and the realm of digital currencies, encompassing both cryptocurrencies and central bank digital currencies (CBDCs).
“Singapore —renowned as a global innovation hub for blockchain and digital currencies — is well-positioned to capitalise on its relatively favourable and transparent regulatory environment. This advantage can be harnessed by banks to spearhead innovations and deploy digital asset tokenisation across diverse sectors, spanning retail financial services, commercial and business banking, as well as capital markets,” says Forrester’s Liu.
He adds: “The scope of digital asset tokenisation extends beyond merely introducing and facilitating cryptocurrencies. It involves the transformation of real-world assets into easily tradable and securitised tokens, overcoming historical barriers to investment. Banks in Singapore, such as DBS and Standard Chartered, have already taken strides in experimenting with and developing use cases for digital asset tokenisation. Anticipated is a proliferation of such initiatives in 2024, underlining the growing momentum and commitment within the industry to explore the vast potential of this transformative technology.”
Ensuring trust
Trust is the ultimate currency for a bank. “When [banks digitally transform], the key focus should be on customer journeys that preserve customer trust, striking a delicate balance between security and convenience,” asserts Accenture’s Koven.
Echoing the same sentiment, EY’s Seah says: “As banks embark on their digital transformation journey to drive better customer engagement, they should not lose focus on the importance of building trust and confidence in customers. Those projects should focus on technology, resources and people to build a resilient ecosystem, handle surges in digital traffic volume, as well as react to situations such as disruptions, scams and cyberattacks.”
The good news is that data, security and risk technologies emerge as the foremost priority in technology investments for business and tech leaders in banks across Asia Pacific — surpassing the emphasis placed on investments in AI — according to a 2023 study by Forrester.
“This heightened focus on security and risk technologies is a response to the region’s escalating threat landscape, characterised by increasingly sophisticated business risks such as fraud and scams, as well as a surge in cyberattacks leading to data breaches. Anticipated for 2024 is a surge in digital transformation projects centred around enhancing security and risk management,” shares Liu.
To ensure the reliability of banking services, Tonomura advises banks to assess their usage of cloud and software-as-a-service (SaaS) solutions.
He explains: “As organisations digitalise and begin to tap into external tools and resources, it is important to conduct a comprehensive assessment of cloud concentration risks and third-party risks through application programming interfaces (APIs). Over-reliance on a single cloud provider exposes banks to several risks and disruptions as it leads to vendor lock-in, and integrating external APIs introduces security vulnerabilities and data privacy concerns.
“To mitigate these risks, banks should implement a multi-cloud strategy and robust API security measures and seize the opportunity to tighten data privacy and security measures. By proactively managing potential risks, banks can effectively leverage the benefits of cloud computing while maintaining system resilience and safeguarding customer data.”
To gain a competitive edge in 2024 and beyond, banks must evolve beyond traditional strengths and embrace new possibilities using technology strategically. However, they should innovate while ensuring operational resiliency and that they meet regulatory requirements as they are in the business of trust.
