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Tech can improve banking experiences, create opportunities

Even as banking is increasingly conducted digitally, wealth advisors can still play an important role in engaging and guiding clients

MANY different industries, from entertainment to education, have been reshaped by technology in recent years.

With the advent of digitalisation and technologies like artificial intelligence (AI), new insights gained can continue to change the way we live, work and play.

Digitalisation has already had a profound impact on the way people bank. Instead of having to visit ATMs or bank branches to complete transactions, bank customers often have the option of using online tools at their own convenience to complete a wide range of tasks.

The third edition of The Digital Life Index by Publicis Sapient published in the autumn of 2021 found that globally, 77 per cent of people already communicate with their banks online, with younger generations being more likely to engage with their banks through mobile apps versus a website.

Better yet, such tools create additional touch points, which financial institutions can use to offer more personalised products with the power of AI.

In a report published by McKinsey in November last year, the consultancy estimated that AI could generate up to US$1 trillion in additional value for the global banking industry annually.

They expect that some of this value can be generated through customer-facing applications. These include tailored products, personalised user experience, analytics services, automated transactions and robo-advisors.

According to Statista's research, robo-advisor assets under management (AUM) in Singapore is projected to rise to US$1.98 billion this year and US$2.79 billion in 2027, up from US$1.64 billion last year.

Steven Ong, head of DBS Treasures Singapore, noted that the lender has seen mobile banking gain greater traction among bank clients globally, and that across different segments, clients have been able to use digital channels for their investments and wealth needs.

"Overall, the digital shift for clients primarily applies to self-directed transactions such as purchasing equities, making forex transactions, and investing through ready-made portfolio offerings like digiPortfolio or our unit trust investments," he said.

Investors can engage with such robo-advisors simply by filling in a short questionnaire that takes into account their age, investment horizon, risk tolerance and investible savings. The robo-advisor will then take an asset allocation approach based on its algorithm to build a portfolio that is aligned to a person's risk profile and their goals.

"You can think of it as an automated portfolio manager that helps you optimise investing strategies after asking you a few simple questions about your investment experience, risk appetite and investment preferences," Ong said.

Aside from their ease of use, such products are also versatile in that they can cater to the needs of most people across the spectrum of risk tolerance.

Furthermore, they tend to cost less to use over time. While unit trusts typically charge management fees of about 1 to 2 per cent per annum, robo-advisors typically charge management fees of less than 1 per cent per annum.

Proactive management

Aside from robo-advisors, McKinsey analysts noted in its report that there is a lot of potential in tapping AI to evaluate customer data from more sources.

In Singapore, SGFinDex, which stands for Singapore Financial Data Exchange, was launched in December 2020 by the Monetary Authority of Singapore (MAS).

The service gives users and the financial services they engage with a view of their financial data, including their account balances, loans, investments and credit cards.

With a clearer view of their finances, financial institutions can then proactively spot any gaps that their users may have and grow their money.

Ong noted that the bank has an internal data mart with 15,000 customer data points that include factors like a client's profile, the content they are interested in and the types of products and services that they spend money on. This data mart is also supplemented by data from SGFinDex and location data, where users give the bank permission to access such data.

The bank is then able to give clients personalised, actionable insights called "nudges", using more than 100 AI and machine learning (ML) models to send clients the most relevant messages.

Furthermore, DBS Treasures clients also receive proactive prompts based on real-time market data.

Such prompts can include foreign exchange alerts when a currency pair that a customer is holding has moved in a favourable direction, or dividend alerts to remind clients to take action and plan ahead.

"This AI-powered personalisation helps them cut through the noise and improves our clients' experience, making it more time-saving and convenient," Ong said.

McKinsey analysts said banks could go further still to partner with non-financial players to improve the data that they collect.

"Attention is turning to gaining competitive advantage from previously underused customer behaviour data collected via conventional operations.

"This will unlock the hitherto untapped potential of ecosystem-based financing, in which banks, insurers and other financial services firms partner with non-financial players to facilitate seamless customer experiences in areas outside their traditional remit," it said.

Asset tokenisation and the blockchain

Another area of focus could be in the area of the tokenisation of financial assets, which involves fractionalising ownership of assets like property or fine art with digital tokens.

While tokenisation brings the blockchain and other more speculative projects to mind, the underlying technology itself could hold great promise for the future of banking.

For its part, MAS said in May this year that it would pilot an industry project to explore financial asset tokenisation and the infrastructure required. The first industry pilot as part of Project Guardian will focus on potential decentralised finance (DeFi) applications in wholesale funding markets.

The pilot, led by DBS, JPMorgan and digital markets infrastructure operator Marketnode, aims to carry out secured borrowing and lending on a public blockchain-based network through the execution of smart contracts.

"The way to approach Web 3.0 is to keep an open mind," said Deputy Prime Minister Heng Swee Keat.

"We must pierce through both the hubris and the veil of suspicion, to understand the potentially transformative underlying technologies. Let us not throw out the baby with the bathwater," he said.

While blockchain-based technologies still have some challenges to overcome before they can be more widely adopted, large, decentralised networks have proven that improvements to them are possible too.

One such challenge is the need for popular blockchains like Ethereum and Bitcoin to reduce the amount of energy they use to keep themselves secure through a method known as proof of work.

The method involves computers consuming large amounts of energy to compete with each other to solve arbitrary puzzles. The winners are then given the right to update the blockchain and be paid. Researchers estimated that Ethereum consumed about as much energy in a year as the entire country of Chile.

To counter this, Ethereum's developers planned and shifted the blockchain over to a proof of stake consensus mechanism on Sep 15.

Under the new mechanism, computers will stake Ethereum they already have. The more Ethereum they stake, the greater their chance of gaining the right to update the blockchain.

Overnight, this reduced Ethereum's power consumption by 99.95 per cent, making it far more environmentally friendly.

The transition, known as the "merge", received significant attention because it showed that numerous decentralised players could agree and execute risky and contentious moves, which bodes well for future improvements in blockchain technologies.

While the world of cryptocurrencies can seem nebulous and difficult to parse, financial institutions can step in to make sense of these emerging technologies for their clients.

In September, DBS announced that it has partnered with The Sandbox, a decentralised gaming virtual world, to create DBS BetterWorld, an interactive metaverse experience.

The lender said that it will use the virtual 3x3 plot of LAND that it has purchased in the virtual world to explore the potential of Web 3.0 opportunities which could benefit its customers and the broader community.

Said DBS chief executive Piyush Gupta: "We also look forward to harnessing it as an additional innovative platform to spread the word on important environmental, social and governance issues, and to shine a spotlight on communities and partners doing good work to address them."

Still, it is worth noting that cryptocurrencies can be risky, with MAS managing director Ravi Menon calling them "highly hazardous" for retail investors in August this year.

MAS also announced then that it would publicly consult on proposals for regulations to protect consumer interests and on stablecoins by October this year. Customer suitability tests and restricting the use of leverage and credit facilities are just some of the measures being mulled to reduce consumer harm from cryptocurrency trading.

The human touch

As investors take advantage of more digital touch points and AI-generated prompts, some may wonder if banking can be fully digital.

There are signs that such a future is still some ways away. In its Digital Life report, Publicis Sapient found that while 68 per cent of people have spoken with their financial advisor online, only 45 per cent were satisfied with the digital service and nearly half prefer to speak with their financial advisor in person.

They noted that dissatisfaction can occur when a certain activity is too difficult to navigate or takes too many steps to complete. Banks may also need to better connect customer information to generate insights and provide greater personalisation when providing recommendations, related information or offers.

"For activities with lower digital adoption and lower satisfaction rates, like resolving customer service issues, we found the lack of ability to solve issues online to be the biggest area of frustration, with people looking elsewhere for guidance," the report said.

Although DBS' Ong noted that the wealth management services industry has traditionally been relationship-led, that does not mean that such services are less relevant today.

"Instead, it is quite the opposite, even at a time when more clients want and are able to do more self-directed investment transactions," he said.

An important role that wealth advisors play is in explaining the risks and benefits of investing in certain structured products, which would be beneficial to clients who are new to such instruments.

"Another benefit of this is the ability for clients to build trust and rapport with their wealth advisors, which is essential in any long-term relationship," Ong said.

Wealth advisors are also being advised by the bank's AI to better serve clients.

As clients engage with DBS' digital touch points, nudges are also sent to wealth advisors so that they can pick the most relevant and high-priority conversations to engage clients with.

For instance, the bank is able to proactively send clients suggestions on investment themes and ideas and monitor their responses. Afterwards, wealth advisors will then receive contextual information on the client's response to help facilitate further engagement.

"By leveraging our AI and ML models, our wealth advisors are able to have more meaningful and comprehensive conversations with our clients based on their investment interests as well as their needs for wealth management," Ong said.

Furthermore, as markets become more volatile, he noted that investors can naturally feel more concerned and emotional over their investments. This is where wealth advisors can play their part in helping ensure that clients remain calm, he said.

"During such times, wealth advisors are able to draw on their experience to steady the ship and if need be, guide clients from investing too emotionally or irrationally and instead, focus on their long-term wealth management goals," Ong said

"What technology does is act as a powerful complement to traditional advisory services. It ties the wealth management experience, making it a more all-rounded one."

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