It's time for banks to take digitalisation to new levels

YEARS before Covid-19 struck, a shift was underway in Singapore's financial landscape: digital banking and payment solutions were slowly, but steadily, gaining traction among consumers and merchants. The novel coronavirus outbreak, which has forced the implementation of social distancing measures and essentially driven people indoors for safety, is now supercharging this shift.

In the first quarter of 2020, at the early onset of the pandemic, all three local banks reported notable growth in digital transactions. DBS Bank said overall cashless transactions nearly doubled from the numbers in the same period last year. United Overseas Bank (UOB) recorded a 44-per-cent increase in online grocery shopping using the bank's cards, while OCBC Bank said customer spending on food deliveries and digital services such as Netflix and Spotify went up by about half.

On the other hand, the volume of cash transactions has fallen. Consumers are making fewer trips to automated teller machines (ATMs), with DBS registering an unprecedented 11 per cent fall in cash withdrawals and deposits. Moreover, in line with best hygiene practices, consumers are doing their best not to use cash to pay for goods over the counter, such as at supermarkets.

This reality is fortuitously dovetailing with Singapore's digital banking and "e-payments society" aspirations. While the country previously had to battle resistance from a population that largely believed cash was king and had not fully appreciated the benefits of online banking and payments, it is now seeing a switchover. All at once, consumers are banking online and making digital payments from the comforts of their homes.

Elsewhere, the much talked-about financial inclusion may also slow down as the default risk increases in a post-Covid-19 recession. Banks will then have to stay focused on the right risk-mitigation strategies in order to navigate this.

The unparalleled demand for electronic banking and payments presents both an opportunity and responsibility for banks to accelerate and advance their digital strategies. As consumers and merchants leapfrog into the virtual realm, banks will need to run their digital services more compellingly.

A REALITY CHECK FOR BANKS

The crystal ball tells us that this momentum of online banking and digital payments is set to accelerate. As with any new technology, once users overcome the initial hurdle of adoption and experience the benefits and convenience, there is usually no looking back or returning to the old way.

Banks that had earlier embraced and invested in digital-banking technologies - which can range from electronic know-your-customer practices to virtual on-boarding to remote interview tools - are reaping returns during the Covid-19 period. Simply, the technologies they have put money in now allow them to offer banking services that are transactional, efficient and, most importantly, safe.

The next step for these first-mover banks is to go beyond providing digital solutions. This could entail a deeper focus on infrastructural, vital components such as cyber-security, user-experience design, back-office functionality and seamless integration. Without these, banks run the risk of losing the trust of users, lowering customer satisfaction and hurting revenues.

Banks that had just been dipping their toes into electronic waters prior to Covid-19 will now be hard-pressed to take digital transformation seriously and bolster their digital offerings to remain relevant to customers, who are increasingly banking online. They will have to properly assess the financial technology (fintech) solutions in the market, and actually make the call to adopt and embed the relevant fintech products and services into their platforms.

Inaction is no longer an option. The mass switch to digital banking has arrived too acutely for banks that have previously been sluggish to act on digital transformation to remain passive. The rueful result for these banks is an extremely short runway to rise to the occasion during this outbreak, which entails the incorporation of digital technologies to keep up with consumer needs, and competitor banks.

STAYING ON TRACK POST-PANDEMIC

There is good news. Banks are not strangers to fintech. With some 750 fintechs in Singapore making up 43 per cent of such firms in Southeast Asia, the opportunities for digital transformation are boundless. Prompted by Covid-19 and the recent spotlight on startups and profitability, a consolidation of the fintech sector is expected to land shortly and advantageously. The benefits of consolidation include improved efficiency in fintech offerings, and a greater availability of funds for improving products, processes and resources.

To boot, with abundant reports on the fintech landscape - produced by analysts who would usually highlight promising startups and up-and-coming solutions - banks today no longer lack the intelligence or clarity to make a decision on the technologies to purchase, or companies to partner with.

It is an opportune time now to explore a number of options, including investing in training through reskilling and upskilling of employees. Once banks affirm their digital strategies, they will need a post-pandemic recovery plan, which might look at customer acquisition or a new focus in lending.

Notably, a big part of this approach is nurturing the right talent to address the shifting demands of consumers. Banks could consider taking this time to accelerate the closure of their legacy systems from wet-signature removal to the adoption of cloud solutions - especially since red tape and bureaucracy are entrenched in the industry. Those who have the financial capability to invest in research and development should consider doing so, in order to build proprietary technology that will enable them to pivot their product offerings in this time of uncertainty.

Banks that have yet to digitise must leverage quick wins through partnerships and acquisitions, or risk lagging behind even further.

If the Covid-19 pandemic has made anything clear, it is that financial institutions of all sizes have to act decisively and swiftly to commit to digital transformation. Time is no longer on the side of the slow-to-respond, who will not always have the opportunity to catch up. But should the banks play their cards right, a good number of them will survive the crisis and emerge even stronger than they were before.