Banks shift priorities to digitalisation, innovation: EY

• Aligned with APAC peers, Malaysian banks look to become digitally mature by 2020
• Focus for 2018 on partnerships with fintechs, investing in tech, improving risk management

ACCORDING to the EY Global Banking Outlook 2018, 85% of banks globally cite implementation of a digital transformation program as a business priority for 2018, with greater investment in technology to drive efficiency and growth. Managing evolving risks is also viewed as critical for sustainable success.

The survey of senior executives at 221 banking institutions across Asia-Pacific, Europe, North America and emerging markets found that just 4% of banks across developed markets in Asia-Pacific currently view themselves as being digitally mature or digital leaders. In comparison, 27% of banks in North America and 15% in Europe consider themselves as being digitally mature today. 

EY Global Banking and Capital Markets deputy sector leader Jan Bellens, says this may indicate that American and European banks are benchmarking themselves against traditional competitors, while banks in the developed Asia-Pacific markets of Australia, Hong Kong, Singapore and Japan are comparing their maturity levels with those of emerging competitors, who have more digitally-focused business models.

“Asia-Pacific has a much higher penetration of digital and mobile technology adoption than many other regions. Mainland China, for example, has the highest rate of fintech adoption in the world and many of the big cities there are effectively operating as cashless environments. Compare this with the US, where cheques are still prevalent and the relative benchmarks for financial digital maturity look quite different,” Bellens says.

“Regardless, there is an obvious recognition among Asia-Pacific banks of the urgency of embracing digitalisation, with 60% in the developed and 57% in the emerging Asia-Pacific markets aspiring to reach digital maturity by 2020, almost on par with the global average of 62%.”

The survey further found banks in developed Asia-Pacific markets, such as Hong Kong, Australia and Singapore, are focusing on developing partnerships with fintechs, investing in technology to reach customers and improving risk management, with 82% listing these as their top business priorities for 2018.

Meanwhile, all respondent banks in the emerging Asia-Pacific markets surveyed (Mainland China, India, Indonesia and Malaysia) list their top priorities for the year as implementing a digital transformation programmme, gaining efficiencies through technology, and enhancing data and cyber-security.

Shankar Kanabiran (pic), partner and Malaysia Financial Services Banking & Capital Markets advisory leader, Ernst & Young Advisory Services Sdn Bhd, says, “In Malaysia, 66% of banks surveyed aim to reach digital maturity by 2020, echoing similar aspirations to other markets in the region and the world.  

“All of them are focussed on investing in technology in the coming three years in line with their growth strategies and in order to generate cost savings and operating efficiencies. Over 50% of the banks in Malaysia are also likely to set up partnerships or joint ventures in core markets this year.

“All of the banks surveyed in Malaysia have similarly identified recruiting, developing and retaining talent as one of the top priorities, with digitalisation and other market demands pushing for new or upgraded skills from the workforce,” continues Shankar.

Further commenting on the banking landscape in Malaysia, Chan Hooi Lam (pic), partner and Malaysia leader for Financial Accounting Advisory Services (FAAS) says, “IFRS 9 or MFRS 9 Financial Instruments has been effective in Malaysia since Jan 1, 2018. With much more reliable and auditable credit information made available under MFRS 9, it will be critical for banks to improve their digital and technological capabilities to ensure accurate and efficient financial reporting, as well as to take advantage of the available analytics now made possible.”

“The majority (75%) of banks in the developed Asia-Pacific markets and half (50%) of banks in the emerging markets also stated they are planning to set up new partnerships or JVs in their core markets in 2018. So, we are likely to see greater collaboration between Asia-Pacific banks and e-commerce or other technology platform players, particularly as open banking reforms progress in markets such as Australia, Hong Kong and Singapore,” says Bellens.

Globally, addressing cyber-security is the top priority for banks (89%) in 2018, replacing last year’s top priority of managing reputational, conduct and culture risks, which falls to sixth place in this year’s report.

Recruiting, developing and retaining key talent (83%) also garners significant attention as banks strive to integrate cyber experts into their organizations amid a shortage of skill sets.

“Ten years after the global financial crisis, banks are experiencing increased competition from a range of new market entrants and evolving risks that challenge their ability to deliver sustainable profitability. In order for banks to weather the performance challenges that lie ahead, they must emerge from an era of regulatory-driven transformation and prepare new strategies for a future led by innovation and technology,” Bellens concludes.

Other key findings from the global survey include:

• 59% of banks surveyed globally anticipate that their technology investment budgets will rise by more than 10% in 2018.
• Among those banks that are beginning to invest or are increasing their investment in new technologies, 44% plan to purchase the technology from a third party, while only 17% plan to acquire an entity to onboard the technology.
• 70% of banks globally cite strengthening their competitive positioning as a key reason for investing in technology by 2020.
• Enhancing cyber- and data-security is the number one priority for banks globally, with 73% of banks planning to invest in technology to mitigate cyber-security threats.