Liew Nam Soon, EY Asean Managing Partner, Financial Services, discusses the new trends around how financial institutions are seeking ways to drive growth and how they are approaching fintech collaborations.

Liew Nam Soon, in the discussion you had with Financial Institutions, which parts of the value chain do you see the most disruption and what should they be focused on?

There are plenty of bank-fintech engagements across ASEAN and within Malaysia. The discussions shared during the roundtable are that many local banks like CIMB, Maybank and RHB are engaging with them via incubator programs since 2015.

These banks typically engage with them for projects revolving around mobile banking, payments, and loyalty programs. This is also targeted at some of the underserved customers in the country. Others are looking at robotics or automation of their front and back office operations, including chatbots in place of call centers and eKYC/AML enablers.

«Banks especially realize that it’s time to bring the focus back to their customers»

Insurers on the other hand are facing some disruption from comparison platforms like GoBear, which started as a comparison site for insurance products but has since expanded to include banking products. However, they can also use it to their advantage by collaborating with them. Others will actually see fintech like PolicyPal being more of a partner at the onset to provide more value-added services to their customers.

Nam Soon 500

EY moderated a rousing roundtable discussion lead by Liew Nam Soon, with senior risk, compliance, innovation and digital officers in financial services.

The common goal for both Financial Institutions (FIs) and fintechs should ultimately be to address the real needs of their target customers. Banks especially realize that it’s time to bring the focus back to their customers by addressing expectations gaps and elevating the end-to-end customer experience.

This is especially crucial where customer loyalty and faith in the banking system has been impacted in recent years. It has also given non-banks an opportunity to rise up and fill in the gap left behind by the traditional FIs.

What are key considerations they should bear in mind in order to strike the balance between innovation and cost?

A lot of the more traditional FIs find their innovation and digital journey somewhat hampered by their organizational culture and legacy systems. This has an impact on their speed to market and costs in regards to development and implementation.

Some FIs use innovation to drive down risk and increase operational efficiencies whereas more are looking into increasing their share of wallet by selling to the unbanked population.

In my opinion, it all ultimately boils down to longer term margins and ROI that can be derived from this innovation that should be able to help them improve on customer acquisition, loyalty, trust and relationships instead of just improving operational efficiency.

«They are also more cautious towards exposing themselves to unnecessary risks»

FIs should have very clear perspectives of what they are trying to achieve as a result of the innovation journey coupled with a visible and realistic roadmap outlining potential pitfalls, foreseeable costs, key milestones and monetization opportunities. This will better enable their decision-making process in regards to whether to build their own, acquire new or partner with a solutions provider for their digital transformation journey.

When it comes to collaborations between FIs and fintechs what are some of the key challenges shared?

The most obvious difference raised during the discussion is around the legacy and compliance related challenges that traditional FIs have to deal with as compared to the fintechs.

They are also more cautious towards exposing themselves to unnecessary risks when partnering, acquiring or funding a fintech. This is in terms of how well the fintechs are able to integrate into their existing systems and processes.

«Increasingly, a lot of financial institutions are also partnering with independent firms like EY»

In our experience working with our FIs clients and the fintechs, we find it’s crucial to start off on the right foot by first identifying the right fit through a standard framework with all the checks and balances in place. This can include considerations around whether the fintech is financially sound and has ability to scale and ramp up to the level required to fit into a big banking system, to whether they can align with the vision, strategy and culture of the organization.

Only when this list of initial check and balances are completed should FIs then look at the actual integration into their existing systems and processes without negatively impacting the customer journey at the front-end. That process itself has its own set of risks and considerations from a compliance, integration and security standpoint.

How can consultancies like EY help in terms of fintech collaboration and integration?

Currently, we observed that a lot of FIs are looking at such innovations in silos across different pockets of their organization. More are setting up fintech and Innovation labs or departments within the organization to help drive some of these innovations with direct reporting lines into the CEO, CIO or CDO.

Increasingly, a lot of FIs are also partnering with independent firms like EY to provide an independent view and advice on what FinTech innovations are needed to fill the gaps within the organization and how to bring them all together seamlessly.

«We are also able to support incubator and accelerator programs»

This is a good approach as having an independent and neutral view can better enable a big picture and helicopter view across the entire organization, which helps in identifying not just gaps but risks and opportunities as well.

We are also able to support incubator and accelerator programs, having a solid global network of innovation labs in the major cities.

This coupled with our strategies around fintech integration and deployment enables us to provide an end-to-end suite of solutions from identifying the right fintech to ensure the right fit, identifying potential risks with regards to compliance and cybersecurity, to actual implementation work on integrating them into the core banking systems whilst enhancing the customer journey.