In here speeech during the Asian Banker Digital Finance Convention 2018, Ms Jessica Chew Cheng Lian, Deputy Governor of the Central Bank of Malaysia, talks about the role of digital leadership, ensuring the quality of growth in the financial sector, future-proofing the workforce and preparing the society for digital finance.
Kodak’s story is a familiar one, now infamous as a classic case of digital disruption. At the turn of the century, film was still very much the technology of choice. But within years, the digital camera quickly took over the mass market, eventually putting Kodak out of business. And the story does not end there, as we all know. Very soon, most people were taking pictures with their phones instead. This may be an old cautionary tale, but its message continues to be relevant. The digital revolution is real. It is inevitable. And it is pervasive in ways that change the way we live today, and in ways we cannot yet imagine. At its most fundamental level, perhaps the most significant change brought about by the digital revolution has been the change in paradigm. By this, I mean the basic assumptions that shape our thinking – whether in a business, social or political context.
In the world of finance, some of the questions being asked today are: What makes a bank a bank? Will digital currency ever replace central-bank issued money? Or more likely, will central banks issue their own versions of digital currency and in the process, disintermediate banks? Are banks selling financial products, or are they offering a lifestyle, opportunity and the freedom to pursue a new and different path in life? What business are banks really in? When everyone stopped using film in cameras, one wonders if Kodak realised that it was actually in the business of capturing memories. Or when smartphones burst into the mobile handset market, did Nokia realise that their business was not selling mobile handsets, but connecting people with the world around them?
Three years ago, McKinsey predicted that technological advancements will redefine the landscape of finance, and then went on to argue that incumbents had – at most – a brief window of five years to adapt or risk becoming obsolete. You may or may not agree with this, but I think it would be hard to deny that a shake-up of the industry is already present. To some extent, the finance industry has been responding. Total IT spending is estimated at over $200 billion every year across the regions of North America, Europe, Asia Pacific and Latin America. In 2016, a single global bank spent $9.5 billion, or 16% of its expenses on technology. The impact of these investments are becoming increasingly visible – banking without branches, investing without brokers, paying without paper.
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Elevating the quality of financial sector growth
(…) There are two perspectives to this. First, digitisation offers enormous potential for the financial sector to achieve what was not possible before, at least not without prohibitive costs. And second, the transition to a digital economy itself calls for a re-orientation of the financial sector to meet the new business demands for financial services. On both counts, the financial industry can, and in fact ought to be, powerful agents of change. With a little ingenuity, digital finance can unlock new growth opportunities that were previously deemed to be not commercially viable. Indeed, disruptive innovations – whether in banking or beyond – often begin at the fringes of the market, such as the underserved and unserved segments.
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Preparing society for digital finance
(…) The consumer experience of financial services is changing dramatically. This is happening on several levels. Customer interfaces are shifting online. The basic commodity of finance – money – is being replaced by electronic forms. Financial products are offered as part of a seamless solution for customers buying property, subscribing to a mobile phone or data package, going on a holiday or enrolling in university. This in turn alters the relationships that a consumer develops, which can be several layers removed from the entity that is ultimately providing a financial product or service. Frameworks and business practices designed to protect consumers have not fully kept up with these changes. This can increase risks to consumers – from a lack of transparency, misrepresentations, the inappropriate use of data to unfairly discriminate against consumer segments, legal loopholes, and financial fraud. Greater access to financial services itself through the entry of new and unconventional players can also contribute to over-indebtedness.
More needs to be done to better prepare society for digital finance. This must address the information needs of consumers in the context of digital financial services, clear parameters adopted by financial institutions for offering financial products through a new interface, and expanded arrangements for handling complaints which also cover the role of intermediaries through which financial services are offered. Most importantly, we need to increase efforts to educate consumers on how to protect themselves against fraud, and the implications of giving consent for their data to be collected and used.
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Conclusion
It has been said that not since the digital revolution in the 1990s has technology placed such a comprehensive burden on business, employees and individuals to reinvent themselves. In the process, a vast range of possibilities and challenges will open up for the world of finance to deliver stronger, higher quality and more inclusive growth. Individually and collectively, we will face stark choices that will shape the future of financial services in Malaysia. It is critical that we move forward thoughtfully to ensure a financial system for the ages and for all segments of society.
You can read the full version of the speech on the website of BIS.
Source: https://www.bis.org
