Digital transformation in banking: Riding the waves of disruption

Sylvester Kinuthia - Head of Transaction Banking Standard Chartered Bank Vietnam

When we look back to the first half of 2020, at the onset of the pandemic, digitisation was a crucial first-response action for businesses to implement continuity plans and stabilise operations. That has evolved – businesses are now rethinking their digitisation strategies to increase resilience and optimise business processes for future growth opportunities.

Banking is one sector which is being disrupted from the outside, with the emergence of fintech companies offering a range of banking services but also from within the industry itself. Take the example of mobile access to banking services or instant payments. These are now customer expectations rather than differentiators.

At Standard Chartered, we view digitisation as more than simply moving existing brick-and-mortar business models online. We see the potential for a wider industry transformation which can be achieved by continuously relooking at the ways of doing business and engaging with customers, partners, regulators, and government. We see multilateral collaboration as the way forward and we are already very much involved in this space through co-creating solutions with our clients and external partners.

It is evident that digital transformation transcends banking; it is sending ripples across many industries and the main accelerant for this transformation has been the COVID-19 pandemic. According to a McKinsey Global Survey of executives, companies have accelerated digitisation of their customer and supply chain interactions and internal operations by three to four years since COVID-19. In the Asia-Pacific, this is even more pronounced with companies accelerating the digitisation of the average share of their products and services by 10+ years.

As a result, there are a number of emerging trends that we are witnessing globally, among them: an accelerated shift to e-commerce; the reinvention of trade and supply chains; focus on end-to-end digitisation of the client journey; and the need for increased operational agility.

The first trend is the accelerated shift to e-commerce which is giving rise to digital economies across ASEAN. Research shows that ASEAN’s digital economy is projected to triple to $300 billion by 2025, becoming the largest digital economy market after the United States and China. Vietnam’s digital economy on the other hand is expected to reach $52 billion in value over the same period. In fact, Vietnam’s digital economy had double-digit growth last year (16 per cent on-year), making it the highest in the region and with the government’s launch of the National Digital Transformation Programme towards 2025 with a vision until 2030, this will spur more growth in this space.

Digital transformation in banking Riding the waves of disruption

The huge shift is mainly in business-to-business (B2B) e-commerce, with B2B buyers seeking a similar user experience as business-to-consumer (B2C) customers. This is driving numerous disruptions, especially around the development of new payment and collections options, such as instant payments (domestic and cross-border), online collections, last mile and in-store collections, invoice collections, multi-channel payment links, request-to-pay, and real-time direct debits.

All these options are particularly relevant and valuable for treasurers today who are looking to maximise efficiency by improving their cash flows to better support their businesses. Banks must therefore be agile enough and ready to help both B2C and B2B organisations in this transformation journey and with the evolving needs and behaviours.

The second trend is the reinvention that is taking place within trade finance and across supply chains. This is mainly due to the growing need for efficiency and more so because of the increased challenges brought about by the restricted movement of goods and people due to the pandemic. Trade finance is a key enabler of global commerce and therefore a prime candidate for embracing technology. However, it remains heavily reliant on paper and manual processes making it expensive and inefficient. Technology like blockchain provides the opportunity for fast and secure information movement, enables data-sharing and management, and improves confidence that electronic documentation is genuine and valid throughout the distribution process. That said, to move the dial on the digitisation of trade, there is a need for new laws and standards governing electronic contracts, liability, and the sharing of data and information.

On the other hand, supply chains are becoming increasingly complex mainly because they have been disrupted by geopolitical tensions and the pandemic, among other factors. This has accelerated the need to diversify production and distribution to ensure access to supply-chain financing. In response to this, companies are increasingly embracing digitisation.

When you look at the traditional model of banking, it is vertical. Digital models on the other hand are horizontal, with platforms on which multiple parties co-exist. As ecosystems emerge, we are seeing a shift to platforms that enable the connection of traditionally siloed industries to deliver an integrated customer experience.

This is changing the way organisations manage their business, interact with their trading partners, and access financing. Standard Chartered has taken the lead in supporting businesses by collaborating with third-party platforms. We are enabling clients to access our financial supply chain solutions through third-party platforms, making it easier for buyers and suppliers to connect and to access financing to support their sustainable business growth. As our clients increasingly connect and integrate with different platforms, we are embracing open banking to ensure that we can support them no matter which platform or network they are part of.

Third is digitising the end-to-end client journey. This is more of an internal area of focus for us at Standard Chartered rather than a trend. In fact, it is our vision to provide clients with an experience that is frictionless, secure, and automated.

Our approach from the time of onboarding (that is, account opening and client due diligence, among others) is “digital by default”. We then aim to provide simplified transaction submission, through our proprietary Straight2Bank platform or through third party solutions. Our digital workflows on Straight2Bank are developed to provide an integrated and seamless experience for the client across cash management, trade finance, securities services, and foreign exchange.

We also leverage API connectivity and we provide clients the ability to directly connect to the bank’s core transaction processing systems direct from their own environment – this is particularly critical in being able to take advantage of new developments such as instant payment mechanisms. Streamlined reporting, reconciliation workflows and real-time reporting are also critical and form a crucial part of our API banking capabilities. In addition, data is the foundation of digital and that is why we have co-created our new analytics solution on our Straight2Bank platform with clients making sure we address the needs of today’s treasury manager.

Service is another important aspect of the client journey and a key differentiator, and we want to transform the client experience by providing a range of digital and human touchpoints. This aims to complement our existing relationship management and client service model. To that end, we are leveraging emerging technologies including AI-driven virtual assistants, Optical Character Recognition and Machine Learning capabilities to automate and reduce repetitive and time-consuming tasks.

The fourth and final trend is operational agility. This is a need rather than a trend, and it is a key enabler for future growth. I say this because digital transformation is a journey that never ends, and therefore banks and organisations in general need to be agile enough to respond to new opportunities for growth. Innovation and the disruption of entire business models is no longer a choice, it is a matter of survival if banks/companies wish to remain competitive, and I think the biggest differentiator of all comes from being agile and having a digitally-empowered workforce. Research shows that companies in leading sectors have employees who are 13 times more digitally engaged than the rest of the economy.

Companies need to be agile enough to adapt to the evolving business environment by leveraging other organisations’ strengths through digital technologies. Based on this, I see multi-lateral collaboration as the way forward. This will help in boosting nimbleness, scalability, and stability and in so doing organisations will transform their businesses and become agile enough to quickly respond to future changes.

But as we experience this transformation and as new opportunities emerge, there are challenges that we should acknowledge and deal with, for example the lack of standardisation around digital cross-border transactions, non-uniform regulation across markets, lack of data integrity and optimisation, just to mention a few.

It is worth noting the importance of governments and regulators in the digital transformation journey. Various regulators have established sandboxes to facilitate the development of new disruptive technologies, which cultivates the accelerated innovation we are seeing, especially in this region. In Vietnam, the launch of the National Digital Transformation Programme towards 2025 which includes infrastructure investment, cybersecurity, developing a digital culture, driving digital payments, and building a digitally fit future workforce is a massively positive step in the right direction.

In conclusion, our digital North Star on this transformation journey is to become a data-driven and digital-first organisation. As an international bank, we are building global digital solutions from a central model but at the same time we focus on strong regional deployment and we have our teams on the ground (including Vietnam) that understand the local nuance, and are able to bring to the market new innovative solutions that speak to the evolving needs and behaviours of clients.