EY Asean managing partner on banking in the pandemic and falling use of cash

Asian Banking and Finance welcomes Liew Nam Soon, EY’s Asean regional managing partner, on to the judging panel for the 2020 ABF Awards.

Liew Nam Soon is currently EY Asean Regional Managing Partner, where he is responsible for business performance and client services in assurance, consulting, tax, strategy and transactions business with approximately 18,000 people across 14 geographic markets. Prior to this, he was Asean Markets Managing Partner and Asean Financial Services Managing Partner for EY, working with a number of the most significant financial services institutions across Asia.

He boasts over 28 years of consulting and industry experience and has deep experience in advising senior client executives on business strategy; technology and digital transformation; risk management and governance, regulatory compliance; M&A and much more business operations within the financial services industry in particular.

Asian Banking and Finance is honoured to have that enormous breadth of knowledge and experience sit down as part of the ABF Awards judging panel in 2020. Liew Nam Soon was also able to share some of his expertise in the following exclusive interview.

Can you share with us your work experience or a backstory that has contributed to your banking expertise?

In all my years in professional services with Andersen Consulting, PwC, IBM and now EY, I was fortunate to work exclusively for financial services clients across retail, corporate, investment, private banking, investment management, insurance, private equity and FinTech. I have also had two long periods of secondments to banks that allowed me to build up strong business and operational knowledge of financial services.

My industry experience as Chief Transformation Officer at Prudential provided some even deeper and operational knowledge and insights of how things work at a client and a deeper understanding of the issues that clients face and the value they need from external advisors. With the convergence of financial services and other non-financial services sectors, this strong business knowledge helps tremendously with my current role in advising clients on business and technology transformation, leveraging alliances and building ecosystems across sectors.

What would you say is the biggest impact of COVID-19 in the banking industry? Did it fast-track the adoption of digital or online banking? What banking services do regional lenders need to start offering online?

The COVID-19 pandemic has impacted all industries – including the banking sector. There has indeed been a significant uplift in digital adoption across payments, lending, insurance and investments. Consumers are banking online more frequently since the start of the pandemic, and would likely continue to bank online after the pandemic. Hence, banks that have a more robust digital backbone are winning a bigger share. However, we must be mindful that a “digitized bank” is not a “digital bank”.

The COVID-19 pandemic has accelerated customers to demand a seamless omnichannel experience build around customer experience. Cloud native and open platform model provides the agility to deliver broader suite of financial services and when combined with data analytics – both structured and unstructured – promotes higher customer engagement. Data science techniques have also made it possible for banks to predict churn and counter fraud, therefore improving quality of the book of business amid all the pressure of customer acquisition. We have seen more and more in-house innovation and collaboration with FinTech firms and third parties to deliver differentiated services beyond pure banking or financial services. For example, we have seen some banks collaborate with technology startups in online marketplaces, while some insurers are tying up with health care providers to provide telemedicine services to policyholders.

These initiatives will help banks form a tighter bond with their customers, and increase usage. Incumbent banks with strong balance sheets will be well placed to accelerate such transformation either organically or through acquisitions.

Which trends do you think will define the financial services industry in the years to come?

The COVID-19 pandemic has radically impacted consumer behavior worldwide: before the pandemic, consumer expectations were changing, and through digital and technology transformation programs, banks were shifting the way they delivered products and services to consumers. The pandemic has obviously accelerated this change. To fully understand the pandemic’s impact on consumer sentiment and behavior, EY created the EY Future Consumer Index to help business leaders see emerging trends and understand which are temporary, and which will lead to more fundamental shifts.

Based on the responses and the Index results, we see four ways consumer banking behavior is changing:

1. The way people bank has changed, but it might not (yet) be permanent

According to the Index, 43% of respondents say the way they bank has changed due to COVID-19, with around two-thirds saying they are visiting physical stores less. This is not surprising since lockdowns have limited the choice of physical channels. However, banks should be cautious in seeing this catalyst to digital channel adoption as permanent; customers may revert to their previous channel preferences after mobility restrictions are completely lift. For behaviors to stick, banks will need to invest in marketing, to build awareness of the options available, share the successful experiences of new digital customers, and support vulnerable customers or those that still do not feel at ease using digital channels.

2. Uasge of cash has seen steep declines

The use of cash has been in decline for some time, but the pandemic hastened its decline. With many companies closing their brick-and-mortar channels, consumers are going online to buy essentials. At the same time, globally, there are concerns about whether physical cash could spread the coronavirus. This has contributed to a 57% fall in cash usage among global respondents, alongside a rise in payments using credit cards (7%), debit cards (10%) and online payment tools (14%). Where people are still purchasing from physical stores, contactless appears to be the preferred payment option (up 34%). Furthermore, 20% of global respondents expect to be using less cash and more contactless payments over the next couple of years.

3. Responsible banking is more important than ever

For banks, behaving ethically and doing the right thing will be important to consumers’ purchasing decisions. More than half of the global respondents indicate that their future purchasing decisions will be impacted by banks actively supporting the community, being transparent in all they do, and ensuring they are doing good for society. Conversely, 44% say purchasing decisions will be negatively impacted where they see banks focusing on maximizing profits during this time. Banks are on the front line, supporting their customers through the crisis, both in their role transmitting government stimulus measures, offering forbearance and emergency funding to clients and donating to relief efforts. Banks must remain acutely aware of the reputational risk they face where customers feel they don’t get the support they need. It has never been more important to ensure the right processes are in place, and communication with customers and stakeholders including government and regulatory authorities are clear and consistent.

4. Customers will want greater flexibility and security

The current pandemic crisis is a great financial shock for many. Recovering from this crisis will require relying on extended support and flexibility from banks to help customers get back on their feet, and helping them to be more prepared for the future. Banks will have a role in helping customers become better prepared, through savings, investments, insurance and income smoothing products. In fact, this crisis may accelerate the adoption of some subscription- based models for financial services, with the link between health and wealth emerging stronger than ever.

With digital players coming in, how are incumbents responding to the competition? What would be the ideal setup so that banks, neobanks and consumers can prosper?

For traditional banks, collaboration is increasingly the answer to address the pressure to digitalize their business model to improve customer experience and address competition from disruptors. Investing in solutions that allow the customer to meet multiple needs through a connected experience is gaining ground. In other words, embracing the need to create or join an ecosystem that can provide digitally enabled access points to multiple services is key. We are already seeing examples where banks are partnering with insurance companies, ride-sharing companies, property and auto marketplaces in the ecosystem to offer a more complete experience for their customers.

Through a collaborative approach with others in the ecosystem, incumbents have the opportunity to essentially introduce banking to everyday life activities and capture new revenue streams and grow their customer base. It is also a way for banks to implement what consumer companies have been doing for years and “lock in” their customers. For the disruptors, when they partner with banks, they get access to strong credit risk management and compliance capabilities.

Yet, successful partnerships that translate into profitability will require a distinctive service proposition and not just replicating what is already offered in the market.

Choosing which ecosystem to be part of is an important first step. A key consideration would be determining the target market segments, addressable profit pools and compelling proposition of products and services. Once this strategic decision has been made, choosing the right technology and operations platform is equally important. That includes not just the product platform, but essential considerations like the AI and data analytics that will make the customer journey personalized and appealing.

There will no doubt be challenges along the way, as more and more banks and companies reshape their business models to be fit for the age of convergence and ecosystems. Customer acquisitions can be expensive, so ways to keep the cost low should be front of mind. Even as banks may successfully implement new technologies, doing so in a customer-friendly way can still be a challenge. Ultimately, as financial services becomes an all-people business, participants must get these four areas right: understanding the needs of customers in the different markets, adapting the value proposition accordingly, choosing the appropriate market segments and knowing where the profit pools lie.