Part 2: Innovation in Practice
Innovation in Practice: Operationalizing Technologies of the Future
Tana Pothikamjorn, Head of Digital Banking, from Siam Commercial Bank then took on the stage with a bold statement related to the word ‘innovation’.
“In the past five years, the ‘Innovation’ buzz word comes up a lot. The bank, in particular, had done a lot on that buzz word. We had a lot of innovation labs, innovation teams, heads of innovation, etc. So today, I’m here to share what failed and what worked.”
Talking about disruption, many people may not realize the fact that big incumbent players are being disrupted by this technological progression at a much faster rate than others. While the bank main objective is to provide the highest financial values to customers, but customers today have a much higher affinity to experiences than before. They feel good being with friends and with families, eating and sharing every moment of their lives together. Because of this, we are starting to see big players being disrupted because new players can move faster. Take Mama (Instant Noodle) for example. Who would have thought that LINE Man or Food Panda would become a risk to Mama’s core business? The concept of Mama’s instant noodle is to provide instant gratification to instant hunger. But with LINE Man and Food Panda offering a new form of instant gratification, Mama is starting to see their sales drop.
For service providers, what we are observing is that our customers are experiencing attention deficit as they are used to obtaining instant gratification even with data and information. As a result, service providers find themselves trying to grasp the attention of their customers in a very limited time space.
FinTech Disruption vs. Fintegration
In the past couple of years, there had been a lot of talk and fear about how FinTech would disrupt the bank. But instead, what we are seeing is FinTech are not seeking to disrupt banks, but they are seeking the prospect of ‘Fintegration’. That is because it is extremely difficult for FinTech to deal with regulations on their own, therefore, FinTech companies are quite eager to work with banks to work better with regulators. The problem is, while FinTech startups are ready to work with banks, the banks are not ready to work with FinTech startups.
While banks do realize that they must build new capabilities in order to stay relevant digitally, the endless efforts of trying to transform from traditional bank into a digital-led bank had not shown much progress. Due to its bureaucratic way of management, progress has been moving very slowly. As such, many banks begin forming subsidiary companies in order to innovate faster. However, even the banks’ own subsidiaries are having a hard time working together.
However, recently, you might have noticed that SCB had made much progress in developing their mobile application into becoming a lifestyle application, where Mr. Pothikamjorn described how the application is trying to be connected to its customers in all parts of their life. While the bank realized that payment is their strength, they are starting to realize that payment is only a mean to an end, because with payment, they are able to connect and streamline all parts of their customers’ life.
Thus, what the banks are really afraid of is not of FinTech Disruption in the shapes of FinTech companies because the real competition is players like Facebook, LINE, Instagram, YouTube and Lazada – because these companies really understand their customers, and what banks need to do is to also understand their customers.
So with that thought in mind, Mr. Pothikamjorn then tried to think that if he could understand and make use of the users’ usage data, would he be able to predict future transaction? As a result, SCB rolled out the predictive transaction feature, where they are able to predict up to 65% of their customers’ next transaction. Moving forward would be trying to predict lending risks based on usage data, as the bank continues to try and understand their customers more.
The Microservice Architecture – Moving Agile
So how then, are we starting to see a big incumbent player like SCB moving more swiftly in recent years? The key is to promote connectivity and hyper-scalability by developing microservices independently without affecting any other features. By opening up more open standards and collaboration with external developers from a Partner Collaboration API’s platform, the bank is also able to move much faster with developing standardized APIs.
When the question is “How do we move faster?”, Mr. Pothikamjorn explained how SCB began exploring different working model in order to move faster. One way is to split the teams up into smaller teams, which they called “The Squad”, where these squads are regarded as small empowered startup teams managing a project end-to-end from inception to delivery. Every three weeks, these squads will be engaged in a “Sprint” to deliver new solutions within the period of three weeks’ time, where the process is as follows:
The question is how do you keep your team members in synchronize with one other? Mr. Pothikamjorn stated the hard, cold fact that this could never be achieved. However, it can be managed, and the key, as Mr. Pothikamjorn pointed out, is balancing between keeping people happy and the timeline of delivery, while also engaging coaches and mentors, or capability builders to empower the squads.
Ending his session, Mr. Pothikamjorn concluded with some thoughts on technology and innovation development – the hardest part of any development is people. Thus, it is extremely important to get useful insights and know how to make use of it.
Supergrid Ecosystems: A Future in Collaboration
Following Mr. Pothikamjorn from Siam Commercial Bank is Sui-Jon Ho, Research Manager from IDC Financial Insights APAC, opening up with the discussion on what “Open Banking” really means. When the bank calls an initiative open, the first thing to consider is – is it really open? To answer that question, you would first have to consider what constitute as being open in 2018.
Mr. Ho then went on to explain how, in order to identify where we are heading, we would need to first make sense of where we started. The first turning point began in 2009, where smartphones began changing how we approach technology. With the introduction of smartphones, the market has become much more fragmented.
Starting from a Product-Centric Market
According to Mr. Ho, the Financial Industry started off as being product centric, deriving new products from what the business can see, or from the existing lines of business. The questions back then were “How can I offer the best pricing for loans?” or “How can I offer the best pricing for investment products?” – the key was always product first. This was a reasonable approach back in the times where there was no other way to gather data to form decisions on innovation, and opportunities for innovation was based on products.
Moving towards Customer-Centric Innovation
Soon, as access to the internet gains traction from smartphones and mobile devices, the financial sector started to see themselves acting on innovation opportunities that are unknown to the enterprise. This is where we start to see “Moment of Truths” Marketing, where companies are trying to understand customers’ lifestyle and engage more with customers. However, the key hindering factor is Data Protection Laws.
From Customer-Centric to Human-Centric Innovation
Today, financial innovators are starting to move towards a more human-centric approach, where innovation opportunities are unknown even to the customers themselves. This is where companies are starting to make use of quantitative data to understand how customers make their purchase decisions based on impulses or unconscious behavior.
Working with FinTech
Mr. Ho revealed that today, 27% of IT investments are allocated to new technologies. We are starting to see financial firms moving from exploratory phase to actually creating real businesses. The growth of IT spending on new businesses is up to 16% YoY. According to Mr. Ho, 61% of all banks have partnered with FinTech. 9 out of 10 banks have innovation centers of excellence, and 7 out of 10 have dedicated innovation officers. But what about the risks of partnering with FinTech? Mr. Ho disclosed that a quarter of VC startups formed had failed in the first year, and after four years nearly half VC startups failed. 95% of VC startups do not break even, and only 1 in about 35 had actually proved themselves sustainable.
While partnership decisions may not be an easy decision to make, there are, however, valuable opportunities for forming partnership to reshape your business. Mr. Ho provided five forms of partnership to consider as follow:
While Channel Distribution is the most prevalent, the sharing of data through sharing APIs are showing great leveraging potential for FinTech. Other areas where FinTech could seek extensive partnership opportunities include a spin-off of business processes via outsourcing, where FinTech companies can prove themselves more competent in various business functions as a third-party company. The Prosumer (Production by Consumer) concept is also gaining popularity where FinTech could prove to the banks that they could empower their customers to collaborate in designing their products, such as the case of P2P Lending.
Mr. Ho ended his session leaving behind three important questions for those in the Financial Industry to consider:
1. Which partnership model can change your core business?
2. Who can help map unknown opportunities?
3. How can you enable your disruptors?
Innovator Tech Talk: SAS Thailand
The Innovator Tech Talk Session of the day featured Wichit Srikreephuthana, Professional Services and Delivery Director on how SAS Thailand tackles the Digital Revolution. Because the world internet population is changing very rapidly, SAS Thailand realized that the key differentiator is powerful analytics. As such, the SAS Platform opens up more space for integration, scalability, flexibility and repeatability by offering software as a service. SAS Thailand also offers, Streaming Analytics, and SAS generated insights.
Mr. Srikreephuthana outlined five key pitfalls of machine learning:
1. Missing Data
2. Long time to interactively build analytical models
3. Model Performance Deterioration
4. Need for Scientific Talent
5. Lack of architecture to support the analytic life cycle
SAS Thailand is able to overcome this with visual data mining and machine learning. Because the platform is open for any coding languages, it allows for a fully inclusive landscape of all technologies.
Source: IDC FinTech Innovation Summit 2018