The future of digital banking, according to Advance.ai

Advance.ai’s Director of Growth Markets, Ravi Madaram, talks to Enterprise IT News about the advantages of digital banking.

EITN: Why do some consumers prefer digital banks over traditional banks when both offer similar services?

Ravi: What digital banks offer that traditional banks do not is speed and convenience, which make them so attractive to consumers, especially for the younger generation of digitally-native consumers who prefer to do banking using their mobile devices without spending long hours queuing at physical branches that may be located far away.

They can now transfer money to friends and families as well as make payments for online shopping and bills easily from the comfort of their homes at any time of the day. 

Such contact-free digital payments and adoption of other digital banking services have been accelerated by the Covid-19 pandemic, which has compelled businesses to change the way they provide services in order to observe social distancing measures. 

These have not only made systems operations more efficient, the speed of transactions have also sped up, much to the delight of consumers.

Additionally, for the financially underserved and lower income segments who lack credit history, as well as small and medium businesses (SMBs) that were traditionally overlooked, digital banks provide access to financial services that they need.

This includes easier access to loans, more competitive borrowing rates, and quicker fund approvals and disbursements.

EITN: Across front, middle and back office functions, how should these digital banks use technology and AI for cost and resource efficiency?

Ravi: Technology and AI capabilities can be applied across the entire value chain, ranging from loan and insurance underwriting, financial advice for investment products, fraud detection, claims management, marketing, and sales and distribution.

For example, for front-office functions, our AI-powered eKYC and anti-fraud technology is already helping banks and businesses in the financial services sector with customer onboarding and servicing, enabling customers to open a bank account via a smartphone in a matter of minutes – anytime, anywhere. 

This can be done with the liveness detection feature, which verifies the person’s identity by detecting facial movements and allowing people to log in a device by identifying and authenticating their biometric data.

This facial recognition technology helps banks to authenticate customer identities with over 99 percent accuracy as it recognises Southeast Asian faces, which optimises resource efficiency and cost while improving the customer onboarding experience or facilitating online money transfers.

For middle-office functions, we help banks with risk management and compliance, allowing digital banks to determine credit scoring beyond traditional data by tapping on alternative data pools such as customers’ smartphone type, data package and e-commerce transactions.

At the same time, it combats and prevents rising online fraud, lowering reputational and financial risks for them.

For back-office functions, our technology supports settlements, HR functions and IT systems by automating many repetitive manual processes, thereby increasing cost and resource efficiency.

As banks continue to digitalise, the front-, middle- and back-office functions are slowly becoming outmoded by newer technologies that are more efficient. 

Our powerful enterprise-grade suite brings together in a single dashboard our full suite of services across data, decisioning and analytics, allowing digital banks to work smarter and faster and make more accurate risk decisions quickly and easily.

Our powerful enterprise-grade suite brings together in a single dashboard our full suite of services across data, decisioning and analytics, allowing digital banks to work smarter and faster and make more accurate risk decisions quickly and easily.

EITN: What is the critical importance of regulatory compliance, coupled with frictionless user experience, in the digital bank roadmap and strategy?

Ravi: Digitally-native consumers who demand simplicity, security and convenience at their fingertips are expecting nothing less than a smarter, speedier and more seamless experience through digital banking.

However, such intuitive user experiences in a digital-world need to be matched with proper risk management and regulatory compliance, especially in the face of increasingly sophisticated criminal attacks including synthetic identities, impersonations (i.e. deepfakes) and social engineering fraud.

Any data and AI framework should be in compliance with existing government laws and regulations that address both data privacy, storage and security, and this extends to the choice of vendors that banks work with as well. 

To mitigate fraud risks, three fundamentals are important: identifying as many illicit transactions as possible and blacklisting them; optimising traditional manual operating processes and replacing many through automation; and reducing the proportion of falsification.

Banks should also do their due diligence in ensuring that the partners they work with are ISO-certified, are regulated entities with a good track record and proper data security measures in place, including AML capabilities, and have service-level agreements.

This will help ensure small and large transactions are well-protected, which gives consumers peace of mind.

EITN: What should traditional banks do to compete effectively with digital banks?

Ravi: While traditional banks have been digitalising and ramping up their offerings with new and improved mobile apps, new products and services like wealth and robo investment, and refreshing branding/marketing to appeal to the younger digitally-savvy generation, they are still highly encumbered by legacy systems which make change difficult and slow. 

On the other hand, digital banks have already integrated technology into their systems from day one, so their speed of execution and ability to scale is unmatched. 

This also means that, with digital banks, the cost to serve is massively reduced, allowing them to reach markets, including the underbanked, unbanked and SMBs, that traditional banks were previously unwilling to serve.

Therefore, to compete effectively with digital banks, traditional ones need to adopt data and AI into their systems. 

These will allow traditional banks to expand their scope and reach significantly, not just in customer acquisition or operations but, more importantly, in risk management, which will change the way loans are underwritten.

It will also allow them to penetrate new markets including the financially underserved as new technologies provide alternative ways to determine the credit worthiness of customers.

Partnering and collaborating with fintechs and startups with innovative solutions is one way traditional banks can quickly adopt and integrate AI-powered technologies into their systems. 

For example, ADVANCE.AI’s e-KYC technology offers banks additional ways to determine credit worthiness like employment record, salary slip or tax statement.

EITN: What role can technology play to accelerate financial inclusion in the country and how can both digital banks and traditional banks leverage this?

Ravi: Despite the high internet penetration in Malaysia, as much as 55 percent of the adult population in the country remains underbanked and unbanked. 

These are the financially underserved, such as gig economy workers or low-income families, who lack the credit history to gain access to a wider variety of financial services, including access to a basic bank account, credit cards and long-term savings product.

They are traditionally overlooked by banks as financial institutions’ risk management capabilities and typical means of credit scoring unfortunately leave them out of the picture. 

Partnering and collaborating with fintechs and startups with innovative solutions is one way traditional banks can quickly adopt and integrate AI-powered technologies into their systems. 

SMBs, which are the lifeblood of the economy, account for 98.5 per cent of all Malaysian businesses and provide livelihoods for many in the country, are also limited by traditional banking.

This is due to their need for more flexibility around their business demands and the fact that they often miss the bank’s requirements to get funding.

Technology can help bridge this gap. 

AI and machine learning can provide additional data for traditional or digital banks to determine credit worthiness and speed up loan approvals and disbursements, giving them access to the financing they require.

EITN: When it comes to serving consumer and enterprise customers, what are the significant differences in technology solutions required? What are the significant differences in the use of the technologies to serve both types of customers?

Ravi: Serving enterprise customers is more complex than consumers. 

There are more elements to consider including multiple accounts, higher use of domestic and cross-border transactions, multiple users in multiple roles, and often higher security and compliance requirements. 

They also require much bigger financing to power their businesses and pay staff, vendors, suppliers and partners.

While enterprises and individuals make payments for different reasons and on differing scales, both want banking to be straightforward and affordable with transparent pricing and processes, and a streamlined user experience.

In addition to customer onboarding and risk management, banks can provide more customised services to enterprises using technology, tailoring their services to businesses, especially SMBs that need financing for capital investment, restructuring, and liquidity. 

Technology can also automate many back-end processes such as payroll and invoicing functions, improving cost and resource efficiency.

While there are many technologies available, SMBs, which typically operate with leaner teams, require an all-in-one solution that is easily customisable and easy to integrate into their own systems.