Transforming Digital Banking in Malaysia

More than a channel strategy

The digital approach is increasingly becoming part of the business model for banks in Malaysia.

It is no longer about a channel strategy but about simplifying both back- and front-end processes in line with the simpler customer experience with other non-bank digital brands.

1 Banks in Malaysia are past looking at digital as yet another channel. Today, it is part of strategic intent and organizational processes.

2 Going digital requires a comprehensive change-management strategy that has top-level push and ground-level support.

3 The massive technology investment that comes with digitization means that savvy bankers in Malaysia are rolling out specific digital initiatives for a narrow consumer segment - youth.

4 The youth segment is a natural starting point for banks looking to push into the digital space as they are constantly connected, and already conduct other parts of their lives online.

5 Huge opportunities remain around digitizing other business lines and taking a more strategic, data-driven approach to developing the right offering for each identified segment.

Malaysians are clearly plugged into digital trends. In fact, Malaysians are one of the most socially

engaged markets in the world. In a study by market research company TNS, 88% of Malaysia’s Internet users visit Facebook weekly compared to 47% of global users. The pattern is also consistent across other social media platforms.

A segment-specific approach has helped a number of banks, not only in Malaysia but also across the region, to rationalize their initial digital approach instead of tackling a bank-wide transformation.

While the older and well-established customer segment may seem more profitable and attractive on the surface, these customers may not be as willing to trade pricing for convenience. Younger customers are more open to new banking experiences as they already conduct a large amount

Business transformation

Key takeaways

Targeting the younger generation

» continued Source: TNS, Connected Life 2014

Source: 3Degrees Asia

Customers in Malaysia want convenience

PlatformFacebook

YouTube

WhatsApp

Facebook Messenger

WeChat

Google+

Line

Instagram

Skype

Twitter

Yahoo! Messenger

Viber

LinkedIn

Tumblr

Snapchat

Weekly UsersMalaysia %

88

76

72

71

61

52

43

36

36

30

30

21

16

16

12

Weekly Users Global %

47

35

22

28

30

28

10

11

15

16

12

7

6

6

5

According to the ASEAN Channel Strategy 2015 research by Singapore-based 3 Degrees Asia, 73% of bankers surveyed in Malaysia believe that customers want convenient and simple banking that can be accessed anytime and anywhere.

For the smaller or foreign banks operating in Malaysia, embracing digital as a strategic intent has become a necessity to counter larger incumbents.

Taking a digital approach allows these smaller players to supersize service for a well-defined slice of the market, or expand wallet share of the existing customer base – two viable options as opposed to investing in an otherwise more costly channel expansion or customer acquisition exercise.

The pervasive and wide-ranging change that the current digital technology rings in also means that banks can now revisit back-office processes with more automation.

For bankers in Malaysia, investing in digital not only allows them to connect with customers directly online but also has the potential to create a better overall banking experience for the customer.

Convenience - anytime, anywhere banking

Transparency around fees and services

Personalised service

Seamless customer experience across channels

Innovative products

Bank location

Strong and well-known brand

73%

69%

62%

54%

46%

46%

42%

The huge upfront investment in digital banking can be daunting but this is seen as an inevitable

step that many banks have to take. However, when assessing the investment in digital, there is a general consensus that banks have to move beyond traditional assessments of investing and incentivizing around return on investment (ROI).

Banks in Malaysia are cognizant that they will need to consider the business cost of not having invested 15 years from now when their competitors or other disruptors might already be ahead of the game.

Referencing the disruption that is occurring in other industries such as public transportation and hospitality, banks in Malaysia believe that customers will start to demand a more digitally savvy bank.

On the other hand, the current core banking systems may not be able to cope with what is required to keep up with technological change and the increasingly digital business environment. There is also a growing concern that financial technology startups that are not hampered by legacy core banking and technology environments may disrupt the banking industry in Malaysia.

While middleware has been used to bridge the gap, Malaysia’s bankers acknowledge that these are

stopgap measures and that a more fundamental – though expensive – transformation needs to take place for banks to compete effectively in the digital space.

However, before any kind of undertaking is considered, bankers in Malaysia are keeping track of how much digital can contribute to their business in terms of transaction volume and share of customer wallet.

In the meantime, the savvy banks are going for small wins by challenging established practices in the digital space such as providing peer-to-peer mobile transfers or doing away with introducers for opening current accounts online.

Digital bankers in Malaysia seem content to test the market one small step at a time.

Even though digital has the potential to transform the business of banking, only a small group of people within Malaysia’s banks are leading and communicating how big a step this really is. Reasons for this vary, ranging from talent availability to change resistance.

Limited talent availability means that senior digital talent tends to move between banks. As the digital blueprint and messages around change management need to start from the top, the turnover among senior executives affect the continuity of a strategy and vision within the department.

Dealing with legacy systems and people is a reality that bankers have to face, making the internal move to digital a slow process.

While digital may be a strategic priority, many

bankers at the roundtable voiced concerns over the need for proper change management to take place throughout the bank to realise the vision. There needs to be a more common internal understanding of the alignment in technology, people and processes as the bank prepares to be more responsive.

This becomes especially apparent when competing for investment budgets. Going digital requires a larger investment in the early stages. However, digital initiatives often need to compete with larger and more resource-intensive existing core banking system enhancements and everyday investments needed to keep the bank running. A strong direction and push from the top management is critical to ensure that digital banking gets the attention and investment it needs to make the bank a contender in this space.

Legacy issues also crop up when trying to inculcate a more digitally-savvy mindset across the bank. While the cost reduction benefits of migrating to digital channels are clear, this migration will involve a large portion of the employees within the branches. Legacy issues around people and existing networks can impede the migration as front-liners fear channel cannibalization and the loss of employment.

Assessing the return on investment – or not

Tackling change management

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“Banks in Malaysia are cognizant that they will need to consider the

business cost of not having invested 15 years from now when their

competitors or other disruptors might be already ahead of the game.”

of their lives online through social media, gaming and other apps.

Mobile and Internet channels offer Malaysian banks an opportunity to engage with these customers directly. They are always online - there is a constant

open channel to engage with this segment. The high penetration of Internet connectivity and low data prices corrals a ready target. Targeting the youth segment also helps build brand loyalty from the nascent stages of the banking relationship.

“While digital may be a strategic priority, many bankers at the

roundtable voiced concerns over the need for proper change management to take place throughout the bank to

realise the vision.”

Banks in Malaysia expect the next three to five years to still be a multi-channel environment where physical and digital channels can play a complementary role. However, many expect the the online channel to be increasingly important in 10 to 20 years as the younger generation starts using more revenue-generating banking services and products such as loans and mortgages.

In addition to a commitment from the top,

managing the digital transition requires on-the-ground communication and change management before a real organizational shift can occur.

In the meantime, the savvy banks are going for small wins by challenging established practices in the digital space such as providing peer-to-peer mobile transfers or doing away with introducers for opening current accounts online.

The conversation around digital banking in Malaysia has moved beyond deploying online and mobile banking in a multi-channel strategy to how a digitally-driven business can be part of the organization’s strategic intent.

However, the issues around legacy systems and proper change management need to be addressed effectively not only by senior management but also with buy-in from the ground. On an industry-level, the limited availability of digital talent affects the

ability of banks to effectively devise and drive their strategy sustainably.

Opportunities abound for banks that want to be a step ahead of their competitors by developing a more sophisticated and comprehensive data analytics programme to support business growth and to start looking at other business lines – beyond consumer banking – that will benefit from digital innovation.

Conclusion

About TM

Telekom Malaysia Berhad (TM), Malaysia’s convergence champion and No. 1 Converged Communications Services Provider, offers a comprehensive range of communication services and solutions in broadband, data and fixed-line. As a market leader, TM is driven by stakeholder value creation in a highly competitive environment. The Group places emphasis on delivering an enhanced customer experience via continuous customer service quality improvements and innovations, whilst focusing on increased operational efficiency and productivity.

Leveraging on our extensive global connectivity, network infrastructure and collective expertise, TM is well positioned to propel Malaysia as a regional Internet hub and digital gateway for South-East Asia. TM remains steadfast in its transformation into a new generation communications provider to deliver an enhanced and integrated digital lifestyle to all Malaysians, and opening up possibilities through connection, communication and collaboration, towards our shared vision of elevating the nation into a high-income economy.

As a model corporate citizen committed to good governance and transparency, TM continues its pledge to ensure the integrity of our processes, people and reputation as well as the sustainability of our operations. Our Corporate Responsibility (CR) ethos reinforces responsible behavior in the four main domains of the marketplace, workplace, the community and the environment. With a focus on ICT, the Group further promotes 3 major platforms i.e. education, community/nation-building and environment, through our Reaching Out programmes

For further information on TM, visit www.tm.com.my.

About Akamai

As the global leader in Content Delivery Network (CDN) services, Akamai makes the Internet fast, reliable and secure for its customers. The company’s advanced web performance, mobile performance, cloud security and media delivery solutions are revolutionizing how businesses optimize consumer, enterprise and entertainment experiences for any device, anywhere. To learn how Akamai solutions and its team of Internet experts are helping businesses move faster forward, please visit www.akamai.com or blogs.akamai.com, and follow @Akamai on Twitter.

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