In its latest industry report, global consulting firm Roland Berger said nearly 20 percent of all physical bank branches - or about 11,000 in total - in Indonesia, Thailand, the Philippines and Malaysia are set to close by 2030. Of these 11,000 branches expected to close, nearly 1,500 of them will be in the Philippines.
A welcome development, thanks to artificial intelligence (AI), traditional or incumbent banks are increasingly able to digitize operations. With the help of AI, most of the usual services being offered at physical bank branches could now be done easier and quicker online.
In an exchange of messages, The Manila Times chatted with Aradhna Sharma, Southeast Asia Digital and Data Solutions Director at Advance.AI on how the digitalization of financial services powered by artificial intelligence is the wave of the future in banking and finance.
The Manila Times (TMT): What is triggering the rise of virtual banks? What will be the role of banks and financial institutions in the future?
Aradhna Sharma: [Two] major factors are the use of smartphones and internet connectivity. Nowadays, you could bank anywhere, anytime with these two factors.
Coupled with this is the rise of the tech-savvy generation known as digital natives, who use their mobile phones to do everything from ordering food to online shopping and groceries and yes, even banking. These demographic demands to bank anytime and anywhere, often from the convenience of their home.
Covid-19 has also rapidly accelerated the shift toward online banking services, and even "older" folks are now forced to do simple banking transactions online, such as opening accounts, deposits or transferring money, etc. After the first taste of safety and convenience with online banking, most consumers will not likely go back to the old ways of in-person banking.
Amid this backdrop, virtual banks are surging in popularity because they enable 24/7 banking and could onboard customers no matter where they are located. Physical bank branches will still act as an important touchpoint to build customer trust and relationships, especially for more complex transactions such as high value transactions, mortgages, investments or retirement planning.
TMT: How is AI facilitating the transition of the banking industry to digital banking?
Sharma: AI is the key enabler for digital banking services today. AI technology could be deployed in a variety of ways via a smartphone to facilitate customer onboarding within minutes.
For example, facial recognition technology could verify a customers' identity based on selfies or a short video of themselves during a video call with a customer service agent, which could be done remotely without having to go to a bank branch. Optical character recognition software could authenticate customer identities based on photos of their national identity documents such as UMID, SSS or TIN. This could also be done over a simple video call, which could be recorded and documented on the bank's side.
TMT: A research study in 2018 found out the Philippines may be late to join digital banking. What is the experience of Singapore in accelerating the shift to digital banking? How is your country campaigning to attract more digital customers to the banking and financial sector?
Sharma: A couple of factors and the roles central banks have to play in accelerating digital banking include setting up the right frameworks and regulations to encourage innovation and testing within controlled environments such as sandboxes.
The issuance of digital bank licenses is an area where central banks have oversight and regulatory control. The Bangko Sentral ng Pilipinas (BSP) has already granted two virtual bank licenses, and more are expected to follow.
It has also set out clear guidelines on the establishment of digital banks last year. Central banks must also encourage investment into the fintech sector by reducing red-tape and introducing pro-business/start up policies.
Government has to play its part, for example, by investing in tech education to develop local tech talent, as well as developing guidelines on how to use new technologies. Finally, the Philippine government must continue to invest in high-speed broadband and national infrastructure to connect all of the country.
TMT: One of the major problems for the banking industry in the Philippines is low savings. How could AI technology allow faster and more flexible customer on-boarding, including the financial inclusion of the typically undocumented unbanked/underbanked?
Sharma: 71 percent of the population is unbanked, according to BSP stats as of 2020, while 58 percent couldn't apply for bank loans because they don't have the necessary requirements (i.e., a credit score). Moreover, many of the unbanked are from Tier 2 and 3 cities where access to physical bank branches is difficult.
AI could offer underserved and underbanked customers newfound access to microfinancing, micro loans or even micro insurance. By using AI to analyze alternative data pools such as smartphone type, data package and e-commerce payment history, banks could determine a customer's alternative credit score quickly. This in turn allows them to extend tailored and suitable micro-financing solutions at scale, such as small loans of up to $50 or microinsurance for just $1 a day.
TMT: Do you think digitally-transformed banks will face stiff competition from the fintech and other digital players already in place?
Sharma: Yes, competition will be stiff. We live in a globalized world and in the internet era physical borders don't really mean much whether or not you are a virtual bank, a digitally-transformed incumbent bank, a local bank or a foreign bank.
The Philippine market is an area of huge opportunity with the majority of people and businesses underbanked and underserved. Customers today are demanding value and convenience, and the bank that serves them best will win the day.
Advance.AI is a leading big data and AI company in Asia, helping solve digital transformation, fraud prevention and process automation challenges for enterprise clients.