Embracing Digital Transformation to Engage Customers Now and in the Future Top row (from left to right): Dev Yusmananda, Head of IT Planning, Bank BTPN; Karim I. G. Siregar, Director, Bank BTPN; Sugito Lie, General Manager, Bank Central Asia; Inayat Hisyam, Director – Retail Banking, Bank Chinatrust (Bank CTBC) Indonesia; Vincent Suteja Tee, Senior Vice President – Alternate Channel Retail Banking Head, Bank Danamon; Juni Rachmat Mancanegara, VP – Product Management & Marketing Communication Head, Bank Danamon; YB Hariantono, Director of Operations & IT, Bank Mega; Suhaimi Gohandy, CIO, Bank Sinarmas; Leonardo Koesmanto, Head, Marketing & Corporate Branding, BII – Maybank. Bottom Row (from left to right): Lee Yiang Ming, Head of IT, BII – Maybank; Gusnawan Tjan, Head of Electronic Channel, BII – Maybank; Riana Taluki, Head of Retail SME, BII – Maybank; Jeffrey Sugiharto, IT Operation Head, Mutiara Bank; Bernard Lokasasmita, SVP, Head of Service and Operational Excellence, Permatabank; Sumit Puri, Vice President and CIO-IT, Prudential Corporation; Samuel Sahata, Business Intelligence & IT Finance Head, Rabobank Indonesia; Fabian Szijarto, Senior Solutions Consultant, Misys; Mukul Agrawal, Regional Sales Director – Core Banking & Digital Channels, Apac, Misys. Amid growing competition and changing demographics, Indonesian financial services organisations are sharpening their focus on digital services and improving customer experience. FST Media and Misys hosted an exclusive roundtable luncheon with leaders from prominent Indonesian banks to uncover how they are transforming services. The discussion also focused on how regulatory measures in Indonesia will pave the way for a stronger online financial services sector. Executives recognised the need for banks to adapt to changing customer expectations by upgrading their online, mobile and digital offerings to cater to the new wave of techsavvy customers. Keynote speaker, Karim I. G. Siregar, Director, Bank BTPN, noted that Indonesia’s Gen Y population – born between 1981 and 2000 – is at least 80 million-strong and will graduate to become the country’s primary banking customers within the next two to five years. “They are very tech-savvy and for us, they are critical,” said Karim, adding that Gen Y’s expectations are increasingly being shaped by a combination of lifestyle changes as well as online experiences. The Indonesian market varies widely between the unbanked and lower-middle income population. With the growth in mobile phones, particularly smartphones, those segments of the market will also need a different set of services, Karim added. “We need to define which [market] segment we would like to be in and whether that is relevant for us – is it internet, mobile, or digital banking?” said Karim, adding that EMBRACING DIGITAL TRANSFORMATION TO ENGAGE CUSTOMERS NOW AND IN THE FUTURE one important competitive edge for banks will be determining their unique value proposition. Indonesian financial regulators, including Bank Indonesia – the country’s central bank – and Indonesia Financial Services Authority, are also pushing for digital and online financial inclusion with recent policies such as ‘e-Money’. According to Karim, banks will also need to define what digital means within their own organisations. He added that traditional banking, which has historically included voluminous paperwork, is proving to be too complex for the new generation of customers. “You need three or four signatures to open an account – that is cumbersome and the next generation will definitely not respond well to that,” he said. Karim warned that customer experience will be a huge challenge for banks focused solely on sales, risk, credit and operations. Digitising conventional banking Executives agreed that the cashdominated Indonesian market will see an evolution of both conventional and digital banking. Inayat Hisyam, Director – Retail Banking, Bank Chinatrust (Bank CTBC) Indonesia, warned the absence of physical branches would make it difficult for Indonesian banks to do business because customers continue to engage with their banks at the physical branches first. A physical presence also helps create trust and solidifies customer relationship, according to him. “If I never see the bank, I would not want to entrust my money with that bank,” he said, adding that on the other hand, PayPal is increasingly becoming popular among the younger generation. According to Suhaimi Gohandy, CIO, Bank Sinarmas, it is still difficult for banks to reach those living in remote areas. “[Indonesia] is too big to expand via the branch network. That is why many banks are mainly focusing on expanding this channel within Java as it is the most populated with good infrastructure,” said Gohandy. Bernard Lokasasmita, SVP, Head of Service and Operational Excellence, Permatabank also commented on Returnon-Investment (RoI) as also a crucial question for many bank executives. “The challenge is determining how much revenue can be generated through mobile, internet or digital banking. Most banks are already moving towards digitalisation, but it remains unclear how we are going to maximise [RoI]” said Lokasasmita. Mukul Agrawal, Director, Core Banking and Digital Channels, APAC at Misys, noted that for many banks, digital is still primarily a channel to provide transactional services while new sales are driven through the branch network. “Digital banking is available only for existing customers to perform transactions. So how do we turn this around?” he said, adding that many banks in Australia and Europe have started generating a significant portion of their sales from digital channels, an important emerging channel for Indonesian banks. He added that banks need to transform their processes and organisation structure in addition to technology to achieve this transformation. Several large banks are taking the approach of setting up digital-focused subsidiaries since transforming an existing bank is difficult and takes time. He cited the example of Zuno Bank AG in Europe, a subsidiary of Raiffeisen Bank. Leonardo Koesmanto, Head, Marketing & Corporate Branding, BII – Maybank, noted that traditional marketing has historically focused on utilising conventional media such as newspapers and billboards. But that is set to change. “In the digital age we can measure the effectiveness of marketing campaigns the next day. If it does not work, we can change it,” said Koesmanto. “The objective is to increase sales but the byproduct will be creating awareness.” Lee Yiang Ming, Head of IT, BII – Maybank, cautioned that the challenge with the Asian market is that banks are treating the digital platform as a conventional platform by trying to make it work as a bricks-and-mortar business. “You need three or four signatures to open an account – that is cumbersome and the next generation will definitely not respond well to that.” – Karim I. G. Siregar, Bank BTPN “In the digital age we can measure the effectiveness of marketing campaigns the next day. If it does not work, we can change it.” – Leonardo Koesmanto, BII – Maybank EMBRACING DIGITAL TRANSFORMATION TO ENGAGE CUSTOMERS NOW AND IN THE FUTURE “Digital is really about customer experience.” – Lee Yiang Ming, BII – Maybank “Successful banks in the digital space will differentiate themselves,” Lee said, adding that if banks try to emulate a bricks-and-mortar business in a digital world, they will fail. “Banks need to move away, or at least segregate, the kind of models that they want to use. Digital is really about customer experience,” said Lee. According to Sumit Puri, Vice President and CIO – IT, Prudential Corporation, conventional and physical channels are likely to evolve into an advisory role. “They will be focused much more on high net-worth individuals, giving them financial advice and becoming more involved in terms of needs and analysis on the customer,” said Puri. “Whereas the other channels will probably make new sales to the Gen Y and Gen Zs – it will be very different evolution and you have to treat it differently. It will not be the conventional bricks-andmortar approach. ” Disruptive competition “We do not have to do wholesale transformation to face disruption.” – Mukul Agrawal, Misys Indonesian banks also face increasing competition from not only domestic and pan-Asian banks but also new entrants such as telecommunication companies and online players like eBay, Google and Facebook, executives said. Banks will need to assess the impact of competition on their IT infrastructures and prepare for the long-term, noted Karim. In most cases, banks’ existing infrastructure will not cope with the changes, he added. “The IT role has now transformed,” said Karim. “In the digital era, if something does not work, it is IT; you cannot blame anybody else.” According to Karim, banks will need to balance three things – time to market, quality of performance, and how they want to build IT going forward. They will also need to be in full partnership with business objectives. “Prioritisation is key,” he said, adding that financial services organisations will also need to find the right technology partner. Agrawal emphasised that digital will be the way forward for Indonesian banks. “[Indonesian banks] need to know how to make it feasible, what to innovate, and how to tackle challenges,” said Agrawal. Agrawal cited the example of Alibaba and its recent launch of YuE’ Ba, an online high-interest product in China that received deposits in a short span of time, in what was a direct threat to conventional banks. “That shook up a lot of banks because China is heavily regulated and the traditional banks were not expecting this kind of change,” said Agrawal. According to him, what worked for Alibaba was customer experience. “As [Alibaba] did everything on mobile, it did not face the infrastructure issues surrounding physical processes and it could roll out quickly, acquiring a lot of customers,” he said. “The lesson here is that we do not have to do wholesale transformation to face disruption. We need to look for smarter ways to achieve results.” According to Fabian Sz ijarto, Senior Solutions Consultant, Misys, banks can reinvent their online customer relationships with innovative products. He cited the example of European banks offering personal financial management (PFM) tools that help customer track their savings, spending and monthly budgets. “In Western Europe, [customers] are more financially educated and advanced in thinking not just about today but planning for the future as well,” said Fabian. “Therefore functionalities like PFM that have become popular.” Jeffrey Sugiharto, IT Operation Head, Mutiara Bank said that mobile banking in Indonesia still needs to be supplemented with an education effort. “The challenge is how to educate [customers] to use mobiles,” said Sugiharto. According to Vincent Suteja Tee, Senior Vice President – Alternate Channel Retail Banking Head, Bank Danamon, certain functionalities of Internet banking still cannot be replaced with mobile as mobile phones are still limited in terms of screen sizes. “Things like online shopping are better suited for larger screens while mobile will likely be more suited to payments such as digital wallets,” noted Suteja Tee. EMBRACING DIGITAL TRANSFORMATION TO ENGAGE CUSTOMERS NOW AND IN THE FUTURE Agrawal added that Misys’ message to banks is to collaborate with disruptive competition. “The trend is co-opetition,” said Agrawal, noting a bank in Nigeria has partnered with Facebook to help its customers originate transactions like account opening on its Facebook page. He added that many other banks are seeing 10 to 15 per cent of their transactions on Facebook. Agrawal emphasised that while consistent customer experience across channels including online and mobile will be key, tailored and relevant experiences will be important to improve customer relationships. “To make things more complicated, every customer’s expectation is different, so you can’t have a unified experience for all segments and customers. While we are challenged to introduce new features, we need to keep in mind that the new feature you are offering cannot be the same for all customers,” said Agrawal. “The customer should be able to decide the layout, what functions are available to him, and he should be able to switch off features he doesn’t want to use.” Puri explained that Prudential is using a unified communication platform, which is proving to be very effective at creating a consistent experience across channels. He added that financial services organisations could glean important information from social media like Facebook to create more personalised services. Agrawal also noted Misys’ innovation lab, which collaborates with organisations such as Google to help tailor its products for its clients. “If Google releases a product that is not yet commercialised, we have access to that [via the lab]. We have access to smart watches, iBeacon and are now working with biometrics,” he said. Agrawal added that for many banks, being seen as innovative will be equally important. “All innovations may not derive business but if it helps in creating visibility and branding, often the return is enough to justify the spend,” said Agrawal. Cashing in on cardless Executives cited Indonesia’s cashdominated economy as a short-term challenge for the mobile payments space. Suteja Tee noted Bank Danamon’s recent launch of Facebook features that help its customers transfer money via their Facebook friends lists and withdraw cash through ATMs without using a card or an account. He added that cash continues to be important because in Indonesia, a small fraction of cash is still relevant. Suteja Tee added that Faceboook feature will also help Bank Danamon comply with the the government’s financial inclusion initiatives. According to Fabian of Misys, one solution that has been deployed in a similar market in India is the use of cardless transactions at the ATM. Through these transactions, customers can send a code via their mobile phones to generate a cash payment at the ATM. Lokasasmita of Permatabank cautioned both security and education will be challenges for banks to address as they roll out mobile offerings. “We have to educate [customers] and get them comfortable first because but if the code is forced to somebody mistakenly, how can we control the transaction?” said Lokasasmita. According to Koesmanto of BII, both cashless and cash payment methods will evolve depending on customer experience. “There will be space for everybody whether we want to pay with cash or not,” Koesmanto said. * “Cash continues to be important because in Indonesia, a small fraction of cash is still relevant.” – Vincent Suteja Tee, Bank Danamon Misys is at the forefront of the financial software industry, providing the broadest portfolio of banking, capital markets, investment management and risk solutions available on the market. With more than 2,000 customers in 130 countries, our team of domain experts combined with our partner eco-system have an unparalleled ability to address industry requirements at both a global and local level. We connect systems, collect data and create intelligent information to drive smarter business decisions. Misys provides the next-generation FusionBanking Digital Channels solutions which focus on adding value, driving new sales and building customer advocacy. By using the most innovative techniques including gamification, geo-location and social media integration, you can exceed the expectations of your customers today and in the future. Misys FusionBanking Digital Channels solutions have helped banks grow their market share by over 80% in 4 years and improve profitability. Visit www.misys.com/digital for more information.