COVID-19 is reshaping the future with the shift to digital business. According to a 2021 study by global payments giant Visa Inc, four in 10 consumers in Hong Kong have increased their use of mobile banking services compared with pre-COVID-19 days.
The Guangdong-Hong Kong-Macao Greater Bay Area development is facilitating a one-hour living circle. With banking a fundamental need of every individual who plans to live or work in the GBA, customers favor banking with financial services providers who are ready to deliver a seamless online experience. Although the GBA presents a big opportunity for banks, it is also putting stress on their operations and infrastructure given the region’s scale and cultural differences. Banks need to rethink their approach to marketing and operations to make profit possible.
Regulators have been facilitating cross-boundary banking through multiple initiatives such as Bond Connect, Stock Connect and Wealth Management Connect. To participate in the latter, according to current HKMA guidelines, customers must open accounts designated for the exchange of funds to and from the Chinese mainland and for investment purposes to ensure the transfer of funds is purely for wealth management, rather than other purposes within the closed-loop mechanism.
Account opening is the first banking experience of the customer through the customer acquisition journey. This explains why banks have raced to implement remote account opening initiatives leveraging electronic know-your-customer (eKYC) and automated ID verification and validation in recent years. However, the customer acquisition journey does not stop here. Essentially, for banks to successfully onboard a customer, there are still many due diligence and compliance checks needed before an account can be properly activated for use. This is a typical example of the importance of automating operations on top of touchpoint interactions with customers to deliver a truly pleasant, end-to-end customer experience.
In the following sections, we illustrate some cases on how banks can better serve individuals and corporates by tackling challenges to operation using fintech technologies leveraging AI and analytics.
Fintech to serve individuals
Artificial intelligence and analytics are pivotal to reengineering the customer experience. They are used to enhance the efficiency of existing operating models, scale non-linearly to meet demand growth without equivalent investments and accelerate and strengthen decision insights in real time and in complex areas. AI and analytics are used across domains from customer engagement and operations to risk compliance.
In customer engagement, AI is used to improve the targeting and personalization of offers across channels so the right product can be proposed at the right time through the right channel to the right customer, increasing customer conversion two to threefold with revenue uplift of 20 to 30 times. To better serve customers, chatbots and digital agents augment human interactions. Virtual agents can be scaled non-linearly to handle inquiries round the clock, handling a million or more queries daily with absolute accuracy to deliver the intended messages and experiences without error. Speech to text, sentiment and tone analyzers are commonly adopted in chatbots and digital or virtual agents. This minimizes effort in later compliance while digital records enable easier investigation in the event of any complaints.
During customer account opening, secure digital identity verification with facial, voice, and behavioral biometrics recognition are deployed for smarter onboarding and servicing. The eKYC process reduces fraud by 70-80 percent and verification cost by 50-70 percent. RPA automates and standardizes process flow, reducing processing cost by 40-50 percent. Machine learning and analytics reduce manual tracking and reviews in application approvals, detecting fraud more effectively and reducing false positives by 60-80 percent.
Fintech to serve corporates
In serving the small to medium-sized enterprise segment, according to a survey conducted by the HKMA in 2022, Hong Kong SMEs face great difficulties in obtaining credit approval from banks, requesting credit line increases, and securing new credit facilities. Hong Kong’s commercial lending market has much inefficiency and banks can transform existing processes with digital, analytics and other technologies.
To open a business bank account in Hong Kong is complicated as the company registration and personal identity documents of the owners are required because of stringent know-your-customer (KYC), anti-money laundering and countering financing of terrorism requirements. Most banks require an initial meeting to interview the business owners, confirm the company is real with a feasible business plan, and understand the business nature.
A preliminary review is conducted after the meeting. When the preliminary review is approved, business owners must sign the account opening form, provide relevant documents, pay service changes, and deposit money. Some banks accept certified true copies of personal identification documents while others require the physical presence of the director, shareholder, beneficial owner or nominees. The relationship manager will then submit the application with all supporting documents for KYC and customer due diligence (CDD) review. Once approved, the business owners will be notified that the bank account is opened. Some banks are disincentivized to serve SMEs as these KYC and CDD review processes are costly, and SMEs only contribute a small amount of revenue.
A KYC review starts by checking the identity and tax residency of the owners. For individual owners, identity documents will be checked. For corporate owners, business registration documents are needed, and the ultimate beneficial owners must be identified and traced. Name screening is conducted for owners against global and local watchlists for adverse media, sanctions, politically exposed persons (PEP), and other types of violations.
A CDD starts by analyzing information on the owner demographic and company profile to portray patterns of bank account use. Enhanced due diligence (EDD) must be performed for higher risk owners and PEPs. After a customer profile is established and a risk rating is assigned, banks need to continuously monitor suspicious activities and investigations will be triggered, with suspicious activity reports (SARs) filed for high-risk cases.
Conventional credit underwriting is largely manual and approval decisions are dependent on the repayment capabilities of the company or the lodgment of collateral by the borrower. The relationship manager must understand the credit needs of SMEs and request relevant supporting documents like financial statements, invoices, and utilities bills. The credit proposal preparation team will input updated financial and other qualitative data into the scoring system and generate a credit rating report on the borrower. Credit analysts then draft the credit proposal based on recommendations from the relationship manager, which will be sent to the team head for review before submitting the proposal to credit underwriting. A credit underwriter will review the proposal with all supporting information and approve the case if it is within their approval authority. If not, the credit underwriter will escalate the proposal to the credit committee for review and approval. The credit committee will request further information from the borrower to justify the approval decision.
The Commercial Data Interchange initiative of the HKMA is meant to improve financial inclusion so SMEs can be served more effectively and efficiently through frictionless, many-to-many data sharing on a single platform to enable alternative credit scoring that augments SME lending. Unlike traditional credit assessments, which mainly analyze financial data, alternate credit assessments take a big data analytics approach to learn credit insights from various sources that relate to the credibility and default rate of an SME.
Banks can automate and integrate data collection, analysis and decisioning on a single platform to unleash the value of data-driven commercial banking credit processes. Distributed ledger technology can serve as the backbone of an alternate credit assessment platform by forming a peer-to-peer network that digitally connects different data owners, facilitating data or information exchange on a need-to-know basis with proper customer privacy protection. Alternative credit scoring platforms can quickly generate credit risk assessments for businesses and individuals from multiple, multidimensional data sources to shorten waiting time and improve customer satisfaction.
The author is leader of Deloitte China’s Fintech Practice and Blockchain Center of Excellence.
The views do not necessarily reflect those of China Daily.
