This article first appeared in The Edge Malaysia Weekly on October 22, 2018 - October 28, 2018

THE pace of development in financial technology (fintech) will disrupt the financial services industry if it does not evolve or change, says Jessica Tan, deputy group CEO of Ping An Insurance (Group) Co of China Ltd.

“Financial institutions as an industry ... need to think differently and try to change. If we don’t work together and try to change, we will be disrupted. Financial services could end up like utility companies — which means you are regulated but only do the back-end transactions — if the industry does not keep up. And it does not matter whether you build your own, buy or collaborate with others to develop technologies to make sure your services are cutting edge,” Tan tells The Edge in an exclusive interview on the sidelines of the recent Khazanah Megatrends Forum 2018 (KMF2018).

Tan’s comments reflect the transformation that Ping An has undergone over the last decade. She says the company’s founder, chairman and CEO Peter Ma Mingzhe, sees the insurer as a full-fledged tech company.

“Financial services is typically kind of a ‘I-first-sell-you’ services and products, then ‘I-service-you’ business. That is how it usually works. Technology companies usually see the reverse. First, you get free service, perhaps via an app, and then over time, you buy things from them,” Tan says, adding that the group has changed the way services and products are delivered to customers.

A lot of Ping An’s services and products can be accessed by customers for free or for a fee.

“For example, we have the largest mobile health app in China and we own the largest auto services app. You can use all of that even before you become our customer,” Tan says.

The impact of the transformation has been apparent. The group has 500 million digital users and 180 million financial customers today. Tan says there were only about 30 million digital users six years ago, when she first joined Ping An.

“When I joined the company six years ago, we had less than 30 million or so internet customers, as we call them. Today, we have about 500 million internet customers and 180 million financial services customers. A third of our customers last year were internet customers,” she says.

Another area of focus is investment, and a percentage of the company’s revenue is invested in research and development and new technology.

“The second thing we did was to invest a lot in technologies that helped our core businesses, and we took the technology and offered it to the rest of the market, which is quite unique,” Tan says, adding that Ping An invested about 10 billion yuan in new technology and R&D last year.

With advancements in technology, the company managed to pay out 96% of accident claims within a day last year. That is no mean feat, considering that Ping An is the second largest car insurer in China and about 14 million accident claims were filed last year.

“There are couple of reasons. One is technology. Some 60% of claims are what we call self-service claims — the customer takes pictures of the damage on their app and sends it to us. Our AI (artificial intelligence) engine automatically examines the picture and assesses the damage and the cost of repairs. The customer can choose to accept this or send the car to one of our preferred workshops,” Tan says.

She says the insurer’s investigators can get to the accident site within 5 to 10 minutes 90% of the time, helped by the group’s AI capabilities that cover 360 cities in China.

“We studied the past 20 years of auto claims, looking at the likelihood of accidents at different times of the day and week. We know where the hotspots are for accidents, at what time of day and under which weather conditions they most frequently occur, and how to get there quickly. We are building a platform to cover all cities,” Tan says.

Apart from that, the group also utilises AI for its loan services.

“We do roughly US$50 billion in loans purely online, and our non-performing loan (NPL) rate is very low. Our AI engine allows us to identify the risks very clearly. We own one of the largest credit bureaus in China. We can get a person’s credit score, not just through past borrowing behaviour but through lifestyle factors based on mobile phone bills and other areas,” she says.

For larger loans, applicants are Interviewed by a credit assessor on the mobile app.

“We have a proprietary facial and micro expressions recognition system that can recognise whether or not a borrower is lying,” she says, adding that it has an 80% positive prediction rate.

Ping An has taken the technology one step further, commercialising it and providing services to other companies as well.

“In the beginning, it was difficult as we were also seen as a financial services company or a competitor. However, over the last four years we have built trust. The companies providing technological services to our clients and our financial services companies are separate legal entities and we are very serious about giving our clients the best possible service,” she says.

Integrating financial services into consumer lifestyles

Tan says it is important for financial service providers to look at integrating their services and technology into their customers’ lifestyles. “For example, the Ping An Good Doctor app is the biggest online healthcare platform in China. It offers simple online medical diagnoses before referring registered users to thousands of clinics accredited by Ping An,” she says.

More than 230 million Chinese users have signed up to the Good Doctor app. Ping An Healthcare and Technology Co, the company that runs Ping An Good Doctor, was listed on the Hong Kong stock exchange in May this year, raising about US$1.12 billion in its initial public offering.

In addition, the group bought over an online car advertising portal and turned it into an e-commerce business selling cars.

On the competition from local tech players such as Alibaba Group Holding Ltd and Tencent Holdings Ltd — as well as foreign tech juggernauts such as Google, Microsoft and Amazon — Tan says Ping An has an advantage as the technologies it uses are tailored for the businesses it is involved in.

“If you look at how AI has developed in the US, people have been advocating democratising it for a long time. It requires a lot of training and tailoring in order to make it work. That is what is unique about us.

“We do not just have the technology that we develop, we also have our own business scenarios that we use to develop the technology at a very fast pace,” Tan says.

For example, she says the voice robots introduced by Ping An can conduct a 20-minute interview. “How can we do this? We have 80,000 contact centres and every day we take a few million calls. That makes it easy to train the voice robot.”

She adds that China has benefited from the rise of fintech, mainly due to better returns than the global market for most financial services companies in the last 10 years, as well as tech savvy consumers.

Tan believes this trend will follow in Asia and in Malaysia.

Fintech yet to capture sizable share of revenue

Nonetheless, despite the strong boost Ping An has received from fintech, a recent Accenture Plc report shows that fintech start-ups and other new entrants to the market have yet to capture a sizeable share of revenue.

The study shows that the new entrants only managed to gain about 3.5% of the total US$1.04 trillion in banking and payment revenue in the US. In the UK, fintech players managed to grab a larger slice of the pie — 14% of the industry revenue of £206 billion.

In another exclusive interview, Nobel Laureate Professor Robert C Merton, distinguished professor of finance at the Massachusetts Institute of Technology, tells The Edge that trust is an important factor for fintech as individuals are more likely to follow the advice of someone they trust.

“Trust is essential for user adoption of financial services. Technology by itself is not going to create trust,” he says after his presentation at KMF2018.

Merton believes the disruption from the adoption of fintech will only be detrimental to financial services players that are ineffective. He adds that banks and financial services companies that have the trust of consumers will discover that they are not going to be put out of business by technology.

“In fact, I think they (financial services companies) are going to become more valuable with technology,” Merton says.

He says financial advice, solutions and many integrated financial solutions are inherently opaque and cannot be made transparent, making it a challenge for fintech alone to disrupt the services and products provided by financial institutions.

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