This article first appeared in Personal Wealth, The Edge Malaysia Weekly on April 16, 2018 - April 22, 2018

The digital revolution is threatening to shrink the relevance and roles of banks as financial service providers. While this would be disconcerting for most traditional banks, Standard Chartered Bank Malaysia Bhd is embracing the change, says CEO Abrar A Anwar.

In fact, he thinks it is long overdue. “We have to be nimble and agile. Otherwise, we will become fragile,” says Abrar in his maiden interview since taking the helm last November.

Digitalisation has put banks on the path of transformation and they need to welcome what is coming or risk becoming outmoded, he tells Personal Wealth.

Banking services, such as retail banking, have been scaled down to the size of a smartphone and are undergoing a tech-driven revolution that has sparked more innovation in the sector than it has seen in years, says Abrar.

“There used to be a service called the telegraphic transfer, but that is gone and something called the payment order was offered. However, that has also been phased out,” he points out.

“There was a time when branch-to-branch transfers would take two whole days. But today, you can deposit your cash at any branch and it is reflected in your account instantly.

“Similarly, in my opinion, bricks-and-mortar banking will be reduced and investments, which were then allocated to the setting up of physical branches, are now going into technology as that is becoming the vehicle for interfacing with customers.”

Collaborations with financial technology (fintech) providers are therefore inevitable. According to the “EY FinTech Adoption Index 2017: The Rapid Emergence of FinTech” report, the global adoption of fintech rose to 33% last year from 16% in 2015.

Factors such as the ubiquity of the internet and the greater adoption of smartphones have helped fintech upstarts take market share from traditional banking players. Abrar says these firms have been successful because they are “cherry picking” and are not burdened with complex capital and regulatory requirements like the banks.

“We have so many regulations to adhere to such as capital ratios, anti-money laundering regulations, transaction monitoring and compliance. But fintech firms only focus on payments or some transaction settlements,” he points out.

“So, they will develop that ecosystem. And instead of doing the same thing, banks should be engaging with the fintech players. Banks and fintech firms can have a symbiotic relationship that can be a win-win for all parties.

“Technology is at the heart of StanChart’s strategy in driving efficiencies, increasing automation, introducing global platforms, reducing manual errors and strengthening how we combat financial crime. We would rather engage with fintech players as we have to look at getting back to our core competencies, see where we can specialise and explore how we can best deliver our services.”

StanChart has been testing out numerous fintech opportunities, says Abrar. “We are looking at robotics in transaction processing and improved robo-advisory tools for our wealth management side, among others.”

He says these are necessary as the technological upheavals are changing consumer perception and behaviour, which impact demand for financial services. “We have been closely observing the changing consumer behaviour and we are embracing new technologies for that reason. We know that digital will be the dominant form of interaction between banks and customers,” he adds.

“At the end of the day, it is about being customer-focused. Teaming up with fintech players gives us the chance to test out new technologies without putting in heavy investments. It allows us to be nimble.

“At StanChart, we view this as an opportunity to partner those that are attempting to transform the industry and build a much better proposition and experience for our clients. We look at fintech players as a great source of talent, ideas and new technologies. And we look forward to working with them in selected areas to benefit our customers.”

It is with these objectives that Standard Chartered plc has invested heavily in technology, says Abrar. In 2015, the global lender announced that it would be investing US$3 billion in technology and R&D over the next three years.

“More than half of the group’s US$1 billion technology budget in 2016 was spent enhancing our regulatory compliance-related systems and controls. We are investing at pace in this area as it is increasingly a competitive differentiator,” he says.

It is not just current technologies that the banking group is focused on. Among its recent advancements in digitalisation is its Data Locker service, which allows customers to update their personal information online or via the bank’s mobile banking application — a feature that most banks have yet to democratise.

Other global initiatives include the Hong Kong-based Supercharger programme, of which the banking group is a founding partner. The programme helps fintech players scale their business offering in Asia. StanChart recently launched the Malaysian chapter of this programme in partnership with Allianz Malaysia Bhd and Malaysia Digital Economy Corporation.

“I think this is an exciting time. There are a lot of questions about whether banks will remain. But I am a firm believer that we need to have an open mind and arms in terms of embracing technology. Banking needs will continue to exist — people still want to store, borrow and use money as well as grow their wealth,” says Abrar.

As Malaysia is a key market in Southeast Asia, StanChart has been introducing new capabilities to make banking easier, he says. “We are bringing in the best in digital technology to this market so that our vision to be a digital bank with a human touch materialises. Our strategy is about being digital, agile and lean. For example, a corporate or an individual can bank with us without even coming to a branch. It can be done entirely through digital channels.”

Abrar appears to be the man for the job. Having worked in diverse economies such as the UK, India and Bangladesh, he says while the product offerings and regulatory environment may differ, the role of banks is still fulfiling their customers’ needs.

“I have worked in the UK, which is an advanced and developed economy. I have also worked in India, which is an emerging middle-income country, and Bangladesh, which is a lower middle-income nation. Now, I am here in Malaysia, which is on the cusp of transitioning into a higher-income nation,” says Abrar.

“Despite all that differentiates these countries, the major theme remains the same: our client-centricity, which is understanding who our clients and stakeholders are. Our 143 years in Malaysia is a testimony of our strength.

“So, we either keep investing in the nuts and bolts or we will not be able to sustain our status as a reputable bank. And you have to remember that a bank is not just a nice building with air conditioning and designer furniture. There is a lot of work going on in the background that people do not see.”

He says the banking industry will be defined by its digital offerings rather than its physical presence. “In the future, a lot of client-bank interactions will likely be digital. So, banks will need to transform from ‘places where people go to bank’ to ‘brands that clients prefer to use for financial transactions.’”

He adds that data analytics is likely to play a greater role in the client engagement process now that banks can predict what their clients’ interests and needs are. “We can give them offers based on their needs. We can build deeper relationships because we understand our clients better.”

Abrar says StanChart is also growing its retail wealth management offerings and that US$250 million is being invested globally to create a wealth platform that would increase the banking group’s frontline productivity and improve the client experience.

“We want to be undisputedly the best and most innovative bank in Malaysia,” he says when asked if StanChart Malaysia, despite its reputation as the oldest bank in the country, has taken a back seat. The bank set up its first branch in Beach Street, Penang, during the tin and rubber boom in 1875.

According to Abrar, StanChart’s private banking assets under management went up 18% last year, with net new inflows of US$2.2 billion globally. Much of this had to do with the improvements in its digital offerings, he says.

For example, the bank has initiated a proof-of-concept with Bambu — a Singapore-based business-to-business robo-advisor solutions firm — to develop software and investment solutions to improve the efficiency of its wealth management division.

“While we believe that a lot of things can be done digitally, there is still a need for human interface. In a wealth management discussion, you can use robo-advisors to create your portfolio, but it is the human who can analyse human behaviour and understand your changing needs,” says Abrar.

“Robo-advisory has become popular because getting financial advice online makes sense to many who are used to getting their questions answered by Google. However, robo-advisors are not for a vast number of savers and cannot replace real-life advisors.

“Money is emotional and there are always intangibles to consider when deciding what to do next, which cannot be captured by robots. The best human advisors will gather all your information and then explore choices with you. Online financial services will not be able to make this emotional connection with clients, at least not in the foreseeable future.”

StanChart Malaysia is the first foreign retail bank in the country to introduce leverage financing, says Abrar. The move will help private banking clients increase their investments and enhance their yields.

The product, called Wealth Power, helps investors increase their potential returns by 1.5 to nine times. By using the platform, they will also have the opportunity to diversify their investments into bonds, unit trusts, structured investments and insurance products for potentially higher returns. The investments can be traded in seven currencies — the US, Singapore, Australian and New Zealand dollars as well as the ringgit, pound sterling and euro.

Abrar says Malaysia is the banking group’s second largest wealth management market in Asean. Wealth Power is aimed at meeting the needs of the emerging middle class as they build and protect their wealth.

But will such a product entice the bank’s future clients? Millennials are the most enigmatic generation that the banking industry has to deal with, says Abrar. “In those days, people in their thirties or forties would have focused on saving to buy a house. But this generation prefers to rent for life,” he adds.

“Even the way they interact. Being digital natives, they don’t even have the habit of picking up the newspaper to read. They would rather use their smartphones.”

According to US-based Wealthfront, an automated investment service, it is estimated that by 2019, millennials in the US will control US$7 trillion in liquid assets.

This generation would certainly have the greatest effect on the banking industry, says Abrar. Citing the “2017 Standard Chartered Emerging Affluent Report: The Race to Save”, he says millennials (aged 25 to 34) are more likely to keep their savings at home (11%) than those aged 45 to 55 (9%).

The report, which tracked the preferences of more than 8,000 millennials in the emerging affluent segment, found that many are missing out on potentially higher returns by relying on basic saving methods, despite being in a strong position to grow their wealth, with 67% saving monthly. “The reward for adopting a more advanced approach to saving could be extremely significant — a 42% increase in returns on average.”

Millennials are also not prioritising saving for retirement, Abrar points out. The report findings indicate that this trend is prevalent even among the older millennials.

To reach out this group, banks need to harness the power of technology, says Abrar. “Despite their love of all things digital, tech-savvy millennials still rely on the human touch and nuanced advice only a human advisor can give, particularly in more complex investing situations.”

Combining that with the speed, low cost and mobility of robo-advisory services would allow wealth managers to best serve millennials going forward, he adds.

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