This article first appeared in The Edge Malaysia Weekly on January 6, 2020 - January 12, 2020

One of the more intense discussions my colleagues and I often have is about the future of the banking industry, given the rapid pace of technological disruption today. We question if banks will exist in their current form in the future, and how differently we will be serving our customers. Are there unknowns that will define banking in the years ahead — and will these catch us unawares?

I have no doubts that banks will still be relevant in the next decade because the services they provide are very crucial to the well-being of society. However, they may operate differently from the way they do today. On top of playing the same conventional role, banks will have to adapt to rapid changes brought about by new technologies, heightened regulations, new customer lifestyles and demands, shifting business practices and a totally different employment landscape.

So what will shape banking in the decade to come? Do we have to fear the changes that they will bring? Let me share some key areas that will, in my opinion, play a significant role in how banks will operate.

The first is data. Data will increasingly drive our businesses and will be the game changer for any organisation. Banks will have to relook  how we can use our proprietary data more effectively — just like the telcos, tech companies and travel firms do today. These industries use their data strategically to drive business growth, and not only to sell a product. Data can provide banks with increased confidence to make credit decisions, create new products and services as well as manage risks or meet compliance criteria. Banks will have to move up the curve quickly and use their data holistically to thrive in the competitive landscape.

Of course, when we touch on data, we cannot ignore the advent of open banking. Open banking is already implemented in some parts of the world and is expected to become more common in the years to come. In some markets, open banking is simultaneously implemented with the concept of reciprocity, whereby customers who decide to volunteer their data onto the platform will provide all data including those from non-bank market participants, and not just banking data. This provides equal treatment to all market participants. In addition to that, it is not just open banking that will come our way; at some point, the concept of open data will reach our shores too. While open banking allows access and control of consumer banking and financial accounts through third-party applications, open data unlocks it further for information cross-sharing with other industries. There are pros and cons to this — some appreciate its potential to reshape the competitive landscape and consumer experience but, on the other end, there are valid concerns about its free availability.

This brings us to other areas of digital disruption. Customers can certainly look forward to a continuous array of new digital products and services as technology advances. In the case of Maybank, which is the only bank currently offering a digital wallet, MAE, we will be focused on delivering continuous enhancements to make it a truly lifestyle companion.

Banks will also have to contend with the entry of virtual banks in the near future. It would be interesting to see how these new players will compete in an already crowded space. Having said that, competition will be good. It will drive the industry to be more efficient while customers can enjoy a broader range of products at more competitive pricing.

Speaking of efficiency, many organisations have already started using blockchain technology. We all know it is a faster, safer and more economical way of doing business, and in my view, it will benefit the banking industry. However, in order for it to work well within our environment, there is a need for wider acceptance among all the players to drive its use further.

Another possible lever for greater efficiency and productivity is the use of cloud technology. Banks can gain from this technology as it enhances capacity to handle data and provides better agility, scalability and security. This will, however, require a deeper understanding by all stakeholders to be successfully adopted as restrictions to have data or other resources physically present in the country of operation will have to be reviewed.

The use of robotics and artificial intelligence (AI) is another area that is set to grow. While robotics can enhance efficiency and productivity, it will necessitate a further reskilling of human resource capabilities and possibly a review of employment models within the industry. Additionally, robotics and AI will need to address larger issues of ethics and norms in decision-making to ensure that the right outcomes or advice is provided to clients.

Given the increase in cyber threats and financial crimes, I see banks also continuing to invest significantly on security and compliance. These risks are constantly changing and it is unlikely that any industry can work on its own to combat them. Relevant agencies, corporates, banks, governments and even customers need to invest and work together if we are to collectively stay protected.

The banking environment will increasingly see more environmental, social and governance (ESG) issues emerging in the coming years. We know there is clear evidence of climate change and a wealth gap today. Banks can play a significant role in addressing these issues. We need not be dictated by standards set by others who have progressed earlier on their ESG journeys. But we can avoid their mistakes and, yet, be equally aspirational, always ensuring that as we reach one goal, we set new targets to help us progress even further.

Finally, while we can be excited, or even sometimes concerned, over new developments that have taken place and will take place in the future, it will be remiss of me not to highlight the fundamental functions of banking (and money) and, to a certain extent, the capital markets. There is no doubt that the banking system and capital markets have played a significant role in helping the economy to grow. But more than that, they have helped market participants preserve and, in many cases, enhance wealth while ensuring that the fundamental conditions required by markets to perform such services such as the need for trust, safety, privacy, stability and security are protected.

And while society often tends to emphasise what is fundamental and important to itself, it should nevertheless give banks the opportunity and space to demonstrate their creativity. We can surely take comfort that control will remain with the regulators who have always helped balance the human primal instincts in wealth creation, whether in a boom or bust cycle.

The choice for banks as we move into a new decade is obvious — are we ready to transform and disrupt ourselves to ensure the sustainability of our organisations and the communities we serve? Given the resilience of banks over the years, I am sure they will continue to evolve, transform and even thrive in the years ahead.

Datuk Abdul Farid Alias is group president and CEO of Maybank and chairman of The Association of Banks in Malaysia

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