By Bjorn Biel M. Beltran
Special Features Writer
THE STORM of disruption that has besieged corporations and businesses throughout the decade is only growing stronger, with technology giants like Amazon, Uber, and Netflix rising from the ashes. Now, banks are on the storm’s path, with the development of blockchain technology, cryptocurrencies, and their applications threatening to render banks and other financial services obsolete.
THE THREAT OF THE BLOCKCHAIN
Blockchain, the decentralized and digital ledger system behind popular cryptocurrencies like Bitcoin and Ethereum, is changing the way people create contracts and facilitate transactions worldwide. While the applications of blockchain technology can penetrate industries from health care to logistics, the global banking industry is particularly at risk.
The New York Times explained in an article entitled, “Demystifying the Blockchain,” “The easiest and most basic way to think about the underlying technology is to think about a technology that keeps a master list of everyone who has ever interacted with it. It’s a bit of an oversimplification, but if you’ve ever used Google Docs and allowed others to share the document so they can make changes, the programs keep a list of all the changes that are made to the document and by whom.”
“Blockchain does that but in an even more secure way so that every person who ever touches the document is trusted and everyone gets a copy of all the changes made so there is never a question about what happened along the way. There aren’t multiple copies of a document and different versions — there is only one trusted document and you can keep track of everything that’s ever happened to it.”
In other words, the blockchain is eliminating the need for middlemen between transacting parties (e.g. banks and other financial services), as the power to update and check records and transactions is available via an automated, public, tamperproof system.
In the latter half of 2017, Bitcoin broke into mainstream consciousness as its value soared to an all-time high of over $19,000 per coin. Other cryptocurrencies, such as Ethereum, Litecoin, and Stellar Lumens, rode on the coattails of Bitcoin’s popularity, seeing similar spikes in prices as investors and early adopters were caught in a speculative frenzy before they decreased in value in early 2018.
THE RISKS OF DISRUPTIVE TECHNOLOGY
Rolando R. Avante, chief executive officer and President of the Philippine Business Bank (PBB), believes that technology like blockchain and cryptocurrencies have emerged only because there was a need among consumers that the modern system of banking has failed to address.
“Blockchain and cryptocurrencies have come of late because they answer some of the restrictions that consumers are seeing in the banking system,” he said in an interview.
As society progresses, technologically and culturally, Mr. Avante noted, more will be demanded of the established institutions due to the changing needs of the times, and more interest will fall on such developments. For banks to adapt, they must be receptive to those needs.
“Banks always have to be mindful of what it takes to remain relevant to its customer base,” Mr. Avante said.
“More and more you have to be able to deliver to your customers what they need as far as products go. That is how we will be able to be competitive as far as disruption goes.”
As for blockchain technology replacing the global banking institution, Mr. Avante isn’t worried. Due to the decentralized, and largely unregulated, nature of cryptocurrency, it will be some time before a successful one manages to displace a system as deeply rooted as banking.
“The thing that people or customers will have to understand is that there are inherent risks as well in using these products. The problem with it is since it is unregulated, there is the question of who you run after to be responsible when something goes wrong,” he said.
“Since there is no governing agency, either globally or locally that is running after them, then you are very prone to either hacking or a glitch in these types of operations.”
Such lapses in security are not uncommon. Just this January, in one of the biggest heists recorded in history, hackers successfully broke into the Japanese cryptocurrency exchange Coincheck, Inc., making off with around half a billion dollars in digital tokens.
In 2014, hackers had infiltrated the Mt. Gox exchange, taking around 850,000 bitcoin, worth $460 million at the time. Other smaller hacks and glitches have occurred over the years, such as the attacks on the Bitfinex exchange and the NiceHash cryptocurrency mining service.
Seeing the changing world Mona Lisa B. de la Cruz, chief executive officer of The Insular Life Assurance Co., Ltd., has taken matters into her own hands. The insurance industry, which is a field that deals primarily in trust, and blockchain, which introduces a way to enhance trust between parties, are two things that are predestined to interact.
But for now, Insular Life is investing into digital technology to improve its customer experience and sales distribution. The company implemented digital transformation initiatives in 2017 that included the digitization of its processes with the use of Robotic Process Automation (RPA), a process which allows faster deployment of programs to automate repetitive and resource-intensive processes.
“Automation of these repetitive, mundane tasks is critical for enterprises to gain higher efficiency, lower costs and ensure better user experience,” Ms. De la Cruz said in an interview.
Insular Life also upgraded its customer portal with a better interface, and a mobile-first design to be compliant with user experience design best practices. The company strengthened its online capabilities, allowing policyholders to withdraw and conduct Variable Unit-Linked fund transactions online, along with a full e-commerce platform, offering its first online product, Prime Care, that provides funds for medical treatment of dread diseases.
“In addition to these exciting initiatives, Insular Life remains the only insurance company in the country that offers a fully automated, end-to-end sales process which includes automated underwriting. Policyholders can fill out forms, choose their desired product, undergo underwriting and receive decisions on applications, all online, in just 30 minutes. This fully automated sales process will also give revised quotations in case the applicant is found to be substandard,” Ms. de la Cruz said.
On the banking side, Mr. Avante is confident in the ability of the country’s central bank to adapt to the transforming landscape of the global banking industry and reinforce measures to protect the local system. Not that they are complacent in this regard.
“You don’t just look at things in the Philippines,” he said. “There are things happening in the global banking industry to which the local banks have to keep at pace with.”
The executive revealed that PBB is in the process of upgrading its core banking system to better address customer demands and future-proof the company’s business. The objective is to create a solid foundation from which future modules, be it mobile banking, data analytics, or even blockchain technology, could be installed.
“At the end of the day, that will be our foundation of where we can add all these products, services, and innovations,” Mr. Avante said.
An innovation of particular interest to PBB is a more robust customer database, from which the lender can serve its customers in a deeper and more enriching manner, whether it is to follow customers up on loan payments, check on a particular customer’s credit standing, or offer them relevant, targeted deals.
“That’s a simple thing, but it creates a lot of impact to a customer. They will think, ‘I’m in good care here,’ Which is good because you don’t know if the small accounts you are holding on to now will be one of your top ten depositors in a branch in the future,” Mr. Avante said.
He added that when you have a robust system capable of giving you specific information about a customer, you can make business decisions faster and more accurate, and provide a better quality of service for your consumers. Used in this way, data truly is the new gold.
PBB has been investing millions of pesos into the new system for the better part of two or three years now. They expect it to be up and running either later this year or early in the next.
DISRUPT OR BE DISRUPTED
Mr. Avante knows that such drastic investments are not available to everyone, and that in challenging times, it is the smaller companies that pay the price. More often than not, he noted, that the bigger, more established players in an industry have enough influence and capital to weather the storm of disruption.
“One noticeable part about technology is that it doesn’t come cheap. You have to really allocate the capital. You have to make investments for it,” he said.
Not only does a business have to pay for the hardware and software capabilities necessary to adapt to changes in the landscape, he pointed out, one also has to consider the complementary human support needed to maintain it. Especially since the rapid pace of technological development renders cutting edge tech obsolete in a matter of two to three years.
Whether it’s negotiating with systems providers or opt for consolidation, underdog banks must find ways to get ahead of the disruption before it fully sweeps over the industry. Be caught complacent, and you will be left behind.
“The challenge that is there is for everybody to continue to develop and reengineer himself,” Mr. Avante said.
Ms. de la Cruz added, “We recognize that the financial services industry is now at a tipping point: either disrupt or get disrupted.”