Regulations, connectivity hampering banks’ digital shift

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DESPITE expressing willingness to adopt digital banking, more than half of lenders in the Asia Pacific region are yet to offer new clients processes for opening fully digital accounts, Fair Isaac Corp. (FICO) said.

A recent survey by the analytics software firm showed that 60% of banks in the region still do not allow clients to open an account digitally, despite reports that nearly nine in 10 financial institutions in the region embarked on digital transformation.

Some 28% of the banks surveyed cited changing regulations as a key challenge in capturing new customers online. On the other hand, 21% of the respondents also considered the need to create digital know-your-customer and anti-money laundering solutions as a key headwind.

“In Asia, the identification processes used for services such as e-government, banking or telecommunications evolved independently of each other, leading to a fragmented approach with inconsistent levels of security,” Dan McConaghy, president of FICO in Asia Pacific, said in a statement.

He added that open banking and regulations such as the second Payment Services Directive in Europe, which allows third-party firms access to client data from banks, are now “bringing regulatory rigor to bear on the issue,” forcing banks to comply and enable technologies to enable digital onboarding.

In the Philippines, Bank of the Philippine Islands Chief Digital Officer Noel A. Santiago said the lack of a national identification system and poor internet connectivity, especially in far-flung areas, inhibit banks from accepting new clients digitally.

“We don’t have a national identity that can be used for a bank to comply with KYC (know your customer). The lack of a national identity is inhibiting the aggressive take-up of digital onboarding,” Mr. Santiago said in a phone interview.

President Rodrigo R. Duterte signed the Philippine Identification System (PhilSys) Act in August 2018, providing proof of identification for all citizens as well as foreigners living in the country.

The government is in the first phase of the implementation of the system, which involves procurement, testing of core technology infrastructure, organizational development of the PhilSys Registry Office, and launch of target registration.

“Infrastructure for a big chunk of our population are still in areas that our digital readiness doesn’t exist. Even if it exists, it’s limited, the signal,” Mr. Santiago said.

The abundance of payment service providers is also a hindrance, he said.

“[F]inancial services, especially in the payment space, is also…competing now with the wallet issuers like GCash and PayMaya. In other countries, your bank account is your payment mechanism,” he said.

However, Mr. Santiago noted that the Bangko Sentral ng Pilipinas (BSP) has been receptive of digital innovations banks want to implement.

“In fact, BSP came up with the basic banking account wherein you only need to supply a limited number of customer data, around five to 11.”

“Fintechs and challenger banks have disrupted the status quo in the financial services universe,” said FICO’s Mr. McConaghy. “By developing compelling new products, services and experiences, these companies have set a new standard and raised customer expectations.”

For the study, FICO surveyed 20 chief risk officers across Asia Pacific in April during its forum in Bangkok, Thailand. — Karl Angelo N. Vidal