Making ‘Cents’ of Today’s BFSI Challenges
With over 200 banks and accounting for 15.7% of Singapore’s nominal GDP in 2020 (2nd only to the Manufacturing industry), Singapore’s Banking, Financial Services, and Insurance (BFSI) sector is a major pillar of Singapore’s economy.
However, it does not come without its challenges. From Digitalisation to Cyber Security Risks, here are some pain points of the BFSI industry in Singapore.
1. Digitalisation/Digital Transformation
Culture & Mindset
Organizational culture and employee mindset are two major factors when it comes to company digital transformation.
Generally, most firms in Singapore are open to digitalization, partially due to COVID-19, with about 75% of companies accelerating digitalization because of the pandemic.
Employee mindset, on the other hand, may prove problematic. Given the rapid rate of technological advancement and the shift to a technology-first culture, older employees may not be able to keep up and hence, may be resistant to or left behind by digitalization efforts, alienating them in this strange, new digitized world.
Scale of Digitalisation
Many banking processes are still done manually, especially at private banks and management wealth firms. The large-scale and siloed nature of these processes would require extensive efforts to digitalize.
While banks have enhanced and taken many of their front-end services online with services such as e-payments and online banking, automation in the back office still leaves much to be desired. The highly manual mode of processing is not only slower and less efficient, but it also leaves a higher probability of inconsistencies and errors being made.
Increased Competition from External Parties — Digital Disruption
A number of traditionally non-banking entities are now entering the BFSI industry and trying their hand at finance. Companies such as Google, Samsung & Apple now offer financial services (mainly payment services) that can be integrated into mobile apps of various brands, disrupting the value chain in finance.
For example, Samsung and Apple Pay come pre-installed in their respective smartphones. Consumers only need to key in their credit card details and their phone immediately becomes an e-wallet. The ability of these companies to enhance consumers’ convenience to the point where they do not even need to bring their wallets when going out is what makes them so competitive and threatening to traditional banking entities in the BFSI industry.
Another form of disruption would be the emergence of Digital Banks, set to enter the Singapore Market in early 2022. These Digital Banks do not have a physical presence and offer all of their banking services online, with Digital Full Banks catering to retail & corporate customers and Digital Wholesale Banks serving corporate & SMEs. Other non-traditional financial developments such as cryptocurrency also provide additional obstacles to the traditional players of the BFSI industry.
The rising competition from parties outside the traditional financial sector is so great that DBS CEO, Mr. Piyush Gupta, views it as the biggest threat to the banking industry and it is not difficult to see why. With customers becoming increasingly tech-savvy, a large emphasis is placed on convenience and customer experience, something that these new entities offer and have a head start in.
2. Regulatory Compliance
Rapid Increase in Finance Regulations
The number of financial regulations and costs of complying with said regulations have increased significantly since the 2008 financial crisis. With new financial developments such as cryptocurrencies and blockchains, new regulations are needed to control such developments. That being said, having more regulations inevitably leads to higher costs. A global survey conducted by consultants Duff & Phelps found that one-third of banks are spending more than 5% of their revenue on compliance.
This rise in compliance costs relative to earnings as well as the manpower & efforts needed to assure strict adherence has resulted in strained resources for firms in the BFSI industry.
3. Rising Customer Expectations
Changing Customer Profile & Increasing Competition
Today’s bank customers are increasingly tech-savvy, rapidly adopting digital technologies into their everyday lives and this includes financial services. With each new generation of banking customers comes a more innate understanding of technology and hence, an increased expectation of digitized experiences.
Customers today expect a high degree of personalization and convenience out of online platforms, be it for shopping, transport, or banking and with the emergence of digital banking platforms that offer fully online banking services, the need for traditional players in the BFSI industry to deliver quality online customer experiences becomes even more essential.
4. Cyber Security Risks
Increase in the number of Cyber Attacks & Security Breaches
According to a Straits Times report, Singapore’s data protection watchdog received 3x the number of data breach alerts between Feb to Mar 2021 compared to the previous two months. In addition, local cyber-security firm Kaspersky detected and blocked ~2.3 million web threats in the 1st quarter of 2021, a ~263% jump from 2020.
One reason for the spike in cyber attacks is the pandemic. As more employees start to work from home, poor cyber habits of workers have been exploited by hackers. For example, in May 2021, a staff member from UOB fell prey to a China police impersonation scam, resulting in the personal information of 1,166 customers being leaked. In addition, hastily implemented IT infrastructure and home networks, that typically have weaker security, have made firms easy targets for malicious attacks.
As the BFSI industry undergoes digital transformation and more processes are ported over to the digital space, the number of cyber-attacks is expected to increase, with the consequences of a successful attack becoming increasingly severe.
Conclusion
While the challenges facing the BFSI industry are difficult, they are by no means insurmountable. That being said, finding the right partner to combat these challenges is essential. If you are looking for digital solutions or ways to improve your firm’s online experience, look no further than 2359 Media!
Check out our works here and contact us here for any business queries!
