Shaping a New Era of Digital Banking

Every year, we hear numerous examples of how digital technology is inspiring new working practices, sales channels, distribution models and indeed the products and services on which corporations base their success. However, transforming new technologies into sustainable revenue streams and efficient business models requires a digital, innovative approach. Pioneering financial services providers together with both new and established technology companies are now working closely with clients to facilitate, and to some extent help to drive their clients' digital agenda.


Digital pioneers and partnerships

Businesses around the world, from early-stage start-ups setting out to disrupt conventional markets through to large and established leaders in traditional industries, are increasingly investing in digital initiatives to create new income streams and inspire new ways of doing business. For some, the objective is to accelerate growth, perhaps exponentially. For others, it is a matter of survival. This shift to digital business is giving rise to a radical shakeup in transaction banking, spearheaded by commercially savvy, digital leaders that include both progressive enterprises and financial services providers.

A key manifestation of this step change in banking is that relationships between corporations and their banks and financial technology vendors are being newly shaped. With digitisation now a key competitive driver, the needs of corporate treasurers and finance managers cannot be satisfied by out-of-the box banking products that do not reflect their distinct operational and strategic objectives. Instead, co-creation of digital business propositions between companies and financial service providers, and most importantly of all, their clients, has become fundamental.

Banks and financial technology companies that are slow to move or lack the capacity or motivation to invest in customer-centred digital business propositions risk falling by the wayside. Conversely, banks such as DBS are taking a leadership role in shaping the next generation of banking in partnership with other digital pioneers. This includes working with leaders in a wide variety of industry segments including retail, fashion, resources, pharmaceuticals, commodities trading, insurance, automotive, branded consumer goods, telecoms, technology and healthcare to develop digital solutions and strategies that create differentiation and competitive advantage.

For example, the finance team of a leading shipping company recently took the initiative to develop a new trade finance revenue stream by financing the goods it carries for its exporting customers based on an innovative digital platform supported with efficient, electronic processes. The company quickly recognised that a new approach to transaction banking would be required to support this new proposition. Although DBS was not an existing relationship bank, the company recognised DBS' leadership role in digital banking, and made the decision to work together on the new platform.

Extending the spectrum of digital value

It is not just large companies that are benefiting from the transformation of transaction banking. For example, open application programming interfaces (APIs) offer small and medium-sized enterprises (SMEs) an unprecedented opportunity to access banking services directly from their own systems. This changes the way that payments, collections and information flows are exchanged, how financial processes are integrated into the company’s business activities, and the depth and timeliness of intelligence that can be developed and harnessed. The ability to blend business and financial flows is instrumental in developing business models that rely on instant fulfilment, creating new sales and distribution paradigms and improving productivity and leveraging resources effectively, a key requirement for SMEs.

For example, DBS has worked with Tally, an accounting system used extensively by SMEs in India, to develop a bespoke API that integrates banking services seamlessly into the core application. This eliminates duplication of input, enables easy tracking of payment status, allows mobile approvals and provides instant transaction advice to suppliers, within a highly secure environment. Similarly, DBS has published APIs that are developed in conjunction with companies such as cloud accounting platform Xero, using collaborative development activities such as hackathons,  to enable software providers to integrate DBS banking services directly into their solutions, offering a range of new opportunities for customers.

Expanding the bank connectivity proposition

The integration challenge is invariably more complex for large multinational corporations that have multiple enterprise resource planning (ERP) tools, treasury and payment systems. However, advances in real-time message-based connectivity between banks and large enterprise platforms are emerging strongly as a more flexible and dynamic means of exchanging transactions, data and insights than traditional host-to-host connectivity.

This is already becoming a reality in cutting-edge, high-volume consumer-facing industries such as insurance. In July 2017, DBS worked with MSIG Insurance, one of Asia’s leading general insurers, to provide an instant electronic payment service for travel insurance claims, replacing expensive, insecure cheques and manual processes with efficient, automated approvals, controls and immediate payment processes. For example, a travel insurance policyholder could submit a claim for a delayed or cancelled flight and receive settlement whilst waiting for a new departure time (or day) and use those monies for the unforeseen expenses incurred, rather than seeking reimbursement later. These initiatives have significantly improved the customer experience whilst improving internal efficiency and control, therefore demonstrating how banking can create competitive advantage in new ways.

In addition to banks' and technology

providers' innovations, many of the new opportunities in transformational service and payments innovation are enabled by the increasing number of 24/7 real-time payment infrastructures and associated central addressing systems that are evolving quickly across Asia Pacific and beyond, including FAST in Singapore, UPI in India and NPP in Australia.

Beyond digital payments

Digital banking extends far beyond payments into areas such as trade finance. For example, it is becoming increasingly apparent that distributed ledger technology (DLT) offers great potential to transform documentary trade, an area in which DBS continues to play a pioneering role. The challenge now is no longer to prove the technology, which has been done successfully over a number of pilot studies and proof of concept projects, but to expand collaboration beyond pioneering banks and vendors and early adopter clients to produce the critical mass required to create network effect. However, there are some obstacles still to overcome. For example, consortia that have aimed to stimulate collaborative working have had limited success, often due to concerns over intellectual property, while a legal framework is required to bring contractual clarity to fully dematerialised, electronic trade finance transactions.

As these issues are likely to take some time to resolve, widespread adoption of DLT and the dematerialisation of documentary trade finance is unlikely to take place in the near future unless there is greater government and regulatory engagement and incentives to do so. Consequently, the recent efforts of Singapore and Hong Kong's regulators to progress the creation of national trade platforms and linkages between them is encouraging.

Inspiring banking transformation through collaboration

DBS' digital banking innovations are already benefitting our clients and the wider financial community, while the bank also benefits from progress made by others. In addition to sharing experience and expertise, the shift to an open source, cloud-based environment results in far lower development costs, and perhaps more profoundly, a change in mindset in the way that the bank engages with, and develop solutions in conjunction with its customers. For example, the use of industry standards and APIs enhances integration and enables clients to 'unbundle' solutions and reconstruct them as they wish, from establishing a common way to manage bank relationships and accounts through to building best-of-breed solutions.

Today's emerging solutions, from mobile payments and collections through to highly bespoke digital supply chain solutions, are only the start of the digital transformation of transaction banking. By leveraging DBS' expertise through both close relationships and online advisory tools such as DBS Treasury Prism, together with the bank's co-creative approach to new solution design and definition, treasurers and CFOs can keep up to date with market developments and new opportunities, and use this knowledge to shape the company’s digital strategy.

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