COVID-19 pandemic shows digitalization key to winning in financial industry

Contactless financial services and digitalization will be an inevitable trend for banks and other financial institutions in the post-COVID period.

The pandemic has posed a significant challenge to the financial services sector as it often involves face-to-face interactions. The efforts of some financial institutions to develop online and remote services and invest in financial technologies, or fintech, have proved effective, with their value well recognized.

Financial institutions that already had online service capabilities were able to quickly provide non-contact services during the pandemic and many have seen significant growth in online transactions.

For instance, Ping An Bank's local branch in Wuhan, the first epicenter of COVID-19, reported an improved performance despite the pandemic's negative impact on its operations, thanks to its trials in online customer acquisition and use of artificial intelligence in activating dormant clients.

Its balance of assets and liabilities under management in the retail business surpassed 50 billion yuan ($7.29 billion) and 30 billion yuan respectively in February.

However, financial institutions that relied heavily on offline services experienced stagnation in business segments like credit and wealth management, where employees were unable to return to their workplace.

The pandemic increased awareness of digital transformation and fintech among financial institutions. Those who have not yet embraced digitalization need to cooperate with technology companies to catch up or else they may lag further.

Authorities also released policies to encourage financial institutions to expand contactless services. Five key financial institutions, including the People's Bank of China, the central bank, released a document on Feb 1, asking consumer-facing providers of financial services to enhance online services nationwide, especially in regions hard-hit by the virus, and to persuade companies and residents to turn to the internet and apps to carry out finance-related business.

On Feb 14, the China Banking and Insurance Regulatory Commission said banks and insurers need to expand their online businesses, improve management and guarantee of electronic channels such as internet banks, mobile banks and mini programs, in order to provide safe, convenient and various contactless financial services.

It is conceivable banks will accelerate research and application of fintech once the COVID-19 pandemic subsides. According to a joint survey by the China Banking Association and the Asset Management Association of China, 68 percent of interviewees agreed financial institutions' demand and usage of fintech have obviously increased. And 54 percent of the respondents involved in the finance sector said they planned to increase investment in fintech after the pandemic.

Financial institutions' growing need for lowering costs and risks can also be met by enhanced digitalization. Compared with overseas institutions such as Citibank and Wells Fargo that invest over 10 percent of annual revenue in technology, Chinese financial institutions' input is low. The major five banks in China invest about 2 percent of revenue in technology upgrades every year. The corresponding figure for many small and medium-sized banks is less than 1 percent. But it's good to see that both large State-owned banks and rural banks are making efforts to develop fintech.

Non-contact financial services involve intelligent marketing, risk control, products, day-to-day operations and office work, to ensure banking-related business continues without any disruption even during extraordinary periods like the epidemic.

Intelligent marketing involves precisely estimating financing demand from epidemic control, business resumption and individual consumption, by building online wealth and life scenarios. Besides, insurance products, online medical treatment, epidemic map and sanitation supplies can be integrated to facilitate promotion.

For example, a State-owned bank developed its online medical diagnosis platform, which helped increase average daily customers' time on site by 20 percent. An online asset management platform saw its registrations and page views grow about 7 percent after it released epidemic-related products.

Intelligent marketing can also improve clients' operational efficiency by establishing customer profiles, social media presence, mobile apps and telephone-based services, seeking customers from multiple sources, activating dormant clients and initiating targeted marketing.

Intelligent risk control refers to use of big chunks of data from companies and a multi-dimension decision-making model, as well as intelligent tools like blockchain and micro-expression test, to recognize possible fraud in the credit business online.

For example, intelligent tools such as optical character recognition and voice input can streamline loan application procedure and improve clients' experience. When filling the forms and doing video interviews, AI technology can detect micro-expressions, thus lowering risk of fraud. Fintech can also improve efficiency of post-loan management－the system would send messages to clients when they approach repayment date and initiate debt-collection automatically if overdue.

Besides, more financial institutions are partnering with technology companies to develop new products in more quick and flexible ways, to shorten the time for R&D, lower cost and meet the rapidly changing market demand.

Intelligent loan, for example, has become an important method for banks to support small and micro businesses. Some banks mainly target small firms operating in fields like e-commerce, takeouts, logistics and medicine, and enable them to use their financial e-services on WeChat and to obtain loans without having to visit offline spaces. Intelligent loans can also help businesses quickly choose most suitable financial products based on their operations data and technology.

Intelligent operations, including telecommuting, also helped financial institutions resume business and employee training in the aftermath of the outbreak of COVID-19.

Digital transformation is a systemic program that asks for sophisticated planning. Adoption of advanced technologies－AI, blockchain, cloud computing and big data－plays a key role. Blockchain, for instance, forbids falsification of data and allows traceability. So, it can help in identity information management, trust mechanism construction and cash management.

Fintech-related initiatives in financial organizations can start from establishing a fintech development committee, related departments and project-oriented teams, as well as by optimizing systems and rules that encourage inner innovation.

As small and medium-sized banks often face shortage of fintech talent, they can seek cooperation with external players in purchasing core systems and modules from other companies to save on R&D costs, or in conducting business on others' platforms, to decrease losses from trial and error.

Financial institutions can also promote cooperation with the government and industries. Banks can build financing platforms for SMEs based on government data, which can be used to draw company profiles and issue risk ratings. Banks can also develop online supply-chain financing networks to facilitate industries in manufacturing and trade, by linking core companies and upstream and downstream companies.

The pandemic will pass sooner or later but innovation will go on, which explains why financial institutions are underlining digital transformation and contactless finance, and developing them rapidly.

The writer is executive vice-president and secretary-general of the Internet Finance Association of Small and Medium-sized Banks (Shenzhen) and chairman and CEO of OneConnect Financial Technology Co Ltd, the fintech arm of Ping An Insurance (Group) Company of China Ltd. The views don't necessarily reflect those of China Daily.