TESTING THE WATERS
ARTIFICIAL intelligence (AI), robotics, cloud computing, machine learning, and the Internet of Things (IoT) are among the things that make up Industry 4.0 — more commonly known as the Fourth Industrial Revolution (FIRe). As these technology breakthroughs are becoming more evident in business and day-to-day living, how prepared is the country’s financial system in harnessing its potential benefits and at the same time, mitigating its potential costs?
From its name, FIRe marked the fourth period of industrial innovations that started in the late 1700s and early 1800s with the shift from hand production to machines using water and steam power as well as machine tools. The second wave, which started around the mid-1800s, saw the use of electric power and the assembly line for mass production while the third — which is commonly attributed to have started in 1969 — made use of electronics and information technology in automating production.
The fourth phase, according to the definition by the Asian Development Bank (ADB), is characterized by the use of “smart applications (apps) that integrate virtual and physical production systems” such as AI, quantum computers, biotechnology, blockchain technology, three-dimensional printing, and new generation robotics.
FIRe, which is popularized by World Economic Forum founder Klaus Schwab, is “fundamentally different” in that “emerging technologies and broad-based innovation” are diffusing much wider and faster than in previous revolutions. Mr. Schwab stated in his book The Fourth Industrial Revolution that while it took the first three industrial revolutions many years to be fully experienced by majority of the world’s population, it took the internet only less than a decade to permeate across the globe.
One of the first industries that will likely feel the impact of FIRe is the banking sector through its operations. Bank clients are seen to benefit in terms of ease and speed of transactions, better access through mobile or digital platforms, improved data, and enhanced cybersecurity measures, among others. At the same time, however, there are apprehensions on the adverse effects it would bring such as job displacements and layoffs with AI and robots replacing human employees.
According to Ramon L. Jocson, chief operating officer at the Bank of the Philippine Islands (BPI), the next generation technologies will change the way its customers transact with them.
“We will be able to multiply our technological capabilities, producing cost-efficient processes for the bank, while making interactions with our customers smarter (we talk to them through multiple touchpoints in communication channels that they consume most), personalized (acquisition tools are customizable to customer profiles and cross-sell product offers that fit client subsegments and behaviors), and always relevant (banking is readily available at any point when the client needs it via any device and even in touch points outside of the bank),” he said.
The Bangko Sentral ng Pilipinas (BSP) has noted that quite a few of the local BSP-supervised financial institutions (BSFIs) “have been testing the waters” with regard to their status in FIRe adoption.
“In general, the financial system’s players are taking a conservative and deliberate approach while assessing the pros and cons of these technologies,” the BSP said.
“While the level of immersion differs from BSFI to BSFI, previous tech buzzwords such as robotics, artificial intelligence and internet of things are now becoming the norm, particularly for complex bank’s IT (information technology) plans,” the central bank added.
“These banks are cognizant of the huge benefits that can be derived from these technologies, hence, have been exploring potential use cases such as customer acquisition, digital Know-YourCustomer (KYC) and marketing, among others,” the BSP said.
For BPI’s Mr. Jocson, around 85% of the bank’s transactions are already being done electronically.
“Our digitalization road map is grounded on using more and more new technologies that will streamline our processes, and allow us to quickly build on current IT capabilities that will provide the best customer experience for our clients at any point of contact,” Mr. Jocson said, citing among examples the implementation of mobile-first technologies, employing authentication and fraud detection global standards, the use of biometrics, big data and location-detection technologies and the expansion of its chatbot facility to engage with customers.
Mr. Jocson likewise noted their engagement with risk management service provider Tongdun International in creating a credit scoring model that will allow more small and medium enterprises access to financing.
“Through Tongdun International, we’re able to employ the ‘intelligent integrity network’ concept which integrates artificial intelligence and cross-industry defence that makes efficient and intelligent risk management solutions possible,” he said.
“Moving forward, we will be able to serve more clients faster while managing our risks better,” he added.
Mark Joseph A. Bantigue, vicepresident and head of e-commerce at Security Bank Corp., said that the Bank is working on mobile banking capabilities to improve its accessibility to clients.
“This entails pushing to make the mobile app the primary interaction channel for simple and low-value banking transactions while driving complicated and high value interactions to the branch,” he said.
“This includes customer acquisition, servicing, transactions, and connections with other financial services,” he added.
Even so, digitization of bank processes may not be enough as the country’s banks would have to prepare to integrate with nonbanking institutions for it to be deemed ready for FIRe, according to Michael P. Araneta, head of Asia/ Pacific advisory and consulting at IDC Financial Insights.