Inside Hong Leong Bank's digitalisation journey

The lender has set aside as much as 20% of its FY19 operating expenses on tech.

As Malaysia prepares to hand out digital banking licenses by 2020, Hong Leong Bank is banking on proactive tech investments to stay ahead of new and agile competitors which have the natural advantage in keeping costs down. Fintech-powered lending businesses are generally able to keep their cost-to-income ratio at slightly above 30% versus 47% for the Malaysian banking sector, data from S&P show.

Faced with formidable rivals that already command a significant share in the domestic e-payments market, HLB is no longer implementing digitalisation as a stand-alone initiative but enforcing the its digital-first ethos across all business lines to retain its lead even as it explores opportunities for collaboration.

“The emergence of pure-play digital banks in Malaysia is an exciting development that will not only see the emergence of new players but also allow the current digital banking services offered by existing financial institutions to be even more efficient and seamless, especially in KYC,” said Domenic Fuda, group managing director and CEO of Hong Leong Bank. “Being driven by our Digital-at-the-Core ethos,[we] would naturally be keen to explore the regulatory changes and opportunities that might came about because of the virtual banks licencing.”

In an interview with Asian Banking & Finance, Fuda shares milestones in the bank’s digitalisation journey and opportunities it is pursuing to stay relevant against a dismal economic outlook.

Banks in Malaysia are underspending on tech, according to a report from S&P, raising the concern that the looming arrival of virtual banks may potentially pose a threat to incumbent lenders. How would you assess Hong Leong Bank’s digitalisation journey so far?

The fact is at HLB we have been investing in tech and digitalisation for over a period of time. For FY2019, approximately 15-20% of our operating expenses went to tech and digitalisation, whether it is back-end, products and services as well as talent development and training modules such as Design Thinking Programmes and Hackathons, in line with some of the leading banks in the region according to the S&P report. At the end of the day, we should not focus solely on total tech spend, but also look at the strategic and discretionary spend in creating new products and service, how fast we deploy to customers and whether or not we expand the market.

For example, by deploying enterprise-grade open source solutions, we have managed to attain rapid development capabilities and maintain the journey of ‘fail fast, fail cheaply, quick to market, and build your own’. This has helped to lower our capital expenditure by at least 40 percent over traditional bought and deployed solutions. This has enabled us to deliver more tailored digital services to our internal and external stakeholders – services which are either developed in-house or through close collaboration with third-parties and can help improve our customers’ lives – all at a sustainable cost.

The truth is, the line between a ‘traditional’ and ‘digital’ or ‘virtual’ bank has been blurring for some time now, as the use of technology and the provision of digital solutions have increasingly become a necessary feature in banking operations. Digitalisation is journey and to make it sustainable, our approach to digitise began not with the technology, but a cultural shift driven by a digital-first value as our guiding principle. We no longer view digitalisation and investment in technology as initiatives; instead, across our retail and business banking as well as in human resource, talent and sustainability areas, raising our customers, employees and stakeholders’ engagement with technology has simply become “business-as-usual” for the Bank.

What are the full suite of digital initiatives that you have for retail customers?

Broadly speaking, our digital innovation offerings are based on the following pillars:

(1) Attract:
Leverage on digital and social media platforms, search engine optimisation and partnerships with online marketplaces to attract customers

(2) Acquire:
Leverage on digital technologies to acquire customers efficiently e.g. we continuously digitalise our product application journeys – both front and back end, and we continuously forge new fintech and ecosystem partnerships like WeChat or the bundling of digital SME banking solutions with HR, accounting & marketplace start-ups

(3) Transact:
Allow customers to transact anytime and anywhere instantly and digitally. e.g., our 3-word banking mobile application has been very well adopted by our customers and we continue to enrich its functionalities on an on-going basis. We have launched our in-Branch tablet to provide a ‘counterless’ branch experience, and we are continuously enhancing our business internet banking (Hong Leong ConnectFirst) for our SME and corporate customers where we just recently introduced the first-in-market facial recognition eToken to improve security and efficiency in cash management and transaction banking for these customers.

(4) Engage:
Improve customer stickiness and income per customer through contextual offers and analytics. e.g. we continue to build up our big data and analytics capabilities to be able to identify and deliver personalised digital sales, servicing and marketing customer experiences.

As banks rethink the role of the bank branch amidst the high cost of maintaining them, how has Hong Leong Bank revamped its branch formats in order to maximise the transactions within the physical set-up? 

By strengthening our digital offerings and banking operations, we can enable our customers to do much of their banking transactions virtually, which allow us to focus on providing our customers with the experiential aspect of banking where we take the time to listen to their needs and offer personalised services and products that they actually need.

As we work towards personalising our branch banking experience, our vision is to have a single person to manage the customer relationship throughout the branch visit – sales, servicing & marketing; and shift the sales-to-operations staff ratio for more effective use of resources. This vision is now made possible with the deployment of our branch sales-and-service tablet solution developed in-house.

This tablet powered solution provides 360 customer view that integrates with our backend infrastructure to enable seamless servicing of walk-in customers. This new experience has been extremely well received by our customers as it has created a ‘zero’ queue experience and we plan to roll this out to the rest of our branch network in 2019. On top of this, we have also introduced new Teller Assisted Units (TAU) which are able to accept, recycle, and dispense notes and are placed in open areas instead of traditional spaces behind banking counters. This allows for more transparent and secure management of cash deposits and withdrawals.
With these new capabilities, we can now reduce the need for high counters and we are starting to revamp our branches to have more customer facing floor areas while reducing our back-office space so that we can make our customers’ branch banking experience more comfortable. As for the processes, we are seeing more transactions like account enquiries, over-the-counter withdrawals and passbook updates getting migrated over to our digital channels.

Against dismal economic conditions, what pockets of growth is Hong Leong Bank turning to in order to ensure its growth?

With 98.5% of Malaysian’s businesses being SMEs, it is naturally a key market segment for the Bank. Since refocusing the HLB SME Banking approach in mid 2017, we have made significant strides to provide personalised products and services to best serve the SME Segment, which includes building a 200-strong team of SME Community Banking team nationwide to serve the local SME communities; the results of this refocusing was a robust 40% y-o-y loan growth for our financial year that ended 30 June 2019.

For the financial year 2019/2020, we are targeting to approve RM5 billion worth of loan funding to Malaysian SMEs while helping our SME clients thrive with seamless, relevant, personalised and fair banking to empower them with the best opportunities to realise their full potential.