Ravi Menon, Managing Director of the Monetary Authority of Singapore, said in June that the financial sector, regarded as one of Singapore’s key economic pillars, is expected to be the main driver of growth in 2019. He highlighted the fintech industry should “grow handsomely”, boosted by increased investments in digitalisation.
Singapore’s recent announcement on their intentions to issue up to five virtual banking licenses is a good example.
According to an industry report on alternative finance, business loans took more than 99% of all issued alternative loans in Singapore in 2017. This means there is a huge market potential for financial institutions looking to provide business loans.
With the new virtual banking licenses, the government is encouraging digital banks to offer cheaper services to small- and medium-sized enterprises (SMEs) and other non-retail segments in Singapore, that is, the underserved segments by traditional financial institutions. It is expected that the low-cost digital banks in Singapore will be able to serve Southeast Asia’s unbanked millions and capture around 2% of the domestic banking sector worth S$24.3 billion.
The fact is, Singapore’s interest in digital banks comes from a similar motivation that has pushed the digital transformation of industries: lower costs, the ability to reach a wider segment of customers, and the potential to automate much of the blockages slowing down a typical operation.
Importance of a digital-first strategy
For more mature companies to get their foot in the door when it comes to digitalisation, change is tough to keep up with because it brings new challenges or risks that need to be managed, and usually demands extra investment. In 2019, IDC forecasts that nearly S$1.6 trillion will be spent globally on digital transformation.
But there is a carrot and a stick involved here.
Let’s start with the stick: doing nothing is a recipe for disaster. A world in which the average company lasting just 12 years on the S&P 500 list is expected to be the reality by 2027, according to Innosight’s corporate longevity forecast. While companies disappear off this list for several reasons, not keeping up with the pace of change and the inability to transform are major factors for many business failures.
What about the carrot? Across all industries, digital transformation offers a new way to deliver products, services and experiences to the market. Businesses gain from adopting new technologies that help them to better understand and serve customers, or risk creative destruction. From companies surveyed in “The Most Innovative Companies 2018” Boston Consulting Group report”, big data analytics, adopting new technologies and mobile products and capabilities for example, were rated high in importance for innovation strategy. Compared to a decade ago when technology used to live in silo—the IT department—, digital, mobile, big data and other technologies are now used to drive innovation across all touchpoints of the company, from new products to go-to-market strategies.
But while checking boxes on digital brings you to the table, it doesn’t always help you win. A decade ago, how many businesses needed mobile apps? And now – which business doesn’t? The impact of the technology revolution includes far-reaching changes directly affecting people’s habits, needs and demands in every part of their lives.
This, in turn, means that the survival of businesses lies critically on their ability to execute a digital-first strategy that both agile and sustainable.
What powers digital transformation?
Succeeding in such a competitive environment will involve three fundamental conditions, although these, alone, may not be enough:
- Increase agility to quickly meet changing business needs
- Enable innovation with enterprise stability
- Improve IT efficiency and reduce costs
Very few of today’s businesses will attain this position, but those that do will have achieved this thanks to their decisive and successful adoption of sweeping changes. Across many industries in Asia Pacific, we are encountering two very powerful factors that contribute to business success, even if the transformation is quite gradual.
One of these is that increasingly, applications are the vehicles through which critical needs are addressed. In this digital economy, the key to increasing business agility is no secret: enterprises must deliver applications faster.
IDC predicts that IT spending by financial services firms will reach nearly S$700 billion in 2021, led primarily by strong software spend across regions. According to the study, Asia Pacific is showing above average growth. The question for businesses is not whether they should have an app but whether they can develop an app that can satisfy customers’ demands for real-time services while delivering a great user experience. This comes with a bit of a caveat: any disruption to service can upset customers and cause reputational damage.
Apart from app delivery, artificial intelligence (AI) and machine learning (ML) are now finding their way into applications across a range of different industries. In fact, if we identify the breakthrough areas that are going to ride the technology wave, AI and ML will be at the root of all innovations for the next five years. And, it is an interesting fact that all the latest ML technologies run on open source today. It is the collaboration that lets technology accelerate that much faster.
Understanding the critical dependencies of your business is changing digital-first from a ‘nice to have’ capacity to a necessity in order to gain competitive edge, as well as to stay relevant in the market against the backdrop of what digitalisation could bring to one business.
Andy Jiang is the Vice President and General Manager for SUSE Asia Pacific and Japan