The following are excerpts of CTBC Bank President James Chen’s comments at the CWEF compiled by the CommonWealth Editorial Department.

The progress of technology has brought massive change to the face of competition. Many banks around the world are investing resources in financial transformations, hoping to use financial technology (FinTech) to strengthen their competitiveness or differentiate themselves from their rivals.

Well-known banks undertaking this transformation, such as the ING Group or DBS Bank here in Asia, now see themselves more as tech companies than as banks. People with DBS Bank told me that IT people account for about 40 percent of their bank’s employees. That shocked me when I heard that, because CTBC Bank is the leader in this field in Taiwan, yet only 9 percent of its employees are in IT, well below the standard set by DBS Bank.

JP Morgan has been even more direct, openly calling itself a “technology company.”

Technology Not Just for Technology’s Sake

In fact, if capital markets recognize you as a technology company, your price-to-earnings ratio and stock price should be a lot higher than if you are just a bank. So it makes sense that banks want to reinvent themselves as tech firms.

From the opposite perspective, many tech companies have begun providing a wide range of financial services. It’s already commonplace in China. The Ant Financial Services Group (an Alibaba Group affiliate formerly known as Alipay) is a good company and Tencent has its own financial services. Big and small tech companies around the world, such as Amazon and LINE, are all moving into the field.

The author of “Bank 4.0,” Brett King, described the concept as “banking everywhere, never at a bank.”  

In view of those developments, many people ask me if banks will be replaced by tech companies, and if I’m worried about the trend. To be perfectly honest, I’m not at all pessimistic.

Technology may be important, but banking is a centuries-old industry, with two major obstacles to entry that tech companies will not be able to hurdle in the short term. One is capital risk management; the other is compliance – adhering to regulations. If anyone here [at the CWEF] is involved in the financial sector, you probably have gotten headaches from compliance issues pretty often in the past few years.

I’ve told my colleagues to see the tech sector as a partner rather than as a competitor. What we really should be worrying about are other big banks outpacing us and launching really competitive products and services that beat us to the punch.

Four Major Digital Transformation Directions

If we look at tech sector investment in financial services worldwide, whether in pure online banks or fintech banks, their market share is no more than 1 percent. That shows big banks remain highly competitive, but we cannot overlook digital transformation because of its extreme importance today.

We also have to look very pragmatically at the significance of technology in the consumer’s mind. A survey by international consulting company Capgemini found the top two things wanted by customers were, number one, convenience, and number two, a bank they could trust. The desire for internet banking and easy-to-use apps only ranked fifth on their wish list.

That’s why CTBC’s digital vision avoids technology for technology’s sake, instead focusing on using digital technology to give customers the best possible financial services experience. Bank digitization should be about providing service without any location or time constraints. The main questions we should be answering are how to become part of customers’ living circles and how to provide warm, attentive service.

Based on that premise, our digital transformation has concentrated on four specific approaches:

First, digitizing bank tasks to make bank services more convenient; second, digitizing internal bank processes; third, transforming financial services by incorporating AI and big data to provide “intelligent” bank products; and fourth, promoting cross-industry strategic cooperation with companies with strong technology capabilities to improve our competitiveness.   

Warm Service the Key in the Digital Era

First, I wanted to fuse the bank’s digitization into the customer experience, starting with smartphones. Making all of our services accessible on smartphones was an important key to success.

So we rolled out the smartphone app “Home Bank.” It was really powerful, offering fingerprint ID logins, mobile transfers, and many automated services, such as fee payments, that are really convenient.

We already have more than 1 million mobile banking users, and 65 percent of all the transfers we process are completed on mobile phones. If you include checks of accounts and other inquiries, then 80 percent of all services are handled on mobile phones.

Also, many services can be tied together with smartphones. If you need to go to a branch to handle a transaction, there’s an app that can tell you which branches have the shortest waiting times. For transactions that require paper documents, customers can use their phones to fill out the information online and then simply have the branch scan the digital document’s bar code.

Internal bank processes also have to be digitized. We have introduced, for example, a smart customer service chatbot called “Little C” that automatically answers customers’ inquiries via LINE. It can handle more than 800,000 questions a month.

We have also introduced over 80 robots to handle repetitive tasks and reduce the workloads of our employees. For example, we have now handed over to the robots the processing of documents related to court seizures, and they have been very efficient. One colleague remarked to me that confirming the authenticity of a bank statement would take 10 minutes in the past, but a computer can tell whether it is genuine or fake in a tenth of a second. 

What’s important is that employees who used to do repetitive tasks had very limited senses of achievement, but they have now been freed to do jobs with greater added value involving interacting with people or innovation.

So we have not cut our workforce. In fact, it’s been on the rise, and our branch network has remained strong. The Bank 4.0 world is inadequate because it lacks the warmth of a human touch. Only by providing that warmth can success be achieved.

That’s true for our ATMs, which can be found all around Taiwan. Two years ago, we introduced finger-vein authentication to make ATM withdrawals, and now we’ve added smart identification systems to prevent fraud. If a person from a fraud ring tries to withdraw money while wearing a helmet to conceal their identity or tries to use their mobile phone to make a remittance, we can set preventive thresholds or notify customers of transactions in real time as a security precaution, the type of attentive service that customers truly appreciate.

As for product digitization, the digitization process for personal loans has been quite successful. All a customer has to do is enter their address on the CTBC Bank website, and it will estimate how much your property is worth and, based on that, tell you how much you can borrow. You can get an answer in 24 hours. CTBC’s mortgage business used to be ranked 5th in Taiwan, but now it’s second because mortgages have become so much more accessible to customers.

Value-added the Secret to New Services

What we are doing now is building a financial technology ecosystem in partnership with big tech companies. Our partnership with LINE, for example, has been working quite well.

Banking has always been a heavily regulated industry, and the mindset of banks differs vastly from that of tech companies. The tech sector always sets its eyes on quickly building up big volumes. So for example, in our collaboration with LINE Pay, we spent a lot of money right at the start to drum up interest by giving customers a 2 percent rebate on payments made and hiring a big star to endorse the product.

The key is that new products don’t necessarily have to be profitable. Our partnership with LINE Pay has generated more than 2 million users of debit cards, which Taiwanese have not favored in the past. The number of debit cards issued by CTBC Bank is equal to the number issued by all other banks in Taiwan. That’s impact.  

Challenges: Resource Allocation/Talent

The process of digitization comes with many challenges, the biggest of which are prioritizing the allocation of resources and finding and developing talent. Most people think innovation requires big investments, and that 80 percent of all investment should be devoted to innovation, but that’s not the way it works. In fact, only 20 percent of total investment should be put into innovation, and 80 percent should go toward maintaining daily operations.

Second, you have to bring in and attract different types of talent. People in banking wear suits and ties, but I interviewed a colleague from a data center who asked me: “Mr. President, can I not wear a suit?” Another engineer wanted to be draped in a cape to get inspiration.

The people these skilled engineers respect most are tech geniuses, so we want to create an environment where they feel they can learn in the presence of these masters to attract them to our company. The downside is that they generally have little awareness of compliance, so they have to be teamed up with financial industry veterans to create new services that are viable.

More speakers at 2019 CommonWealth Economic Forum

Former India Ambassador to China Ashok K. Kantha: With China, Stay Engaged… and Alert

Cloud Gate Dance Theatre Founder Lin Hwai-min: Taiwan, See Thy Own Beauty

Founder and CEO of Taiwan-based Miniwiz Arthur Huang: Sustainability Is for Humanity, Not the Earth

Survival In New Trade War: Broad Exports, No Taking Sides

Translated by Luke Sabatier
Edited by Sharon Tseng