In its latest industry report, global consulting firm Roland Berger said nearly 20% of all physical bank branches – or about 11,000 in total – in Indonesia, Thailand, the Philippines and Malaysia are expected to close. by 2030. Of those 11,000 branches expected to close, nearly 1,500 of them will be in the Philippines.

A welcome development, thanks to artificial intelligence (AI), traditional or historical banks are increasingly able to digitize their operations. With the help of AI, many of the usual services offered in physical bank branches could now be performed online more easily and quickly.

In an exchange of messages, The Manila Times spoke with Aradhna Sharma, director of digital and data solutions for Southeast Asia at Advance.AI, about how the digitalization of financial services fueled by artificial intelligence is the wave of the future in banking and finance.

The Manila Times (TMT): What is triggering the rise of virtual banks? What will be the role of banks and financial institutions in the future?

Aradhna Sharma: [Two] the main factors are the use of smartphones and internet connectivity. Nowadays, you can bank anywhere, anytime with these two factors.

Added to this is the rise of the tech-savvy generation known as digital natives, who use their cellphones to do everything from ordering food to shopping online and grocery shopping and yes, even banking operations. These demographic demands call for banking anytime and anywhere, often from the comfort of their own homes.

Covid-19 has also rapidly accelerated the transition to online banking, and even “older” people are now forced to perform simple online banking transactions, such as opening accounts, deposits or transfers. money, etc. After the first taste of security and convenience with online banking, most consumers are unlikely to revert to the old ways of in-person banking.

In this context, virtual banks are gaining popularity because they allow 24/7 banking and can accommodate customers no matter where they are. Physical bank branches will continue to be an important point of contact for building customer trust and relationships, especially for more complex transactions such as high value transactions, mortgages, investments or retirement planning.

TMT: How does AI facilitate the transition from the banking sector to digital banking?

Sharma: AI is the main catalyst for digital banking today. AI technology could be deployed in a variety of ways via a smartphone to facilitate customer onboarding within minutes.

For example, facial recognition technology could verify the identity of a customer based on selfies or a short video of themselves during a video call with a customer service agent, which could be done remotely without having to go to a bank branch. Optical character recognition software could authenticate the identity of customers based on photos of their national identity documents such as UMID, SSS or TIN. This could also be done through a simple video call, which could be recorded and documented on the bank side.

TMT: A 2018 study found that the Philippines may be late in joining digital banking. What is Singapore’s experience in accelerating the transition to digital banking? How is your country campaigning to attract more digital customers to banking and finance?

Sharma: A few factors and the roles central banks need to play in accelerating digital banking include putting in place the right frameworks and regulations to encourage innovation and testing in controlled environments such as sandboxes.

Digital banking licensing is an area in which central banks exercise regulatory oversight and control. The Bangko Sentral ng Pilipinas (BSP) has already granted two virtual banking licenses, with more to follow.

It also set clear guidelines for establishing digital banks last year. Central banks should also encourage investment in the FinTech sector by cutting red tape and introducing policies favorable to businesses and start-ups.

The government must play its role, for example, by investing in technological education to develop local technological talent, as well as by developing guidelines on how to use new technologies. Finally, the Philippine government must continue to invest in broadband and national infrastructure to connect the whole country.

TMT: One of the major problems of the banking sector in the Philippines is the low savings rate. How could AI technology enable faster and more flexible customer onboarding, including financial inclusion of the generally undocumented / underbanked / unbanked?

Sharma: 71% of the population is unbanked, according to BSP statistics in 2020, while 58% could not apply for a bank loan because they do not have the necessary requirements (i.e. credit rating). Additionally, many of the unbanked come from Tier 2 and Tier 3 cities where access to physical bank branches is difficult.

AI could offer underserved and underbanked clients new access to microfinance, microcredit or even microinsurance. By using AI to analyze alternative data pools such as smartphone type, data package, and e-commerce payment history, banks could quickly determine a customer’s alternative credit score. This in turn allows them to scale up tailor-made micro-finance solutions, such as small loans of up to $ 50 or microinsurance for just $ 1 per day.

TMT: Do you think digitally transformed banks will face stiff competition from fintech and other digital players already in place?

Sharma: Yes, the competition will be tough. We live in a globalized world and in the internet age, physical borders don’t mean much whether or not you are a virtual bank, a digitally transformed historic bank, a local bank, or a foreign bank.

The Philippine market is an area of ​​enormous opportunity with the majority of people and businesses underbanked and underserved. Today’s customers demand value and convenience, and the bank that serves them the best will win out.

Advance.AI is a leading Big Data and AI company in Asia, helping to solve the challenges of digital transformation, fraud prevention and process automation for corporate clients.

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