Digital transformation is big news in the Asia-Pacific region (APAC). In 2017, around 6% of the region’s collective GDP was derived from digital products and services; Techwire Asia predicts this will increase ten times over by 2021, with a predicted economic contribution of over $1 trillion.
Beyond raw economic growth, digital transformation brings operational changes to every industry. An IDC survey, sponsored by Microsoft, predicts that 85% of jobs in APAC will change significantly: business leaders are already looking to increase agility to meet the new challenges in cybersecurity, data processing capability and integrating technologies like AI and the IoT.
This regional overview is promising, but what does it bode for specific industries - like debt collection?
APAC financial sectors and digital transformation
APAC problems are global problems and vice versa: similar conversations about AI, automation and digital transformation are being had in banks across the world. The region’s banks are ambitious; 58% of APAC banks aspire to reach ‘digital maturity’ by 2020, according to a report by EY.
As a broad observation, the key barrier to digital transformation in APAC countries is a cultural one. Customer expectations are rising faster than organisations are able to change, thanks to a tendency for organisations to resist transformation opportunities until they’re comparatively easy. Manjunath Bhat, APAC research director for Gartner, explains that APAC countries share a prevailing “fear that agile practices may not fit with existing ways of doing business”, which holds many organisations back.
But APAC, as a region, covers countries that are huge financial centres, and also smaller nations with radically different expectations and needs. In one country a bank might pay $2 million for a system to solve a problem: in the next one over, a similar sized bank with the same problem might spend $.5 million. The value of systems and solutions varies with the maturity, experience and specific needs of each market; talking about APAC as a whole is only going to take one so far.
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In Hong Kong, for instance, virtual banks and a city-wide digital identity programme have transformed the way citizens interact with financial institutions. The goal has been to make basic banking services more accessible for local residents and SMEs, moving away from the sector’s traditional focus on hard copy documents, high account opening fees and slow processing by hand. Hong Kong’s financial institutions are looking to spread this vision, acting as hosts for the Pan Asian Regulatory Summit and Digital Banking APAC conferences.
Compare this to Japan, however, and we see a distinct reluctance to embrace digital banking: EY’s figures suggest that a tiny fraction of Japanese banking customers engage with online (3%) or mobile (1%) banking on a daily basis; customer habits still centre around a weekly visit to the ATM, with 26% of Japanese banking taking place in this manner.
This suggests that it’s acceptance and integration into processes that pose the greatest challenge to digital banking in APAC countries - not the technology itself.
Debt collection in APAC countries: the state of the system
Debt collection in APAC countries is often a complex and challenging process: Malaysia’s complex court practices and regulations and China’s Byzantine administrative structure with its range of provincial systems and language variants are particularly remarkable cases. In these nations, businesses often opt to use debt collection agencies, outsourcing their recovery process to local specialists. Automated legal action against non-performing debtors caused significant overload when introduced to the comparatively streamlined US courts. Thoughtless implementation of automation in these more complex APAC systems is unlikely to see many debts recovered efficiently.
Instant payment options are taking off in a number of APAC countries. India, Sri Lanka, Singapore, Malaysia and Hong Kong have all seen the paper cheque convert to electronic payments: however, operations behind the scenes are not equipped for 24/7 processing, meaning there may be a lag between customer payments and account updates.
Consumer resistance to digital transformation, meanwhile, often comes from mature markets like Hong Kong and Singapore where consumers are highly conscious of the potential for digital fraud. In emerging markets such as Vietnam, where consumers are less fraud-aware and more convenience-oriented, digital solutions are more likely to take off as customers are more keen to engage.
There are three main problems for debt collection in the APAC region. Any digital transformation solution has to address the complexities of local legislation, the behind-the-scenes barriers to 24/7 payment processing, and consumer resistance based on fears of digital fraud.
Legislative complexity is the reason many banks outsource debt collection at a local level - a process they can support with automated assignment and recall processes. Sophisticated debt collection software already creates distribution schemes for individual collectors, based on geographical (and therefore legislative) locations. Visits are then targeted based on a range of metrics, including the legal complexity of the case, ensuring that collectors are assigned where they are most likely to get results. Here, digital transformation doesn’t replace the human specialist - it just allows them to target their efforts more effectively, managing their caseloads by relative complexity.
Real-time processing is all about integration. Where a bank has the existing capability to process payments in real time, a solid digital debt collection solution should integrate with the payment system and eliminate customers who’ve made a payment during the day from the visit schedule. A broader transformation of the bank’s operations may involve an integrated financial suite, looking at a range of operations which can be streamlined so that they work together more efficiently.
Fraud and security concerns are a bigger strategic concern. Digital transformation here is a cultural process, in which customers have to understand how paperless their identities really are. Identity has moved beyond the physical - each customer has a spread of products, services and accounts in their name, some of which only exist digitally. Robust and regulated digital identity services are still emerging, and the struggle to implement these services on a widespread basis is ongoing. The important thing for a specific tool - like an app for debt collection - is that it processes and releases only the relevant data.
However, debt collection software is only part of the digital transformation process. It needs to be flexible enough to work with banks’ collection strategies, but it can’t define them. What’s important is that banks look forward - especially those who are currently using spreadsheets and printouts to manage debt collection.
Digital transformation ultimately serves two roles. One: catching the debts before they go out of control, and the problems of local jurisdiction or lags in processing cease to be problems. Two: monitoring accounts and making it easy for customers to pay in real time, so banks can keep loans in performance. The best way to avoid a problem? Make sure it doesn’t become one in the first place.