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Digital transformation and tightening SME-corporation collaborations

In true to ‘Share’ and to ‘Guide’ spirit, a recent SHARE/GUIDE IT Users Association and MDEC Digital Transformation Roundtable saw some large Malaysian organisations who are SHARE/GUIDE members, share their digital transformation journeys and industry observations.

The roundtable was co-moderated by MDEC’s COO, Dato’ Ng Wan Peng and MDEC’s Deputy Director of Digital Adoption Ecosystem, K. Muhundhan.

Panellists who are SHARE/GUIDE members included (refer pic above)Telekom Malaysia’s Mahathir Said, CIMB’s Tan Kok Meng, RHB’s Rohan Krishnalingam, Takaful Ikhlas’ Nazrul Hisham (also Chairman of SHARE/GUIDE IT Users Association), INTI’s Tan Lin Nah and Affin Bank’s Zulkanain Kassim.

Addressing the elephant in the room

Digital Transformation is affecting all industries in different ways, and especially regulated industries are impacted more than others. For example, regulators place stricter demands upon large banking institutions, while governance of smaller fintechs, seemed more lax.

One thing seems to be clear however, the digital transformation impact is most tangible for customer experience.

One Panellist shared a recent experience he had in China where SMEs can easily apply for a loan via mobile devices and be approved within a minute.

The reason they are able to do this is because digital connectivity is already widespread in China. He added that banks have access to customer data, tax records, all payments in and out of an SME, and even its utility bills.

“This is something we need to get to. We have a lot of data across various government agencies.”

MDEC’s Wan Peng acknowledged this, saying, “Data is fundamental especially when talking about digitalisation. It’s not an easy topic, but very complicated.”

“We are determined to take some early steps to move towards this, in particular with government data. But, we also have to be careful about regulations like PDPA and GDPR.”

“All this is something we can’t ignore because the cost of not managing well is something we also cannot afford.”

Working with SMEs

After a round of sharing by the Panellists, Muhundhan had observed, “that central themes are emerging, in terms of collaboration and how we work with SME suppliers and how we enable our SME customers.”

He said, “There is a lot of work being done between corporations and SMEs, in many different areas. Now is there a way to bring it to a national level? Is the work currently being done, sufficient, and what else can we do to support?”

The Deputy Director went on to share that MDEC already does a lot of work with Malaysian SMEs, with local solutions, as well as local talent via different programmes.

Wan Peng also pointed out the very pertinent point that SMEs are part of the ecosystem as partners, suppliers, or customers.

“If SMEs are not efficient, you will be impacted. If they are not digitalised, it will take more time for you to work with them.”

In that sense, MDEC is doing what they can to enable SMEs, but their efforts cannot be done in isolation. Corporations need to do their part.

Malaysian Corporations share

One Panellist shared, “the only way to help SMEs is to create a platform to connect them in their value chain. So, when SMEs deal with their customers, banks may become part of the value and offer loans, deposits, insurance and more… with “more” meaning not just financial instruments.”

Another Panellist added that his organisation has done a lot of work with SMEs, and has observed that this segment needs three very basic things: 1. help to run their businesses efficiently and at low cost, 2. access to credit and 3. help to take their products to other markets.

“Going digital is about very basic fundamental things like, ‘Can I do my accounting, payroll or inventory management better and faster using IT solutions?’

“Because some of these SMEs don’t have these solutions and are still doing it manually.”

His organisation is addressing this gap by offering very basic financial solutions via the cloud so that their SME customers will be able to operate their businesses more efficiently, among other things.

Bringing about real change

The financial services industry has it tough.

That said, the central bank is aware of the role that technology has to play, and had released an exposure draft early this year as guidance on how the financial sector shall use technology.

I’d mentioned that some industries have it tougher than others. But the size of the organisation, and the large legacy tech footprint that has deep roots in their IT environment, is also a huge hurdle.

As a result, large established banks would have a tougher time leapfrogging ahead with the latest tech than smaller banks.

“If you have a lot of legacies, one way is to leapfrog and clean up everything and build that digital company, and then have it “open” to allow collaboration with the ecosystem via open APIs,” was one observation a panellist from a bank made.

But it’s not without challenges. While SMEs are very good at developing customer experience solutions, some have observed that they lack governance and security.

‘With cloud today, it is a little easier to implement, and our regulators are a little more open today on how to handle the security component. They are accepting that cloud is also secured.”

In a way, this is evident by the virtual banking licenses that the central bank is expected to offer by end of this year.

One of the major banks is reported to be applying for a virtual banking license.

According to they are the only bank with experience running virtual banks, having done so when they launched digital only banks in Philippines and Vietnam.

During Fintech Week last June, CIMB’s CEO Tengku Zafrul had shared that CIMB Octo Bank’s launch in Philippines was possible with a partnership-heavy model.

Resistance, still

In whatever they do, another Panellist shared they are always looking for the best cost efficiency and cost containment, having also observed a trend that makes it all the more important to do so now. “When it comes to medical products, more companies are reporting more than 100-percent claim ratios.”

“If you were to go to any hospital to purchase a policy with any insurance companies, it will be very expensive.”

“But, it is also actually very expensive for insurance companies to price medical products at a very low rate.”

“We have to cover the whole spectrum of population in Malaysia because the awareness needs to be there. And we have to bear the cost of doing that.”

He also brought up the matter of detariffication which has happened for the local insurance industry. Now, that any provider can set their own rate within the 10-percent variance, competition has become tougher.

With online aggregator services, the public is better able to manage their expectations and allocate their purchase power among different online products.

And while all of this is happening, insurance agents are being left out in the cold because online services are developing Malaysians’ self-service habit.

“These are some of the issues we need to address to ensure agents can also leverage digitalisation to ensure their long run survival in the industry.

“Until this can be addressed, there is still a little resistance to this kind of digital transformation because they know they will be disrupted and it will affect their livelihood.”

That said, a panellist also applauded MDEC’s national-level SME upliftment effort.

“What MDEC has drafted is important because it promotes business continuity of SMEs. Based on the environment we are in, on the economic side, a lot of SMEs could not survive in the long run,” he observed.

Success in education

INTI’s Acting CEO summed up the education group’s dance with digital transformation, with a tale about their first foray into robotic process automation or RPA.

“We embarked upon our first RPA, by me doing it as a night time project. We found a coder in Argentina, and went onto the Internet to get a 30-day free trial bot.

It came alive on the 27th day, we took a video of it as our proof-of-concept and on the 30th day it died because we had not purchased it.

“This story illustrates that digitalisation does not necessarily mean heavy investments but at times it’s more about how creative a company can be.

INTI also used the concept that process owners are the experts and therefore leveraged on in-house experts to embark on digitalisation.  If you are doing the job, you are definitely an expert on it and we want to hear from you,” she said.

With students employability one of their main goals, INTI invests heavily in technology for teaching and learning.  It also uses analytics to provide heat maps that identify students at risk with the intention of providing early intervention.

Moving forward

Both SHARE/GUIDE and MDEC were encouraged by the interest shown from the attendees and are working on follow up digital transformation sessions by focusing more on championing the support for SME digitisation.