• 52%of FSI organizations in Asia-Pacific have started on their AI journeys, and areahead of other industries in the region
• Toreap higher benefits from AI, FSI organizations need to improve on theirCapabilities, Infrastructure, Strategy and Culture readiness

SINGAPORE - Media OutReach - 24 September2019 - Today, Microsoft Asiaand IDC Asia/Pacific released findings specific to the Financial ServicesIndustry (FSI) from the study Future ReadyBusiness: Assessing Asia-Pacific's Growth with AI[1], whichfound that organizations with AI expect to see 41% improvement incompetitiveness in three years.

The studyalso found that more than half (52%) of the region's FSI organizations havealready started on their AI journeys. This is higher than the Asia-Pacificaverage of 41%, indicating that the sector is more advanced than others in theregion.

"Thedigital economy has resulted in demands for organizations to reinventthemselves such that they remain relevant to their customers. To do so, FSIorganizations need to address three key imperatives -- how to leverage data andAI for their operations, how to build and maintain trust among their customers,and how to tap on partnerships to drive innovation to stay ahead of the game,"said Connie Leung, Senior Director, Financial Services Business Lead, MicrosoftAsia.

FSIorganizations that have already started on their AI journeys saw improvementsin areas such as better customer engagement, higher competitiveness,accelerated innovation, higher margins, and improved business intelligence,recorded in the range of 17%to 26%.

By2021, organizations expect between 35% to 45% improvements in these areas, withthe biggest jump in the rate of higher margins (estimated increase by 2.1x.).

Fig1: FSI organizations with AI arealready seeing benefits in these five areas, with expected improvements of upto 2.1x by 2021

An example of a company that hasstarted its AI journey is China Asset Management Company(AMC).AMC serves more than 46,000 institutional clients and 110 million retailinvestors, with US$153 billion in assets under management. When it comes toquantitative investment -- a method of analyzing data like price and volume tocalculate which stocks to buy or sell and when -- the tricky part is collectingthe right data from the mountains of information available. Additionally,financial data is "noisy," meaning there are many potentiallymisleading signals that need to be filtered out.

To overcome these challenges, thecompany turned to Microsoft Research Asia (MSRA) to build the "AI+IndexEnhancement" machine learning model for fund managers and traders. The modelhelps them to make better informed buy-and-sell market decisions that bring inhigher returns for their investor clients. Designed to sift through and analyzevast amounts of real-time financial data, the model is now undergoing testing,and is well ahead in performance when compared against the market or specificindexes.

"AIis a critical technology in driving financial transformation, and it is ofgreat significance to tap into the convergence of AI and financialservices," said Li Yimei, General Manager, AMC.

FSI organizations need tobuild on capabilities, infrastructure, strategy and culture

Thestudy found that 9 in 10 business leaders from the FSI sector agree that AI isinstrumental to an organization's competitiveness. However, the top adoptionchallenges faced by FSI organizations include lack of skills, resources andcontinuous learning programs, lack of thought leadership and lack of advancedanalytics and tools.

"Companiesstill face challenges in maximizing AI's ability to accelerate theirtransformation journeys. Often, they are hindered by various challenges thatspread across infrastructure, skills and culture. Hence, we need to look at AIdeployment and development from a more holistic perspective," said Victor Lim,Vice President, Consulting Operations, IDC Asia/Pacific.

Thestudy evaluated six dimensions contributing to the AI Readiness of theindustry, including Strategy, Investments, Culture, Capabilities,Infrastructure and Data. While FSI organizations are ahead of the average Asia-Pacificorganization in all dimensions, they are lagging AI Leaders in areas likeCapabilities, Infrastructure, Strategy, and Culture.

AILeaders make up 6% of organizations in Asia-Pacific. These Leaders have already incorporated AI into theircore business strategy and nearly doubled their business benefits today ascompared to other organizations.

Fig 2: AI Readiness Model (Asia-Pacific's AILeaders vs FSI Organizations). Scores indicated are metrics for FSIorganizations evaluated for the study and is based on a scale of 1.0 to 4.0

Compared to the rest of theorganizations in Asia-Pacific, AI Leaders are more likely to:

• Increase investments every year to support anorganization-wide AI strategy
• Have a centralized team of specialized roles todevelop and validate AI models for the organization
• Have advanced AI analytics and tools such as RoboticProcess Automation and Natural Language Processing in their existing technologymix
• Have in-house capabilities of developers, specialistsand data engineers
• Have ongoing enterprise data governance practicesjointly performed by IT, business and compliance teams

Onekey example of an AI leader is Moula, an Australian founded organizationthat uses AI to assess business loan applications made online. Recognizing theimportance of small and medium businesses to Australia's economy -- most of thecountry's 2.3 million businesses are classed as SMB -- the company establishedan Azure based real-time credit decisioning service and leveraged Azure AI andmachine learning capabilities to predict the probability of the SME being ableto pay back its loan. Successful applications can result in business loans ofup to $500,000 being made available in 24 to 48 hours.

"Smallbusiness is the engine room of Australia's economy. It's where most peoplework, and without small business, big business simply cannot function. Thevision of Moula in terms of liberating the value in small business data isimpressive, and the partnership with BizData using Microsoft technology tobring that vision to life is a prime example of collaboration across ourecosystem to bring about not just business transformation, but sectortransformation," said Paul Pesavento, Chief Data Officer, Moula.

Anotherexample of an AI leader is MoneySQ, a leading FinTech company in HongKong that has launched its K-Cash personal loan platform, leveraging AI toanalyze the financial profiles of loan applicants to deliver faster loanexperiences for its customers. The platform, built on Azure and coupledwith homegrown AI algorithms from KBQuest's AI-Knowie solution, assistsemployees by reducing the time taken to review and approve loan applications. Andit does so with greater accuracy and precision. With this capability, borrowerscan now walk up to a loan machine, apply for a loan, get approval and receivecash instantly, whereas previously, this would take days.

ICICI Lombard partneredwith Microsoft to develop India's first AI-enabled car inspection feature inits mobile app, "Insure." The company saw AI as a solution to reduce thetime needed to evaluate renewals or claims, which can take up to days -- and isalso resource intensive as it requires an insurance personnel to be present forinspections. The app allows customers to buy or renew policies anytime,anywhere by uploading pictures of their car, without the need for physicalinspection by insurance inspectors. AI and machine learning identify damagequickly from the uploaded pictures and provide an estimated repair cost inseconds. This ensures that insurance inspectors focus on addressing complexclaims like head-on collisions that require a skilled evaluation.

WithAI, the company is processing 150 to 200 renewals per day and is close torolling out AI-enabled claim processes via the app. ICICI Lombard aims toprocess more than 80,000 simple claims every month with same-day turnaroundwhen the module is live at the end of 2019.

C-level executives must adopt AI-driven culture fororganizational-wide transformation

"Todrive transformation, AI needs to be driven at the highest levels within theorganization. Business leaders not only need to address data and infrastructurerequirements but will also need to have a clear vision and encourage a continuouslearning culture to empower staff across all levels to harness the potential ofAI," said Lim.

Thestudy found that almost 50% ofFSI business leaders and more than half of the sector's workers believe thatthe cultural traits and behaviors that contribute to organization-wideAI adoption are not pervasive today. "Overall, workers are more skeptical thanbusiness leaders about cultural readiness within the organization. There isclearly much more to be done at the top to encourage empowerment, innovationand greater collaboration for FSI organizations to unlock the potential of AI anddeliver new revenue streams that will in turn improve bottom-line performance,"said Leung.

Fig 3: Respondents feel that cultural traitsrequired for AI adoption are lacking within organizations today

"Today,majority of FSI institutions have created a single customer view to drivegreater operational efficiencies with the aim of delivering more personalizedservice. However, less than 20% of FSI organizations have integrated theiroperational data[2],which means that data is still sitting in siloes and not used across functionsand teams. Only business leaders who are able to bring the entire institutiontogether to harness data and AI seamlessly stand a chance of unlocking newrevenue sources in the long run," added Lim.

Technological and social-emotional skills required inan AI-ready workforce

62%of business leaders and 67% of workers agree that AI will augment -- rather thandisplace -- jobs. Despite being generally positive about the impact AI willbring to jobs in the FSI industry, the study identified an acute shortage oftechnological and social-emotional skills. The top three skills identified bybusiness leaders that will face demand issues include scientific research anddevelopment, digital skills, as well as adaptability and continuous learning

"Theindustry needs workers who possess the right skills to support organizations intheir AI journeys." said Leung. "Beyond upskilling and reskilling employees, businessleaders must possess a continuous learning mindset to counter rapid changesbrought about by digital transformation. On that front, Microsoft has launchedthe AI Business School to help businessleaders strategically implement AI within the organization, especially inmeeting the needs of shareholders, customers and regulators."

Tolearn about how AI can make a difference in FSI institutions, visit https://www.microsoft.com/en-us/enterprise/financial-services/banking-and-capital-markets

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