Ravi Chandran
Experian Research says that digital transformation, technology use, and data essential will drive long-term business growth in Singapore
- As business transactions move online due to COVID-19, businesses will need to develop the right digital capabilities to continue serving a digital-first audience, and for data-driven decisioning to deliver better customer experiences as well as mitigate potential consumer credit risks.
COVID-19 has led to significant evolutions in consumer behaviour and business trends in Singapore. Experian research found that consumer purchasing behaviour in Singapore has shifted online with the arrival of the pandemic, with businesses responding accordingly by increasing investment and focus on developing digital capabilities.
This encompasses the capability to serve customers across both digital and offline channels. With the pandemic likely to have exacerbated financial challenges among consumers, the ability to collect and analyse data with Artificial Intelligence (AI) or Machine Learning (ML) driven technologies for more effective credit-risk decisioning will also be important for business growth.
These are the key findings of Experian’s Global Insights Report, a global survey that involved 3,000 consumers and 900 businesses from Singapore, India, Japan, Australia, the United States, Brazil, United Kingdom, Germany, France, and Spain. Industries surveyed include retail banks, e-commerce, telecommunications, and consumer technology. 300 consumers and 90 businesses from Singapore participated in the study.
The study was conducted between June 2020 to January 2021 in three phases. The staggered nature of the survey provided insights into how COVID-19 has changed consumer and business demands over time as the pandemic wore on. The most prominent observations were made apparent by comparing findings from the first report, conducted in June 2020 near the onset of the global pandemic, to that of the third and final report conducted recently in January 2021, nearly a year on since the COVID-19 outbreak, demonstrating the continued impact on consumers and businesses in Singapore.
COVID-19 Accelerating a Digital Transition in Singapore
Responses from both businesses and consumers pointed to an ongoing trend of online shopping since the onset of the pandemic, likely to have begun as a result of the social distancing measures implemented during the Circuit Breaker. This digital shift has continued to the present, with around 30 per cent of Singapore consumers in Phase 3 indicating that they are still relying on online platforms for their banking (38 per cent), food delivery services (38 per cent), grocery shopping (35 per cent), as well as clothes, electronics, beauty, and wellness product purchases (33 per cent).
Research found many businesses in Singapore to have developed digital transformation plans. However, the uncertainty arising from COVID-19 led to a delay in implementing these plans across multiple organisations, with financial and operational challenges creating further obstacles. The Global Insights Report identified a slight increase in the number of businesses shoring up their digital capabilities between Phases 1 and 3.
From just 4 per cent in Phase 1, 14 per cent of Singapore businesses respondents in Phase 3 stated that they were adjusting investment into the transition from offline to digital channels. 13 per cent of businesses also stated in Phase 3 that they were looking to increase digital acquisition and engagement, a slight increase from 10 per cent in Phase 1.
This could be an effort to recapture market share lost as a result of physical stores closing during the Circuit Breaker in addition to leveraging the Singapore government’s digitalisation efforts. Acknowledging that essential nature of technology in enabling the resumption of normal business and leisure activities, the Singapore government had earmarked S$3.5 billion for ICT expenditure in FY2020, an increase of 30 per cent from FY2019. The SME Digital Reboot programme was also launched in March 2021 to help 500 small and medium-sized enterprises (SMEs) accelerate digital initiatives by the end of 2022.
Findings also suggested that beyond focusing on the ability to serve customers via digital channels, businesses are also increasingly looking to invest in data analytics capabilities for customer optimisation and decisioning. Digital transactions give rise to invaluable data that can provide organisations with insight into individual customer preferences and credit risk, enabling businesses to maximise the potential of their customer base.
Business Growth and Increased Credit Risks from Online Transactions
The study also identified higher levels of interest around identifying customer credit risk. 10 per cent of businesses surveyed in Phase 3 stated that they were looking at investing in enhancing credit risk analytics, a significant increase from 1 per cent in Phase 1.
The ability to accurately assess credit risk is important as online transactions can present a higher degree of risk for businesses, especially in areas such as fraud or late payments. These risks are elevated by findings in Phase 3 that indicate financial and employment concerns rank highly among 44 per cent of Singapore consumers, suggesting that the pandemic has continued to negatively impact overall financial well-being and job security.
Based on Phase 3 findings, 24 per cent of consumers indicated that they were anticipating further losses or changes to their financial situation, while 40 per cent stated that they were experiencing challenges paying their bills.
Figures released by the Singapore Ministry of Manpower in March 2021 indicated that employment levels in the city-state registered the sharpest decline in two decades in 2020. Though the Singapore government has implemented numerous initiatives aimed at helping individuals and small businesses tide through the pandemic, it is evident that uncertainties and risks remain. A recent study conducted by HSBC also found financial challenges to rank highly among Singapore consumers, reaffirming that the impact of the pandemic remains prevalent.
Recent data from the Singapore Ministry of Manpower has pointed to a modest recovery in Singapore unemployment levels, with unemployment rates having fallen for the fourth consecutive month in February 2021, after the survey period. However, the data also stated that the unemployment rate remains at 3 per cent. This is higher than the average over the past decade, suggesting that consumer credit worthiness remains a valid risk.
The ability to keep tabs on the customer journey across multiple channels, as well as collect and process the necessary data, allows businesses to more accurately assess customer credit risk. Businesses have thus invested in capabilities such as AI and ML driven data analytics to enhance credit risk related decisioning, potentially mitigating risks to the organisation with data-backed insights.
69 per cent of businesses in Phase 1 shared that they were projecting budgets related to analytics and customer creditworthiness and collections to increase over the next 12 months. 20 per cent stated that it would decrease, while 11 per cent stated that the amount would remain the same. In Phase 3, 55 per cent of businesses shared that their budgets would increase, while 18 per cent stated that it would decrease, and 27 per cent expected it to remain the same.
Despite fewer firms looking at increasing budgets related to analytics and customer creditworthiness and collections, the findings indicate that more firms in Phase 3 are maintaining their level of investment from Phase 1, suggesting that existing budgets and initiatives were sufficient, and were working as intended.
Businesses Leveraging Artificial Intelligence and Machine Learning for Data-Driven Decisioning for Business Growth
AI and ML capabilities also remain high on corporate agendas when it comes to data analytics, with business leaders maintaining trust in its effectiveness. 77 per cent of businesses surveyed in Phase 3 indicated that they were adapting AI for analytics, compared to 78 per cent in Phase 1. 68 per cent of businesses surveyed in Phase 3 stated that they were adapting ML for analytics, compared to 79 per cent in Phase 1.
19 per cent of businesses stated in Phase 3 that they were investing in efforts to implement new analytics methods and building new AI models to improve customer decisioning, an increase from 11 per cent registered in Phase 1. Phase 3 also saw 14 per cent of businesses looking to increase investment levels in improving the performance of existing AI models to improve customer decisions, more than a twofold increase from 6 per cent in Phase 1.
The effectiveness of AI and ML-powered solutions is not in question, with around half of businesses surveyed in Phase 3 having indicated that their existing analytics models remain effective when assessing consumer credit risk (59 per cent), existing clients (49 per cent), and determining consumer collection decisioning (50 per cent).
Although these figures still remain relatively high, they nonetheless represent a sharp decrease from Phase 1, which found 76 per cent of businesses stating that AI and ML were effective in assessing consumer credit risk, 80 per cent for assessing existing clients, and 70 per cent for determining consumer collection decisioning. This could have been due to the higher volume of data to be assessed as a result of increased digital transactions, which would have increased the level of complexity that businesses would have to contend with.
Transparency, Accountability, and Security Critical for Data Collection and Analytics for Business Growth
The ability of businesses to best serve digital audiences, and also mitigate customer credit risks, will rely most strongly in their ability to both collect and analyse customer data. Overall, Experian’s study found that in Singapore, as long as consumers trusted the organisations, they were willing to share more data.
As AI and ML becomes mainstream, concerns about its use, regulation, and potential risks are likely to surface among consumers. The most effective way of ensuring the continued collection of customer data is by engendering trust between consumers and businesses, putting the necessary measures in place to ensure accountability and transparency around data collection and use. Another effective way is to ensure close collaboration with government regulators. From just 1 per cent in Phase 1, 14 per cent of Singapore businesses stated in Phase 3 that they were looking to invest in maintaining compliance with regulators.
Where appropriate, the mechanics behind consumer facing AI algorithms should be explained in plain and simple terms that are easily understood and easily accessible, reducing ambiguity around data use. Without clear explanation and accountability elements in place, consumers would understandably be wary of engaging with AI and ML platforms.
“With the online transition of business set to be part of the new reality, the role of data and advanced analytics in today’s economy will become essential for effective business decisioning. In addition to delivering insights that enable the personalisation of services and optimise customer potential, big data will also present an alternative avenue to determine consumer credit risk, essential amid the economic uncertainty that continues to prevail within the Singapore economy,” said Mohan Jayaraman, Managing Director for Southeast Asia and Regional Innovation, Experian Asia-Pacific.
“To succeed, businesses will not only need to boost digitisation initiatives and harness the power of all available data with advanced AI/ML models, but also operate with accountability and transparency in mind. This can be advanced by initiatives such as the Model AI Governance Framework, which will be especially important to establish a foundation for the proper use of Artificial Intelligence, fuelling the exchange of trust and data between businesses and consumers.”
