Asian Banking & Finance (April-June 2016)

DISPLAY TO JUNE 30, 2016

Banks vs Fintechs:

from foes to frenemies Strategic cooperation is better than ruthless competition

+

Joel Kornreich CEO, Alliance Bank Malaysia Berhad p14

Than Win Swe CEO, United Amara Bank p16

back to cash management basics p30 The age of robo-advisors p9 Poor coding practices for mobile app cloud security p22 The danger of debt-equity swaps in China p10

Experian Decision Analytics Decisions Powered by Insight Move your business in the right direction

Data | Fraud | Analytics | Software | Consulting Experian® Decision Analytics integrates predictive data and analytics into valuable business decisions that provide greater insight into decision performance and helps companies keep pace with changing business priorities.

By applying expert consulting, analytical tools, software and systems to convert data into valuable business decisions, we help businesses: • • • • • • •

Manage Credit Risk Credit Scoring Detect and Prevent Online Fraud Predict Behaviour Automate Decisioning Enhance Credit Management Strategies Maintain Regulatory Compliance

Frances Ng Experian Asia Pacific 10 Kallang Avenue | #14-18 Aperia Tower 2 | Singapore 339510 T: +65 6593 7508 | HP: +65 9615 3117 | Frances.ng@sg.experian.com

www.experian.com.sg www.experian.com

FROM THE EDITOR Publisher & EDITOR-IN-CHIEF production editor art director

ADVERTISING CONTACTS

Financial technology firms, or FinTechs, as they are more commonly called, have long been seen as industry disruptors that compete against the traditional banks.

But as we were working on our annual Banking Technology sector report, we found out that Asian banks are beginning to see FinTech firms less as competitors and more as strategic allies that can infuse their organisations with entrepreneurial agility and digital innovation.

Tim Charlton Roxanne Primo Uy Bryan Barrameda

Rochelle Romero rochelle@charltonmediamail.com Jacqueline Montoya jackie@charltonmediamail.com

ADMINISTRATION Advertising Editorial

Accounts Department accounts@charltonmediamail.com advertising@charltonmediamail.com

Meanwhile, in Cash Management, the days of tailor-fit services seem to be over, as the trend is now geared towards simplifying systems. In fact, Asian banks that are adopting the simpler and faster operating paradigm are getting assistance from new regulations.

editorial@charltonmediamail.com

The industry is also facing some serious hurdles when it comes to mobile banking security. More worrying for financial institutions and their mobile banking users is data suggesting that thousands of other Trojans may be exploiting similar weaknesses in mobile apps due to sloppy programming.

SINGAPORE Charlton Media Group 101 Cecil St. #17-09 Tong Eng Building Singapore 069533

Finally, the Asian Banking and Finance Retail Banking Forum is visiting five cities this year. In this issue, you will find an exclusive coverage of the two forums in Manila and Kuala Lumpur that have concluded as at writing. On behalf of the entire ABF team, I’d like to thank our partners, the panelists and the attendees for making our roadshow a success. We hope to see you all again in next year’s forums.

+65 3158 1386

HONG KONG Charlton Media Group Hong Kong Ltd. 19/F, Yat Chau Building, 262 Des Voeux Road Central Hong Kong. +852 3972 7166 www.charltonmedia.com Printing Sun Rise Printing & Supplies Pte ltd 10 Admiralty Street #02-20 North Link Building, Singapore - 757695

Can we help?

Enjoy the issue!

Tim Charlton

Asian Banking & Finance is available at the airport lounges or onboard the following airlines:

Editorial Enquiries If you have a story idea or just a press release please Email: editorial@charltonmediamail.com and our news editor will read it.

Media Partnerships please Email: editorial@charltonmediamail.com and put “partnership” on the subject line and it will forward to the right person.

Subscriptions Email: subscriptions@charltonmedia.com Asian Banking and Finance is published by Charlton Media Group.

All editorial is copyright and may not be reproduced without consent. Contributions are invited but copies of all work should be kept as Asian Banking and Finance can accept no responsibility for loss. We will however take the gains. *If you’re reading the small print you may be missing the big picture    

MICA (P) 249/07/2011 No. 67

ASIAN BANKING AND FINANCE | JUNE 2016 1

CONTENTS

sector report

28 FinTechs vs banks: from foes to frenemies FIRST 08 Are Asian SMEs still worth the hassle?

09 The age of robo-advisors 10 The danger of debt-equity swaps n China

COUNTRY REPORT

22

vendor view Poor coding practices for mobile app cloud security put user data in peril

12

first More customers in Asia demanding an all-digital bank

CEO INTERVIEW 14 Alliance Bank Malaysia CEO Joel Kornreich talks about managing a bank through crises

16 Myanmar’s United Amara Bank CEO eyes adding 25 to 55 more branches by end-2017

SECTOR REPORT 30 Asian banks urged to pull back

on tailor-fit services

COMMENTARY 32 Managing banking relations: What Singapore’s consumer banks should know about PDPA

20 As bad loans mount, Chinese banks brace for profit drop in 2016

Published Quarterly on the Second week of the Month by Charlton Media Group Pte Ltd, 101 Cecil St. #17-09 Tong Eng Building Singapore 069533

2 ASIAN BANKING AND FINANCE | JUNE 2016

For the latest banking news from Asia visit the website

www.asianbankingandfinance.net

There’s never been a better time to ride.

The Philippine economy is booming and nobody knows its pulse better than BDO. If you’re looking at investing, turn to BDO your guide at the heart of Philippine business. www.bdo.com.ph

FinanceAsia: Best Bank in Asia 2013, Best Bank in the Philippines 2010-2015 Alpha Southeast Asia: Best Bank in the Philippines 2010-2015 Euromoney: Best Bank in the Philippines 2013-2015 The Asset: Best Domestic Bank in the Philippines 2013-2015 The Asian Banker: Best Retail Bank in the Philippines 2012-2013, 2016 Global Finance: Best Bank in the Philippines 2014-2015 The Banker: Bank of the Year in the Philippines 2013, Top Bank in the Philippines 2010, 2011, 2013-2015 Corporate Governance Asia: Recipient of the Corporate Governance Asia Annual Recognition Awards 2008-2015 Asiamoney: Best Domestic Bank in the Philippines 2014-2015

News from asianbankingandfinance.net Daily news from Asia most read

RETAIL BANKING

KBANK’s 1Q16 profit likely to have dropped 28% Maybank Kim Eng analysts project 1Q16 net profit to be about THB8.9b, which is down 28% YoY but up 63% QoQ (4Q15 reported results were depressed by heavy expensing). Regardless, 1Q16 profit is likely to be viewed as weak.

RETAIL BANKING

Krungsri’s net profit likely to have increased 2.5% in 1Q16 Maybank Kim Eng expects decent 1Q16 results for Krungsri. Due to solid operating performance, net profit is likely to have expanded in both YoY and QoQ terms, which is something only a few banks may achieve this quarter.

4 ASIAN BANKING AND FINANCE | JUNE 2016

BANKING TECHNOLOGY

Bank of Ceylon links up with Fiserv in upgrading core banking systems Fiserv announced that Bank of Ceylon, the largest bank in Sri Lanka, has expanded its long-term relationship with Fiserv, upgrading the Signature® core account processing platform and Teller frontend teller system from Fiserv.

RETAIL BANKING

OCBC to nab Barclays’ Singapore, Hong Kong wealth business OCBC’s private banking unit, Bank of Singapore, is proposing to acquire Barclays’ Wealth and Investment Management Business (WIM) in Singapore and Hong Kong to the tune of US$320m, or roughly $431.6m.

CARDS & PAYMENTS

Singapore’s central bank reveals plans for a unified payment system Singaporeans may be experiencing more seamless payments soon as the Monetary Authority of Singapore (MAS) reveals that it is working towards a unified Point of Sales (POS) terminal that can read all kinds of cards at retail and hospitality outlets.

RETAIL BANKING

Indian banks’ liquidity to move from negative to neutral Maybank Kim Eng reported that the RBI cut the repo rate 25bps to 6.5%.

More importantly, it announced a series of measures to ease systemic liquidity. “In our view, these measures will result in effective transmission of rates.”

Wherever your business takes you, Bangkok Bank is a trusted partner that can help you achieve your business goals by providing comprehensive trade services, a team of international trade experts, and an extensive worldwide network across major economies.

As Thailand’s top-rated trade nance bank, you can trust us to offer unrivalled support for your business expansion with an established international network of 32 locations in 15 economies, plus more than 1,100 correspondent banks worldwide.

Cambodia l China | Hong Kong l Indonesia l Japan l Laos l Malaysia l Myanmar l Philippines l Singapore l Taiwan l Vietnam l United Kingdom l United States For more information, please contact any Bangkok Bank Business Center or BBL TFC Call Center Tel. 02-680-9559 bbltfc.clientservice@bbl.co.th www.bangkokbank.com/trade nance Best Trade Finance Bank in Thailand for 9 consecutive years Best Trade Finance Bank in Thailand 2015

TRANSACTION BANKING AWARDS 2015

Best Trade Finance Bank in Thailand for 5 consecutive years Thailand Domestic Trade Finance Bank of the Year 2015

Co-published corporate profile

New Forrester research on ATM Security: How prepared are you?

Find out what challenges retail banks are facing in managing the security of their ATM fleets, as well as security strategies and programs to overcome them.

Lack of technology was the biggest challenge for financial institutions

W

e’re pleased to share the results from a recent commissioned study conducted by Forrester Consulting on behalf of Diebold. The study explores the challenges retail banks and credit unions face when managing the security of their ATM fleets. Forrester conducted a global survey of 220 business and IT decision-makers with responsibility for the security and management of ATM fleets.

Imagine that you are asked two questions. The first is probably easy – how many ATMs are in your fleet? Then the second question hits – what percentage of those devices can you say are overwhelmingly protected from security threats?

If you balked a bit at being expected to answer that second question, especially in any public forum, you are not alone.

According to recent findings from Forrester, financial institutions around the world lack full confidence in their current ATM security strategies and programs.

As a survey respondent and VP of IT operations from a Chinese retail bank stated, “Need to focus more on customer urity.” Another respondent from Japan shared, “Enhanced techniques are required to manage the security.”

In the face of today’s ever-evolving digital threat landscape and the ongoing attempts at physical breaches, protecting your business and its self-service channel is undoubtedly a complex challenge.

Securing and protecting your ATM fleets

6 ASIAN BANKING AND FINANCE | JUNE 2016

is a function requiring a considerable amount of manpower, management and technology.

It’s a massive undertaking – no matter the size of your business. Forrester’s research found that FIs are feeling challenged, and outlined four key findings that I’m sure many organizations can empathize with: 1. FIs lack confidence in their current ATM security.

The FIs surveyed have between 100 and 499 ATMs operating regionally.

Additionally, 21 to 30 percent of all inhouse security efforts are tied to ATMs. There is no room for error when dealing with information security, physical security, card skimming, phishing, etc.

2. Managing security is a bigger task than internal teams can handle.

Most retail banks choose to manage security in-house, which leads to a need for greater internal resources and eventually, the internal management model is not sustainable.

3.Technology and resource issues create a whole other set of challenges.

Not only are some in-house ATM management strategies unmanageable, FIs also have to keep up with changing ATM security needs and compliance requirements. These challenges are compounded when FIs use multiple ATM

providers because of the separate sets of software and updates for the fleet.

4.Financial institutions consider partners for support – but are concerned about handing over control. As ATM networks grow and threats continue to evolve, it will only get harder for internal security teams to handle the onslaught of complex challenges and attacks alone. Forrester recommends that FIs consider a managed services partner to properly – and proactively – secure their ATM fleets.

In fact, Forrester reveals that financial institutions who have outsourced their ATM fleet management to a trusted provider with the right expertise, structure and processes see improved security as a result. Outsourcing was also found to reduce costs, mitigate future risks and find new ways to eliminate breaches.

Furthermore, the study reveals a gap between the perceived benefits of outsourcing and the actual benefits of outsourcing. FIs anticipate improved reliability and customer availability, when in reality, they’re most satisfied with the enhanced security and faster breach mitigation.

So ask yourself: do you still want to shoulder the responsibility of ATM security, or would you like to focus on your organization’s core competencies and partner with a trusted expert who can help design a strategy that’s right for your unique needs?

Download the 11-page study which includes an executive summary, key findings and recommendations at Diebold.com/ForresterAP In addition, you’ll find an Infographic, OnDemand Presentation and a roundtable Q&A discussion covering common ATM security questions.

For more information on our managed services solutions, connect with us virtually at apmarketing@diebold.com and follow our blogs at blog.diebold.com

“Securing your ATMs requires a considerable amount of manpower, management and technology.”

ASIAN BANKING AND FINANCE | JUNE 2016 7

FIRST anti-terrorism

Various terrorism events across the world are pushing banks to heighten their counter-terrorism financing practices. In a recent FICO survey of 36 executives from 18 leading APAC banks, 88% of respondents anticipate terrorist funding to grow this year. More than half (61%) of the respondents also confirmed that they have increased their focus on counter-terrorism.

The survey further reveals that for 47% of respondents, financial compliance to fight terrorism this year will be largely focussed on “know your customer” and ongoing customer due diligence, with another 13% saying stand-alone efforts in counter-terrorism financing are most critical in 2016 for their respective banks.

A risk-based approach The Financial Action Task Force (FATF) is the banks’ prime source of recommendations when it comes to anti-money laundering and counter-terrorism financing efforts. FICO notes that the FATF encourages countries, governing authorities and banks to take a risk-based approach in dealing with money laundering and terrorism financing. This riskbased approach requires ongoing review of customers and their transactions.

While 67% of the respondents in FICO’s survey believe they are fully compliant with FATF recommendations, only 48% of them follow the risk-based approach prescribed by the FATF. The difference represents a gap in understanding of full compliance.

Subhashish Bose, financial crime consultant for FICO in Asia Pacific, said, “As terrorism becomes a more pressing threat to global peace, banks are expected to take greater social responsibility in the fight against terrorists.”

8 ASIAN BANKING AND FINANCE | JUNE 2016

SMEs offer attractive returns to banks

Are Asian SMEs still worth the hassle?

I

f banks are starting to wave the surrender flag on small and medium enterprises (SMEs) as customers because of their high default rates and soaring costs to serve, analysts argue that a business model change could make this highpotential segment worth the hassle.

“SMEs can, in fact, offer attractive returns, if banks take a more carefully designed, tailored approach,” says Peter Stumbles, partner and head of the Asia-Pacific Financial Services practice at Bain & Company.

“Imagine a model that drastically lowers the cost of serving micro businesses through modular offerings and largely digital processes; that offers a tailored, highly aligned suite of services to the larger SMEs; and that makes better use of data analytics to improve underwriting risks. Such a model looks appealing on an return on equity basis,” he adds.

Four key areas Stumbles reckons that despite the challenges in the SME sector, some banks are turning it into a winning proposition by focusing on four key areas: Defining an explicit ambition in serving SMEs, choosing where to play through careful segmentation, taking a deliberate approach on

Less than 60% of SMEs in five Southeast Asian countries have access to bank loans, and roughly 50% are unserved or underserved by financial institutions.

how to win in each chosen market rather than forcing a one-size-fitsall approach, and mobilizing their organization for change.

While many banks already segment their SME customers, only a few actually think about which segments to prioritize and devise strategies to woo these most valuable segments.

Instead, banks fall back to their comfort zones and offer a broadbased portfolio that fit awkwardly, and provide a chance for savvier digital startups to steal away SME customers.

“A broad-based portfolio, covering multiple segments with a full product offering, is increasingly vulnerable to digital competitors pursuing slices of the market,” warns Stumbles.

This complacency in strategic segmentation can prove costly in Asia’s emerging markets where SME banking tends to be more profitable due to the high interest rates and relatively high fees. There is also a gap in SME lending in emerging Asia which should make it more enticing for banks to put in more effort.

Less than 60% of SMEs in five Southeast Asian countries (Indonesia, Malaysia, Philippines, Singapore and Thailand) have access to bank loans, and roughly 50% are unserved or underserved by financial institutions, says Deloitte. In a region where financial infrastructure and distribution channels are underdeveloped, Deloitte says banks targeting Asian SMEs should mull building capabilities smarter, either by leveraging digital solution providers or by forming strategic partnerships with banks and e-commerce providers.

Financing challenges of SMEs

Note: 86% of survey respondents were SMEs, with 14% consisting of large corporations; data from 2013 Source: Atradius International B2B payment survey; ERIA SME Access to finance in selected East Asian Economies report

FIRST

Ivan Jaya

Mark Wightman

Will bots replace humans?

The age of robo-advisors

W

hen Asia’s richest talk to their bankers, they expect a human face to dole out sound investment strategies, but many are starting to discover the convenient pleasures that robo advice can add to their banking experience.

“Robo advice has started to disrupt the banking industry,” says Ivan Jaya, head, wealth management at Citi. “In the future this automated investing technology will have more and more users, not only the millennials and small investors. The rich have started to use this for their portfolios.”

But industry insiders insist that robo advice will not make wealth

Mohit Mehrotra

managers obsolete anytime soon since Asian clients continue putting more trust in human analysis. “The wealth management business is based on the engagement between the relationship manager and his client.

This is something that robo advice is not able to replace,” says Jaya.

For example, it will be difficult for robo advice to totally replace human advisors for the ultra high net worth segment, says Mohit Mehrotra, strategy consulting leader at Deloitte Southeast Asia.

In Asia, combining the human touch of wealth managers and the expediency of robo advice will likely

become the most popular strategy.

“We see more emphasis on robo for advisor–automated tools to backup the advisor – as these will supplement the skills of the human advisors and provide more consistent, objective recommendations but with an all-important human face,“ says Mark Wightman, wealth & asset management advisory partner at EY. “The human advisor is still responsible for product suitability but these tools could help banks better manage the client interaction and avoid any future concerns over misselling, given the structured advice process,” adds Wightman.

In order to make inroads for robo advice and robo advisor in Asia, banks will also need to develop better operating structures. “Given the challenges around cost-to-income ratios, AI-enabled advice models are going to be key to not only deliver a superior client experience but also to enhance productivity of the cover bankers,” says Mehrotra.

The Chartist: chinese banks’ credit risks heightened Total assets of Chinese banks increased in 2015 but credit risk also grew – NPLs were up 48.61% to reach around USD 145.74 billion, says PwC. The average NPL ratio was 1.65%.

The banks stepped up their efforts to address this, writing off or transferring RMB 386.1 billion in NPLs, up 67% from 2014.

“A long with NPLs we are seeing significant growth in overdue loans,” said James Tam, banking and capital markets partner, PwC Hong Kong.

“Both the NPL balance and ratio of these grew significantly, so we can expect many of them could be migrated to NPLs in time.” Overdue loans increased 45.67%.

NPL ratio vs. past-due loan ratio, by the end of 2015

Volume of past-due but non-impared loans

Source: PwC

Source: PwC

ASIAN BANKING AND FINANCE | JUNE 2016 9

FIRST

The danger of debt-equity swaps in China

E-payments create 13,000 jobs

W

hen China’s Premier, Li Keqiang announced that Chinese banks could swap a borrower’s debt for an equity stake in the borrower, the flexibility that option afforded might seem like a lifesaver, but analysts argue it could instead become a ticking time-bomb.

“A debt-equity swap for companies whose main problem is an overleveraged capital structure could benefit Chinese banks,” says David Yin, assistant vice president – analyst at Moody’s Investors Service. “More value might be preserved in a goingconcern resolution and banks will capture the upside via their equity stakes over the time.”

But Yin reckons that in cases with unviable companies, there is a risk that the swaps will make the collapse of such banks more expensive due to the dilution of existing shareholders and loss of seniority in claims.

“The arrangement could allow otherwise non-viable or marginally viable companies to take on more debt and increase their leverage, further subordinating the claims of banks accepting the exchange,” says Yin. The swaps are also problematic because they suggest the government

A risky move for banks

will continue to prop up poorly managed companies through this temporary relief, but will not help troubleshoot the critical issues of inefficiencies, according to Chua Han Teng, Asia analyst at BMI Research.

“In the short-term, these swaps will reduce the leverage of highly indebted companies, usually state-owned enterprises, in turn reducing their debt servicing costs and increasing their ability to invest, but will lead to further malinvestment and further losses in the long-term,” says Chua.

Chua also warns that the move will be risky for banks since they will have to raise significant amounts of capital as losses are recognised in the future.

There is a risk that the swaps will make the collapse of such banks more expensive.

survey

Labour crunch in Southeast Asian banking and finance This is according to the latest Monster Employment Index, which measures online job hiring activity monthly, recording the industries and occupations that show the highest and lowest growth in recruitment activity in Singapore, Malaysia and Philippines.

The Philippines was the only market to exhibit positive annual growth in the banking, financial services and insurance (BFSI) sector, reporting 1% year-over-year growth. This is a 12% drop from 13% year-over-year growth reported in January. Despite the dip, monthon-month hiring activities between January and February witnessed a marginal 2% increase, and the sector has emerged the top growth industry sector in the market.

Malaysia on the other hand, continued to fare the worst amongst the three markets monitored by the Index, reporting -38% decline year-over-year.

10 ASIAN BANKING AND FINANCE | JUNE 2016

If you are one of the many people resorting to payments via credit, debit and prepaid cards, then you helped contribute to the creation of more than 13,000 jobs in Singapore between 2011 and 2015. Electronic payments also contributed a total of S$1.7 billion to the gross domestic product (GDP), according to a newly released Moody’s Analytics Study.

Moody’s conducted a global study on behalf of Visa in an effort to analyze the impact made by electronic payments on economic growth. A total of 70 countries, including Singapore, were examined over a five-year period. “The Study found that the increased use of electronic payment products, including credit, debit and prepaid cards, added US$296B to GDP, while raising household consumption of goods and services by an average of 0.18% per year.”

In addition, Moody’s economists estimate that 2.6 million new jobs were created on average each year as a result of the increased use of electronic payments. The 70 countries make up almost 95% of global GDP. Singapore impact With more people using credit cards for their purchases, Singapore is now enjoying a season of greater consumption of goods and services.

According to the Study, consumption in Singapore was 0.986% higher between 2011 and 2015 than it would have been if the use of electronic payments such as payment cards and card-on-file services had not grown. In addition, total consumption increased on average by 0.27% over the sample period.

FIRST

More customers in Asia demanding an all-digital bank

W

hen it comes to digital banking, half-hearted efforts no longer cut it. New research shows that a big chunk of Asian customers are now willing to switch to another bank that provides a digital-only offer because of the increased convenience and mobile accessibility it brings.

A survey by McKinsey and Company in developed Asian markets revealed that more than 80% said they would be willing to shift some of their holdings to a bank that offered a compelling digital-only proposition.

Respondents indicated potential shifts of 35 to 45% of savings-account deposits, 40 to 50% of credit-card balances, and 40 to 45% of investment balances, such as those held in mutual funds.

“Increasingly, Asians are demanding a more integrated mobile banking experience in which customers use their smartphones to do everything from opening a new account and making payments to resolving credit-card billing disputes, all without ever setting foot in a physical branch”, says Sonia Barquin, analyst at McKinsey and Company.

While it is clear that creating a digitalonly offer is becoming a necessity for banks, doing so is proving trickier than

expected. Banks operate in a more tightly regulated environment and adopt a more conservative approach, which curtails their transformation pace, a factor that is crucial in the fast-changing digital space. Banks also have to worry about the cannibalization risk to existing businesses and figure out how to move towards a more agile culture.

Still, Barquin believes the concept of an all-digital bank that Asians increasingly desire can be built by following 6 key success factors: focusing on where the real value is; constantly testing to refine the customer experience; organizing for creativity, flexibility, and speed; creating an ecosystem of partnerships; building a two-speed information technology operating model; and getting creative with marketing.

Two major hurdles For Liew Nam Soon, managing partner, financial services for ASEAN at EY, two major hurdles stand in the way of digital banking transformations in the region.

First, customer expectations are becoming increasingly sophisticated and banks may be hard-pressed to meet them quickly enough. Liew says most financial institutions start their digital journey

Asians desire to go fully digital

focusing on improving efficiencies and lowering cost, but these upgrades do little to attract Asian clients that yearn for “rich, hyper-personalised customer experience.”

Second, ASEAN regulation is notoriously uneven across countries, making it difficult for financial institutions to comply. “The answer to both of these issues may be to engage in a form of collaborative disruption with financial technology firms to drive breakthrough innovation in the customer experience.”

bank watch

Citibank opens 11th smart branch in Singapore Citibank’s latest 1,800-square-foot Smart Banking branch is located at the Waterway Point shopping mall in Punggol in northeastern Singapore.

According to the Singapore Department of Statistics’ 2015 Population Trends report, the majority of the over 109,000 residents in Punggol fall under the age range of 30-34 and 35-39 years. At over 10%, the area also has the largest proportion of children aged five years and below in Singapore.

Introduced in Asia and in Singapore in 2008, Citi’s Smart Banking branches are designed to showcase technology that customers are familiar with such as Media Walls that deliver a stream of information on Citi’s products, and Smart Teller Assist Terminals that enable customers to conduct banking transactions including deposits and transfers with ease.

12 ASIAN BANKING AND FINANCE | JUNE 2016

Han Kwee Juan, Chief Executive Officer, Citibank Singapore Limited (2nd left) and Charles Wong, Singapore Retail Banking Head (2nd right) at the opening ceremony

Citibank Punggol branch

Predee Daochai Joel Kornreich President Group CEO Kasikornbank Alliance Bank Malaysia Berhad 14 ASIAN BANKING AND FINANCE | JUNE 2016

CEO INTERVIEW

Alliance Bank Malaysia CEO Joel Kornreich talks about managing a bank through crises Joel Kornreich taps into his past experiences to strategize for the future.

T

he Asian banking sector is experiencing varying levels of difficulties and Malaysian banks do not go unscathed. Given that the operating and regulatory environments remain challenging, banks need to be led by someone with a firm grip on its goals and who can strategically maneuver through turbulent times. “Managing through crises has taught me the incredible power of staff participation, as well as to be prepared for all aspects of risks, such as credit, operational risk, anti-money laundering and liquidity risks, but at the same time not to get completely bogged down,” said Joel Kornreich, group chief executive officer of Alliance Bank Malaysia Berhad.

We sat down and spoke with Kornreich to learn more about his philosophies and the current challenges they face as a bank.

ABF: What are your previous experiences that contributed to who you are as a banker today?

I started in Unilever, a fast moving consumer goods business, which gave me the marketing experience as well as a sense of entrepreneurship. Next, I had the chance to work in a branch, which gave me an appreciation of client management and also basic banking processes and operations, which serves me to this day.

During the 97/98 crisis, I was given the chance to manage a Consumer Banking Business in Indonesia, at the age of just 32. My tasks included a full system migration, which gave me the opportunity to manage in turbulent time and with great autonomy to innovate, especially around customer service, speed and efficiency. Since then, I have had the opportunity to manage through more turbulent times, like Russia in 2008, Spain, Belgium and Greece through a dark period of 2009-2011, and Indonesia in a business that was under regulatory sanctions.

ABF: What are your key business philosophies?

First, be fair and consistent to your customers and staff. Never let your moral compass waver, and never tolerate that in others. Second, when it comes to staff, quality (rather than quantity) is everything. And always recognize where you are weak so that you surround yourself with people who are strong in those areas.

Third, get the facts and make decisions based on facts. Data is not enough. It must be structured and challenged in a way that you get real value. Invest in information. Those are always good investments.

Fourth, get rid of bad cholesterol, i.e. bureaucracy and structural expenses, so that you can spend on good cholesterol: marketing, training, exceptional people, research, analytics and innovation.

Fifth, innovate and simplify. And when you think you are done with that, start again. It never ends. In processes, eliminate what you can, automate what you can’t eliminate, and centralize what you can’t automate.

Lastly, always challenge your own thoughts and ideas, and try to see where you are wrong, rather that look for facts that comfort your ideas.

ABF: What three goals are you focused on?

First and foremost, I aim to create value by helping our business owners with their business needs and helping them help other stakeholders, i.e. their families, employees, and retail customers.

Next is client excellence. We want to create a world class relationship bank where we fulfil the promise of becoming the most important relationship for the financial success of business owners, and by creating a world class ‘automated bank’ giving transactional convenience and consumption options to consumers.

Last but not the least, excellent compliance.

Managing through crises has taught me the incredible power of staff participation, as well as to be prepared for all aspects of risks, such as credit, operational risk, antimoney laundering and liquidity risks, but at the same time not to get completely bogged down.

ABF: What are the recent trends and challenges in the Malaysian banking sector?

Margin compression and funding pressures, poor risk based pricing decisions and rising interest rate risks, still a fairly weak culture of client excellence and analytics based decision making, the expected rise in importance of anti-money laundering, know-yourcustomer, market conduct and cybercrime.

Strategic thinking around the mutations in the financial sector also still only nascent, like thought process around branch density and services, technology strategy, disintermediation and how consumers manage their choices.

ABF: What are the effects of the sharp depreciation in ringgit?

There are two effects. One effect is the relative shrinking liquidity and local currency which is very typical when there’s a depreciation of currency. What happens is the paradox that your local currency loses value while at the same time, the interest rates spike because everybody’s chasing that local currency to fund their assets. The other phenomenon is of course the rising compliance cost, which basically explains the difference between inter-bank rates and the rates that you have to pay depositors. Everybody’s chasing high quality deposits and high quality currency savings.

In the process of doing that, everybody is paying up, which is pushing up the price of funding. In turn, this pushes banks to look at other solutions on how they are going to fund their balance sheets. Because if you have shrinkage of liquidity plus pricing competition around deposits, you have to find other alternatives.

ASIAN BANKING AND FINANCE | JUNE 2016 15

Than Win Swe CEO United Amara Bank 16 ASIAN BANKING AND FINANCE | JUNE 2016

CEO INTERVIEW

Myanmar’s United Amara Bank CEO eyes adding 25 to 55 more branches by end-2017 With financial inclusion only at 23%, the bricks and mortar strategy is key, says Than Win Swe.

T

he opening up of Myanmar’s economy caused more banking licences to be issued in the country, resulting in 24 local private banks and nine foreign bank branches to date. Whilst this is a positive development in the country’s banking and finance industry, it has also posed a great challenge amongst the banks in terms of competition, especially in a market with only one in four adults having access to financial products and services.

In 2010, four private banks dared to begin operations in Myanmar, one of which was United Amara Bank (UAB). After six years in the business, UAB has grown with an asset base of approximately USD 500 million, 45 branches and 230,000 accounts.

With the advent of mobile and internet banking, industry players in more developed parts of Asia are debating whether a physical bank branch is still relevant to customers. But Than Win Swe says that with financial inclusion being one of the greatest challenges, customers still prefer having a bank branch near their home or office.

ABF: What are the latest trends and challenges in Myanmar’s banking sector, especially after the country opened up its economy?

In an environment where the economy is in transition and the market is highly competitive, the challenge is ensuring adequate supervision of the banking sector by relevant authorities and by the banks themselves, with a sufficiently strong governance structure.

One of the biggest challenges of Myanmar as a nation is financial inclusion, with less than 23% of adults having access to the formal banking system. In addition, many of the day-to-day transactions are cashbased. The positive point about competition amongst banks is that the number of bank branches has increased rapidly and new banking products are being introduced constantly to attract a flow of deposits into the formal banking sector.

ABF: What were the challenges you had to address during the early years of UAB’s establishment?

In the early years of establishment, we had to start from a zero base. The first task was to create a team of people with strong banking experience and fortunately, we were able to establish a team with the necessary prerequisites. We were also fortunate to have serious shareholders with strong commitments and entrepreneurial abilities which drove us through the early phase of development.

In a sense, it was good to have started the bank from a zero base since we inherited no skeletons in the closet and we could shape the bank into what we envisaged it to be. Although it was a slower process to

build the bank brick by brick, looking back, it enabled us to build strong foundations and to form our own unique UAB corporate culture. Unique to Myanmar is probably a huge gap in skilled staff as the nation opens up its economy. The need to upgrade employee skills was a challenge in the early years and this remains equally so at the present period of time. There is, therefore, no substitute for building the bank’s own training facilities and investing in the training of staff.

ABF: What do you consider as your biggest achievements so far as the CEO of UAB? Presently, the bank has an asset base of approximately USD 500 million, 45 branches and 230,000 accounts.

Looking back, to be able to accomplish this target within a short period of six years has been an achievement for the team at UAB, but more important has been our effort to ensure that the asset base is sound.

The largest asset portfolio in our balance sheet is our loan assets and I have been personally involved in ensuring that we build a sound Loans Portfolio in the midst of this rapid asset growth. The biggest risk to any bank in Myanmar is that with such a rapid pace of growth, the danger of acquiring a low quality loan portfolio is high.

ABF: What business strategies do you employ in terms of business expansion?

From our surveys, we note that a key preference for Myanmar customers is to have a physical bank branch near their home or office. Therefore, the “bricks and mortar” strategy is important at this stage A key of development and a reasonable sized retail branch preference network is required. We are therefore expanding our for Myanmar branch network to 70 branches by end-2017 and customers is to then to 100 branches thereafter. In this expansion, have a physical we are mindful that whilst the business opportunities bank branch are many, the operational risk factors also increase near their accordingly. Therefore, the expansion has to be home or office. controlled and well executed to manage the risk areas.

Therefore, We are fortunate that at this time, Myanmar the “bricks remains an “honest society”. However, with the nation and mortar” opening up to the world, other influences will come in. strategy is Therefore, in the push for expansion, especially with important at the opportunities we see today, the bank cannot ignore this stage of the need for internal control. The expansion must be development done in a controlled fashion. and a Whilst Myanmar still remains largely a cash-based reasonable society, the use of electronic means of communication sized retail is expanding rapidly with the use of internet and branch mobile phones. Electronic banking will catch on very network is quickly and the bank is positioning itself to bundle its required. products via both traditional and electronic platforms.

ASIAN BANKING AND FINANCE | JUNE 2016 17

CO-PUBLISHED CORPORATE PROFILE

Five financial self-service trends you cannot afford to ignore

Omnichannel experiences will soon become standard operating procedure.

Self-Service management can’t be viewed as a single channel and operate in a silo because it requires business orchestration.

R

BR research found more than three million ATMs in use around the globe in 2014 – and that number is projected to grow to four million as financial institutions in emerging markets connect with the un- and underbanked through the self-service channel.

Meanwhile, the number of branches is contracting as banks contend with outsized expansion in the ‘90s and ‘00s and cultural shifts toward mobile and digital banking.

Vast changes are taking place across the entire financial industry, and in the coming years omnichannel experiences will become standard operating procedure. Has your organization appropriately addressed and prioritized the challenges you must address if you want to continue to be successful and profitable?

From where I sit on Diebold’s software team, I see five key trends taking place in the financial self-service sector that should be on your radar and in your strategic planning materials – these trends shaped our new software platform

18 ASIAN BANKING AND FINANCE | JUNE 2016

and continue to guide our technology roadmap.

1. User experience expectations are higher than ever.

Globally, we’re glued to screens on a regular basis. We even multi-task with “second” and “third” screens. We’re savvier at interacting with technology – and our expectations for that technology are high. There is simply no excuse anymore for a self-service terminal that’s awkward to use or access.

Today’s ATMs must rise to the level of the technology we use in our everyday lives; that means more intuitive controls and functionality, more inviting design, more thoughtful user interface. A self-

Today’s ATMs must rise to the level of the technology we use in our everyday lives; that means more intuitive controls and functionality.

service transaction should be seamless and painless for your consumers. Selfservice terminal maintenance should be seamless and painless for your staff.

The engineering and design of our software platform and our latest terminals was guided by UX principles.

We spent a year visiting financial institutions, branch tellers, CIT personnel and end consumers around the world to understand their biggest pain points around self-service automation. Of the many advances we made, there are a few innovative features I find particularly beneficial: Optional second screen. We futureproofed the design to enable two-way video access, better privacy for advanced transactions, targeted marketing and a host of other consumer-facing features.

Vertical cassettes. The new orientation enables staff and CIT personnel to pull cassettes out with one hand and remain standing during cassette changes, so it’s a more ergonomic experience – and a safer one.

Biometric accessibility: Biometrics’

CO-PUBLISHED CORPORATE PROFILE time has arrived. When we unveiled iris-scanning authentication on our new concept terminal at Money20/20, it got a lot of attention. But beyond the cool factor, biometrics offer an alternative authentication path that ensures security and broadens accessibility.

2. Multi-vendor environments are the norm, not the exception.

Consumers expect a consistent, secure experience at the ATM, and they don’t care what’s going on behind the scenes.

Your software and hardware must be able to work together in current state conditions – but you’ve also got to be prepared for the unknowns of the future, and the drive toward omnichannel transactions. Will your ATMs be able to keep up with necessary upgrades, updates and changes?

Our software team is often asked by potential clients to perform proof of concept (POCs) with Diebold VISTA™ terminal application software in a multivendor environment, and the feedback is always the same: they’re surprised at how fast and reliably we’re able to get their terminals up and running (typically in just a couple days).

3. Mobile integration is changing the way consumers interact with your self-service channel.

If you haven’t heard of M-Pesa by now, brush up on their success story in Africa – and expect more of it to come. Fintech disruptors are jumping on mobile and digital from every conceivable angle, and consumers have an appetite for it. In fact, mobile banking surged past branch banking in popularity in 2015, according to Javelin Strategy & Research.

We design omnichannel solutions that enable people to tap into the physical and digital worlds of currency however, whenever, wherever they want. Our most recent concepts are exciting proof points to that story, with solutions like SafeLoad, a secure mobilewallet download driven by near-field communication (NFC), and Irving, a mobile-first cash-dispenser with some incredibly exciting potential use cases.

4. The ATM channel has become a strategic, vital touchpoint between your organization and your consumers.

As branches are closing or being reformatted, self-service devices are one

of the most mission-critical touchpoints you have with your consumer. In a world where the products and services you offer are becoming commoditized, there’s a renewed opportunity to deliver a differentiated, customized experience through your self-service network.

Think about this: at an ATM, your consumer is known (through card and PIN verification), in a banking state of mind and standing in front of a large screen where they can act. It’s an optimal time to engage with them. Solutions like COMMANDER™ Marketing Suite introduce a server orchestration layer that drives an omnichannel retail banking environment and enables personalization and 1:1 marketing.

4. Analytics capabilities are enabling banks to differentiate through service and customization.

Preventative maintenance, intelligent service delivery and the ability to truly understand your consumers (individually

Self-service devices are one of the most mission-critical touchpoints you have with your consumer.

and at an aggregate) … these will all be keys to success in the coming years.

Interestingly, a new report from the Financial Brand notes that FIs are not yet prioritizing analytics: “National and regional banks have the desire to improve analytics capabilities as their third highest “top three” priority (47%).

The emphasis on advanced analytics completely overshadows the level of emphasis indicated by both community banks and credit unions (8% ranked this as a “top three priority).”

Analytics cannot be ignored – and your ATM network is one of the best places to gather data about your consumers.

When you’re paying for online ads, you pay for a lead that semi-targets a consumer with a low or medium-low specificity in terms of profile, place and spending power. Within your own ATM network, you pay $0 (since you own the channel), and you can place a highlytargeted and actionable offer in front of a consumer who you specifically know (you know who they are, where they are, their economic status, their relationship with your FI, etc.). Our innovation team is working to harness big data from ATM networks to improve uptime and consumer experiences. By Hormuzd ‘Homi’ Karkaria, VP for software and services solutioning, Diebold

IRIS scanning

Consumer Channel Usage. Source: Gallup Opinion Poll ASIAN BANKING AND FINANCE | JUNE 2016 19

Country report: CHINA

Credit losses are expected to leap

As bad loans mount, Chinese banks brace for profit drop in 2016 Poor economy, inflexible rules to blame—credit ratings may also bear brunt.

T

he economic headwinds faced

by Chinese lenders in 2015 are expected to continue in 2016 as bad debts brought about by a souring economy, coupled with stiff state regulations, are seen to take their toll on overall profitability, according to three top global credit ratings agencies.

“Rising credit losses and compressing interest margins are likely to substantially hit Chinese banks’ profitability in 2016,” predicts Qiang Liao, credit analyst at Standard & Poor’s.

2015 data shows China’s banks endured a rough period last year.

According to Grace Wu, senior director, Financial Institutions at Fitch Ratings, system-wide net income for China’s banking sector grew by a measly 2.4% in 2015, while net interest margins dropped by around 12 basis points (bps) to 2.53%.

With this, credit losses are expected 20 ASIAN BANKING AND FINANCE | JUNE 2016

Credit distress has been spreading from a few segments that private companies dominate to broad-based manufacturing industries where large firms are common.

to keep surging across the board this year.

“Credit distress has been spreading from a few segments that private companies dominate—such as wholesale and retail trade, exportoriented light industry, shipbuilding, and coal mining—to broad-based manufacturing industries where large firms are common,” Liao says. “We expect the sector’s non-performing loan (NPL) ratio to reach 3% by the year end, up from an estimated 2.2% at end-2015 and 1.7% a year earlier,” he adds.

Thus, for 2016, credit losses— measured by the average ratio of credit provisions to average loans— are expected to leap to 150 -160 bps from only 110 -120 bps in 2015, and a mere 80 - 90 bps in 2014, Liao says.

The expected rise in credit losses comes amid a sagging economic backdrop. Liao cites China’s slipping gross domestic product (GDP)

growth rate as a sign of negative things to come. “Real GDP growth moderated to 6.9% in 2015, the lowest in the past 25 years. Standard & Poor’s expects it to dip further to 6.3% in 2016 and 6.1% in 2017,” Liao says. Similar declines are expected for the country’s consumer and producer price indices.

Poor policies in place?

The Chinese government has responded to these economic pressures with a series of interventions in recent years, which have so far produced mixed results in the face of numerous challenges.

“The gradual slowdown in economic growth reflects significant fiscal and monetary support, a view that could perpetuate or exacerbate imbalances in the economy, in particular high leverage in the corporate sector, thereby increasing the likelihood that contingent

Country report: cHINA liabilities will crystallise on the government’s balance sheet,” notes Sean Hung, assistant vice presidentanalyst at Moody’s Investor Service.

“China’s institutions are being tested by the challenges stemming from the multiple policy objectives of maintaining economic growth, implementing reform, and mitigating market volatility. Fiscal and monetary policy support to achieve the government’s economic growth target of 6.5% may slow the implementation of planned reforms, including those related to state-owned enterprises,” Hung adds.

Indeed, excessive government policy—dubbed by Liao as “supplyside”—is now being blamed for additional risks threatening banks as far as NPLs are concerned.

“On top of rising credit losses and compressing interest margins, Chinese banks are facing elevated risks from changes in central government policies. We attribute a possible surge in NPLs this year mainly to elevated government policy risks on top of a further economic slowdown,” Liao says, referring to the government’s five-prong economic agenda focussing on trimming excessive industrial capacity, reducing property inventory, debt deleveraging, cost reduction for companies, and building capacity in desired products and services.

“We believe an accelerated process of removing capacity in targeted industries and the associated waning of implicit government support for distressed companies will lead to a significant rise in credit losses for banks.” Liao says.

Further, the policy also “highlights a material increase in the government’s tolerance for corporate credit defaults and China’s policy shift toward a trial-and-error approach to economic policymaking and execution.”

NPL provisioning rate hit Meanwhile, the government’s minimum provisioning rate for NPLs has also come under fire as too strict, serving to hurt, and not benefit, banks by impacting their profitability.

According to Grace Wu, senior director, financial institutions, Fitch Ratings, early indicators suggest Chinese banks are bound to suffer

from “continued subdued earnings growth amid margin compression and asset deterioration” this year following a lacklustre earnings season in 2015.

“Fitch expects these trends to continue in 2016, underscoring our negative sector outlook. Chinese bank profits are likely to decline this year unless authorities relax the minimum NPL provisioning requirement of 150%,” Wu says.

For instance, the provision coverage ratio at state and joint-stock banks had slipped to an average of 172% and 181%, respectively by end2015.

“The need to maintain this ratio above 150% will restrain earnings growth in 2016 - unless this ratio is relaxed,” Wu warns. Banks may also be discouraged from accurately disclosing their NPLs as a result of the strict rule.

The NPL provisioning requirement, originally a “back-up” cache to protect banks from future losses, is now proving to be a curse rather than a blessing as bad loans continue to pile up amid China’s sustained economic downturn.

“A combination of interest-rate cuts and worsening asset quality will continue to have an impact on profitability in 2016. The quarterly run-rate in reported NPLs decelerated in the fourth quarter of 2015, while we believe this is due partly to more substantial NPL writeoffs/disposals towards the end of the year as banks struggled to meet their provisioning requirements,” Wu says.

Credit ratings threatened In the meantime, the banking industry’s financial woes may now have the added detriment of putting a strain on the banks’ respective credit ratings.

“Major Chinese banks are continuing to strengthen their balance sheets, which may place them on a stronger footing to contend with challenges ahead. However, we believe the continued negative trend in economic risk for the sector could further weigh on the banks’ credit profiles,” Liao says.

A credit divergence, according to Liao, is beginning to manifest with the country’s downward economic

A combination of interestrate cuts and worsening asset quality will continue to have an impact on profitability in 2016.

trend coupled with varying levels of government support for individual banks. Thus, an “overall negative outlook for the sector” is projected by Standard & Poor’s.

“The ingredients for a credit downturn in China’s banking sector are coming together,” Liao warns.

“The Macro Profile for China considers the country’s rapid credit induced growth in recent years, which weighs negatively on the banking system’s credit conditions, but a large and stable deposit base and accommodative monetary policy support the banks’ funding profiles,” Hung explains.

“Despite the large banks’ dominant market position, competition has intensified as players adjust to financial reform and innovation, such as interest rate liberalisation and the proliferation of the shadow banking sector,” he adds.

Nevertheless, China’s Economic Strength remains “Very High” and its Susceptibility to Event Risk, “Low,” according to Moody’s.

“Chinese banks operate in an economy that has achieved strong and stable macroeconomic performance over the last two decades. Although constrained by a relatively weak institutional framework, China’s robust fiscal position and $3.2 trillion in foreign exchange reserves at end-February 2016 provide some buffers against economic and financial shocks,” Hung says.

For the 2015-2019 period, China’s GDP growth will likely average at 6.3%, “which, while slower when compared to the previous five years, will remain markedly faster than most of China’s rating peers,” notes Hung.

Asset quality metrics for Chinese commercial banks

Source: China Banking Regulatory Committee; Standard & Poor’s

ASIAN BANKING AND FINANCE | JUNE 2016 21

Vendor View: Mobile banking security

User data can be exposed

Poor coding practices for mobile app cloud security put user data in peril

Intel Security, Dell, F5 Networks, and Kaspersky Lab speak up about security in mobile banking.

W

hen McAfee Labs researchers studied how two mobile banking Trojans were able to circumvent the financial institution’s security and gain illegal access to user information, they found a disturbing loophole: The Trojans abused root privileges to silently install malicious code and enabled an SMS message scheme to steal credit card numbers and execute fraudulent transactions.

More worrying for financial institutions and their mobile banking users is data suggesting that thousands of other Trojans may be exploiting similar weaknesses in mobile apps due to sloppy programming.

A two-month analysis of more than two million legitimate mobile apps and nearly 300,000 mobile malicious software (malware) apps was able to reveal that developers often do not follow sound cloud 22 ASIAN BANKING AND FINANCE | JUNE 2016

security coding practices, according to Craig Nielsen, managing director, South East Asia at Intel Security. This vulnerability may result in leakage of personal and financial user data, and put erring financial institutions in hot water.

Poor coding practices “Poor coding practices for mobile app cloud security, including the failure to follow back-end service provider guidance, can lead to the exposure of user data in the cloud,” says Nielsen.

“Mobile apps often rely on back-end services for secure data storage and communications.

Nonetheless, mobile app developers are responsible for integrating their mobile apps with these back-end services. User data can be exposed if app developers fail to follow the back-end providers’ security coding guidelines—a possibility that is now

“Mobile apps often rely on back-end services for secure data storage and communications.”

more likely based on the increasing amount of personal and professional business conducted in the mobile cloud,” he explains further.

While Trojans and their malware kin continue to slip through security cracks to cause mayhem, retail banks and other financial institutions are not about to give up on the war, if only because there is so much at stake for the future of their businesses.

“Against the backdrop of the digital economy, retail banks around the world are facing a new reality – profitability is anchored in their ability to transform their business to meet the evolving demands of digitally-savvy customers today, yet security threats are imminent and remain to be a key concern for them,” says Han Chon, director for security and endpoint systems management at Dell Asia-Pacific & Japan.

A McKinsey report has found that about 40% of Asian customers

Vendor View: Mobile banking security now prefer online or mobile banking and the number of digital-banking consumers is expected to become 1.7 billion by 2020.

But Chon says that as retail banks provision financial services through mobile and internet channels, it has also opened up new doors for cybercriminals to target, leading to a number of high profile data breaches in the past few years.

Mobile and internet banking have become arenas with no clear winners on either side. As financial institutions develop better protective measures, Chon says exploits are also evolving to stay one step ahead of security systems, with greater speed, heightened stealth and novel shapeshifting abilities.

SSL/TLS encryption New security technology can be a double-edged sword, as seen in the growth of SSL/TLS encryption as a security measure. “It’s a positive trend in many ways, however, it also gives hackers a new channel through which they can target organisations and consumers,” says Chon.

“Using SSL/TLS, skilled attackers can cipher command and control communications and malicious code to evade intrusion prevention systems and anti-malware inspection systems. These attacks can be extremely effective, simply because most companies do not have the right infrastructure to detect them,” he adds.

Chon cites the Dell Security Annual Threat Report in 2015 which found that SSL/TLS encryption continued to surge but also lead to

under-the-radar hacks affecting at least 900 million users.

Craig Nielsen

Han Chon

Lim Chin Keng

Spear phishing In Asia, spear phishing and other malware attacks are the weapon of choice among cyber criminals, says Lim Chin Keng, director of security solutions, APAC at F5 Networks.

Lim says spear phishing involves sending emails forged to look like they are from the target bank to trick users into installing malware that will compromise their account once they log in. “The malware may simply record the username and password and then send it along to a drop zone for later pickup, or it may steal currency via hidden financial transactions,” he says.

The threat of these attacks are palpable. The Association of Banks in Singapore has said that about 50 smartphone users in Singapore were hit by malware targeting mobile banking customers in the months of September, October and November of 2015, and warned that the number could see an increase amid a rise in mobile payments. Malware attackers then went on to make various online purchases with their stolen access, ranging from airline tickets, to electronic devices, with each transaction valued at around a couple of hundred dollars.

Financial institutions have the most high profile, high-value assets on the internet in the form of millions of bank accounts, says Lim, which is why Asian banks are taking protection against malware attacks very seriously.

“They are taking active steps to understand how different malware types work, and new tactics being adopted by fraudsters to combine personally identifiable information data stolen by malware with social engineering to create advanced fraudulent transactions. Banks are increasingly looking at partnering with technology providers that not only specialise in providing malware detection capabilities, but also have focussed security operation centres that monitor and analyse financial malware attacks to complement the bank’s security and fraud team,” says Lim. This means that financial

institutions that are looking to enter the mobile and internet banking game will have to invest a lot of resources to keep up with the pace of malware infection and attack transformations.

Protecting and empowering users Financial institutions might bear a lot of the blame when it comes to mobile banking security breaches due to their lackadaisical approach or insufficient resource investments, but analysts are also quick to point out that the customers themselves often serve as accomplices to online thieves.

“Any security solution and process is as strong as its weakest link; in this case, it’s the customer,” says a Kaspersky Lab spokesperson. “Will she/he click on a link or open an attachment? Is his/her system up-todate, with all patches applied?”

Facing the reality that even the best security measures are compromised due to customer negligence, financial institutions are creating more aggressive campaigns to inform and empower mobile and internet banking users.

Some are providing information on their banking websites about current malicious activities affecting internet banking, while others are even going as far as stating that they will not provide restitution for losses if the attacked system was not fully patched or secured, says the Kaspersky Lab spokesperson.

The spokesperson further suggests that financial institutions should advise customers to use a security solution on their device, to make sure it scans files as they are downloaded and protects the device from other types of Internet attacks. “Protection against security threats should be a joint responsibility between the bank and the consumer,” says Nielsen.

“While banks deploy security solutions within their infrastructure, consumers also need to be very careful with the mobile apps they download onto their phones,” adding that users should only download mobile apps from well-known sources and should avoid or at least limit rooting their device since malware abuses privileged access to silently install apps without consent.

ASIAN BANKING AND FINANCE | JUNE 2016 23

Retail banking forum: manila

Over 60 bankers attended Forum

Philippine banks open for cooperation rather than competition with FinTechs

The challenge is for banks to achieve the same agility and cost-effectiveness of FinTech companies.

T

he Asian Banking and Finance Retail Banking Forum kicked off with the Manila leg held last March 9, 2016. More than 60 retail bankers gathered at the Makati Shangri-La to discuss some of the most pertinent trends currently faced by the local retail banking industry.

One of the panel discussions was focused on the opportunities and threats posed by mobile banking and non-bank competition.

Non-bank players often referred to as FinTechs are aggressively targeting the 70% of the Philippine population that is currently unbanked, and incumbent banks must keep up to stay ahead of the game.

Mobile banking and FinTechs With the proliferation of smartphones in the country, banks are striving to come up with products and services that will make the customers’ mobile banking experience more seamless and efficient. According to Cristina 24 ASIAN BANKING AND FINANCE | JUNE 2016

Current estimates of the volume of transaction on on digital payments alone in the Philippines is around USD 4.86 billion.

Tan, managing director, consumer management at Citibank, out of the 100 million population in the Philippines, 44% are internet users and 114% are mobile users, which means there are a lot of people with more than one mobile phone. The Philippines is ranked 29th globally in terms of smartphone penetration with around 40% of the population already using a smartphone.

Moreover, 96% of consumers engage in two or more screens at a time.

Tan added that globally, people are digitally connected for 4.5 hours per day on average. But in the Philippines, people spend 6.5 hrs per day, which is significantly higher than the global average. Clearly, the Filipinos are very much into the digital and social media space, and this is one of the platforms that FinTechs are trying to tap.

Mark Perez, retail banking head at Metrobank, said that when talking about FinTech, we should not look at

the transactions that are performed over-the-counter (OTC) or digitally.

“The challenge is in the digital payments outside our channels.

Meaning they do not even go through us to perform a transaction,” he added.

Perez noted that current estimates of the volume of transaction on on digital payments alone in the Philippines is around USD 4.86 billion. These are payments not going through the banks and not covered by traditional interchanges such as Visa, Mastercard, or Bancnet.

“The expectation is the CAGR for digital payments passing through FinTechs would go up to 20% in the next four years. Clearly you have some diversion of transactions from banking to the digital space,” Perez said.

Eduardo Olbes, EVP for the wholesale banking segment at Security Bank, said while the largest bank in the Philippines will have

Retail banking forum: manila

Panelists share their thoughts on FinTechs

around 800-900 branches, the top three pawnshops in the country will each have around 1,500 physical points of presence.

“There is a lot of cash movement happening outside the point of the banks. Only 30% of Filipinos have bank accounts. The remaining 70% might be intimidated to even enter a bank or they do not enter at all because they do not have deposits to make in the first place. The issue really is: Should we ignore or support that space? I’d say it is a mandate to try and expand the electronic payments solutions to support that space in some way,” Olbes noted.

Cooperation or competition?

So is it a threat when FinTechs try and tap the 70% of the population that is unbanked? Olbes reckons there could be more room for cooperation rather than competition. He said that most people would agree that electronic money is a cost-effective to platform to use to settle small transactions. But ironically, the same people who most need that may not have access to those services because they don’t deal with the bank.

“We can either turn a blind eye and not serve it or see if we can work with partners who can build a business model around that space,” he added.

While Perez recognizes that performing transactions through FinTechs are a lot cheaper than those coursed through banks, the big challenge for banks is to “achieve the agility and cost-effectiveness that the FinTech companies are able to achieve.”

“If you look at the whole ecosystem,

there is a role that fintech can play without eating everything happening in banking. The areas where the FinTechs are earning from are not the same areas the banks earn from.

There is a lot of opportunity to cooperate and work together in order to have a better customer experience,” Perez said.

Consumer Protection Framework Another topic discussed at the Forum was the Central Bank of the Philippines’ Circular 857 released in November 2014. The Consumer Protection Framework contains standards of consumer protection in the areas of disclosure and transparency, protection of client information, fair treatment, effective recourse, and financial education.

This year, the Central Bank will begin on-site assessments among the banks.

But are the banks ready?

“The policies, in terms of its intent, are very much commendable because they address the demands in today’s standards and corporate governance.

As a medium-sized bank, it affects us greatly because clearly, if we do not pass the audit, that would disable us to launch new products,” said Miguel Angelo Villa-real, corporate communications head at the Philippine Veterans Bank.

Villa-real shared the results of an informal survey of 13 bankers who answered the question: “Are the banks ready for the financial consumer protection regulations?”

As can be expected, no one answered they are full ready. Majority said that yes, the banks are ready but there are varying degrees of readiness.

The Consumer Protection Framework contains standards of consumer protection in the areas of disclosure and transparency, protection of client information, fair treatment, effective recourse, and financial education.

After all, being fully compliant is relative depending on where you stand.

Consumer education Patrick Cheng, head of trust at China Bank, said: “It’s a matter of perspective and where you’re coming from. Consumer protection goes hand-in-hand with consumer education. One of the key advocacies now of the Central Bank is financial inclusion with only around 30% of the population having bank accounts.

There is a lot more that we can tap and it’s important for the industry as a whole to work together in terms of consumer education to be able to get a more holistic view of consumer protection.”

Cheng added that if there was one area that is hardest for banks to do, it’s in terms of the consumer education and the kind of disclosures.

“The rules now are more difficult to understand. A client has to sign rims of documents with disclosures. If I sit down and I am not a lawyer, what is the likelihood of a client signing it when it is more than 10 pages thick?

Why can we not put things down to a single or two pages where disclosures are in simpler terms rather than trying to catch every eventuality and writing ten pages about risks?”

Prudence Angelita Kasala, head of financial consumer protection group at the Central Bank of the Philippines, noted that based on their off-site assessments, most of the banks are making adjustments to comply with the framework.

“Based on discussions with the industry, we see that they will have to do this in phases – there will be certain areas they will have to focus on first. Most of the banks are focusing on the compliance with disclosure and transparency.” Kasala said they will start on-site assessments this year.

Benel Lagua, EVP and chief development officer, Development Bank of the Philippines, also spoke about the current trends and challenges in SME lending in the country. Thomas Karakalos, VP - managed services at Diebold and Sujatha Venkatramanan, head of Consulting APAC at Experian also delivered presentations.

ASIAN BANKING AND FINANCE | JUNE 2016 25

Retail banking forum: Kuala lumpur

Over 40 bankers gathered to attend the Forum

How are Malaysian banks dealing with the pressure of digitisation?

Bankers and analysts shared their views at the ABF Retail Banking Forum 2016.

I

t’s no surprise that financial institutions across ASEAN are feeling the pressure of digitisation or risk being left behind. When Ernst and Young interviewed senior executives from banking, insurance, wealth and asset management institutions across the ASEAN region, the professional services giant discovered the collective challenges in digitisation that are making financial institutions sweat.

This includes monetising the digital business, staying relevant to customers, creating a productive environment, managing compliance, and dealing with gripping digital risk. Digitisation, along with financial technology, were the buzzwords among the topics discussed at the Kuala Lumpur leg of Asian Banking and Finance’s Retail Banking Forum held at the Shangri-La Kuala Lumpur.

And it’s not like digitisation is a walk in the park. “It’s not just about putting a technology in the 26 ASIAN BANKING AND FINANCE | JUNE 2016

At the end of the day, it’s about how your customers will be using the digital advancements, and whether or not they find it useful.

front end,” said Liew Nam Soon, managing partner for financial services in ASEAN at Ernst and Young, when opening the forum. “At the end of the day, it’s about how your customers will be using the digital advancements, and whether or not they find it useful. Are [financial institutions] really deploying something that is relevant for the customer?”

Nam Soon stressed that too much emphasis is being placed by financial institutions on the technology itself in terms of digital transformation, but they are forgetting that the change permeates the entire institution.

“Success of digital strategies depends on improvements to operational agility, flexibility, and relevance to customers,” he said. “This requires an organisation-wide transformation.”

Additionally, Nam Soon said digital advancements are not just for the sake of innovating, but also to make money. He added that every single

project for digital innovation must fulfill two objectives: Improving the customer experience and creating a revenue stream.

Staying relevant Meanwhile, in order to stay relevant to customers, Nam Soon said financial institutions need to address customer needs and not demographics. In order to do this, Nam Soon said FIs need to utilise data better and deliver a personalised experience.

“Digital presents opportunities to reach into markets that are not accessible by traditional methods.” Nam Soon said. He also emphasised that nothing comes second to data when it comes to a financial institutions’ largest assets.

“Transactional data is a treasure trove for FIs,” he said.

Despite this, Nam Soon says the branch is not going to go away soon. “People are always talking

Retail banking forum: Kuala lumpur about the battle of the branch and digital innovations. A lot of financial institutions are developing the branch to cater to specific clients such as SMEs as branches provide human interaction.”

Following up the subject of branches, Dereck Daymond, vice president for software solutions, Asia Pacific of Phoenix, a Diebold company, said the role of the teller is going to undergo a rapid and radical change due to the increasing prevalence of self-service devices.

“54% of the teller transactions can be completed by self-service,” Daymond said. “But that doesn’t mean that you should get rid of the teller. The teller could just be a lot more interactive so they can be more of a PR representative for the branch so they’ll be talking to [customers] and helping [them] instead of just dispensing cash or cashing cheques,” Daymond added.

While there’s no denying that self-service will become even more advanced and prevalent in the coming years, Daymond said the bar for user expectations is also being raised.

“People are expecting more than just a boring screen. Users are becoming fussier, and want more interactive experiences.”

Daymond adds that mobile interaction is also a huge plus for these users, changing the way consumers interact with the self-service channel.

“Mobile interactions include secure mobile-wallet download driven by near-field communication and mobile-first cash dispensers.”

A golden opportunity While customers are increasing their interactions with ATMs, Daymond says this is also an opportunity for banks to know their customers via the ATM channel. “The ATM channel has become a strategic, vital touchpoint between your organisation and your consumers,” Daymond added.

“Every time your customer uses your ATM, you know more about them. Use this opportunity to show them that there is an advanced relationship between the bank and the customer. You want to be able to have the kind of relationship that is more personalised,” Daymond said.

Diebold displayed the latest advancements in ATMs with Irving,

an eye-scanning, headless, pin-less, and cardless ATM, at the forum. The fast-cash dispenser also utilises the consumer’s mobile device to complete a cash withdrawal in a little over ten seconds.

Mobile devices are as disruptive as they are ubiquitous. They are also the go-to device for millennials, which makes it a great deal for retail banks to harness the smartphone’s potential, according to Muzzaffar Othman, digital strategist at Maybank.

Speaking about the millennials, Othman said “Google is their friend, YouTube is their entertainment, social media is their change, and they are the future of financial institutions.”

Othman said branch banking is not going to be popular among millennials. “[Millennials] would not do their transactions even once a month in bank branches,” Othman predicted.

“There’s fewer roles for the branch and more roles for digitalisation and mobile.” When talking about strategies to cater to the declining interest for retail banks and challenges posed by Fin Techs, Othman said banks have to collaborate and compete.

Assessing balance sheets The fourth session was a panel discussion with the topic ‘Assessing Malaysian Banks’ Profitability, Asset Quality and Funding Levels’.

The panel was made up of Joel Kornreich, chief executive officer of Alliance Bank, and Vipin Agrawal, senior managing director and head of retail assets, cards, and deposits at CIMB. The panel was moderated by Asian Banking and Finance editor, Tim Charlton.

According to Kornreich, a troubling issue for Malaysian banks is the structure of their balance sheets.

“Big banks on the balance sheet on the asset side are either yielding very low yield or are essentially fixed even though they may be normally indexed.” Kornreich said. “You look at shophouse financing, which has very low yield, and you look at higher purchases which banks are not managing to make work from a returns perspective.”

Another issue for Malaysian banks, according to Kornreich, is their

In a cost reduction sense, 80-90% of all transactions are happening outside the branch.

inefficient assets, putting discretion on the other side of the balance sheet, which is the funding side. “The funding is being constrained by the depreciation of local currency. As people try to move money out of the country or out of the currency, it means that you start to open up a gap between the evolution of the local funding versus the pool of assets,” Kornreich explained.

Kornreich said that the gap last year alone for the banking sector was a staggering MYR60-70b.

On the other hand, CIMB’s Agrawal thinks the economic environment is a large factor which sways the tide either in favor of or against Malaysia’s financial institutions.

“The chain started on the US issues in 2008, and later European issues.

Recently, the Ringgit depreciation and the China slowdown has also affected the banking environment in Malaysia,” he said. Regulatory pressure is also a concern for the country’s banks according to Agrawal, saying regulators are being active both inside and outside Malaysia, resulting in a rise in compliance costs.

FinTech is also a dividing issue among Malaysia’s banks according to Agrawal, and that he sees it as an opportunity to outsource the work to the consumers themselves. “In a cost reduction sense, 80-90% of all transactions are happening outside the branch,” Agrawal said.

More than 40 bankers and industry players attended the Kuala Lumpur leg of the ABF Retail Banking Forum.

Diebold unveils “Irving” for the first time in Asia ASIAN BANKING AND FINANCE | JUNE 2016 27

SECTOR REPORT 1: Banking Technology closely with a few Fin Techs to try to leverage the strengths of both sides and we see that coming along quite nicely,” says Srihong.

Asia is a long way off a cashless society

FinTechs vs banks: from foes to frenemies The future looks bright but only if they learn to strategically cooperate rather than ruthlessly compete.

T

he recent superhero blockbuster “Batman vs.

Superman: Dawn of Justice” should strike a chord with bankers and financial technology (FinTech) executives: Because while Batman and Superman began the movie at each other’s throats, the crime fighting duo came to a truce and worked together to overcome a common challenge – a scenario that is starting to be mirrored among Asian banks and FinTech firms.

Asian banks are beginning to see FinTech firms less as competitors and more as strategic allies that can infuse their organisations with entrepreneurial agility and digital innovation, according to analysts.

FinTech firms looking to scale up are similarly keen to collaborate with incumbent banks that often have superior distribution and regulatory expertise.

28 ASIAN BANKING AND FINANCE | JUNE 2016

Asian banks are beginning to see FinTech firms less as competitors and more as strategic allies that can infuse their organisations with entrepreneurial agility and digital innovation.

The general forecast is that there will be more cooperation between banks and FinTech firms due to synergies that are too good to ignore, although there will still be rivalries in pockets of product and service overlaps.

“Asian banks, like their counterparts in US and Europe, are paying increased attention to Fin Techs. They are both competing and collaborating with Fin Techs,” says Teeranun Srihong, chairman of Kasikorn Business-Technology Group.

Srihong estimates that around 90% of Fin Techs want to collaborate with, rather than try to displace banks, and have realised that they have more to gain from working with banks.

“We will see more FinTech winners coming out of the collaboration models than the pure disruption model as before. We are now working

Competitive collaboration The new status quo that is emerging is called competitive collaboration, and will be a key theme for success in the industry for the coming years, says James Lloyd, Asia Pacific FinTech leader at EY. He adds that the rise of Fin Tech startups presents both a challenge and an opportunity for Asian banks.

“The challenge is that startups have innate advantages relative to speed (both of decision-making and of action), organisational agility, and a demand-led focus on transparency and customer experience. The opportunity is that incumbent banks have key competitive advantages relative to such challenges – not least those pertaining to cost of capital, data, distribution, and regulatory certainty,” he notes.

Lloyd reckons that banks took a beating when well-capitalised, technology-driven Fin Tech startups began picking away at traditional banking profit pools in consumer or commercial credit, cross-border payments and foreign exchange transactions. Banks were forced to unbundle their product and service offerings, resulting in painful operational changes and profit declines. But banks should be able to rebound well if they can ride on the re-bundling trend and strike up collaborations with Fin Techs.

“As the market matures and clear leaders emerge, we can expect to see some re-bundling of these distinct products and services – with leading FinTechs seeking deeper collaboration both with each other and with forward-looking incumbents,” says Lloyd.

“Moreover, we’re likely to see even more collaboration between incumbents themselves, as they seek to acquire or maintain product and geographic coverage – without having to build it themselves. Collaboration can also serve as an efficient means to pool knowledge in relation to new technologies such as blockchain,” he adds.

Most collaborations will be under

SECTOR REPORT 1: Banking Technology the premise of smaller FinTech firms needing to latch onto larger incumbent Asian banks, but this might not hold as true in China where digital disruptors have grown to rival incumbents and could be pickier with collaborations.

“The regulatory environment, the availability of capital, the size of the addressable market, and the sheer speed at which the mainland Chinese market has developed has led to a situation where leading digital disruptors in e-commerce, payments, and alternative finance have already grown to a size considered systemic,” says Lloyd.

Data security cooperation Cooperation between banks and Fin Tech firms will also spring from challenging new areas of shared interest such as data security. “The proliferation of so much new and analysable data—a trend often tied to the rise of mobile telephony and e-commerce—is of particular interest in Asia where most markets lack a reliable third-party of a governmental credit-scoring system. The security of such data should be of paramount importance both to startups and to incumbents,” says Lloyd.

Banks have led the charge on data security upgrades because of their size and regulatory culpability, but this has also opened up opportunities for banks to form partnerships with startups whose data security might not be as sound.

“Startups focussed on speed-tomarket and customer experience and have not always given the same consideration to the regulatory environment in which they operate; what can be a strength in terms of

Asian banks and FinTechs can work together

agility can become a weakness as the startup grows,” says Lloyd.

“Accordingly, we can expect these same startups to come under increased scrutiny as they scale – attracting more attention from regulators and hackers alike. Once again, when it comes to balancing customer experience with data security, both sides can benefit from increased collaboration and strategic partnerships,” he adds.

Lloyd says that banks do have a lot of work ahead of them if they decide to pursue such cooperations, and much will depend on how well banks can perform tailored procurement, due diligence, and vendor risk management.

Srihong says that Kasikorn has been making investments in security architecture that also improves, or at least preserves, consumer experience, which has an added benefit of making the bank more more attractive to Fin Techs.

“Banks need to strike a proper balance between security and convenience, bearing in mind that compromised security can result in a collapse of confidence in the system.

As such, this is an area that banks with robust security architecture and experience can offer tremendous value to smaller and, sometimes, less experienced Fin Techs,” says Srihong.

Banks can ease the impact of security checks by using less intrusive validations like facial recognition, voice recognition, biometrics and step-up validation such as inquiries requiring only a pin entry while transferring funds to the same account requiring both pin entry and biometric verification, says Mohd Suhail Amar Suresh Abdullah,

group chief technology officer at Maybank.

James Lloyd

Teeranun Srihong

Mohd Suhail Amar Suresh Abdullah

Omnichannel, cashless challenges Incumbent banks and FinTech startups might see clear cooperation paths in data security, but there is some haze surrounding synergies in omnichannel management – or the consistent service and experience across all banking channels – and cashless payments. Part of it is in uncertainty on how banks should move forward in these areas.

“Omnichannels used to be the foundational asset for seamless experience across all channels.

However, the cost of omnichannel, especially on larger and more established banks, usually leads to a negative return on investment,” says Abdullah.

Some banks are going back to the drawing boards and have found better returns by imbuing their channels with a similar look and feel, as well as identifying the transactions that are truly cross-channel Meanwhile, Asia has a long way to go when it comes to transitioning into a fully cashless society, which means a relatively lackadaisical approach for some banks.To illustrate the disparity in demand and preparation across the region, analysts observe that Hong Kong is a shining example of a nearly cashless society while southeast Asian countries are only beginning to ride on the trend.

“It is entirely possible to live and work in Hong Kong using just an Octopus Card and, for more expensive purchases, a credit or debit card. Similarly, when I travel to Singapore or Australia, I rarely have need for cash given the high degree of card penetration,” says Lloyd.

Lloyd argues that other markets, such as Indonesia, the Philippines, Malaysia, and Vietnam may be less advanced in terms of traditional card penetration, but the benefits of electronification of cash remains the same as in Hong Kong.

Despite the challenges in omnichannel management and cashless payments, there is a sense that Asian banks and Fin Techs working together will yield groundbreaking solutions due to their inherent synergy.

ASIAN BANKING AND FINANCE | JUNE 2016 29

SECTOR REPORT 2: Cash Management

Back to simplified cash management systems

Asian banks urged to pull back on tailor-fit services

Asian banks are starting to veer away from heavy customisation and complexity in cash management services.

I

f Asian banks spent 2015 making sure their cash management services fit their corporate client needs to a tee, then 2016 will be the year when they pull back on tailor-fit alterations. Analysts note this attitude reversal among banks towards simplified cash management systems even as clients in the region grow in size and sophistication, especially among small and medium-sized enterprises (SMEs). “The anecdotal evidence from bankers and vendors seems to be that there is a focus on limiting the amount of things that need to be changed to serve each client,” says a banking expert from a large multinational bank.

Banks in the region are tapping into digital technology to simplify its payment services. Maybank, for example, established a relationship with a global payment institution and collaborated with financial technology companies to simplify its 30 ASIAN BANKING AND FINANCE | JUNE 2016

“The introduction of the liberalisation of currency settlement between Malaysia and Thailand allows for greater efficiency in accessing local currencies.”

payment services. This has enabled their clients to experience faster, cheaper and more transparent payments.

“With technology, timely information leads to better understanding of client behaviour which results in better and more efficient business solutioning and cross-selling for clients,” says John Wong, group head, transaction banking at Maybank. “This is in line with our aspiration to enhance customer experience through digital transformation and our aim of being the market leader in the digital payment space including in electronic fund transfers.”

Asian banks that are adopting the simpler and faster operating paradigm are getting assistance from new regulations. Wong reckons that the recently introduced national e-payment system in Malaysia will further improve the efficiency of

payment and fund flows in the financial sector. It should also accelerate the development of financial markets in Malaysia. The liberalisation of currency settlement between Malaysia and Thailand also looks to become another catalyst for more efficient systems.

“The introduction of the liberalisation of currency settlement between Malaysia and Thailand allows for greater efficiency in accessing local currencies and managing exchange rate risks (which previously had been reliant on the US dollar) arising from trade transactions,” says a Wong. “With the framework, Malaysian and Thai businesses will be able to effectively source ringgit and baht from the respective banks in their home countries to settle trade transactions.”

“With technology and digitisation, clients can have real time access to information at their fingertips to make meaningful business decisions, while cash can be moved across borders in a timely manner, at a lower cost and with better optimisation of cash flow,” says Wong.

Growing with SMEs The agility and efficiency themes in cash management will be driven in

SECTOR REPORT 2: Cash Management “Opportunities are increasing in emerging markets but this requires Asian banks to spend time getting familiar with the local operating environment and corporate client needs.”

SME transactions are growing rapidly

part by the growing needs of SMEs in the region. While global growth has decelerated and dragged down prospects in many banking areas, there have been pockets of bustling activity among emerging market SMEs. “The growth in small medium enterprises (SME), commercial and entrepreneur-owned businesses in emerging markets is one of the main drivers for growth in transaction banking revenue despite the slowdown in global growth. In addition, rising trade and commerce in emerging markets have led to a surge of non-cash payment volume,” says Wong.

Wong reckons SME companies in emerging markets are growing rapidly and expanding overseas, and domestic banks that can forge relationships with these high-flying SME customers will be able to follow their clients’ ascent to become regional or global banks.

Kasikornbank, for its part, plans to expand to Asian emerging markets mainly through local bank alliances due to the numerous benefits these will bestow to corporate clients. The bank already has a strong network in Thailand and will be looking to cement tie-ups with foreign banks to strengthen their cash management services in neighbouring countries.

“We seek to grow our business into this region’s emerging markets through partnerships with local banks, for clients’ corporate group and their subsidiaries to benefit from the accessibility, reliability and lower transaction costs,” says Silawat Santivisat, executive vice president at Kasikornbank. “On the global corporate deal where the businesses of the corporate group are booked in

Thailand, we are also open to partner with foreign banks to work with any specific requirements for better cash management capabilities and opportunities.”

Opportunities are increasing in emerging markets but these require Asian banks to spend time getting familiar with the local operating environment and corporate client needs. “In many emerging markets the options are limited for corporates.

Banks can do well by having a presence on the ground and a real understanding of the risks in these countries,” says the multinational banking expert. “In Myanmar, for example, the country is beginning to liberalise and a handful of banks have applied for licences to operate so they can serve corporates looking to explore the potential of the country.”

Nurturing relationships The ability to nurture relationships will be a key theme to succeeding in emerging markets, according to analysts and banking executives.

Asian banks will need to create systems that are simple and efficient, but also flexible enough to accommodate more solutions if and when their clients require them.

Banks that can keep up with the tumultuous change in banking needs of SME clients all while minimising bulk and disruption will earn their long-term business.

“Corporate treasurers are certainly more sophisticated in their demands, and are also more sophisticated in their knowledge of transaction banking products. The emphasis will continue to be on the relationship with the client, being close to them, understanding their business and delivering solutions they really need,”

John Wong

Silawat Santivisat

says the multinational bank executive.

At Kasikornbank, a core strategy for emerging markets is to understand client businesses and develop integrated services as a comprehensive solution, not only in cash management, but also trade finance and credit products. The overarching goal is to optimise the working capital cycle of clients.

Integrated services are often intricately linked with digital business technology, so Kasikornbank recently established the Kasikornbank Business-Technology Group (KBTG), which comprises five companies that will focus on innovation, research and increasing the bank’s competitive advantage in the field of financial technology. “The KBTG establishment is intended to enhance the bank’s information technology management, raising its potential in dealing with any form of disruptive forces and enhancing greater competitiveness amidst constant changes in financial technology in the global market,”says Santivisat.

Meanwhile, Maybank believes that customers in emerging markets are looking for banks that can provide more facilities with real time visibility and higher efficiency, and this is guiding the bank’s strategy in the region.

This led Maybank to launch a regional cash management system called Maybank2D-Regional Cash, the first of its kind in Malaysia.

It spans Malaysia, Singapore, Philippines, Indonesia, China, Hong Kong and other countries under the Association of Southeast Asian Nations. “Leveraging on the regional capabilities of our state-ofthe-art web-based cash management platform Maybank2E-Regional Cash, we engineered innovative solutions that cater to client needs in the area of information, payables, receivables and liquidity management,” says Wong.

“We are confident that we can be the partner bank to unlock greater opportunities for clients’ business working capital flow across the region with our strengths in providing multiple delivery channels, incountry business experts, established regional infrastructure, and extensive physical touch points across the regions,” he adds.

ASIAN BANKING AND FINANCE | JUNE 2016 31

OPINION

Ashley O’Reilly

What Singapore’s consumer banks should know about PDPA

C

Ashley O’Reilly Consulting Manager Deloitte Southeast Asia

opious amounts of personal data is collected by banks each day and frequently shared with third parties as technology continues to revolutionise the way we bank. Last year, the Association of Banks in Singapore released the Code of Banking Practices which outlines the responsibilities of banks under the Personal Data Protection Act (‘PDPA’) and its regulations.

The Personal Data Protection Act The PDPA 2012 was passed in Singapore to “govern the collection, use, and disclosure of personal data by organisations” – section 3, PDPA. Since it became effective on 2 July 2014 the PDPA has recognised both the data protection rights of individuals and the responsibilities of private organisations including banks to collect, use, or disclose their personal data for legitimate business purposes.

Everyone in Singapore is affected by the regulations: in particular, listed and private companies, partnerships, and charities must adhere. The consequences for non-compliance include financial penalties up to SGD1 million, criminal prosecution, and potentially lawsuits. Companies using cloud services should also be aware that it is they who are responsible for compliance, not the cloud service provider.

What can consumer banks do to protect themselves?

Banks must seek consent from their existing or potential customers for the collection, use, or disclosure of personal data.

Compliant consent might be explicit or implicit. An example of implicit consent might be an individual choosing to walk into a branch where surveillance cameras are obviously present to record images of customers.

When obtaining consent, banks need to ensure that there is no misleading or incomplete information. The ability to withdraw a customer’s consent must also be made clear. These terms and conditions for consent to marketing information and personal data should be easily accessible to publicly available.

Under the PDPA, banks must ensure that the personal data they have is not revealed to other parties without the consent of the individual. Given the multiple systems in a bank’s architecture and the various departmental transfers of data within the organisation, the verification principle must be carefully governed.

For the transfer of personal data outside of Singapore, banks first need to seek prior consent. Recipients are contractually bound and the recipient country will be subjected to similar personal data protection laws to Singapore.

Consumer banks must also ensure that the personal data they collect is accurate, up to date, and complete. The correction principle has costly ramifications for banks who are obliged to respond to identified errors or omissions and send corrected data to every other organisation to which the personal data was disclosed by the bank.

The cost in time and effort to track and process such changes is relatively large for all banks in Singapore regardless of size.

Banks need to demonstrate the extent of personal data safeguards that is reasonable for the size and structure of the organisation and the type of personal data. Personal data safeguards must address 32 ASIAN BANKING AND FINANCE | JUNE 2016

unlawful loss, unauthorised access, copying, etc.

Banks can safeguard personal data via a variety of methods of varying degrees of cost and sophistication. These include physical measures (secured filing / pass cards), organisation measures (security clearance), and technical measures (passwords and encryption). The extent and scope of safeguards should also consider the sensitivity and size of the data, the technology available and the primary storage method in the data’s initial format.

Personal data must only be retained by banks for the period necessary for the fulfilment of the bank’s purpose i.e. a bank should only keep the data so long as it is required for business needs. Given the risk and cost to banks for storage of personal data, it would be more effective to discard irrelevant and obsolete personal data.

Conclusion Banks in Singapore are obliged to put in place and document policies and practices that are necessary to enable these obligatory principles under PDPA to be met. It is important that clear processes are developed to comply with the PDPA for banks to receive and respond to complaints that may arise in relation to the Act. It will be useful for banks to adopt data protection policies containing a feedback section with contact information. These policies and practices should be communicated and made available within the bank and its customers.

Today, most banks have adopted practices to enhance data governance and protection within their organisation. While we expect that advancements in technology will continue to disrupt the way we work, the basis of data protection policies are still evolving – and must continue to do so.

The most prestigious awards in Asia recognizing the best of the best in the banking, finance and insurance industries 21 July 2016 Shangri-la Hotel Singapore Presented by:

For more info, contact Julie Anne Nunez at +65 3158 1386 or julie@charltonmediamail.com