23 minute read
How KBZ Bank is striding towards
How KBZ Bank strides
towards financial
inclusion in Myanmar They are banking on the country’s high smartphone penetration to improve financial connectivity. W ith only 10% of Myanmar’s population possessing a bank account and 90 % having a smartphone it made sense for KBZ, the country’s largest private bank, to launch a digital wallet in 2018. Fast forward to a year later and the bank had signed up 3.5 million customers and already processed $1.8b in transactions, and it now has further plans for digital inclusion in this market of 70 million people with an economy growing at 6%. Asian Banking & Finance interviewed Soe Ko Ko, head of agent banking at KBZ Bank, to find out what the bank’s plans are for 2020 with a focus digitalisation and financial connectivity. The bank is championing 100% financial inclusion in Myanmar despite data showing that roughly 10% of the population is in possession of a bank account. How do you plan to achieve this goal and what programmes do you have in place to support this? KBZ Bank recognised that whilst only 10% of the population is banked, 90% of people in Myanmar own a smartphone. Even as the bank with the widest branch network, this made it clear that the future of banking is not in building more branches, but in introducing financial services to wider townships and communities through mobile technology.
In October 2018, we launched KBZPay, a mobile wallet that makes purchasing everyday products and managing funds more convenient and secure. With just a smartphone, the app allows customers to carry out everyday transactions that until this point were only provided at a physical branch, such as sending and receiving money from friends and family and paying for bills. The future of banking is not in building more branches, but in introducing financial services to wider townships and communities through mobile technology.
As a heavily cash-based economy, what are the challenges in bringing the whole country into the financial system? Going cashless is a lot of work, both for consumers and for businesses, slowing the adoption of cashless platforms and digital payments. This is especially hard as cash is still seen as being more convenient for everyday purchases and paying for services.
Digital payments is now working to prove it can be more convenient and trusted than cash. Our aim is simple—make the KBZPay experience better than using cash.
Since the introduction of KBZPay, we have
Soe Ko Ko
expanded its features from connecting friends, family and communities through peer-to-peer transfers, to now connecting them with the digital economy. We have launched QR code payments at over 230,000 merchants, in-app purchases of airtime top-ups, bus tickets, and mobile gaming tokens, and cardless withdrawals from our network of agents, merchants and ATMs.
With KBZPay, people no longer need to carry huge denominations of cash and travel hours to their nearest retailers to purchase everyday essentials. Our growth attests to how customers are truly seeing the benefits of this. In just its first year of launch, KBZPay has already grown to over 3.5 million users, onboarded with full e-KYC, with transactions topping US$1.8b in volume. The Central Bank of Myanmar has actively promoted the development of modern and equitable financial industry. This includes the creation of the Financial Inclusion Roadmap and leading a digital services working group. KBZ Bank is executing on this same vision with their support in making financial services more accessible to remote communities.
KBZPay is core to this effort as it overcomes the physical and infrastructural limitations, and helps
Loans and deposits as a percent of Myanmar’s GDP
Source: GIZ (2016), IMF (2015)
friends, family, and communities connect to one another and the digital economy.
What education initiatives have you done? We recognised that to deepen financial inclusion, mobile technology alone is not enough. In a country where digital infrastructure and financial services are new and unfamiliar to most, these services need to be introduced with digital and financial literacy embedded every step of the way.
To address this, we turned our 18,000 employees into an on-the-ground force for financial inclusion. We developed sophisticated mapping of customers, merchants, and agents and tasked our branch teams with onboarding them to the KBZPay network in all townships and wider communities.
With this approach, our staff have the critical opportunity to meet with customers, merchants, and small businesses face-to-face. We guide them through KYC processes and navigating the app to ensure millions in Myanmar are comfortable and well-equipped to use digital financial services safely and securely.
We also educate customers and the wider community on using these services safely through programmes and content. This includes organising a series of financial literacy seminars at over 30 universities across the country. Conducted by the KBZ Bank staff, the education series covers topics on more effective ways to save and protect digital identity over financial transactions, amongst others. To date, the seminars have reached more than 10,000 students. This gives the future leaders of our country more confidence and familiarity with digital environments. It equips them with more skills and knowledge, and the ability to understand how it shapes their behavior and opportunities in this digital economy.
The bank’s mobile wallet application, KBZPay, has facilitated one million transactions as of April 2019, a significant milestone for an app that’s just over a year old.
With KBZPay’s successful launch, both KBZ Bank’s digital retail customer base has grown by 366% and its digital penetration of our customer base more than doubled from 10% to 28% in 2018.
What are the functionalities available in the app and how was it received after its launch? KBZPay is Myanmar’s fastest growing mobile wallet, giving millions of people a way to access everyday financial and digital services at the touch of a finger.
With one app, one can: send and receive money to friends and family with the swipe of a finger; make purchases at favourite shops and restaurants through QR Code stickers; withdraw physical cash through our network of agents and cardless ATMs across the country; pay for bills like broadband services, loan repayments, and tuition fees through Quickpay; purchase everyday essentials including airtime top-ups, bus tickets, and gaming tokens; [and] protect yourself with digital life insurance based on the balance of your KBZPay wallet.
This is revolutionary for a country that has an insurance penetration of less than 1%, offering millions in the country access to protection for the first time.
With KBZPay’s successful launch, both KBZ Bank’s digital retail customer base has grown by 366% and its digital penetration of our customer base more than doubled from 10% to 28% in 2018.
What are your forecasts for the growth of KBZPay? Our aim is to reach 30 million KBZPay customers by 2028 or half the Myanmar population.
Future plans for KBZPay include: collaboration with more travel and ticket booking platforms; facilitating e-commerce purchases for online businesses; working with education and e-learning platforms; introducing payroll services for a futureready workforce; providing an innovative payments platform for start-ups to scale; building a futureproof financial ecosystem with KYC and security embedded every step of the way; and equipping citizens with financial and digital literacy.
Through KBZPay, we will continue to drive secure financial connectivity in the country, equipping the nation with world-class skills, tools, and experience to help Myanmar leap to a mobilefirst economy. By Sandra Sendingan and Frances Gagua.
Bank account ownership, 2014 (% population age 15+)
Hong Leong Bank beefs
up its tech investments
as digital banks emerge
The lender has set aside as much as 20% of its FY19 operating expenses to invest on technology. A s Malaysia prepares to hand out digital banking licenses by 2020, Hong Leong Bank is banking on proactive tech investments to stay ahead of new and agile competitors which have the natural advantage in keeping costs down. Fintech-powered lending businesses are generally able to keep their cost-to-income ratio at slightly above 30% versus 47% for the Malaysian banking sector, data from S&P show.
Faced with formidable rivals that already command a significant share in the domestic e-payments market, HLB is no longer implementing digitalisation as a stand-alone initiative but enforcing the its digital-first ethos across all business lines to retain its lead even as it explores opportunities for collaboration.
“The emergence of pure-play digital banks in Malaysia is an exciting development that will not only see the emergence of new players but also allow the current digital banking services offered by existing financial institutions to be even more efficient and seamless, especially in KYC,” said Domenic Fuda, group managing director and CEO of Hong Leong Bank. “Being driven by our Digital-at-theCore ethos,[we] would naturally be keen to explore the regulatory changes and opportunities that might came about because of the virtual banks licencing.” In an interview with Asian Banking & Finance, Fuda shares milestones in the bank’s digitalisation journey and opportunities it is pursuing to stay relevant against a dismal economic outlook. For FY2019, about 15- 20% of our operating expenses went to tech and digitalisation.
Banks in Malaysia are underspending on tech, according to a report from S&P, raising the concern that the looming arrival of virtual banks may potentially pose a threat to incumbent lenders. How would you assess Hong Leong Bank’s digitalisation journey so far? The fact is at HLB we have been investing in tech and digitalisation for over a period of time. For FY2019, approximately 15-20% of our operating expenses went to tech and digitalisation, whether it is back-end, products and services as well as talent development and training modules such as Design Thinking Programmes and Hackathons, in line with some of the leading banks in the region according to the S&P report.
At the end of the day, we should not focus solely on total tech spend, but also look at the strategic and discretionary spend in creating new products and service, how fast we deploy to customers and whether or not we expand the market.
For example, by deploying enterprise-grade open source solutions, we have managed to attain rapid development
Domenic Fuda
capabilities and maintain the journey of ‘fail fast, fail cheaply, quick to market, and build your own’. This has helped to lower our capital expenditure by at least 40% over traditional bought and deployed solutions. This has enabled us to deliver more tailored digital services to our internal and external stakeholders – services which are either developed in-house or through close collaboration with third-parties and can help improve our customers’ lives – all at a sustainable cost.
The truth is, the line between a ‘traditional’ and ‘digital’ or ‘virtual’ bank has been blurring for some time now, as the use of technology and the provision of digital solutions have increasingly become a necessary feature in banking operations.
Digitalisation is journey and to make it sustainable, our approach to digitise began not with the technology, but a cultural shift driven by a digital-first value as our guiding principle. We no longer view digitalisation and investment in technology as initiatives; instead, across our retail and business banking as well as in human resource, talent and sustainability areas, raising our customers, employees and stakeholders’ engagement with technology has become “business-as-usual” for the Bank.
What are the full suite of digital initiatives that you have for retail customers? Broadly speaking, our digital innovation offerings are
based on the following pillars: (1) Attract: Leverage on digital and social media platforms, search engine optimisation and partnerships with online marketplaces to attract customers; (2) Acquire: Leverage on digital technologies to acquire customers efficiently e.g. we continuously digitalise our product application journeys – both front and back end, and we continuously forge new fintech and ecosystem partnerships like WeChat or the bundling of digital SME banking solutions with HR, accounting & marketplace start-ups; (3) Transact: Allow customers to transact anytime and anywhere instantly and digitally. e.g., our 3-word banking mobile application has been very well adopted by our customers and we continue to enrich its functionalities on an on-going basis. We have launched our in-Branch tablet to provide a ‘counterless’ branch experience, and we are continuously enhancing our business internet banking (Hong Leong ConnectFirst) for our SME and corporate customers where we just recently introduced the first-in-market facial recognition eToken to improve security and efficiency in cash management and transaction banking for these customers; (4) Engage: Improve customer stickiness and income per customer through contextual offers and analytics. e.g. we continue to build up our big data and analytics capabilities to be able to identify and deliver personalised digital sales, servicing and marketing customer experiences. As banks rethink the role of the bank branch amidst the high cost of maintaining them, how has Hong Leong Bank revamped its branch formats in order to maximise the transactions within the physical set-up? By strengthening our digital offerings and banking operations, we can enable our customers to do much of their banking transactions virtually, which allow us to focus on providing our customers with the experiential aspect of banking where we take the time to listen to their needs and offer personalised services and products that they actually need.
As we work towards personalising our branch banking experience, our vision is to have a single person to manage the customer relationship throughout the branch visit – sales, servicing & marketing; and shift the sales-tooperations staff ratio for more effective use of resources. This vision is now made possible with the deployment of our branch sales-and-service tablet solution developed in-house.
This tablet powered solution provides 360 customer view that integrates with our backend infrastructure to enable seamless servicing of walk-in customers. This new experience has been extremely well received by our customers as it has created a ‘zero’ queue experience and we plan to roll this out to the rest of our branch network in 2019. On top of this, we have also introduced new Teller Assisted Units (TAU) which are able to accept, recycle, and dispense notes and are placed in open areas instead of traditional spaces behind banking counters. This allows for more transparent and secure management of cash deposits and withdrawals.
With these new capabilities, we can now reduce the need for high counters and we are starting to revamp our branches to have more customer facing floor areas while reducing our back-office space so that we can make our customers’ branch banking experience more comfortable. As for the processes, we are seeing more transactions like account enquiries, over-the-counter withdrawals and passbook updates getting migrated over to our digital channels. Against dismal economic conditions, what pockets of growth is Hong Leong Bank turning to in order to ensure its growth? With 98.5% of Malaysian’s businesses being SMEs, it is naturally a key market segment for the Bank. Since refocusing the HLB SME Banking approach in mid 2017, we have made significant strides to provide personalised products and services to best serve the SME Segment, which includes building a 200-strong team of SME Community Banking team nationwide to serve the local SME communities; the results of this refocusing was a robust 40% YoY loan growth for our financial year that ended 30 June 2019.
For the financial year 2019/2020, we are targeting to approve RM5b worth of loan funding to Malaysian SMEs while helping our SME clients thrive with seamless, relevant, personalised and fair banking to empower them with the best opportunities to realise their full potential. By Sandra Sendingan. Hong Leong Bank’s net interest margin continues to recover Source: UOB Kay Hian A local batik shop. 98.5% of Malaysia’s businesses are SMEs, making it a key sector for banks. We are starting to revamp our branches to have more customer facing floor areas while reducing our back-office space.
Singapore-based fintech GoBear started out as a meta search engine where users can compare and select insurance plans and financial products. Four years later, the fintech startup has helped at least 40 million users search for over 1,800 personal finance products and the company is taking this one step further as it delves directly into developing actual products.
“Choosing financial products used to be complicated and dull. We didn’t think that it was fair, and wanted comparing these products to be simple and easy,” Adrian Chng
said GoBear CEO Adrian Chng. Founded in 2015, GoBear has since expanded its services to credit cards, loans, banking products and financial products, and is now active in Hong Kong, Indonesia, Malaysia, the Philippines, Thailand and Vietnam.
GoBear receives an undisclosed token sum from its partners when a successful purchase is made and when they directs consumers to the providers’ webpage, depending on the agreement established with their partners.
Beyond financial comparison, the firm provides its partners with access to analytics. Chng cited an instance with a Thai travel insurance firm which commissioned their team to analyse preferences amongst their Thai users on destination, price, coverage and the like. This allowed the insurer to grow its digital sales as well as their digital market share in travel insurance.
In October 2018, GoBear partnered with digital scorecard firm CredoLab to roll out Easy Apply, which collects and assesses anonymised data from mobile phones to develop an alternative credit scoring for loan and credit card applications. By Clarist Zablan
Getting hit by unreasonable currency transaction charges whilst travelling is a major problem for holiday makers, but startup YouTrip thinks they have found a solution. YouTrip provides a multicurrency mobile wallet that comes with a prepaid Mastercard issued by contactless smart card brand EZ-Link. It allows for the exchange and storage of 10 selected currencies in advance through its inapp exchange feature and lets the user pay fees in more than 150 currencies at wholesale exchange rates with no additional fees. Caecilia Chu, co-founder and CEO of YouTrip, said that their platform helps their customers save up to 3.5% on transaction fees and even goes as high as 5%. YouTrip only takes commissions of each purchase from the merchant.
“Both Arthur and I travel across Asia frequently and have experienced hefty card transaction fees firsthand— a result of restrictions imposed by traditional financial institutions,” said Chu, referring to her business partner Arthur Mak, the firm’s chairman.
She also added that because of this, they wanted to address how travellers in the ASEAN region experience more currency conversions.
The app now boasts of 400,000 downloads and launched in Thailand in November 2019 through a tie-up with Kasikornbank. Kasikornbank’s 11.6 million online customers are eligible to register for YouTrip through the K Plus app. By Nathanielle Punay YouTrip takes away the pain of overseas payments Caecilia Chu
How soCash breaks the cashless mold
Hari Sivan
Fintech startup soCash believes that cash will still play a critical role even as Singapore moves ahead in its cashless journey.
“It sounds contradictory, but it works when taking into account the cash in circulation,” said soCash CEO and cofounder Hari Sivan. “When your economy goes cashless it means that more and more liquidity stays within the bank, and the average cash withdrawal transactions shift from high value to low value.”
Less reliance on using physical money for big purchases meant more low-value withdrawals, which aligns with soCash’ platform. Established in 2016 by a group of ex-bankers, including Sivan and his wife Rekha, it enables consumers to access physical denomination in a place where there are no ATMs. They only need to locate a nearby merchant partner through the app.
“The idea was that as you increase the access to cash, people will withdraw less money but increase the number of their withdrawals,” said Sivan. “Normally in an ATM, average withdrawals are approximately at $147.6 (S$200) whereas in our system, it’s only around 22 to 30 dollars (S$30-40).” As Singapore moves forward on its cashless ambitions, soCash’s edge in the banking world doesn’t just rely on this expectation. Rather, it’s the fact that virtual banks will need to rely on platforms such as soCash to offer a taken-forgranted service: access to physical cash.
“Virtual banks are not allowed ATMs. They’re only allowed to work with EFTPOS, and in Singapore there are only two available in the market. One is NETS, which is owned by the big three banks. The other is soCash. So we are the de facto platform for digital banks,” stated Sivan.
“Digital banks need a platform to sell products and services relating to the use of money, and we are well-positioned to enable that. We have all the licenses to take care of.”
soCash has also entered several markets overseas. The startup partnered with payments firm JCB in October to offer cardless withdrawals and foreign currency to Japanese tourists using its mobile app, eliminating the hefty international withdrawal fees that force tourists to withdraw and carry large amounts of money. By Frances Gagua
Banks in Hong Kong
Data and automation will help Hong Kong
banks survive until the next decade
Emerging technology and customer data will help banks weather low interest rates and new competition.
Amidst a time of muted loan growth, rising competition and recent business disruptions, 2020 has become more crucial for Hong Kong’s banking institutions to focus on cost and operational efficiency, improve credit processes, and leverage data to maintain competitiveness, according to a report by KPMG China.
The banking industry is expected to report muted financial results driven by the ongoing market uncertainty around US/China trade disputes as well as the low interest rate environment. Recent events and business disruption in Hong Kong have also impacted retail investor confidence, said Paul McSheaffrey, Partner, Head of Banking & Capital Markets, Hong Kong at KPMG China.
With margins continually squeezed and global Paul McSheaffrey
macroeconomic uncertainty set to carry over into 2020, shifting to automation, improving competitiveness, and introducing more personalised products will be the deciding factor for the survival of Hong Kong’s banks not just through the year but until the next decade.
Isabel Zisselsberger
Invest to save Whilst some banks may be tempted to make quick cuts to costs in order to ease pressures on their margins, the more successful banks are likely to realise that they need to invest more in order to save more in the longer term, according to Isabel Zisselsberger, Partner, Head of Customer & Industrial Markets, Hong Kong at KPMG China. Long-term savings will be these banks’ goal, and in order to achieve this, successful banks are likely to embrace emerging technologies, such as artificial intelligence (AI) and related digital solutions, and may even invest in fintech.
“These banks will work on more proofs of concept using complex technologies to generate greater returns and to solve labour-intensive and difficult processes—for example, the research-intensive parts of the onboarding process, or complex product due diligence procedures. Some will continue to invest in fintech to find innovative and cost-effective solutions to legacy problem,” said Zisselsberger.
Many banks will continue to explore the use of cloud technology to increase efficiency, but the complex regulatory requirements and security implications that come with implementing a cloud programme will remain a significant challenge. The city’s banks may
also begin consolidating various automation projects scattered around their organisation to gain a comprehensive and strategic view of their automation programmes. Banks are also expected to continue working on data projects that improve banks’ cost reporting. In particular, leaders will invest further in using data and different sources of information in order to create more transparency around how costs are generated and allocated. Procurement teams will play greater roles in driving cost improvement through implementing more leading practices as well as utilising specialist cloud-enabled tools.
Financial institutions may also seek to partner with technology and consulting firms to build their own AI-enabled solutions. This option gives banks a new revenue stream and also presents them with a potentially-lucrative opportunity to tap into a solution that can provide long-term cost savings whilst generating return on investment. Local banks will also continue to look at their overall organisational design to optimise their local and regional structure and footprint, added Zisselsberger.
Faster credit processing Hong Kong banks enjoyed a credit boom in the previous years due to low interest rates. However, the slowing macroeconomic environment coupled with about US$4t in corporate bonds due to mature in the coming years meant that banks now face the threat of a rise in non-performing assets (NPAs) or even defaults.
As a result, credit risk is expected to rise in 2020, which would lead to the emergence of new ways of managing this. Key to this would be the development of faster and automated credit approval processes, said Michael Monteforte and Gemini Yang, Partner and Director of Financial Risk Management at KPMG China, respectively.
“There are currently varying levels of maturity amongst banks in Hong Kong in this space, and
in 2020 the banks that adopt new technologies and integrate them into their credit origination processes to create a real-time credit approval engine will maintain a competitive advantage. 2020 may be the year where we see industry leaders start to apply machine learning models for credit approvals,” they noted,
The development of automated credit approval engines will also give traditional banks an edge against the new virtual banks that are set to launch in Hong Kong in the next few months.
Chinese banks operating in Hong Kong will also join in the fray and seek to optimise their credit approval processes. However, unlike their peers operating in Hong Kong, the extent of their lending may be impacted by developments related to the Belt and Road initiative as well as the ongoing trade tensions, since most of these banks service Chinese corporates that are investing offshore.
Data is key to survival Those that can leverage data to drive personalised outcomes will earn the right to survive, says Neil Macdonald, Head of Wealth & Asset Management Centre of Excellence at KPMG China.
“Creating a ‘seamless experience to achieve optimal customer outcomes’ is the grand ambition espoused by many banks. Hyperbole aside, what will industry leaders do in 2020 to improve the lives of their customers? Put simply, they will seek to use the vast swathes of data they have on our lives and our real, expressed preferences and nudge us, as individuals, towards improved financial health,” he said. By bringing past and present together, leveraging data analytics at scale, leading banks can predict the products and services customers will benefit most from. Banks can then encourage customers, using the skills of behavioural economists, to take a financial decision in a fiscally responsible way. Mis-selling could become a thing of the past as the algorithm becomes the new financial guardian. Michael Monteforte
Gemini Yang
Neil Macdonald “The recent rise of credible (and scalable) challenger and digital banks whose business models are centred around customer outcomes has sharpened the minds and loosened the wallets of senior banking teams around the globe. The proliferation of technologies that can free banks from the encumbrance of their legacy infrastructure and finally open up their customer data sets is making a reality of the ambition to offer more personalised products and services,” said Macdonald.
In particular, virtual banks don’t have a treasure trove of historical data that is locked up in traditional banks’ current systems.
This year may also see an increased focus on customer intimacy in the corporate market. For example, leading banks could use their knowledge of one corporate customer and link them with another, harnessing the information they have on the expressed preferences of both to drive a friction-free transaction. “In an age where loyalty to financial services providers is declining—if indeed it ever existed beyond the gravitational pull of inertia—banks that are able to leverage the data they are sitting on to predict behaviour and create personalised experiences for their customers—personal and corporate—will give themselves a chance of long-term survival. Getting serious about achieving that in 2020 should be on the agenda of every bank that wants to still be in business in 2030,” said Macdonald. From KPMG’s Hong Kong Banking Outlook 2020.
Interest in opening a virtual bank account
