Asian Banking & Finance (January-March 2021)

Issue No. 101

DISPLAY TO 31 MARCH 2021

LONG COVID

HOW BANKS MAY FACE BIGGER PANDEMIC PROBLEMS IN 2021

MERGERS IMMINENT FOR APAC’S SMALL BANKS Asian Banking & Finance

THAILAND LAYS FOUNDATION FOR NEOBANKS

ROBO-ADVISORY NOT A BIG CONCERN FOR ASIA’S WEALTH MANAGERS ABF’S FIRST-EVER RETAIL BANKING VIRTUAL CONFERENCE

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FROM THE EDITOR PUBLISHER & EDITOR-IN-CHIEF

A new year marks a much needed new start following last year’s pandemic fiasco—but Asia’s banks will find that 2021 may be even tougher than the past year. Head over to page 10 to learn more about what experts have to say about the banking sector’s outlook in the next 12 months.

Tim Charlton

MANAGING EDITOR

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This issue also sees Asian Banking & Finance delve into the topic of central bank-issued digital currencies.

Why the interest from the region’s regulators, and what does this entail for the wider banking and finance sector? Learn more on page 20.

We also held our first-ever ABF Retail Banking Virtual Conference in October 2020! You can learn more about the discussions you may have missed, or refresh your memory as a participant, in our event coverage on page 28.

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ASIAN BANKING AND FINANCE | Q1 2021 1

CONTENTS

12

8 10

RETAIL BANKING APAC BANKS FACE CHALLENGING 2021 AS INTERVIEW SMALL SWIFT LENDERS HURTLE TOWARDS MERGERS

20

REPORT

BRANCH WATCH

INTERVIEW HSBC SINGAPORE FORESEES A DIGITAL, GREEN FUTURE FOR BANKS IN 2021

ANALYSIS WHAT’S UP WITH ASIAN CENTRAL BANKS’ CRAZE AROUND DIGITAL CURRENCIES?0

OPINION

10 Citi unveils its largest wealth hub

22 Thailand prepares favorable

30 Agent banking: a brand 'new'

environment to cultivate a digital

banking economy

31 Banking services in Asia's

in SG

INTERVIEW 14 KBZ Bank’s Lu Mon gives a glimpse

on the bank’s digitisation journey

16 Mastercard's Rama Sridhar on why

fintechs drive financial inclusion

18 'Co-creators' mark new frontier of

customers' banking experience

EVENT COVERAGE 24 Tech won’t unseat human role in

channel for the new normal burgeoning mobile-first society

32 Protecting consumer banking in a

mobile era

financial services

25 Fintech emerges as ‘force of good’

amidst pandemic

26 DBS and UnionBank bolster data

and IA against crimes

28 Asia's banks share key strategies

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 | MARCH 2019

for resilience

For the latest banking news from Asia visit the website

www.asianbankingandfinance.net

THOUGHT LEADERSHIP ARTICLE

Bringing automation and increased efficiency to post-trade processing in Asia SmartStream’s post-trade processing solution eliminates downstream exceptions through enabling realtime processes based on verified data.

B

anks and financial institutions in the region have witnessed challenges in post-trade processing amidst the rapid developments in digital transactions. As such, many of them have resorted to automation in the hopes of easing up trade processes. However, the cost and degree of automation have proven to be a hurdle in its development.

According to SmartStream’ Strategic Product Manager, Roland Brandli, banks have spent millions of dollars in automating their trade process, but in buy-side institutions, that amount is too high a threshold to spend money on.

“However, what is common is that even if they do have automation, it tends to focus within their internal systems, and I think that's where things change,” he said. Despite the risks, there have been many drivers of automation in post-trade processing, especially in the Asia-Pacific region as they “tend to be heavy users of electronic instruments.”

Brandli described the expectation of Asian customers into doing things online as “much greater than anywhere else.”

“Whilst Asia still has a very complex regulatory background because of all the different countries involved, we will see that regulatory bodies will also insist that institutions involved in trading settle

much earlier, and institutions that fail to settle on time will potentially be faced with hefty penalties,” he added.

Redirecting costs amidst automation Whilst a huge cost is involved in automating trade processing, Brandli noted that a lot of it is incurred just by executing a process, which is unsustainable in the long run as volume increases.

“The entire idea of bringing in automation and straight-through processing is actually to eliminate that cost, and also to redirect any cost incurred to be focused purely on wherever is risk, where exceptions occur,” he said. Brandli also described middle and back offices to be very fragmented, which is why consolidating them would be beneficial in easing the trade process.

There are also challenges in adapting automation worth considering, such as un-standardised data formats, multiple trading systems, payment systems, and portfolio management systems.

Brandli noted that despite having a certain amount of automation, there still might be some discrepancies as to what the counterparty has agreed upon.

In other cases, settlement and payment instructions go out automatically, which

SmartStream's solutions enable a user to potentially follow a trade lifecycle from the beginning to end.

Roland Brandli, Strategic Product Manager at SmartStream

can force financial institutions to recall, cancel, or amend them. This is where SmartStream has focused on.

SmartStream enforces global messaging standards as a default due to global presence, but it also easily adapts to local messaging standards.

On the other hand, it ensures first that everything is correct before moving into another stage of the post-trade process.

The company also automates exception management, which gives a completely different aspect to the process. SmartStream notifies the user for problems with the process, so the user can address it quickly.

“By implementing trade process control, companies have an overview of how these trades are running and where the exceptions are occurring, but with minimal intervention,” Brandli said. By bringing these features into conjunction with each other, SmartStream can enable a user to potentially follow a trade lifecycle from the beginning to the end.

Future for automation adaptation Despite asset markets being resilient amidst the pandemic, a lot of automation systems were never designed to work from home and there has to be a huge undertaking to get data systems updated and secured. SmartStream has managed to be resilient despite these changes, having implemented a work-from-home setup since early 2020.

“Because we had the foresight to set up our processes in a very specific way, we didn't really have to worry about the way we work as a company or our infrastructure,” he said.

SmartStream continues to innovate technologies for their solutions through utilising the latest AI and machine learning technologies with its cloud native reconciliation platform, SmartStream Air, and the innovation labs to work on other forms of AI and blockchain to embed in their solutions.

“That should give our customers much more flexibility and allow them to use the benefits much better and to create seamless processes,” he added.

ASIAN BANKING AND FINANCE | Q1 2021 3

News from asianbankingandfinance.net Daily news from Asia MOST READ

CARDS & PAYMENTS

Singapore tightens regulation of virtual payment entities Singapore has passed the Payment Services (Amendment) Bill, which introduces new amendments that expand the scope of regulation to include service providers of digital payment tokens and broadens consumer protection.

INVESTMENT BANKING

APAC investment banking fees hit record $27.5b in 2020 This is the first-time ever that Asian investment banking fees surpassed European fees. The value of announced mergers & acquisition deals involving APAC companies stood at $1t in 2020, a 10.3% rise from 2019.

MARKETS

APAC banks paid $5.1b in fines for money laundering breaches in 2020 Regulators in APAC were amongst those handing out the biggest enforcement actions to banks involved in the 1MBD scandal and the Australian bank embroiled in a money laundering scandal. A total of $3.9b in fines were issued by Malaysia.

RETAIL BANKING

Malaysian banks face tough test as moratorium’s cushion fades Malaysian banks are emerging from the country’s six-month moratorium with robust credit portfolios, but the underlying strength of affected borrowers remains to be seen and the initial recovery of repayments could be feeble.

RETAIL BANKING

China’s shadow banks in jeopardy as regulator curbs risks Whilst estimates showed shadow banking assets rose $108b in the first quarter of 2020, these were broadly flat as a share of nominal GDP, said analyst Lillian Li. The increase was mainly driven by asset managers and undiscounted bankers' acceptances.

MARKET

Indian banks’ possible corporate ownership heightens vulnerability Corporate ownership of public banks raises the risk of intergroup lending, diversion of funds, and reputational exposure. Supervisory resources could be further strained at a time when the health of India’s financial sector is weak.

Santosh Tripathy, Practice Lead, Digital Payments at SmartStream

ASIAN BANKING AND FINANCE | Q1 2021 5

THOUGHT LEADERSHIP ARTICLE

Agribank – commercial bank with the leading role in Vietnam's rural financial market

Agribank has been one of the leading commercial banks in Vietnam for over 32 years

V

ietnam Bank for Agriculture and Rural Development (Agribank) was established under Decree No. 53-HĐBT dated March 26, 1988 of the Council of Ministers (now is the Government).

For over 32 years of establishment and development, Agribank has always affirmed its role as one of the leading commercial banks in Vietnam, leading the implementation of monetary policy, contributing to macroeconomic stability, curbing inflation, supporting growth, accompanying the development of agriculture, rural areas and farmers, promoting the process of economic restructuring, developing new rural areas and ensuring social security.

Agribank is currently a 100% Stateowned commercial bank, with total assets of VND1.5 million billion, operation network of 2,300 branches and transaction offices all over the country and is the only bank present in 9/13 island districts, with nearly 40,000 employees. Agribank has over 16 million customers, of which 97.5% are individuals. Agribank realises two goals at the same time, both socio-economic development, especially in the rural finance sector whilst creating profits to contribute to the State budget, taking care of life, ensuring salary for employees and good implementation of social security.

With outstanding achievements in business activities and great

6 ASIAN BANKING AND FINANCE | Q1 2021

contributions to the community, Agribank continues to be recognised in three prestigious international awards: Corporate Social Responsibility Green Program of the year (Silver) - The bank is responsible for the social responsibility and Green program of the year; Mobile Banking & Payment Initiative of the Year (Vietnam) and Domestic Retail Banking of the Year (Vietnam). These are valuable awards for Agribank's efforts and contributions in all aspects of operation.

Pillar of the economy With the pioneering role of a Stateowned commercial bank in leading the system of credit institutions to seriously and effectively implement the national monetary policy, Agribank is effectively implementing 7 policy credit programs and 2 credit programs to implement the national goal of new rural development and sustainable poverty reduction. As of September 30, 2020, total mobilised funds is over VND1.4 million billion, total outstanding loan is nearly VND1.2 million billion. Outstanding loans to agriculture and rural areas reached over VND805 trillion, accounting for nearly 70% of total outstanding loans to the economy and nearly 50% of the entire banking sector's outstanding loans to invest in the agricultural and rural sector. Agribank's capital has contributed to the structural transformation of the agricultural sector towards modernisation, sustainable

development, large-scale production of goods, high productivity, quality, and competitiveness.

Joining hands with the banking industry to successfully implement Vietnam's National Strategy on a green economy adapt to climate change and sustainable development, Agribank is determined to take the lead in promoting green credit growth and management of environmental and social risks in credit granting activities with the desire to build a safe and sustainable agriculture through specific actions in order to direct the entire system to raise awareness about green credit activities.

In the lending process, the credit manual of Agribank always associates the appraisal of projects, loan plans with the environmental assurance, resolutely exclude credit granting for projects with the potential to have a great and serious impact on the environment and society. In addition, Agribank has participated in many projects related to environmental protection sponsored by the World Bank (WB) and financial institutions. By end of 2016, Agribank has implemented a preferential credit program to serve "Clean agriculture" with unlimited capital scale, in the short term is VND50,000 billion. Target customers of the program are enterprises, cooperatives, unions of cooperatives, farm owners, etc. participating in stages in the chain of safe and large-scale agricultural production with interest rates decreased from 0.5%-1.5%/year compared with the preferential interest rates for the agricultural and rural sector according to the current regulations of the State Bank of Vietnam and Agribank.

In addition, Agribank accompanied the program "Clean Agriculture" organised

by Vietnam Television in collaboration with the Ministry of Agriculture and Rural Development, broadcasted on National television channel (VTV1) with the desire to contribute the replication of safe agricultural production models has been gradually being formed nationwide, thereby changing consumers' perception of the quality and safety of Vietnamese agricultural products.

At the same time, Agribank has been a

THOUGHT LEADERSHIP ARTICLE pioneer in successfully implementing the national strategies of Vietnam on a green economy that adapts to climate change and develops sustainably. Agribank has implemented many programs and activities associated with the message "For a green future": launch emulation movement "Say no to plastic waste", "Say no to smoking", "Keep a green, clean and beautiful working environment", "Join hands to clean the marine environment" in 28 coastal provinces/cities, organise cycling roadshows in big cities conveying the message "Take action to reduce emissions into the environment", in response to the tree planting movement.

With nearly 40,000 staff joining hands with the smallest things, Agribank believes that it will contribute to arousing confidence in a bright future, realising the green growth strategy goals and sustainable development, "For a green future".

The leading retail bank for agriculture, rural areas and farmers Always focusing on product and service development, Agribank has maintained the banking network system at 2,300 transaction points, over 3,000 ATMs, 81 Auto Banks, 25,000 POS, issued 27 million cards. Currently, Agribank is providing over 200 products to serve 16 million domestic and foreign customers.

Agribank also implemented a project to promote the development of card services in the agricultural market with 212,000 cards issued to farmers with a total overdraft limit granted to customers of VND 1,423 billion; simplified procedure for consumer loans, lending amounts of VND19,000 billion with over 400,000 customers

Transaction at Agribank

Focusing on product and service development, expanding customer database, and developing customers to use utility services, Agribank now provides over 200 products to serve 16 million domestic and foreign customers getting loans to meet urgent needs of the people, contributing to repelling black credit according to Directive No. 12 of the Prime Minister. In addition, Agribank has constantly reformed and simplified lending procedures, publicly listed credit policies; closely coordinated with the local authorities, farmers' associations, women's unions and other organisations in 63 provinces and cities to lend through 70,000 loan groups with over 1.4 million members, outstanding loans reached VND167,000 billion. Especially, Agribank successfully implemented the automobile transaction units project with 68 vehicles at 66 branches in 59 provinces and cities, opening over 12,000 transaction sessions serving over 400,000 customers at the automobile transaction points in 433 isolated communes, creating favorable conditions for households and individuals in lending as well as accessing banking services, reducing costs and time for customers, supported and highly appreciated by local authorities and customers. In the coming time, Agribank is expected to continue to deploy more automobile transaction units in all branches with suitable locations.

From 2019, Agribank has officially implemented the Project to promote the development of card services in the agricultural and rural markets, with the aim of increasing the access to banking capital of individuals, households as well as modern and smart payment services in agricultural and rural areas, promoting the development of non-cash payments in Vietnam and a comprehensive national financial strategy. Through these, Agribank has basically met sufficient capital with preferential lending interest rates, promptly serving the needs of production and business of farmers and businesses, contributing to repel black credit.

In addition to business activities, Agribank is also supporting social security with overall and longterm sponsorship programs all over the country, demonstrating the sense of responsibility towards the community, actively contributing to the implementation of the National Target Program on sustainable poverty reduction and new rural development.

Average per year, Agribank spent VND350 billion to contribute to these activities. Only from 2015 to 30 June 2020, Agribank's budget for implementing social security activities for the community is up to VND1,966 billion.

Promoting the achieved results, in the period 2020 - 2025, Agribank sets the goal of continuing to build a modern and integrated Agribank, focusing on investment and application of modern technology in association with organisational model innovation towards digital banking; transform into a joint stock commercial bank, manage and operate according to international practices; strive to be in the Top 100 largest banks in Asia in terms of assets; safe and efficient operation; maintain the key position in the agricultural and rural financial markets. All officers and employees of Agribank in the spirit of "Solidarity - Democracy - Discipline Innovation - Development" are eager to emulate, work creatively, determine to build Agribank for sustainable development and integration, continue to excellently fulfill the mission for “agriculture, rural areas and farmers”, along with the banking industry and the political system continue to have many positive contributions to the construction and defense of the country.

ASIAN BANKING AND FINANCE | Q1 2021 7

RETAIL BANKING: ASIA PACIFIC

Priorities to win in the new world

APAC banks face challenging 2021 as small lenders hurtle towards mergers Small banks could lose market share as digital newcomers target underserved segments.

W

hilst news about vaccine development has spurred expectations of a global economic recovery in 2021, the outlook remains bleak for banks in Asia Pacific with analysts forecasting that the ill-effects of 2020’s fiasco will linger on the credit profiles will linger throughout the year.

For 2021, analysts have pencilled in a slow, uneven economic recovery for the Asia-Pacific region. S&P banking analyst Ivan Tan forecasts a 6.8% GDP growth for APAC, in contrast with the 2% GDP contraction in 2020.

Although the region’s economic outlook remains uncertain and vulnerable to COVID-19 infection trends, recovery has begun, albeit slow and uneven, notes EY Asia-Pacific banking and capital markets leader Andrew Gilder.

“As vaccines become available, and sentiments improve, revenue prospects for banks should start to stabilize, particularly in the second half of 2021,” Gilder said.

But such a recovery would be long drawn, and APAC banks face a 2021 plagued with a prolonged period of depressed business and consumer spending, regulatory pressure on margins and fees, low interest rates, and increased operational costs due to

8 ASIAN BANKING AND FINANCE | Q1 2021

Loan demand is expected to fall to an all-time low in 2021, reducing revenue from lending

COVID-19 safety measures will continue to weaken near-term profitability and tighten balance sheets.

The gloomy conditions make consolidations extremely likely, according to analysts.

“Most banks are entering 2021 with a contraction.

Whilst economic growth will pick up across the region and recoveries should firm in H2 2021, return on equity will not revert to pre-pandemic values in the near term. This low-growth scenario could result in a significant reduction in banking capacity and accelerate industry consolidation for those that lack scale or differentiated capabilities,” EY’s Gilder noted.

Sumit Kumar, managing director and partner, Boston Consulting Group (BCG), echoed the same sentiment. “Consolidations are extremely likely, and could be commonplace in 2021, particularly in markets like Indonesia where weak demand and pressures on margins may be significant,” Kumar told Asian Banking and Finance.

Apart from Indonesia, Japan and Taiwan are two other markets whose banks are likely headed towards mergers. “In markets that have been overbanked for years, such as Japan and Taiwan, a sharp fall in banks’ valuations may be a catalyst for consolidation in 2021,” said EY’s Gilder.

RETAIL BANKING: ASIA PACIFIC financial support, and are likely to emerge on the books as we progress through 2021,” Kumar said.

Kumar further expects that the loan demand will fall to an all-time low, reducing revenue from lending. Low net interest margins, combined with excessive liquidity, will also create further pressures on the margins.

“The coming months will require regional banks to manage growing distressed debts and conserve their capital,” he said.

Source: Boston Consulting Group

Banks with larger lending exposures to SMEs will also be vulnerable since smaller enterprises are the most impacted. “Whilst larger banks remain wellpositioned to absorb potential non-performing loans (NPL) increases, some less well-capitalized smaller tier banks may struggle, and wind-up or get acquired,” Gilder added.

Overall recovery will vary across APAC markets.

BCG’s Kumar notes that Malaysia, Indonesia, and Philippines reflect banking systems which are likely to see a slower recovery towards 2019 levels of activity.

S&P Tan adds that countries where COVID-19 has led to a sharp recession or where the infection curve has been slow to flatten, such as India and Indonesia, will see a slow recovery.

Both analysts expect these markets to return to preCOVID levels of performance in 2023 or beyond.

In contrast Singapore, Thailand, and Vietnam will recover faster, says Kumar. However, S&P’s Tan notes that even for potential early-exiter banking jurisdictions from COVID-19, such as China and Singapore, recovery is not expected until end-2022.

Moratoriums say bye One of the biggest hurdles in the horizon for APAC’s banking industries is the expiry of moratoriums, which began in late 2020 and is set to fully phase out by 2021, notes Tan. “The moratorium on loans has allowed distressed borrowers hit by COVID-19 to defer interest and principal payments. The bulk of the moratorium will expire by the end 2020 or will be gradually phased out over 2021, which we believe could lead to higher nonperforming loans appearing on bank’s balance sheets,” he said.

With moratoriums gone, lenders will feel the full brunt of the elevated unemployment levels on loan performance and credit costs over 2021, an effect that will likely spill over to 2022, adds Gilder.

The financial impact of the pandemic will also likely lead to a surge in NPL, says Kumar.

“Given the widespread disruption to earnings for both individuals and businesses, this is more a question of ‘when’, and not ‘if ’. Many of these nonperforming loans are hidden currently by government

Ivan Tan

Sumit Kumar

Wealth, investment to prosper Despite the gloom and doom in the horizon for banks, there are segments that will likely perform well in 2021.

Kumar says that products related to wealth management, Lombard financing, and insurance will be the primary drivers of growth for banks and financial institutions in 2021.

“A recent BCG survey revealed that 15% to 18% of customers will increase their focus on wealth creation and protection products, whilst more than 25% of customers expect to delay large ticket purchases such as homes and automobiles,” according to Kumar.

Gilder also identified private banking and wealth management as profitable growth opportunities, with Singapore banks noted to be seeing good momentum in this segment recently.

Amongst business lines, investment banking divisions that capitalise on market volatility may see their trade activity decline as markets stabilise.

But IPO activity may experience a resurgence in 2021, boosted by companies that delayed listing last year.

Mergers and acquisitions are also expected to continue as weak valuations present acquisition opportunities, whilst restructuring and consolidation initiatives increase.

Post-pandemic paradigms Apart from the challenge of tiding through the year, banks also face the prospect of preparing themselves to thrive post-pandemic.

Banks preparing for a post-pandemic world will find that growth opportunities are harder to come by, says EY’s Gilder. As a result, most are resorting to accessing new, but riskier revenue streams to boost earnings.

This includes expanding into emerging markets, taking on more unsecured short-term consumer lending, shifting down the credit curve, or making investments in higher-risk securities.

To build sustainable returns in the long term, Gilder recommends banks to consider a set of baseline products, with complimenting ala carte add-ons for an additional charge. Such “plugand-play” experiences and subscription models reportedly allow banks to price more transparently, yet improve their pricing power, increase fee-based income, and deepen client relationships.

ASIAN BANKING AND FINANCE | Q1 2021 9

BRANCH WATCH: CITI SINGAPORE

Citi opens its largest wealth hub in Singapore The branch provides in-demand services such as exotic currencies and meeting spaces for clients.

C

iti opened its largest global wealth hub in Singapore last December 2020, catering to Citigold and Citigold Private Client customers and highlighting the importance of the Lion City as a key market for its Asia consumer business.

Located at 238 Orchard Road, the hub is set to be a holistic knowledge sharing space that will deliver an exclusive, personal investment service that focuses not only on individual financial goals but also what wealth may mean to every client. It will also have builtin facilities that will host lifestyle events, investment seminars and more.

Clients can also enjoy a suite of delights including sustainably-sourced Lavazza Gourmet Coffee, TWG Tea and signature chocolate bon bons from multi award10 ASIAN BANKING AND FINANCE | Q1 2021

Citi plans to hire 330 more relationship managers by 2025

winning local pastry chef Janice Wong, including flavours and designs that have been exclusively made for the new wealth hub.

As part of Citi’s “Win in Wealth” strategy in Asia, Citibank Singapore targets to double its assets under management (AUM) growth and triple its Citigold and above-qualified clients in the country by 2025. It also looks to upgrade its digital tools, expand its mobile solutions and hire over 330 relationship managers by the same year.

“Citi has an enormous opportunity to serve the growing affluent segment in Singapore. In line with our growth aspiration and despite a uniquely challenging year, we grew qualified clients by close to 5% in 2020," said Citi CEO Brendan Carney.

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INTERVIEW: HSBC SINGAPORE

HSBC Singapore foresees a digital, green future for banks in 2021

Digital banking and sustainable products are viewed by leaders as key to resilience.

T

he year 2020 saw a rapid shift in financial institutions and customers’ adopting digital tools for their financing needs—a trend expected to continue well into, and even beyond, 2021. Moreover, the rise of environmental consciousness amongst consumers meant that the future of banking will be one that is both technologydriven and sustainable.

These facts are well known to HSBC Singapore that it is no laggard in either the field of digitisation or green financing—in fact, on the contrary.

“2020 has shown us how we need to be agile to weather through unforeseen circumstances and support our clients in times of need. Both digital and sustainability have shot up in the ranks of importance amongst businesses in Singapore,” Cherie Teng, head of corporate banking at HSBC Singapore, told Asian Banking & Finance.

“Indeed we’re now seeing the decision-making process on these issues extend further than just the treasury functions. CFOs, key individuals and board members of businesses are now prioritizing the resilience of their businesses—digital banking and sustainable finance lie at the heart of building a stronger future,” she added.

Earlier in 2020, the bank launched the HSBC SME Green Loan, making HSBC the first bank in Singapore to offer green loans designed for SMEs. The service reduces the time, costs, and complexity that SMEs associate with green financing, giving them a more accessible way to grow their operations whilst heading firmly towards a sustainable future.

“We hear from our clients that they often want to play a role in the sustainability agenda, but don’t know how or where to begin,” Teng said. “That’s why we’re supporting businesses in accessing easier finance which is specifically allocated to green or sustainability-linked projects.”

The pandemic also drove the take-up of digital services amongst HSBC Singapore’s commercial banking customers. Teng shared that 94% of the bank’s commercial banking clients are now on digital channel offerings on HSBCnet, whilst the number of PayNow Alias registrations more than tripled (239% up) since 1 April 2020.

Asian Banking & Finance caught up with Teng to learn more about her thoughts on the changes in the finance and banking space and where the future of banking is headed.

12 ASIAN BANKING AND FINANCE | Q1 2021

Digital banking and sustainable finance lie at the heart of building a stronger future

Cherie Teng, head of corporate banking at HSBC Singapore

Could you walk us through the trends you observed in the digital payments space in 2020?

Those who had not already enabled online transactions prior to the pandemic may have found themselves grinding to a halt; this has prompted an unprecedented change in the way banking is now conducted across Singapore and other markets.

At HSBC, 95% of our Commercial Banking clients have made the switch from manual to digital, not just on the payments front but also with their collection methods and other working capital functions of their businesses, so that they can monitor these transactions from their end as well.

Prior to COVID, cheque payments were still a commonly used payment method in certain segments of the market. Whilst this has dropped in recent years, largely due to government efforts to go paperless, there are still businesses that have struggled to make the shift.

What trends or developments do you see happening in the digital payments space in 2021 and beyond?

There’s no doubt that digital will continue to dominate in payments, whether for local or overseas payments. Indeed, the total value of digital payments

INTERVIEW: HSBC SINGAPORE

The total value of digital payments in Singapore is expected to exceed US$21b by 2024

in Singapore is expected to exceed US$21b by 2024, growing by 9.2% annually.

For companies conducting payments, they typically have to consider a myriad of things – whether they are considering how to give their salaries to their employees, or liaising with their overseas suppliers which often means they are juggling different currencies and different time zones.

There are different kinds of enhancements and support mechanisms that businesses can adopt to monitor their funds to and from different stakeholders locally and abroad, whether through PC or their mobile devices as well.

The use of PayNow Corporate, for instance, allows digital payments to quickly be made via a QR code without the need to obtain bank details from beneficiaries. Such initiatives are practical, cost effective and meaningful solutions to help keep businesses transacting with their customers.

Moving forward, we definitely see that there is going to be an expectation for this level of ease and convenience, no matter what the dollar, denomination, or currency.

What other online banking activities have seen a massive surge since February 2020?

Whilst going digital could be as simple as reviewing a business’ customer-facing online channels, there’s a grave mistake in thinking that it only applies to what stakeholders see.

Treasury and procurement functions across sectors are quickly needing to adapt to use digital to ensure business continuity, not just in the payments space but in every aspect of the corporate ecosystem.

Digital also supports the ability to trade, enabling businesses to digitally send instructions on letters of credit and guarantees, apply for trade loans and upload invoices for receivables financing. With many customers in business continuity planning mode, we are seeing increased use of the ability to download digital copies of documents from business’ overseas suppliers’ banks.

Whilst going digital could be as simple as reviewing online channels, there’s a grave mistake in thinking that it only applies to what stakeholders see

In the past few years, especially in 2020, consumers and businesses alike have become more conscious of their environmental impact.

How has this affected the banking industry?

Finance will play a pivotal role in transitioning Asia towards a more sustainable future. With the upcoming transfer of significant wealth to the Millennial generation in Asia over the next decade, the new generation of investors are also more socially conscious and environmentally friendly than their parents. It is therefore not a choice for businesses anymore to incorporate green financing into their businesses, it is highly essential to stay relevant and competitive in order to make a difference in the market and be distinguishable.

HSBC recently set out an ambitious plan to prioritise financing and investment that supports the transition to a net zero global economy — and helps to build a thriving, resilient future for society and businesses. At the heart of the plan is a pledge to reduce financed emissions from our portfolio of customers to net zero by 2050 or sooner, in line with the goals of the Paris Agreement.

In Singapore, HSBC has delivered a total of US$1.2b of sustainable financing and investment as of the end of 2019.

How do you see ESG factors changing Singapore’s banking industry in the next few years?

Singapore is raising the bar through the build of its green financing infrastructure and capability.

Indeed it is participating in global and regional forums to discuss common language in what is considered ‘green’ so that consumers, investors, regulators, companies, and financial institutions are defining environmental objectives, measurement and performance criteria in the same way.

There is also a lot of collaboration in Singapore to build industry capabilities; HSBC Singapore is a founding partner of the Singapore Green Finance Centre — Singapore’s first research institute dedicated to green finance research and corresponding talent development.

We’re also seeing initiatives to bring green and sustainable financing into the mainstream of business and society. Just last 24 November, the Monetary Authority of Singapore announced the Green and Sustainability-linked Loan Grant Scheme which, we believe, will support financial institutions’ endeavours in developing verified sustainable financing frameworks catered to SMEs, thereby allowing FIs to better support SMEs. In HSBC Singapore, we launched our Green Deposit Account for corporate clients to finance green initiatives such as renewable energy, energy efficiency and biodiversity conservation, providing a simple way for entities to support environmentally beneficial projects. Interview by Frances Gagua ASIAN BANKING AND FINANCE | Q1 2021 13

INTERVIEW: KBZ BANK

KBZ Bank’s Lu Mon gives a glimpse on the bank’s digitisation journey Asian Banking & Finance sat down with the deputy CIO as he shared the story behind KBZPay.

S

ai Lu Mon Aung is the Deputy Chief Information Officer and Head of Information Systems Division at KBZ Bank.

Joining in 2016, Lu Mon leads the digital product and development innovation at KBZ Bank, where he has helped develop the technology behind KBZPay, Myanmar’s fastest-growing mobile wallet with over 6 million users.

Lu Mon also co-leads the bank’s Mesh Banking initiative—a new way of banking that brings products and services to customers faster through seamless integration of all its branches and digital channels, with KBZPay as the key connector.

In an interview with Asian Banking & Finance, Lu Mon shares the story behind KBZPay, how it contributed to the financial inclusion in Myanmar, as well as the financial trends in the country.

Tell us more about KBZ Bank’s digitisation journey.

How has this investment helped you during the COVID-19 pandemic?

As Myanmar’s largest privately owned bank, KBZ Bank plays a critical role in driving the success of the nation’s entrepreneurs, businesses, and communities.

To achieve our goal of 100% financial inclusion in the country, we launched KBZPay in August 2018, our mobile-first approach to create both the technological infrastructure and easy-to-use interfaces that bring banking beyond our branches. What started off as a bank-led digital wallet offering users a convenient and secure way to manage their funds and purchase everyday products, soon evolved to become the go-to platform propelling Myanmar’s digital economy with financial services at its heart.

Today, KBZPay has granted many people access to financial and digital services for the first time, and connected more than 6 million people to a network of more than 290,000 merchants and agents, including: microentrepreneurs, e-commerce companies, e-gov services, educational institutions, and both small and large employers across Myanmar.

Never was the launch of a digital platform so timely and fortuitous, as KBZPay found itself at the forefront of the nation’s fight against COVID-19 a year later. With KBZPay up and running before COVID-19 hit us, we were able to continue providing essential financial services and liquidity safely and securely, in a truly digital, instantaneous, realtime, and always on manner. This ensures that businesses and households always have access to our services.

14 ASIAN BANKING AND FINANCE | Q1 2021

Bank-led digital wallet KBZPay is helping to propel Myanmar’s digital economy

Sai Lu Mon Aung, head of Information Systems Division at KBZ Bank

In support with the Myanmar government’s COVID-19 Economic Response Plan (CERP), KBZPay has also stepped up to address the urgent crisis at the national level by (i) increasing the wallet balance limit for all customers; (ii) collaborating with various government departments to disburse cash to mothers for better antenatal and postnatal nutrition, and agricultural loans to farmers; and (iii) making it possible for customers to fund COVID19-related charities and initiatives directly through the KBZPay platform.

As we continue on our digitisation journey, we are - with each bold step - strengthening the Myanmar of today and laying the foundations for the Myanmar of tomorrow.

Can you describe your career up to now? What lessons have you been able to apply to managing KBZ’s digitalisation journey?

Prior to joining KBZ Bank, I was working on Wall Street in the US, focusing on co-locating with the exchanges to reduce latency down to the nanoseconds’ range, and improving existing trading platforms’ features and transaction speed.

Meanwhile, in Myanmar, the digitalisation journey happens at a slower pace, with the transformation process involving more human interaction and customer education, especially when I first joined KBZ Bank a few years back.

INTERVIEW: KBZ BANK Whilst technology and innovation is pivotal to make progress, the human touch is indispensable in the transition towards a more cashless way of banking and living. Particularly, for cash-heavy countries like Myanmar, banks need to be mindful that introducing digital financial services should be done hand-in-hand with introducing the formal financial system to people, some for the first time in their lives.

To achieve this, KBZ Bank mobilised our 18,000 employees as financial inclusion ambassadors to various townships. Potentially the largest-ever digital onboarding initiative in Myanmar’s history, our colleagues introduced KBZPay mobile wallet to the people at a pace that is right for our communities, with KYC embedded in every step of the way.

KBZPay has connected more than 6 million people to a network of merchants and agents

As our digital banking platform garners a fast-growing user base, one important lesson I have learnt is that financial institutions must be inclusive, even as they progress on their respective journeys towards digitalisation and modernisation.

With digitalisation becoming an increasingly vital part of our lives today, it is important that people from all walks of life have access to safe and secure everyday services through easy-to-access financial platforms. To do so, we need to work as an industry to assure that safely distanced financial services like digital payments are “inclusive by design”, secure, and trustworthy.

The human touch is still indispensable in the transition towards a more cashless way of banking

What are the other retail banking trends that you see happening in Myanmar?

As Myanmar progresses towards a mobile-first digital economy, demand for fast and affordable transactions are on the rise. Such experiences require interoperability, a key feature of our mobile-first approach to offer better user experiences and engender growth for businesses that partner with us. Today, KBZPay users can top-up their mobile data with all of Myanmar’s telcos, purchase gaming tokens. With phase 2 of the Myanmar Financial Network System (CBM-NET) underway, we expect KBZPay to eventually be able to support fund transfers between the app and other financial entities.

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INTERVIEW: MASTERCARD

Mastercard's Rama Sridhar on why fintechs drive financial inclusion Fintechs brought much-needed credit to jobless workers amidst the pandemic crisis.

T

he months-long closure of the physical branches of many banks and non-bank financial firms due to the pandemic-fueled recession has highlighted the important roles of fintechs in addressing financial inclusion problems across Asia.

Workers laid off from their jobs in the past few months needed to find other means for their living expenses—and many may have been locked out of getting much-needing credit if not for digital lending offerings, which fintechs readily offer at just a few taps and clicks “In many Asian markets, it is the fintechs—rather than traditional banks— that are moving the needle when it comes to digital financing and financial inclusion. Many of these innovators, in India and China in particular, have generated such scale and influence that they have acquired government support and sponsorship of the new banking service models they advocate,” said Rama Sridhar, executive vice president, digital & emerging partnerships and new payment flows, Asia Pacific, Mastercard.

The global payments company has partnered with many fintechs across the region as part of its quest to support innovation and growth across the financial industry, Sridhar shared.

“Policy changes will continue to open up the banking system and all players must adapt to meet the needs of increasingly digital consumers who expect maximum choice and highly personalized experience,” Sridhar noted, adding that given these developments, partnerships between fintechs and financial institutions will increasingly play a larger role in driving financial inclusion in the AsiaPacific region.

How do fintech firms help underserved and unbanked customers achieve greater financial inclusion?

When you are excluded, you are stuck in a cash-based economy and don't have access to the basic financial tools we take for granted, like saving and borrowing money or making contactless and electronic payments.

The needs of the underserved go far beyond just access to electronic accounts and payments. To make a real difference in their lives, we have to drive toward widespread usage. This means appropriately designed products, education, and acceptance infrastructure.

Fintechs are also powerful enablers of inclusion by addressing the financing needs of micro, small and medium enterprises (MSMEs) that have long been the backbone of the economy.

Five years ago, Mastercard set a target to bring 500 million people into the financial system and we have

16 ASIAN BANKING AND FINANCE | Q1 2021

Banks must adapt to meet the needs of increasingly digital consumers who expect maximum choice and highly personalized experiences

Rama Sridhar, Mastercard's executive vice president

accomplished that goal. Now, we have expanded the pledge to bring a total of 1 billion people into the digital economy by 2025, including 50 million small businesses and 25 million women entrepreneurs.

In Malaysia, where there are several million foreign workers, the fintech Instapay is catering to this underbanked community.

Regulated by Malaysia’s central bank, Instapay partnered with Mastercard to provide e-wallet accounts to migrant workers so they receive wages quickly and securely. For employers, the benefits include using technology for payroll management, reducing cash handling, lowering costs and eliminating downtime as the workers no longer need to queue up on paydays.

In Bangladesh and Cambodia, Mastercard partnered with the apparel industry to digitize supply chains by introducing a combination of digital payrolls and an educational tool. The "Digital Wages Toolkit" has been tested in Bangladesh with more than 10,000 female garment workers and has been adapted and translated for use in Cambodia.

Which specific financial services offered by fintechs have helped the industry to clear financing barriers for underserved and unbanked customers?

By accelerating the growth of electronic payments, fintechs have been monumental in bringing the underserved and

INTERVIEW: MASTERCARD

Mastercard's Start Path evaluates more than 1,500 applicants each year and selects about 40

unbanked closer to financial inclusion. This is because of the lower transaction and service costs. Fintechs are also able to reach people who would otherwise be unable to benefit from standard financial services because they have no bank account.

The trend is clear in Southeast Asia, where the gross transaction value of electronic payments—including e-wallets, account-to-account transfers and card-based cashless transactions—is projected to hit US$1.2t by 2025.

Peer-to-peer lending, where people borrow directly from other people, is another gap that fintechs are bridging between formal financial institutions and low-income households.

In Indonesia, for example, millions of people obtain funds through informal social gatherings where borrowers raise small loans from the rest of the group, usually repaid without interest after a year.

Now, Indonesian peer-to-peer lending is being digitized.

Through its app, Indonesia-based fintech Mapan serves about 2.5 million members by facilitating loans and payments for purchases.

The onset of the pandemic and its effect in humans’ daily lives are said to have led to the faster uptake of digital financial services. How has this affected fintechs?

The future of money is digital and there’s just no turning back. Even in developing markets, technology is affordable for almost everyone and access to smart devices, mobile telecoms and the internet is becoming ubiquitous.

Whilst the global financial crisis of 2008 saw the emergence of fintechs, the pandemic has proven their value and underlined their role in financial inclusion by providing financing to consumers and MSMEs. Fintechs are bringing disruption to traditional models but also innovation, customization and greater choice.

With technology and the whole landscape shifting so rapidly and profoundly, it’s essential to have successful partnerships to co-create and innovate.

That is why being a true partner to everyone in the new ecosystem is crucial for Mastercard, including the fintechs that we support and nurture.

Fintechs and traditional banks often make excellent partners with complementary capabilities

Now that traditional banks and lenders are also scaling up digitalisation, what role do fintechs play in the future of digital financing and financial inclusion?

Partnerships are crucial because huge numbers of people in Asia still need simple and secure access to financial services. Policy changes will continue to open up the banking system and all players must adapt to meet the needs of increasingly digital consumers who expect the maximum number of choices and highly personalized experiences.

Fintechs and traditional banks often make excellent partners with complementary capabilities. Banks provide fintechs with access to distribution networks, balance sheet strength and reputation, while fintechs offer nimble technical infrastructure to banks and more innovative client experiences.

Across the APAC region, there is plenty of room for growth in electronic payments. That creates huge opportunities for more innovation where many consumer segments remain underserved, not least in the small business and commercial spaces.

How does Mastercard support its fintech partners to help them scale up their services?

Mastercard has long partnered with fintechs. With that knowledge and expertise, we’ve been ahead of the industry in creating efficient and quick pathways to innovation and growth.

Our Accelerate platform helps fintechs rise to the next level by connecting them to technology partners, endto-end solutions and ways to innovate. In Singapore and around the world, we run incubators, accelerators and partnership programs to support fintechs, collaborate with them and build smarter solutions.

The platform includes a full suite of programs— Mastercard Engage, Start Path, Mastercard Developer and Fintech Express—to help fintechs at various stages of development and growth.

Start Path evaluates more than 1,500 applications each year and selects about 40 startups that offer the most promising technologies and demonstrate a readiness to scale. Startups in this growing network have gone on to raise $2.7b in post-program capital and collaborate with Mastercard, major banks, merchants and other highprofile organizations.

More than 10% of Southeast Asia adults use e-wallets

Source: Boston Consulting Group

ASIAN BANKING AND FINANCE | Q1 2021 17

RETAIL BANKING: DIGITISATION

Consumers are willing to share their data in order to be co-creators of their banking experience

'Client Co-creators' mark new frontier in customers' banking experience

A majority of consumers are willing to trade their personal information for more tailored service offerings, according to Accenture's Paul Ng.

T

he late US President John F. Kennedy once said, “In a crisis, be aware of the danger—but recognize the opportunity.” It’s a quote that banks should take heed—for amidst a time of global recession and contracting businesses, there remains pockets of opportunities that could kick-start strategies for growth.

Whilst digitisation is the obvious path for banks wishing to remain competitive in the future, a key factor for success lies not just on the cold hardware or system, but more so in the warm experience a service imparts to customers.

“In a climate where customers can easily switch banks with the tap of an alternate application, building a purposedriven, customer-centric value proposition is critical for success,” says Paul Ng, Managing Director, Financial Services, Accenture.

Accenture’s Global Financial Services Consumer Study found that majority of consumers were willing to trade their personal information for more tailored service offerings. This means that consumers are willing to share their data—with security safeguards in place— in return to be co-creators of their banking experience, noted Ng. Other industries have already embraced this mindset of co-creation. In retail, sportswear giant Nike has worked with local and professional soccer teams to co-design and

18 ASIAN BANKING AND FINANCE | Q1 2021

In a climate where customers can easily switch banks, building a purposedriven, customercentric value proposition is critical for success

customise a new soccer shoe for the brand. This reportedly helped Nike connect with their customers by creating value through experiences and giving customers the power to influence the things that are to be used by them, Ng said.

How can traditional banks reinvent themselves and stand out amongst the sea of new financial service providers?

The COVID-19 pandemic has accelerated by three to five years the changes in how we live and work. Digital maturity in banks will be key, with our research of the biggest banks in 21 countries showing a clear correlation between the digital maturity of banks and their individual financial and market performance.

The banking sector still faces challenges in gaining customer trust. Only 14% of consumers and 35% of small business owners turned to their banks for advice when faced with a financially impactful event. In fact, an average of five percent of traditional banks’ total retail revenue is at risk because there is a lack of trust among customers that banks will look after their long-term financial well-being.

At a time of uncertainty, banks can bring a more human and collaborative focus to their digital interactions.

COVID-19 has made the need for a trust-based relationship more urgent. Ultimately, getting there starts with refocusing

RETAIL BANKING: DIGITISATION rate of 133%—which means that some users own more than one SIM card or mobile phone—but only 27% of the population have a bank account. This has resulted in a US$38b opportunity by 2025 in digital financial services in Southeast Asia, including digital payments, digital remittance, lending, investment, and insurance.

The longer-term success of digital banks will depend on their ability to scale and use Asia as a testbed and launch pad for digital-only offerings serving the rest of the region and beyond.

DBS' is building a "super app", together with Carro and sgCarMart

a bank’s purpose on the people they work with to optimise their distribution channels and regain their advisory trust with customers.

How can banks provide customers with an engaging, personalised digital banking experience?

According to Efma, at the start of the new millennium, the majority of people’s financial interactions centred on traditional bank branches. However, in less than 15 years, over 90% of customer interactions have now shifted to digital channels such as online, mobile banking, digital wallets, and call centres.

The concept of hyper-personalisation to enhance the customer and employee experience is very much a part of many leading banks’ digital experience. Hyperpersonalisation takes real-time customer insights from multiple sources, and combines them with technology such as AI, and VR. Investing in hyper-personalization tools is a smart strategy as companies can gain the trust of their customer base, increase the rate of conversion, and see higher rates of repeat customer business.

On the topic of digital banks: how do you see this subsector developing in Asia in the next decade?

We will continue to see the rise of digital banking in Asia [because] more governments and regulators across the region implement initiatives to encourage the growth of digital bank.

Southeast Asia is favourable for virtual banks for three main reasons. One is demographics: Digital only banks have made waves in markets from the EU to Brazil and the wave is now building in Southeast Asia. Virtual appeal strongly to younger Gen Y and Millennial customers, and more than half of the population of Southeast Asia is under 30. In fact, eight of the 10 member countries in Southeast Asia have median ages of 30 or lower, including Indonesia, Philippines, and Vietnam.

The market also presents opportunities for financial inclusion: more than seven in 10 adults in Southeast Asia are either “underbanked”—they have no access to credit cards or have no long-term savings product, for example— or are “unbanked” without access to a basic bank account.

Finally, it is a mobile-first region. Southeast Asia has high smartphone penetration, including a mobile connectivity

Paul Ng

How can digital banks improve customer engagement Leaders in the industry are pulling ahead by unlocking new value through the use of data, open APIs and ecosystems to create new business models and deliver what we call “invisible banking”. These banks earn bank and non-bank revenues, and they provide value-added digital services within their own boundaries and in partnership with other fintech firms.

Banks need to deliver integrated propositions, with the purpose of addressing core customer needs at the heart of their innovation. This is perhaps best demonstrated by the rise of "super apps", often involving partnerships between financial and non-financial vendors across ecosystems.

DBS’s joint venture with sgCarMart and Carro is a great example where the bank has partnered the community of car-sellers to create a one-stop online car marketplace. The platform has allowed customers to buy and sell cars with ease — with an in-built calculator to tabulate the loans and paperwork necessary.

Additionally, banks and fintech startups will have to overcome practical, talent, and mindset-related challenges to seize the opportunities presented by building financial services ecosystems.

In fact, Accenture’s research indicates that there will be considerable value (US$100t) generated from ecosystem plays in the coming years, which means it is far from a zero-sum game. The inexorable move away from an “us versus them” mentality to an “us with them” mindset creates opportunities for all players, that will also position digital banks to thrive amid a competitive banking landscape.

What will the future of financial services look like?

The future of financial services will be driven by a confluence of emerging technologies, changing consumer demands, increased competition from nontraditional banking players, and renewed regulation that protects consumers and banks in an ecosystem.

Customers increasingly want to be in control and engage with businesses only when and where they want to. In this new era, banks that have a shared-success mindset, and promote collaboration within their ecosystem will create new opportunities for growth in a way that benefits all.

What this means is that banks will have to place themselves at the centre of the ecosystem and be relevant at all times, for all financial and non-financial services needs of customers. By Frances Gagua ASIAN BANKING AND FINANCE | Q1 2021 19

ANALYSIS: DIGITAL CURRENCIES

China is eyeing a public rollout of its CBDC sometime this year

What’s up with Asian central banks’ craze around digital currencies?

Whilst it may improve payments for customers and merchants, card firms and payment platforms won’t be happy with the potential new competition.

J

uly 2020 marked the conclusion of Project Ubin, a five-year industry-wide project launched by the Monetary Authority of Singapore (MAS) to study how blockchain technology with the aim of developing simpler and more efficient alternatives to current payments’ systems based on central bank issued digital tokens. The fifth and final phase saw the regulator, in collaboration with state-owned investment firm Temasek, create a prototype for a cross-border blockchain-based multi-currency payments network.

Whilst Singapore has just concluded its study on central bank-issued digital tokens, regional neighbor China was already far ahead in its study of central bank digital currencies (CBDC). Just this January, the world’s second largest economy is reportedly eyeing rolling out its digital currency to the masses.

20 ASIAN BANKING AND FINANCE | Q1 2021

China's pilot program saw over $3.1m of digital yuan given to over 100,000 citizens in Suzhou, to spend with participating merchants

It has concluded the second phase of its CBDC pilot program, with over $3.1m of digital yuan given to over 100,000 citizens in Suzhou to spend on participating merchants.

Other central banks are not to be left behind. Thailand’s Vachira Arromdee, the central bank's assistant governor, claimed on July 2020 that the Bank of Thailand (BoT) is already using a CBDC for transactions with select businesses.

South Korea and Japan are also reportedly planning to roll out their own CBDCs in the next two years.

But what exactly is the appeal of digital currencies for central banks— and what does its adoption entail for the financial sector? Asian Banking & Finance spoke with finance experts to learn more about the CBDC craze.

Curiosity, competition More than eight in 10 central banks, or 86% of regulators globally are now

actively engaged in some form of of work relating to CBDCs in 2020, according to a survey by the Bank of International Settlements (BIS). This is a massive jump from only around one third of central banks worldwide having a CBDC-related project in the previous year.

Regulators are notably curious in what problems CBDC can solve for their payments and financial infrastructure, says Varun Mittal, Ernst&Young global emerging markets fintech leader.

“They're curious. They want to see, ‘what would this mean for them?” Mittal told Asian Banking & Finance in an interview. “From a regulator’s perspective it's important to be abreast of what's happening.

Whether they were gonna do it or not do it is a secondary thing—but to be aware is important.”

Each market is looking to adopt CBDCs in different ways, analysts

ANALYSIS: DIGITAL CURRENCIES noted. Singapore is looking at it for a for cross border use cases: in particular, it is looking to use digital currency for large value cross border transaction use cases. Taiwan and Thailand are exploring options to issue digital currencies for wholesale banking and business transactions.

Meanwhile, other countries are looking at using CBDCs for domestic payments to bring about financial inclusion as well as to get over cash collection.

BIS’ survey found that amongst regulators’ the most cited reasons for studying the use CBDCs include financial inclusion, domestic payments efficiency and payments safety as key motivations.

However, for emerging markets and developing countries, financial stability and monetary policy are noted as more important factors.

The topic of central banks exploring issuing digital currencies to improve payment infrastructure and processes was also noted by Harry Hu, banking analyst of S&P Global Ratings, in an exclusive correspondence with Asian Banking & Finance. In particular, it could bring more convenience to residents.

However, one market that may not be happy with CBDCs are existing payment service providers and card companies, Hu adds.

“CBDCs give rise to another payment option that consumers can select to settle a transaction. This could squeeze the market share of existing payment service providers, whilst also offering opportunities to innovators that can better weave CBDCs in their customer value proposition,” Hu explained.

“If merchants find it cheaper to accept CBDCs as opposed to, for example, having to pay fees on credit card transactions (similar to ‘pay cash pay less’ concept), this has the potential to significantly cut fee revenue of associated card companies,” he added.

CBDCs could also give central monetary authorities additional and more timely visibility on consumption information.

Another positive effect is that it could also lead to enhancement of enhance economic policy

implementation, such as example fiscal initiatives to directly transfer benefits to residents impacted by COVID-19. “The replacement of cash could reduce ATM numbers and costs associated with money printing,” he said.

However, if considering financial inclusion, CBDCs are more likely a substitute rather than a complete replacement of cash.

Three models Hu identifies three models of CBDCs: the first being the disintermediated model where accounts are opened and managed directly by the central bank; the second, an intermediated model where banks or other financial intermediaries would take on this role; and finally, a hybrid model where accounts are opened by the central bank but managed by banks or other financial intermediaries.

Depending on the model selected, CBDCs could have a meaningful impact on how intermediation occurs with a banking system, and potentially have an effect on bank deposits and funding, says Hu. One thing’s for certain: it’s gonna cost money.

“The development of the technological infrastructure would cost some money. If this is not a public good and participating payment service providers have to pay for entry, then some smaller players with less resources may be excluded and this would be unfavorable to their customer value proposition,” Hu noted, regarding challenges on take up of CBDCs. CBDCs are also not likely to use cryptography or distributed ledgers. However, in the scenario that the latter is used, Hu expects that transactions will be validated centrally and not by other users.

Policy upheaval Despite its plethora of positive potential for the enhancement of the payments infrastructures and even financial inclusion, issuing digital currencies presents many challenges for regulators. Notably, it could lead to an overhaul of monetary policies as we know it.

Varun Mittal

Chris Lim

Harry Hu

“It's not as simple as just launching it tomorrow, because this impacts the monetary policy,” Mittal said.

“This is not just a tech product, it's a monetary policy decision.”

Financial regulators have financial products which they have developed and have been using for hundreds of years, from capital adequacy ratios, to interest rates, to methods of measuring the money supply of banks, amongst other elements used to ensure the health and stability not just of the financial system but also the economy. According to Mittal, the moment that digital currencies or a digital way of issuing [or] not issuing moving money is added, regulators are also facing having to change this toolkit.

Not all regulators are prepared for this, says Chris Lim, partner, consulting, Ernst&Young.

“If the regulator cannot build a framework to regulate, supervise and build trust, the ecosystem will not accept and use the digital currency, and much less cross border related use cases would take off,” Lim said.

“There is no one regulator across the different regions or countries.

The question is then, how will a market start normalizing and thinking about how will they trust and use digital currencies as it goes across cross border? Market forces will then come into play. That's another huge element around demand and supply. Those are things that are significant structurally, and very difficult to move on,” Lim said.

S&P’s Hu also highlighted the risks of counterfeits as well as risks related to fake wallets or accounts, which he says cannot be totally ruled out.

Project Ubin - SGD on Distributed Ledger

Source: Deloitte, Monetary Authority of Singapore (MAS)

ASIAN BANKING AND FINANCE | Q1 2021 21

COUNTRY REPORT: THAILAND

Thailand's middle-age population, seeking convenience, is driving adoption of digital banking

Thailand prepares favorable environment to cultivate a digital banking economy With banks modernising their technology tools, the country is poised to make its mark.

T

aking advantage of the digital disruption, Thailand has been making strides to modernise its banking sector. Earlier in 2020, it was reported that the Bank of Thailand (BOT) was considering digital banking licenses in order to open more opportunities for financial inclusion and establish the financial ecosystem in the market.

Thailand’s digital banking scene has been described as “quite vibrant” with incumbent banks, platforms and non-banks competing and collaborating for financial products, said BOT assistant governor for financial institutions policy group Nawaron Dejsuvan. This vibrancy is partly reflected by the prevalence of mobile banking and digital accounts, where usage jumped almost 70% YoY in March 2020.

The government and the central bank have also created a favourable environment for digital banking to flourish, said S&P Global Ratings

22 ASIAN BANKING AND FINANCE | Q1 2021

Jesada Techahusdin

Deepali SethChhabria

analyst Deepali Seth Chhabria, as the dynamic preferences of techsavvy clients are amping up the transition. For her part, Desjuvan highlighted the fact that the public is already being prepared for the disruption through the country’s PromptPay system and social welfare payments being made through digital wallets.

But it is not without problems. A Maybank Kim Eng analysis posits that uncertainty remains high in the sector, with high credit costs until 2022 and possible net interest income and net interest margin declining given multiple rate cuts in H2 2020. Moreover, Thai banks that hold off their tech investments could potentially lose market share against peers who continually take advantage of the shift.

What’s the status?

Seth Chhabria believes that the race for digitisation will intensify as

innovations produce faster and lowcost client solutions, with evolving customer tastes as one of the most critical factors pushing Thailand to adopt digital banking.

“Thailand has a large middleaged population and they prefer convenience. About 60% of the population is between 15 and 55 years old. Thai customers are increasingly more digital savvy.

They lean toward online bank transactions rather than visiting their local branch, and this trend is visible in both the urban and rural areas,” Chhabria explained.

Chhabria also considers regulation and policymaking as “a neutral digital disruption risk” for Thai lenders as the BOT is likely to only open the sector progressively as it safeguards banks’ ability to handle incoming competition.

According to Dejsuvan, the BOT has been reviewing its own regulations, with regulatory impact

COUNTRY REPORT: THAILAND analyses and regulatory guillotine being carried out since 2018 to help with the digital shift. New approaches have been launched, such as proportionality and principle-based guidelines, whereby more breathing room is permitted when financial activities involved do not pose a risk of destabilisation.

“In 2017, the Bank of Thailand also established a regulatory sandbox to encourage banks and FinTech players to pioneer innovations within a well-defined market and specified duration. To allow even more flexibility, our regulatory sandbox has since been modified such that financial services providers can also test most of their new innovations in their own sandbox,” she explained.

Another challenge for the regulatory body is ensuring the efficient flow of data and data privacy compliance both at the same time. “The Thai QR code standard, which allows interoperable payments across the schemes of global payment service providers, also helps ensure that payment data are not fragmented amongst different schemes,” she added.

In addition to the 2016 national e-payment master plan and 2017’s PromptPay money transfer service, the newly introduced National Digital ID should also help clients remotely join digital finance service, Desjuvan said.

“Our strategic directions focus on ensuring that the general public and businesses, especially small and medium enterprises (SMEs), have access to financial products and services that can help solve their financial pain points, at competitive prices,” she added.

Digital banking licence In January 2020, it was reported by The Bangkok Post that the BOT was studying digital banking licences.

The news outfit quoted the central bank’s deputy governor for financial institutions stability Ronadol Numnoda as saying that digital banks serve as options for the BOT to mull the overall banking industry in the long-term.

Desjuvan noted that promoting

rapid digital transformation of the financial system is one of the key focuses for the BOT as highlighted in its Strategic Plan 2020-2022.

In addition to the three pillars Santhiprabhob stated above, Desjuvan said there needs to be an appropriate level of collaboration and competition to secure the benefits of customers and businesses, particularly SMEs. She added that banks and nonbanks have both expressed interests in offering digital lending products and such development will matter into their considerations for future digital banking licences.

However, she did not specify the names of the interested parties.

Risks In Seth Chhabria’s viewpoint, the country’s top banks will still have the upper hand even if the digital shift could upend the playing field.

According to Seth Chhabria, it is unlikely that digitalisation will rattle the position of the main players in the medium term.

“The top five Thai banks collectively hold about 75% of the banking sector's loan market share and dominate the industry. These banks have further consolidated their position over the past decade, when their market share was about 60%. We believe these banks are gradually preparing to reengineer banking dynamics, as well as for competition from potential new players,” she added.

As examples, she cited Siam Commercial Bank’s long-term strategy to transform itself into a “lean organisation” espousing digitisation, as well as the 2019 partnership between Bangkok Bank, KASIKORNBANK, and the Central JD Money for Dolfin Wallet, Thailand’s first e-wallet app that allows payments and transfers through all channels.

With Thai lenders finding new ways to increase their online presence, they have been embracing new technology as the root of innovative product solutions, but the mspeed of implementation may differ, she noted. Whilst technology seems to pose a low risk

Nawaron Desjuvan

of disruption for now, conditions could rapidly shift if the operating environment permits big tech firms to rise as the main adversaries.

The physical presence of banks has been on a downward trend, with 2019 as the fourth straight year in which the total number of branches lowered across the country.

The branches are seen to embody a supporting role to other delivery channels once digital transactions surge, according to Seth Chhabria.

Fintech initiatives may boost industry earnings in the long run, but their overall effect may rely on banks’ response to incoming competition.

In terms of non-technological metrics, Thai banks should foresee elevated non-performing loans and credit costs in the next three years, said Maybank Kim Eng analyst Jesada Techahusdin. He believes that the sector’s Q2 earnings do not fully indicate the fallout caused by the pandemic as all lenders could defer loan classification downgrades during 2020-2021 after the central bank’s debt relief measures.

The future Per Desjuvan, the BOT will assume a “customer-centric” approach in its plans for digital banking and will encourage competition and collaboration across new and traditional business models. She acknowledged that it will be “a new phase” for the banking sector and the central bank has to take into account several implications in order to design suitable policies.

The central bank is also promoting digital financial infrastructures to spur more innovations that are sufficient for the demand of the digital economy. By Alyssa Divina

Bangkok Bank

ASIAN BANKING AND FINANCE | Q1 2021 23

EVENT COVERAGE: SFF X SWITCH 2020

Piyush Gupta, CEO, DBS

Tech won’t unseat human role in financial services

Artificial Intelligence will have the biggest impact in finance, but advisory services still need human interaction.

W

hilst technological adoption and use will continue to advance in the financial services space, human interaction will remain an integral part of customer journey in the near future, banking leaders said in a panel on financial services’ future during the Singapore Fintech Festival x Singapore Week of Innovation & TeCHnology (SWITCH) 2020.

At the minimum, customers could expect to be seamless, invisible, intuitive in their access to all kinds of financial services, DBS Bank Chief Executive Officer Piyush Gupta said on how financial services will develop in 2021 and beyond. This development will be made possible as financial institutions adopt and refine their digital technology platforms and systems in the coming years.

Demand will be driven by customers’ becoming more comfortable with using digital financial servicing platforms—a trend further accelerated by the onset of the pandemic in 2020, Gupta underscored during the panel that includes Standard Chartered

24 ASIAN BANKING AND FINANCE | Q1 2021

Singapore Chief Executive Officer Bill Winters and Calvin Choi, Chief Executive Officer of Hong Kong financial institution AMTD. Despite these, it is still expected that human interaction will continue to play “a very substantial” role in the financial services space, especially in the areas involving trust and advisory, according to Standard Chartered’s Winters.

“My forecast would be well after the point where the robo-advisors are able to give consistently better advice to human beings, customers will still want to talk to a human being to validate their views. They want the intuition on top of the output from the machine,” Winters said.

For Winters, the future for this space will be a marriage of technology and human advisors.

“More and more that means that we've got to use AI and associated tools to enrich the qualities of our advisors, and that the advisors themselves will put the final stamp of approval in one way or another, or give that reassurance that a customer always needs.”

After roboadvisors are able to give better advice to human beings, customers will still want to talk to a human being to validate their views

The past few months saw a rise in digital adoption amongst banking consumers, the panel noted. In DBS, for example, Gupta shared that the fastest-growing population of digital users in the last six to eight months were those aged over 60 years old, the so-called holdouts who were initially skeptical or reluctant to switch. This was followed by growth of users from migrant labor or the underbanked, and digital supply chain customers— Small and medium-sized enterprises.

“None of this is because technology got newly developed,” he said. “It is because people's psyche changed people's willingness to accept new forms of work change.

And as we look back, we will think of 2020 as the seminal year where you saw a profound change in the pace at which people adopted stuff. And as a consequence, obviously, it will transform the way work gets done as we go forward.”

Playing catch-up Amongst areas of digitisation, artificial intelligence (AI) was named as the technology that would have the biggest impact in the financial services industry in the next five years. This is one space where Gupta alludes that the gap between leaders and laggards will be hard to bridge.

“To get AI right, you got to not only have the infrastructure, the culture, the data scientists and so on, but you need to have the core raw material—which is data—to clean up the data and have the data infrastructure in place,” he said.

It took DBS four years to do this, Gupta shared, noting that this will not be an easy shift for a lot of companies to do. “Today, we have hundreds of AI models running in our bank, I'm not sure it's going to be that easy for people to play catch up on the AI journey,” said DBS’ top executive, who also named 5G, Internet of Things, and blockchain as other key factors to note in the development of financial services in the future.

“The trick with this is always to continue to stay ahead by leveraging and experimenting with newer stuff, even as people catch up with the basics,” he added.

EVENT COVERAGE: SFF X SWITCH 2020

Ravi Menon, managing director, Monetary Authority of Singapore

Fintech emerges as ‘force of good’ amidst pandemic In Singapore, the crisis has ushered new ways of bringing financial and digital inclusion to the forefront.

E

very cloud has a silver lining, as the saying goes.

At the face of the obstacles brought about by the COVID-19 pandemic, Monetary Authority of Singapore (MAS) managing director Ravi Menon believes that bringing finance and technology together can be a “force of good” that can establish a more inclusive society and a more sustainable planet. Speaking at the eighth edition of the Singapore FinTech Festival last December, he used the Lion City as an example of what fintech can do for an inclusive society, both for individuals and small businesses.

In his remarks, he championed Singapore’s four ongoing initiatives directed at the financial and digital inclusion of individuals: pervasive electronic payments, affordable cross-border remittance, timely health insurance claims, and holistic financial planning.

The country has managed to extend the digital economy to more users through expanding access to an interoperable payment system,

he said, which in turn supported the growth in e-commerce and online services. He added that four out of five Singaporeans and three-fourths of active businesses have adopted PayNow, with monthly transaction values crossing the US$3b mark.

The e-payment infrastructure has been extended to non-bank e-wallet payment providers starting February 2021, which “completes the last mile in Singapore’s journey to create an open and accessible e-payment ecosystem,” he stated.

In terms of cross-border remittances, PayNow’s partnership with Bank of Thailand’s PromptPay will commence by mid-2021.

Customers who register for PayNow or PromptPay can send money directly and instant from Singapore to Thailand or vice versa using their mobile phone numbers at competitive rates, Menon said, adding that it is “the first-of-its kind in the world.”

The linkage will begin with a small group of banks on both sides and will expand to include more banks and

Singapore has four ongoing initiatives directed at the financial and digital inclusion of individuals

non-bank providers over time. “MAS is keen to partner other central banks in the region to expand the linkage, so that more people across Southeast Asia can benefit.”

To allow for more efficient claims processing in the face of uncertainties over claimable insurance amounts, MAS, the Ministry of Health, and the Integrated Health Information Systems will join forces with the insurance and health industries for a tech platform to securely share data with patient consent. With a live pilot expected in 2021, the platform will help reduce duplicate claims, manual errors, and processing time, he explained.

And to help individuals maximise their use of financial services, the central bank and the Smart Nation and Digital Government Group along with key retail banks in Singapore have developed the Singapore Financial Data Exchange.

It will let clients consolidate their financial information coming from different sources, with plans to include information from the Central Depository and selected insurance firms in the future.

“By breaking down information silos, it will enable more holistic financial planning. Authorised financial institutions will have to compete harder among themselves to provide quality financial planning services to their customers,” according to Menon.

But Singapore’s fintech agenda does not end with individuals.

The country has also developed solutions for SMEs to enter digital platforms and enhance their business opportunities, particularly outside of Singapore’s borders. One such solution is the Networked Trade Platform (NTP), a trade and logistics system which digitally connects parties across the value chain in Singapore and abroad.

“NTP enables Small and medium-sized enterprises to share information quickly and securely with multiple parties connected within the platform. It also enables SMEs to apply for trade financing with multiple banks through a single application portal,” according to Menon. By Alyssa Divina ASIAN BANKING AND FINANCE | Q1 2021 25

EVENT COVERAGE: BANKSEC 2020

Banks can now inform clients instantly in case of probable fraudulent transactions in their accounts

DBS and UnionBank bolster data and IA against crimes Their respective methods have brought better operational efficiency and detection of fraudulent transactions.

A

s banks ride the wave of rapid digitisation, they find themselves dealing with the surge of risks and cyberattacks that came with it.

At the digitally held BankSec 2020 last December, Singapore’s DBS and the Philippines’ UnionBank shared insights on how they have been taking advantage of data and AI in securing their operations and defending against financial crimes, respectively. For DBS, its vice president for planning & performance Christiya Law presented how the bank bolsters the resilience of its ATM network, whilst UnionBank’s head of data science and solutions Josh Bosiños shared the bank’s models in monitoring fraudulent transactions.

DBS: keeping its Automatic Teller Machine network strong Propped up by a large user base in Singapore and managing 15 million transactions every month, DBS has to ensure that its ATM operations are resilient and safeguarded against

26 ASIAN BANKING AND FINANCE | Q1 2021

DBS and UnionBank leverage data and AI in coming up with models that will mitigate financial risks

risks and attacks. Because the bank has four interlinked touchpoints in its ATM network for cash replenishment, Law emphasised that it is very critical to have a reliable network that will support the demands of their clients.

The bank employs an internal machine fault data tracking to guarantee that data is accurately dispatched and machines are performing well. DBS also has data about previous cycles of its machines being loaded with cash in order to check the variance between physical cash counting versus system reports.

In order to maintain the service of these machines, DBS employs firstand second-line teams that monitor and troubleshoot faults 24/7, Law stated.

Through this pool of different data sources and formats, DBS’ data science team was able to build a data warehouse where it produces “top hits” in three different areas: joint categories, individual categories, and individual names. Law described “joint categories” as where DBS

reviews the trips the CIT team made in a month and the dollar value of some variances that the bank sees in terms of physical cash count versus system reports.

“Individual categories”, meanwhile, include the dollar value between the physical cash count and system reports, the total number of trips made to particular machines, and the percentage of such trips that resulted in variances.

Lastly, “individual names” give insights about who may have touched the machines during which variances were recorded or during a settlement period, and the names of the members of the servicing teams.

As a result, DBS came up with an automated dashboard where it could review data on a regular basis, internally and externally together with its vendors.

UnionBank: defending against financial crimes Bosiños has revealed that UnionBank leverages AI not just as an additional defence but also to lower operational costs. Its AI use-cases include the credit card fraud detection model, the ATM “no-cash dispensed” fraud model, and the suspicious transaction detection model.

The CC fraud detection model was designed to inform clients instantly in case of probable fraudulent transactions in their accounts, he said. “Because the existing defence decides who should be notified via SMS, with the AI model, only those within the selected threshold of the model will be notified.”

UnionBank continues to feed the model with more data as it confirms fraudulent transactions to validate the model prediction and “retrigger” its learning, he shared.

Regarding its ATM “no-cash dispensed” model (where fraudsters withdraw money from a machine, scurry away when cash is dispensed, then call the bank after a few days to tell that the ATM “failed” to give them cash), the bank is “playing around the threshold to find the right balance between sensitivity and specificity,” Bosiños said.

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EVENT COVERAGE: ABF RETAIL BANKING VIRTUAL CONFERENCE practices to maximise the chance of digital transformation success— laying out clear priorities, investing in talent, committing time and money, embracing agility, and consistently empowering the people.

Another integral innovation of the digital transformation is the use of the cloud, says Anand Subbaraman, general manager for retail banking solutions at Finastra.

“The most disruptive banks in the world are operating in the cloud because it enables banks to be nimble and accelerate their evolution in aspects such as agility, responsiveness, product innovation, resiliency and costs,” he added.

ABF hosted its first ever virtual conference on 17 September 2020

Asia's banks share key strategies for resilience

Around 70 banks and companies participated at the first ABF Retail Banking Virtual Conference in late 2020.

T

he future of banking will be in the palm of consumers' hands—literally—because more people will adapt to a future where everything and everyone is going digital.

This was underscored by leaders and industry experts during the ABF Retail Virtual Banking Conference 2020, which was hosted by the Asian Banking & Finance on 17 September.

Attendees from over 70 banks and companies participated in the event.

Speakers discussed the growing trend of digitalisation in the retail banking sector and ways to stay on top.

A surge in digital apps usage was seen as more consumers adapt to the continued rise of the smartphone.

It is no surprise that more users are now choosing to manage everything, including banking,in the comforts of their own homes. Ernst & Young ASEAN managing partner Liew Nam Soon stated that the COVID-19 pandemic even accelerated the growth of e-commerce.

This was seconded by Boston

28 ASIAN BANKING AND FINANCE | Q1 2021

Data should be more structured to give a better sense on what customers will need.

Consulting Group partnerTushar Agarwal in his discussion of the internet boom. According to Tushar, almost half of customers have increased their mobile usage, whilst 75% of consumers have chosen it as their preferred mechanism for daily banking activity, especially during COVID-19 pandemic.

The internet economy The Bank of East Asia general manager and chief digital officer Ronald Fung notes that 27% of companies say digital transformation is a matter of survival and 40% of technology spending last year went towards digital transformation. He mentioned that in 2019 alone, $2t was spent on digital transformation.

“COVID-19 has expedited the pace of digital transformation significantly. COVID-19 puts every company's digital capability to test through remote working, contingency planning, and agility,” Fung said.

Fung broke down the five key

Leveraging data, customer loyalty Supaneewan Chutrakul, first senior vice president of the retail business division at Kasikorn Bank, identified other key factors that help the growth of digital banking which are innovation and technology, digital literacy, and digital collaboration or a digital ecosystem.

She adds that COVID-19 has forced consumers to adopt digital.

As such, a product of digitalisation is data and for businesses, that means the emergence of big data.

According to Chutrakul, data will be the core of business competitiveness. As such, there is a need to make it more useful and structured to give a better sense on what customers will need.

Big data can be used as a great tool for banks, especially with the need for a more personalised banking experience. Ruwani Hewa, head of financial services proposition of loyalty & customer engagement division at Collinson, said that leveraging big data to work for retail banks means understanding the needs of customers, providing relevant options, and delivering a personalised experience.

“Deepen your sales and loyalty strategies, whilst helping your customers access relevant, exciting and rewarding offers,” advised Hewa.

Tushar had already stressed that more people are using their mobile devices to manage almost everything, from shopping and buying food as well as banking. By Djan Magbanua

OPINION

BY MALCOLM GOMES, PRATEEK BHARGAVA, RAJ BINANI, TENGFEI MA

Agent banking: a brand 'new' channel for the new normal

S

MALCOLM GOMES, PRATEEK BHARGAVA, RAJ BINANI, TENFEI MA ARE OF MCKINSEY & CO.

erving unbanked or under-served populations is a challenge for many retail banks globally, despite the fact that financial inclusion is a high priority for many governments. For most banks, maintaining a traditional branch in a rural area is, unfortunately, inherently cost-ineffective.

In addition to tellers, banks have to station managers or other employees who specialize in areas such as mortgages, loans and securities— often to realize that footfall is far too low to support the branch, given that most customers have to travel extensively to reach it.

The challenge has been exacerbated by the COVID-19 pandemic and the resulting physical distancing common in many countries. Banks are urgently searching for distribution channels that work in this context.

Digital channels have been one obvious answer, but they don’t work for everyone. Some banks are looking again at the idea of “agent banking”—a model in which a bank distributes products and services through agents or banking correspondents, typically a mom-and-pop-store, retail shop, post office, or mobile network operator. In this model, rather than a branch teller, it is the owner or an employee of the shop who conducts the transaction, whether it be a deposit, withdrawal, or transfer money. They can also include services such as account opening, bill payment, or the purchase of air time.

One advantage of agency banking is that banks do not have to invest in a traditional branch that is unlikely to attract enough customers—but it also helps banks reach unbanked or underserved customers who reside away from urban hubs. In Southeast Asia, these numbers can be sizable. For example, in Indonesia, the penetration of traditional banking services in nonurban areas is only 30%, whilst in Myanmar it is less than 10%.

Agent banking offers customers the assurance of physical interaction with their “bankers,” combined with the convenience of digital technology. However, a number of challenges have inhibited the growth of the agent banking channel:

30 ASIAN BANKING AND FINANCE | Q1 2021

• Large numbers of inactive agents: The lack of agent selection mechanisms, liquidity support, training, and incentive alignment can lead to large pools of dormant agents.

• Disinterest in existing commission structures: Income from agent banking needs to be a high fraction of agents’ total income for them to remain interested.

• Insufficient support and infrastructure: A lack of support, coverage, and technical infrastructure can make transactions a hassle and prevents agents from actively doing their role and transacting more.

If banks can find solutions to these challenges (and we suggest a few below), agent banking could become increasingly important for a number of reasons: Agent stores operate longer hours, with less traffic In some markets, agents are classified as an essential service (due to the provision of daily necessities for communities), allowing them to stay open even during lockdowns.

For example, EKO, a leading agent banking operator in India, has seen a boost in usage, as bank’s branch hours are shortened and queues grow longer.

Customer behaviors are changing Whilst the unbanked and underserved segment will continue to be served by agents, there may also be an increase in the bank’s regular customers who choose to visit agents due to the convenience, proximity, and shorter queuing times.

Agents can address a wider range of demands Agents can offer more ancillary services than banks—think mobile airtime top-ups or buying data packages—making them a more likely destination for those who have to travel longer distances to get their errands done.

Banks considering setting up an agency network can focus on three pillars: getting the basics right, expanding the pie, and ecosystem partnership.

OPINION

BY ERICH GERBER

Banking services in Asia's burgeoning mobile-first society

T

he development and penetration of the financial sector in local Asian markets confirms that the future has arrived in the region.

Taxis, groceries, and all types of other goods and services can now be paid for from devices that fit into the palm of our hand without a physical exchange of cash. Soon, transactions will become even simpler as an open banking model takes hold and fosters more innovation through integrations with third parties.

The digital age is truly redefining how banking services are delivered, the types of businesses offering these services, and consumer expectations of the services they receive.

In the Asia-Pacific region, fintech startups, digitalonly banks, and companies outside of the financial services sector have taken an early lead in offering services to attract the region's rapidly-growing, savvy middle class. Legacy systems and obsolete regulations are making it difficult for traditional banks to compete in this environment. However, a key advantage that these banks have is their customer data, which is essential to survival in the digital economy.

ERICH GERBER Senior Vice President APJ, TIBCO

Asia Pacific is leading financial sector evolution Asia's emerging markets are quickly becoming major engines of growth and innovation in global banking.

McKinsey estimates that as incomes rise and the share of middle class households expands to two-thirds, personal financial assets in the Asia-Pacific region will total USD 69 trillion by 2025, three-quarters of the global total. Over 77% of these customers prefer digital banking over visiting physical branches for an increasing variety of services. This is especially true in mobile-first countries including China, India, Thailand, and also Indonesia.

Established models in banking have also become obsolete, as innovators such as Alipay and WeChat Pay help reorganize economic activity around new models to address the explosion of the e-commerce sector.

For banks to match these nimble, non-banking competitors, they must rely on data and its internal management to support the introduction of new services. Cross-selling and referral opportunities become easier to identify when high-quality, secure data is available. Technology solutions to address data management not only optimize customer acquisition, but also simplify compliance.

The pandemic and travel restrictions accelerated the development of these digital services among traditional banks to enable data-driven customer experiences that

QR codes gave rise to new payment models

reflect a clear understanding of their purchase journey and preferences. In Thailand, KBTG bank resolved data issues that prevented them from offering the digital banking choices that would fit their customers' lifestyles.

Now, its 16 million retail banking customers can perform all activities on a mobile device and it handles up to 10 million digital transactions per day.

A modern approach to banking services Open banking, which is enabled by a series of technology solutions, regulations and services, takes digital services a step further. It allows faster, more secure transactions to take place anywhere in the world through third parties. Consumers gain more choices, better service, and the opportunity for frictionless commerce. With a click or voice command, they can send money and gifts using social media or a chosen payment platform.

API-connected integrations effectively remove the extra steps of logging into the account on the bank's website to enter payee details.

However, concerns about data breaches have prompted the creation of regulatory frameworks to facilitate development with minimal risk. Singapore, Hong Kong, and Australia have taken an early lead in embracing open banking, and developing markets in the region are not far behind.

The banking industry, and the traditional model that it has relied on for decades, is transforming to address the modern, digital world. Leveraging data to improve customer experiences allows banks to build loyalty among mobile-first customers. Competition from non-traditional banking players and the emergence of open banking systems are industry forces that are too powerful to deny.

Adopting new technology solutions with data as the backbone driving growth is critical if incumbent institutions want to stay around to witness the next 100 years of banking innovation.

ASIAN BANKING AND FINANCE | Q1 2021 31

OPINION

BY CHRISTOPHER YAP

Protecting consumer banking in the era of mobile tech

W

ith smartphone usage growing year over year, mobile banking is the preferred method of customer engagement with banks. In Singapore alone, a third of the adult population is projected to have a digital bank account by 2025. We can expect this number to grow rapidly with the recent announcement by the Monetary Authority of Singapore (MAS) on awarding digital full bank licences to non-banks. This move means the increase in personalisation and convenience for consumers, with all-in-one banking services at their fingertips 24/7.

However, existing financial institutions (FIs) and new players are today facing a unique challenge: they must invest in solutions that will continue to provide consumers with a frictionless experience while ensuring top-of-the-line security. This comes as 64% of Asia Pacific mobile threat incidents were driven by financial motives, as reported in Verizon’s 2020 Data Breach Investigations Report.

One way to overcome this challenge is to build behavioural biometrics into the fraud prevention stack. Behavioural biometrics detects anomalies in user behaviour by monitoring how information is entered, not what. The technology satisfies both business and risk objectives by providing top security and enabling consumers to go about their banking activities with less friction.

CHRISTOPHER YAP Regional Head of ASEAN and Hong Kong BioCath

A different approach to mobile banking security Behavioural biometrics leverages mobile-specific sensors such as accelerometer, touch, orientation, and gyro to continuously analyse user behaviour on three levels throughout a mobile banking session. First, profiling a user based on physical traits such as how the user holds their device, swipes, scrolls, and taps.

When the current session looks different from the historical profiles, this might indicate that someone other than the legitimate users has accessed the account. This is the case even if a cybercriminal steals password information and logs into an account from their own device, or remotely logs into the banking app on the user’s trusted device. Unlike traditional fraud controls that heavily rely on device elements, user behaviour cannot be stolen, spoofed, or even replicated.

Second, profiling a user based on cognitive choices, such as how the user inputs data or navigates a session, to identify genuine versus criminal behavioural indicators. Third, profiling to determine user intent

32 ASIAN BANKING AND FINANCE | Q1 2021

and emotional state in the context of the activity to detect complex situations indicating high levels of risk.

For example, behavioural insights can detect when a user falsely claims their age as part of the account opening process, or when a user is conducting a transaction under the guidance of a voice scammer.

Striking a balance between CX and security The appeal of behavioural biometrics is that the technology runs continuously in the background during sessions, using machine learning to build up user profiles. How a consumer interacts within a session differentiates them from any other potential user, including hackers and automated attacks.

It also allows banks to accurately distinguish between genuine users and cybercriminals based on behavioural insights, rather than traditional factors like location or device ID, which are known for highfalse positives. Behavioural biometrics reduces false declines by continually monitoring user behaviour, not only their location or device, to assess the risk of a fraudulent session.

With this in mind, all customers must do is be themselves, which is a big improvement from the current fraud detection solutions, which slow users down, and ultimately still fail at keeping the cybercriminals out. Traditional fraud controls are treating customers like criminals, causing a lot of friction. Behavioural biometrics is a modern approach that delivers better detection by understanding the behavioural intent to detect illegitimate activity versus that of a legitimate user.

Behavioural anomalies Unique to mobile banking applications is the ability to extract touch and gyro data to detect subtle behavioural anomalies against natural user characteristics, such as dominant hand, touch size and pressure. When a user types on their mobile device using the keypad, the precise location where the user touches down is unique, as well as the surface area covered and the pressure the user applies. These insights enable the detection of subtle inconsistencies across sessions that may indicate elevated risk.

Scrolling on a mobile application is a perfect example because it is quite unique to every user.

Below is an illustration of six different users scrolling on the same page of a mobile application. The blue lines represent the user’s natural swipe patterns as they interact with their device screen.

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From corporate lending to advisory services, BDO Unibank has the scale and reach, expertise and local knowledge to turn your vision into winning strategies.

Together, we'll take the next big step. Partner with BDO Unibank.

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