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

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.

The 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.

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.

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

Cherie Teng, head of corporate banking at HSBC Singapore

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

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.

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

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

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.

Sai 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.

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.

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

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.

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.

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.

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.

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

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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.

The 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 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.

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

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

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.

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.

Fintechs and traditional banks often make excellent partners with complementary capabilities

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

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.

The 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 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

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

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 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.

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

Paul Ng