Asian Banking & Finance (January-March 2022) by Charlton Media Group

Issue No. 101 DISPLAY TO 31 MARCH 2022

‘BUY NOW, PAY LATER’ IS THE FUTURE OF BANKING Asian Banking & Finance

LIVI BANK BREAKS GROUND AS FIRST BANK TO INTRODUCE BNPL SERVICE

SMES ARE THE LIFEBLOOD OF ASIA PACIFIC: MASTERCARD CITI COMMERCIAL BANK BRIDGES CULTURAL GAP WITH CHINA DESK INITIATIVE SINGAPORE: YES TO WHOLESALE, SKEPTICAL ON RETAIL DIGITAL FIAT MONEY UOB SIMPLIFIES AND AMPLIFIES SINGAPOREANS’ GREEN ENERGY JOURNEY WITH U-ENERGY David Sun, Livi Bank CEO

FROM THE EDITOR PUBLISHER & EDITOR-IN-CHIEF

Tim Charlton

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n the first issue of the New Year, we highlight the future of banking amidst the global threat of climate change, as well as initiatives of the finance sector to achieve green finance goals. We chatted with Livi Bank CEO David Sun on making banking more rewarding with its buy now, pay later services (page 10); we also talked with Christine Lin, Financial Services Assurance Leader for EY Hong Kong, to discuss China’s trillion-dollar financial market for foreign firms (page 12). We talked with Hsiu-Yi Lin, Singapore & ASEAN Head for Citi Commercial Bank, discussing the China Desk initiative, which opens Singapore to mid-sized Chinese firms seeking to penetrate ASEAN markets (page 18); and finally, we chatted with Jasper Wong, Head of Construction and Infrastructure for UOB, on addressing the energy crisis and rising electricity costs in Singapore with the U-Energy programme (page 20).

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This issue also covers the Singapore Fintech Festival 2021 where experts discussed the country’s stance on wholesale vs. retail CBDCs and why cryptocurrencies should not be considered money just yet (page 22). In the latest FSI Conference, experts discussed the potential of fintech to overtake banks in the digital space (page 24). Finally, finance experts give a talk on the future of banking and competing with fintech in the latest Hitachi virtual roundtable (page 26). Read on and enjoy!

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

ASIAN BANKING & FINANCE | Q1 2022 1

CONTENTS

CEO INTERVIEW HOW LIVI BANK AIMS TO MAKE BANKING MORE REWARDING

FIRST 06 4 in 5 Singaporeans prefer online banking

07 Profits of Japan’s megabanks expected to rise in 2022

CEO INTERVIEW 12 How Livi Bank aims to make banking more rewarding

ANALYST VIEW 14 China’s new foreign-friendly financial market laden with opportunities

FINTECH ANALYSIS 17 SMEs are the lifeblood of Asia Pacific: Mastercard

TECHNOLOGY WHY BANKS NEED MORE TECH EXPERTS IN THEIR BOARDROOMS

EVENT COVERAGE COULD FINTECH OVERTAKE BANKS IN THE DIGITAL SPACE?

EVENT COVERAGE 24 Singapore: Yes to wholesale, skeptical on retail digital fiat money

TECHNOLOGY 18 Why banks need more tech experts in their boardrooms

CASE STUDY 20 Citi Commercial Bank bridges cultural gap with China Desk initiative

22 UOB simplifies and amplifies Singaporeans’ green energy journey

28 Reach the future of banking through modern operations and data management

OPINION 30 Climate risk and the role of the finance sector

32 How financial services can heed regulators’ call for sustainable finance

with U-Energy

Published quarterly by Charlton Media Group Pte Ltd 101 Cecil St. #17-09 Tong Eng Building 2 ASIAN BANKING AND FINANCE | MARCH 2019 Singapore 069533

For the latest banking news from Asia visit the website

www.asianbankingandfinance.net

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News from asianbankingandfinance.net Daily news from Asia MOST READ

ISLAMIC BANKING

BANKING TECHNOLOGY

Maybank launches programme to help Nearly 2 in 5 HK adults will have Malaysian halal SMEs go overseas virtual bank accounts by 2026 Over two million adults are projected Fifty halal food products made by to be virtual bank owners in five Malaysian SMEs are now available years. Hong Kong’s projected growth in Singapore supermarkets through rate in digital-only banking adoption Maybank Islamic’s Halal Route to Market Programme (HalMap). HalMap is “faster than global average,” aims to enable Malaysia-based SMEs to according to Finder’s global fintech expand their halal businesses overseas. editor, Elizabeth Barry.

LENDING & CREDIT

HSBC grants HK$1b green loan to Chinachem Group HSBC has granted a three-year sustainability-linked loan facility of HK$1b to Hong Kong property developer, Chinachem Group. HSBC acted as the sole lender and sustainability structuring bank for this facility.

4 ASIAN BANKING AND & FINANCE FINANCE | Q1 | Q3 2022 2021

ECONOMY

ADB boosts 2019-2030 climate financing goals to $100b ADB has announced that it has increased its goal to deliver climate financing to its DMCs to $100b by 2030. ADB President Masatsugu Asakawa said that the battle against climate change will be won or lost in the Asia-Pac region.

RETAIL BANKING

OCBC allows real-time digital purchase of gold, silver OCBC has enabled Singaporean investors to buy precious metals in real-time through its mobile app. In its first week of launch, over S$1m and 3,698 oz. worth of precious metals has been purchased on the app, mainly gold.

INVESTMENT BANKING

Citi raises record $40b sustainable financing for APAC clients in 2021 YTD Citi has raised over $40b in sustainable financing for APAC clients in 2021, a sixfold increase versus the same period in 2020. This was thanks to Alibaba’s $5b offerings and a $2.5 bond issuance by SK Hynix.

ASIAN BANKING & FINANCE | Q1 2022 5

FIRST ADOPTION OF E-CNY POSES RISKS TO BANKS PAYMENTS

e-CNY poses adjustment risks to the banking system

t will reduce their ability to earn interest on cash in transit and test money supply. Wider adoption of China’s digital renminbi (e-CNY) poses adjustment risks to the banking system, according to a financial analyst. Digital renminbi is expected to gain broad public acceptance as a digitalised form of legal tender, supported by China’s well-established network infrastructure and wide broadband mobile penetration, according to Yan Li, a Moody’s assistant vice president and analyst. “Moreover, e-CNY’s offline feature will allow transactions where network coverage and connections are lacking, adding to its robust nature as a transaction medium,” he added. The adoption of e-CNY will improve operator banks’ competitiveness in the online payment market. The close integration of banks in the e-CNY regime will also encourage its users to stay within banks’ retail payment services, minimising the risk of disintermediation. Adjustment risks However, banks still face adjustment risks when e-CNY debuts as a more efficient and inclusive form of the monetary base. “They will have reduced ability to earn interest on cash in transit whilst facing potentially increased volatility in the composition of money supply,” Moody’s said in a report. The higher technology spending amidst limited fee opportunities will also pressure banks’ profits should e-CNY usage spread to the wider banking system. “More institutions would then have to make a significant and steady investment to integrate e-CNY functions into their applications. And integrating e-CNY functionalities will test banks’ ability to address related social and governance concerns, such as privacy and cyber risks,” Moody’s also warned.

6 ASIAN BANKING & FINANCE | Q1 2022

Despite the preference for online banking, Singaporeans still indicated dissatisfaction with digital services

4 in 5 Singaporeans prefer online banking ONLINE BANKING

obile banking is now the way to go for Singaporeans, with four out of five indicating that they prefer online over in-person interactions when they bank, according to a survey by an American digital consulting company, Publicis Sapient. Out of the 704 Singaporeans surveyed in June, 50% turn to mobile apps for banking interactions, whilst another 33% rely on bank websites. Only 12% of respondents stated that going to a branch is their primary mode of communication with their bank. Only 4% concentrate their banking activities at the ATM. This is no surprise as consumers are spending more time online amidst a time of restricted movement and tightened COVID-19 measures worldwide, said Publicis Sapient. Three in four (74%) Singaporean respondents reportedly spent more time online in the past year compared to the COVID-less year prior. Less than one in ten, or just 9% indicated that they are spending less time online in the past year.

The future of physical banks could reside in their ability to serve advisory needs

Dissatisfaction Even with online being their preferred method of banking, respondents still indicated dissatisfaction with the services offered digitally. Research Publicis Sapient’s Digital Life Index found that dissatisfaction typically occurs when a certain activity is too difficult to navigate or requires too many steps to complete, signalling a need for more seamless digital experiences across channels. “Today’s consumer demands flexibility in how and where they engage financial services to get what they want. Banks that take advantage of this shift will stand to outpace consumers and attract a new generation of customers,” said Emma Scales, managing director APAC at Publicis Sapient. On the contrary, banks that fail to adapt to the digital age and the rising demand for convenient, fuss-free online experiences risk extinction, Scales warned. Advisory needs All is not lost for the physical bank branch, however. The study found that the future of physical bank branches could reside in their ability to serve advisory needs, with nearly half or 47% of respondents preferring to speak with a financial advisor in-person at a bank. In contrast, only 33% leaned towards an online interaction. Only 13% said that they use mobile banking apps to seek financial advice or chat with an advisor in the past 3 months. Rife for disruption The market for digital-first banks is growing in Singapore, with adoption surpassing that of the global average of 44% of all respondents, according to Publicis Sapient. Nearly one in two or 49% of Singaporean respondents stated that they have a bank account with a digital bank. Digital Life Index research also found that one in three or 34% of Singapore respondents have already decided to change or are considering changing their banks or financial institutions in the next year.

FIRST Cost-cutting efforts through digitalisation will start to translate into declines in base operating expenses

Loan demand increased sharply because of the pandemic in the first half of fiscal 2020

Profits of Japan’s megabanks expected to rise in 2022

CONSUMER CREDIT

he profitability of Japan’s three megabanks is expected to further increase over the next 12 to 18 months on the back of lower credit costs, according to a report by Moody’s Japan K.K. The net income of Mitsubishi UFJ Financial Group, Sumitomo Mitsui Financial Group, and Mizuho Financial Group jumped 95%, 68.8%, and 78.9%, respectively over the first six

months of the fiscal year ending March 2022 compared to the previous fiscal year. Credit costs declined after a spike due to the coronavirus pandemic. Whilst the nonperforming loan (NPL) ratios of all three banks remained almost unchanged from the end of March 2021, these are well below the 10-year average of 1.4%. “We expect the asset risks of

Japan’s three megabanks to remain low in fiscal 2021, given that the global economy will recover in 2021-2022, and the banks’ conservative approach,” says Tetsuya Yamamoto, a Moody’s Vice President and Senior Credit Officer. Banks’ cost-cutting efforts through digitalisation will start to translate into declines in base operating expenses, Yamamoto added. However, domestic net interest margins will remain under pressure because of excess liquidity and fierce competition amongst banks. Notably, whilst Mizuho’s credit risk is one of the lowest amongst rated banks in Japan, Mizuho has relatively high operational risks, as highlighted by a series of system glitches in 2021, Yamamoto said. Overall, Moody’s expects all three banks’ capital ratios to be stable as they steadily accumulate retained earnings, whilst controlling growth in risk-weighted assets (RWAs). “Loan demand increased sharply because of the pandemic in the first half of fiscal 2020 but it has eased. As such, RWA growth at the three banks has normalised and will not change much from their current levels,” Moody’s wrote. At the same time, banks’ liquidity will remain strong, backed by large amounts of cash and highly liquid securities holdings, the ratings agency added.

HONG KONG TO LAUNCH OWN DIGITAL CURRENCY: FINANCIAL SECRETARY

ong Kong is looking to join the digital currency race, with Financial Secretary Paul Chan confirming that the city is looking to issue its own central bank digital currency (CBDC). “The Hong Kong Monetary Authority (HKMA) is also studying the prospect of issuing our own central bank digital currencies, CBDCs, for retail use in Hong Kong, and I look forward to sharing the findings in the coming months,” Chan told attendees of the Hong Kong Fintech Week 2021, for which he delivered the welcoming remarks. The HKMA recently released a whitepaper that studies the technical and regulatory aspects involved in issuing an e-HKD. It first announced its intention to study CDBDs as part of its “Fintech 2025” roadmap. First unveiled in June, the roadmap seeks to

strengthen the city’s fintech sector and push “all banks to go fintech.” “The HKMA has been working with the Bank for International Settlements Innovation Hub Hong Kong Centre to research retail CBDCs and will begin a study on e-HKD to understand its use cases, benefits, and related risks,” the financial regulator stated in a press release. Hong Kong’s regulator is collaborating with the People’s Bank of China (PBOC) to test e-CNY in the city to enhance cross-boundary payment services. The HKMA and PBOC recently signed a memorandum of understanding for the Greater Bay Area FinTech supervisory cooperation. The new cooperation will reportedly allow financial institutions, tech companies and innovators from Hong Kong to test cost boundary financial applications via a one-stop sandbox, Chan said.

HKMA is studying the prospect of issuing its own CBDCs for retail use in Hong Kong

ASIAN BANKING & FINANCE | Q1 2022 7

FINANCE COMPANY OF THE YEAR - THAILAND

Trust is the basis of banking The pandemic has reminded society that trust is the most crucial element that is needed from banks. How can the industry go to greater heights?

he ABS-commissioned Banking Trust Index for Singapore (BTIS) report found that there is high trust in banks in Singapore. In fact, the banking industry is trusted more than businesses and NGOs1. The survey also reinforces that trust requires constant nurturing. Indeed, customers said they would trust banks more if greater accountability, transparency and customer and community focus was shown. So what else can banks do to maintain and build trust? Embedding a customer-centric culture Customers’ best interests should be at the heart of everything we do. And there are several ways to achieve that. 1. Shift from a product-focused mindset to one that’s customer-focused. 2. Blend technology with empathy. We need to meet people where they are by providing digital or “human touch” servicing options based on their preferences. 3. Constant training and upskilling of our people to ensure they have the knowledge and confidence to guide customers on their financial needs. 4. Remunerate our people for demonstrating the right values and behaviours, instead of simply being focused on performance alone. At HSBC, we have worked hard to improve on these key areas over the years. Our incentive scheme for our sales teams around the world is holistic and centred around meeting customer needs, without a product bias. HSBC employees are assessed not only for performance, but also values and positive behaviours. The aim is to ensure each employee remains open, dependable and connected to our customers whilst in pursuit of performance excellence. Banking with a purpose The pandemic has highlighted how truly connected we are, and that everyone has to play their part to help make the world a better place. Societies around the world now expect banks to help address social and environmental issues like gender inequality

Anurag Mathur, Head, Wealth and Personal Banking, HSBC Bank (Singapore)

and climate change, and rightfully so. As major engines of growth in the global economy, banks hold a variety of roles: asset owners, employers, financial market intermediaries and investors. This means that the industry as a whole can not only allocate financing to activities that can bring about positive change to societies, they can also help to encourage positive behaviours amongst their counterparts and customers. One area that banks can help shape the future is on sustainability. We now have the opportunity to build back better and help reboot our economies by transitioning to green, moving away from high-emission pathways and changing the behaviour of businesses and people. HSBC has proposed several new climate resolutions, including phasing-out the financing of coal and publishing annual progress reports2. Our efforts to develop partnerships and products that will bring finance at scale to create a

2 3

8 ASIAN ASIAN BANKING BANKINGAND & FINANCE FINANCE| Q1 | DECEMBER Q3 2022 2021 2019

Putting it together The world is constantly evolving, and banks have to adapt; not only with their customers changing needs, but also society’s expectations. That is why for banks to stay relevant, we cannot lose sight of their core purpose: to safeguard and responsibly look after other people’s money, and to continue to contribute to society in positive ways. By Anurag Mathur, Head, Wealth and Personal Banking, HSBC Bank (Singapore)

We now have the opportunity to build back better and help reboot our economies by transitioning to green, moving away from highemission pathways and changing the behaviour of businesses and people

https://abs.org.sg/docs/library/btis-2020-report.pdf “Very Satisfied Customers” are those who rate HSBC between 8 and 10, where 10 = Extremely Satisfied https://www.hsbc.com/who-we-are/our-climate-strategy/hsbc-climate-plan-explained 4 https://www.euromoney.com/article/27g0tbzca93zph51zgjy8/awards/awards-for-excellence/worlds-best-bank-for-sustainable-finance-2020-hsbc 5 https://www.about.hsbc.com.sg/news-and-media/hsbc-switches-to-recycled-plastic-credit-and-debit-cards 1

more sustainable and resilient planet has similarly gained industry recognition. We have also taken concrete steps to help reduce our environmental footprint – over 85% of our customers in Singapore use e-statements rather than paper statements, from H2 2021 we will be replacing both credit and debit cards with recycled plastic cards3 and we have significantly expanded the range of ESGthemed funds for our customers to invest in. The BTIS report also highlighted that governments’ regulations contribute to the Trust perception of the banking industry. This highlights the importance of working with regulators to protect customers and encourage confidence in the financial industry. It has been a privilege for HSBC to chair the BTIS Taskforce and also contribute actively to the wider agenda for the ABS Culture and Conduct Steering Group. HSBC is a member of the Veritas consortium4 sponsored by the MAS where we are one of the co-lead of the Fairness and Transparency work streams. The methodology and metrics developed would help the industry address challenges in the responsible use of Artificial Intelligence (AI) and Data Analytics (DA) as part of their business operations.

MOBILE BANKING & PAYMENT INITIATIVE OF THE YEAR OPEN BANKING INITIATIVE OF THE YEAR BRANCH INNOVATION OF THE YEAR

Build it and they will come: How Bank SinoPac created its digital paperless service The award-winning bank addressed problems such as long queues and arduous workflow.

he long queue, mounds of paperwork, and arduous process have always been a few of the biggest challenges for banks to address. These problems have always been noted by top banks, who want to lessen friction for both customers and employees. According to Sarah Chen, Associate Executive Vice President of Operations Division of Bank SinoPac, the traditional branch service model, which uses paper and manual workflow, has pain points such as long waiting time for customers and long operation time for employees. A traditional bank would also have to deal with gargantuan amounts of paper that are not only a huge waste but could be harder to keep track internally. In fact, back in 2017, Bank SinoPac used up to 12 million sheets of paper a year. This is about two times the height of Taipei 101, the highest building in Taiwan. Leveraging technology to increase the level of their service and provide customers with a more satisfying experience, Bank SinoPac embarked on a digital transformation journey. It created the digital and paperless branch counter services, iBranch Sinopac. The iBranch SinoPac enhances service efficiency and promotes O2O online and offline digital integration process that enables customers to digitise the entire process from branch number pickup, account opening application, form filling, transaction confirmation signature, identity verification, to customer receipts, and more. It even cut down the account opening time from one hour to 10 minutes with an estimated increase in customer service efficiency by 25%. Irene Huang, Associate Executive Vice President of Digital Banking Division of Bank SinoPac said that since 2020, digital transactions—such as mobile payments, online shopping, and using online food delivery platforms—has increased, driving consumers to demand more digital alternatives in place of traditional physical methods. To satisfy consumer behaviour changes and demands, the Bank SinoPac has switched from physical to online, providing contactless payment services so that consumers can seamlessly bind and link accounts, to fulfill the overall user experience friendly, to

DAWHO Team & Irene Huang, Associate Executive Vice President of Digital Banking Division

achieve innovative service thinking, and expand the scale of the financial market. By providing business-to-consumer applications in the four major fields of e-commerce payment, bills payment, identity authentication, and open banking through the application programming interfaces (APIs) platform of the Bank SinoPac, it has so far assisted more than one thousand companies in providing financial services, helping customers strengthen their online layout, and implementing the ubiquity of financial services with cross-industry cooperation,” said Huang. To beef up its online to offline integration, Bank SinoPac also debuted the DAWHO APP, targeting customers they dubbed as “Henry’s” or high income, not rich yet. It is an all-in-one app that enables services such as deposit, transfer, credit cards, loans, foreign exchange, and investment anytime and anywhere. Huang said they realised that the pivotal strategy lies in the customer-centric mindset. Bank SinoPac conducted studies revealing that the modern lifestyle is highly penetrated through online to offline integrated services. “Consequently, DAWHO APP was born with the vision to smoothly combine every financial decision into our daily life. Therefore, functions like investing in a small amount, and enjoying a high rate of cash rebate through tailored credit card customised for digital

lifestyle were launched to meet customer’s need at first hand, which not only require intensive cross-functional collaboration but also need to thoroughly monitor the latest consumer behaviour under the evolving economic circumstances,” Huang added. The road ahead These initiatives are just some of the reasons why Bank SinoPac was given recognition for the Mobile Banking & Payment Initiative of the Year, the Open Banking Initiative of the Year, and the Branch Innovation of the Year at the Asian Banking & Finance Retail Banking Awards. Bank SinoPac aims to further improve its services, especially with the DAWHO APP. The bank is working on strengthening its cybersecurity infrastructure as well as figuring out which of the latest techniques in verifying transactions and identities is best to apply in its online services. “We appreciate and are honoured to win these awards. Bank SinoPac will keep on participating in open banking cooperation in line with government policies, developing various APIs for diversified financial scenarios, and aggressively create multi-channel, dedicated to providing seamless financial services and creating a high-quality digital experience for our consumers,” Huang said.

Bank SinoPac will keep on developing various APIs for diversified financial scenarios, dedicated to providing seamless financial services and creating a high-quality digital experience for our consumers ASIAN BANKING ASIAN ASIAN BANKING AND BANKING FINANCE AND & FINANCE FINANCE | DECEMBER || Q1 Q3 2022 2021 2020 9

DOMESTIC FOREIGN EXCHANGE BANK OF THE YEAR - MALAYSIA

RHB Malaysia earns its 9th Domestic Foreign Exchange Bank of the Year trophy at the ABF Awards The multinational regional financial services provider was recognised for its hassle-free digital FX platform assisting customers with simple, seamless, and convenient transactions.

cknowledged for maintaining its position as a market leader in the Forex banking business in Malaysia, RHB Banking Group (RHB or the Group) received its 9th consecutive Domestic Foreign Exchange Bank of the Year trophy at the 2021 Asian Banking & Finance Awards. The group, headquartered in Malaysia, launched RHB Live FX @ Reflex, a digital platform that enables its customers to conduct online monitoring and booking of real-time FX rates and contracts combined with seamless straight-through transaction settlement. Through the system, users are in control as to how they wish to manage their settlements whilst providing them access to trade up to 34 currency pairs all in one place. “RHB Live FX provided the opportunity for us to embark on an effective product differentiation strategy in the FX market,” said RHB. “Customers are now able to monitor and book real-time FX and time option contracts. Hassle-free straight-through processing is assured with declared beneficiary capabilities and the flexibility of early take-up and settlement,” they added. According to the group, the platform acts as an FX pricing and hedging tool comprising five main functions including Exchange Rate Inquiry to monitor real-time foreign exchange rates in 34 currencies, and Indicative Forward Swap Points to monitor Outright & Time Option FX swap points. The system also includes services in FX Rate Booking to book foreign exchange contracts, and Contract Rate Inquiry to view confirmed contract information, as well as Booking Status Inquiry to check booking status. These positive outputs were the product of the group’s response to economic uncertainties during the previous year and by listening to its customers. According to RHB, the group maintained a positive outlook despite the hurdles in the finance sector and focused its attention on providing meaningful solutions to its customers during these unprecedented circumstances. During that challenging period, RHB Live FX provided the chance for RHB to embark on an effective product differentiation strategy in the FX market.

10 ASIAN ASIAN BANKING BANKINGAND & FINANCE FINANCE| Q1 | DECEMBER Q3 2022 2021 2019

Angus Salim bin Salleh Amran holds the position of Group Treasurer, Head-Global Sales & Markets at RHB Bank Bhd.

“On the surface, launching new products during the Movement Control Order (MCO) may have been risky. However, we were able to achieve good results by riding on the prevalence of higher online usage by a broader and more geographically diverse customer base,” said RHB. Additionally, by further aligning its business strategy to the group’s digital transformation strategy RHB was able to refresh its Reflex payment platform to include FX transactions, which was based on thorough market research on related products within the industry. Furthermore, RHB sand-boxed their customers’ FX journey by applying digital permutations and data analytics to deliver competitive FX pricing and efficient execution. “We leveraged customers’ higher online usage under work-from-home arrangements to market and conduct tutorials remotely. This allowed us to launch and operationalise RHB Live FX quickly and seamlessly. The success of RHB Live FX has been noteworthy, with 8,895 FX spot and forward transactions totalling MYR1.46b since its

launch in late 2020,” RHB explained. The group attributes its position as a market leader in the FX banking business in Malaysia to its commitment to its core principle of putting customer interest as the top priority. According to RHB, especially during these uncertain times, this strong culture of engaging with customers had allowed them to understand their requirements better and in turn, providing them with the bestsuited products and solutions. “We are proud to once again be named as Malaysia’s Foreign Exchange Bank of the Year and this drives us to be even more attentive to our customers’ changing needs. Customer behaviour is fast-changing and to anticipate and to address these shifts, the RHB Treasury team applies agile work practices that encapsulate deep collaboration amongst our various strategic business groups,” RHB said. Moving forward, RHB plans to progressively refine the RHB Live FX to interface with other banking platforms and enable it to achieve higher operational efficiency and enhance the speed to market performance for a better customer experience. Ultimately, the group views this as an opportunity – an open window to further enhance its FX value proposition to its customers. “As part of the group’s digital roadmap, our Internet Banking (IBK) and Mobile Banking (MBK) platforms will also be upgraded to provide more touchpoints for FX products and solutions,” said RHB. “The team will continue to pursue agile business practices to foster even higher levels of customer centricity and we remain steadfast on our culture commitment of customer first, delivering above expectations,” RHB concluded.

RHB Malaysia will continue to pursue agile business practices to foster even higher levels of customer-centricity, remaining steadfast on our culture commitment of customer first

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CEO INTERVIEW

How Livi Bank aims to make banking more rewarding They are amongst the first banks in the city to roll out buy now, pay later services.

hake your phone after paying via QR code, and receive some cash rewards in return. This is just one of the many ways that Livi Bank, one of Hong Kong’s newest virtual lenders, is making banking more enjoyable and simpler for its clients. Backed by BOC Hong Kong (Holdings), JD Technology and Jardines, Livi Bank—whose name comes from the concept of “living side by side with our customers”—operates with a philosophy of empowering customers to achieve their life goals and lead more rewarding lives with the help of financial technology, according to CEO David Sun. “Core to our offering are ease of use and reduced costs. Livi’s customers don’t have to maintain any ‘relationship balances’, nor charge any fees to keep their account open,” Sun told Asian Banking & Finance in an interview. This meant breaking ground in simple yet new ways, such as becoming the first bank to introduce the ‘buy now pay later’ concept in the city when they launched Livi PayLater last May. It offers an instant flexible installment payment facility through a virtual Mastercard debit card, and features automatic instalments and flexible repayment periods between three to 36 months, with transparent costs and a promise of no hidden charges—granting users the freedom to choose how and when to pay. The BNPL service gives customers the benefit of simplicity, flexibility, and transparency—the three key elements that Hong Kong people today expect from their virtual bank, according to Sun. And it seems that Livi Bank is on the right track. As of August, just a little over a year after launching, the bank has surpassed 150,000 users, with liviPayLater alone attracting over 42,000 applications up to early November 2021. Asian Banking & Finance caught up with CEO Sun of Livi Bank to learn more about what the virtual bank’s been up to since launching, their thoughts on Hong Kong’s digital banking potential, as well as their future plans. What pain points does Livi Bank aim to address? Livi represents a differentiated development strategy. We aim to fulfil unmet banking needs in the market, and the promotion of financial inclusion using innovative technology, whilst offering the additional benefits of an ecosystem platform. We want to offer smart, simple, trusted, and flexible digital financial solutions tailored to customers’ everyday needs, anytime, anywhere in Hong Kong. The Livi app offers a range of mobile payment solutions—through UnionPay QR Payment, Livi Debit MasterCard, the innovative ‘buy now pay later’ product we call ‘Livi PayLater’, Faster Payment System (FPS) for making and receiving real-time transfers, 12 ASIAN BANKING & FINANCE | Q1 2022

David Sun, CEO of Livi Bank (Source: LiviBank.com)

Livi has introduced digital products that are wellreceived by customers such as LiviSave, virtual Livi Debit Mastercard, and Livi PayLater

as well as Electronic Direct Debit Authorisation (eDDA) so customers can pull funds from their existing bank accounts. We also have three-in-one ‘LiviScan’ facility that offers ATM QR Cash, FPS Scan, and UnionPay Scan features powered by QR scan technology. All these products and services aim to provide a simple, delightful, and convenient banking experience for customers. With our ecosystem partners, Livi is more than a banking app. We have focused on offering a series of ecosystem benefits and promotions, which include joining Yuu from Dairy Farm, Hong Kong’s largest rewards club, as Yuu’s exclusive virtual banking partner. Upon linking their Yuu account with Livi, Yuu Points earned via Livi will be credited automatically. Tell us more about your products and services. Could you share with us some of your most notable services? We have introduced a number of digital products and ecosystem offers that have been well received by customers. These include LiviSave, UnionPay QR code payment, the virtual Livi Debit Mastercard, Livi PayLater, and our partnership with Yuu. We offer convenience, simplicity, and flexibility to customers with a unique digital first banking experience tailored to the customers’ everyday needs. We take a measured approach in assessing Livi Paylater

CEO INTERVIEW applications. We developed an advanced credit risk assessment model which enables us to conduct assessment 24x7 with instant approval of the applications. It also enables customers who otherwise wouldn’t be able to have easy access to traditional lending products to make purchases by instalments to fulfil their life goals. This product has helped us embrace financial inclusion. Our systems carefully assess the customers’ ability to manage the facility. Our ecosystem partnerships focused on the everyday needs of the HK customers, include Yuu brands such as Wellcome, 7-Eleven, Mannings, KFC, IKEA, to electronics such as Samsung, Home+, OTO, and YOHO, to fashion brands such as Farfetch and HBX. One of the things that Livi Bank said it stands for is that the bank “acts ethically and transparently and will always have the courage to do what is right.” How does this influence Livi Bank’s operations? As one of Hong Kong’s challenger banks, we are aware that customers have high expectations for us. Our objective is to create a meaningful relationship with customers, [and] understand their needs and build trust. We believe that this can be achieved by having extensive understanding of our customers’ needs and always staying ahead of market trends, for only then will the Livi app become part of their daily lives. And also empowering our colleagues by creating an open, vibrant and inspiring workplace that stimulates creativity, nurtures collaboration and instils pride. And finally, serving the community by always being aware of the need to promote a sustainable, inclusive and socially responsible agenda that helps to change peoples’ lives for the better. Since launching, how has Livi Bank been received in Hong Kong? Could you share with us any numbers or anecdotes? We have a growing customer base and increasing usage of the Bank’s innovative product base—the total number of customers passed 150,000 in August 2021. Many of our new customers come from referrals, and this is very encouraging as it shows that customers see the value in our offers and recommend us to family and friends. Our customers have given us positive feedback on our products and services. [A total of] 70% of our customers have activated the UnionPay QR Payment on the Livi app, and nearly 70% are Livi Debit Mastercard holders. These numbers show that customers are using our services for different purchasing needs. Some 60% of the transactions are customers aged between 18 and 35, showing higher demand in the younger segments as they have a greater need to plan their payments over time. What are your thoughts about being one of Hong Kong’s digital-only banks? What is your outlook for digital-only banks in Hong Kong? An increasing number of Hong Kong people are tech savvy. We believe it is not just restricted to young people, so we are looking at a broader customer base in terms of age and income that will see their everyday lives benefit from our products and business ecosystem. That is why we put a lot

Innovation requires a combination of care and courage. Security and quality are a must when dealing with our customers’ hard-earned money

of focus on product innovation. We listen to our customers and aim to provide products and services tailored to their everyday needs. Innovation requires a combination of care and courage. As security and quality are a must when dealing with our customers’ hard-earned money, there is an important balance between being enterprising and pioneering on the one hand, and seeking to ensure the delivery of meticulous products and top performance on the other. Livi PayLater is a good example. We are the first bank in Hong Kong to introduce this ‘buy now pay later’ concept, with flexible repayment periods and automatic instalments enable customers to manage their finances in a cost-effective way. How have digital banks, such as Livi Bank, impacted or changed the banking landscape in Hong Kong? Virtual banks have been steadily gaining momentum since 2020. According to a survey Livi commissioned in mid-2021, more than 90% of Hong Kong adults were aware of virtual banks, whilst 43% of non-virtual bank customers would consider using virtual banks. 65% agreed that virtual banking is the future of banking. We believe the development of virtual banks will foster digital innovation, promote financial inclusion and enhance customer experiences. They are convenient and personalised, and offer easy to use payment methods and products, while allowing the leveraging of ecosystem partners. Virtual banking is the way to go. We believe that banks will continue to digitalise their operations. This will be from the front-end to the back-end, to provide more efficient and innovative financial services for the benefit of the Hong Kong people. What other banking services will you roll out in the future? What’s next for Livi Bank? Our focus is on building a meaningful relationship with individual customers and encouraging them to use the Livi app in their daily lives. We will launch products that meet the everyday needs of Hong Kong people. This will include consumer lending, insurance products as well as wealth management.

Livi has a growing customer base and increasing usage of the bank’s innovative product base

ASIAN BANKING & FINANCE | Q1 2022 13

ANALYST VIEW: CHINA AND GREATER BAY AREA

China has set up new schemes that will entice foreign financial firms to enter the market

China’s new foreign-friendly financial market laden with opportunities

If authorities remove the execution-only restriction in Wealth Management Connect, money flows in the channel could grow 10x bigger, says Ernst & Young’s Christine Lin.

hina opening up its trilliondollar financial market to foreign firms is cause for much celebration, but that’s not to say that everything is smooth sailing: more foreign firms may be taking a waitand-see approach following China’s ongoing regulator crackdown. In 2020, China moved to open its financial market overseas, easing restrictions in foreign ownership and finally allowing wholly foreign-owned financial institutions to the country. Foreign firms have much cause for celebration: the revised regulations open up a US$48t-market, as noted by an American think tank Peterson Institute for International Economics. Already, non-Chinese firms are making waves, with the most notable of them being the asset manager, BlackRock China, whose equity fund raised $1b in its maiden mutual fund just days after it launched in August last year.

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China has also set up a number of new schemes that will definitely entice foreign financial firms to enter the market, chief of them being the Wealth Management Connect (WMC), which offers opportunities for financial institutions situated in Hong Kong to offer investment products to millions of investors across the Greater Bay Area (GBA). That’s not to say that everything is smooth sailing: the recent regulatory crackdown in China–which has affected even the country’s biggest financial players, a chief example being Ant Group’s suspended 2020 IPO— may have driven some foreign firms to take a wait-and-see approach before diving into the Red Dragon’s financial market no matter how enticing it is, noted Christine Lin, Financial Services Assurance Leader and Wealth & Asset Management Sector Leader for EY Hong Kong. In regards to WMC, restrictions

Recent regulatory crackdown in China may have driven foreign firms to take a wait-and-see approach

in the scope of activities that can be done under the channel are deterring growth–restrictions which, if removed, could drive money flows within the channel to be much bigger than the US$22.5b (RMB150b) quota set by authorities, Lin told Asian Banking & Finance. “[One] of the restrictions is that the banks in Hong Kong, for example for the Southbound, can do “executiononly.” This means that the bank cannot make recommendations to the fund managers on different funds or investments,” Lin explained. And how big could it grow? “When you look at the population of Hong Kong and the GBA, we’re talking about 7.8 million and 71 million, respectively. If you just talk about that, 10 times, definitely,” Lin said. “So if you have to ask me to put a number on it: 10 times.” Asian Banking & Finance spoke with Lin to find out more about what’s

ANALYST VIEW: CHINA AND GREATER BAY AREA In five days, US$1b was no problem for BlackRock. With that, you can see the purchasing power of the middle class in Mainland China Christine Lin, Financial Services Assurance Leader and Wealth & Asset Management Sector Leader, EY Hong Kong (Source: EY.com)

been happening in China since foreign investment funds entered, what the wealth management connect could mean for foreign banks, and what’s in store for China’s push to integrate itself in global financial markets. Could you give us an overview of what’s been happening in China since foreign investment funds first entered? From what we observed in the market, a lot of the global banks, private banks, or the global asset managers, actually have been at different paces of their own journey in their goal to set up business in China. Some of the multinational companies are applying for the licenses, and some have actually already set up joint ventures like in the old days when the multinational entity was not able to take a controlling stake, but now they allow fund managers to hold 100% of the wholly foreignowned enterprise. So these are some of the setups that international firms are doing in Mainland China at the moment. I think BlackRock has been very high profile and very successful for their first fund launch in Mainland China. In five days, US$1b, [it] was no problem for them. With that, you can see the purchasing power of the middle class in Mainland China presents such a huge business opportunity for the global bands and global asset managers. But some of the global banks or global asset managers, take a wait-andsee attitude. At the beginning of 2021, or even back in 2020, a lot of them were very bullish on the development of their China footprint. How they move forward will depend on how

comfortable they are with their China plans. So it’s quite a diversified market, I would say. There’s currently a regulatory crackdown happening in China that is also affecting the financial industry. Have you observed whether the activities of foreign investment funds and even foreign finance firms are being affected by this? At the moment, because of what’s happening in Mainland China with new regulations for a while in the internet gaming, education [sectors], they recently talked about the casino [industry]—I think all these are making them want to stay away for a while. But how long are they going to stay away? I think this all depends on how the regulatory (environment) develops, as well. I do think from a longer-term perspective, China is still one of the core focus for fund managers. Let’s move on to banking. What does the launch of the Wealth Management Connect mean for the banking industry in the Guangdong, Hong Kong, GBA region? Fee income definitely. I think you may have already seen some of the media talking about the US$500m annual fee income that banks can benefit from WealthConnect. From the bank’s perspective, in order to tap into these opportunities, they will need to have the right product and also the right resources. That’s why in the early days, you see that multiple banks have already announced their recruitment plans; say, by the end of 2025, how many people they want to recruit from

the private bank perspective. From the front to the back office, they are recruiting. The reason I mentioned the product perspective is that when you look at the state of the WealthConnect at the moment, unfortunately, we’re [in the midst] of the COVID situation right now, so Southbound, Hong Kong does allow remote account openings, but Northbound, Hong Kong people still need to physically travel to Mainland China. Because of this, in the beginning, there will be more inflows from the southbound side because of the remote account opening. From the product perspective, one of the restrictions is that the banks in Hong Kong, for example for the Southbound, they can do execution only. This means that the bank cannot make recommendations to the fund managers on different funds or investments. For the product features, the design, that’s quite important, so they just are able to attract Southbound investors, and so it’s easier for them to buy and understand the product through e-distribution. Fintech design will be one of the key features of the investment for the private banks. What opportunities does it give to foreign banks and financial institutions? In order to be successful and to attract Southbound investors, it’s very important to have the right product on the shelf and make it easier for Mainland investors. So if we talk about e-distribution in the Mainland market, when you look at the largest funds at the moment, the one with the largest market share... is Tianhong Asset Management, which is definitely [leveraging] via the Ant Financial e-distribution platform to distribute their products. When you look at all these local asset managers, China AMC, Harvest, etc, they all have their own-developed e-platform as well. So that’s why e-platforms are quite important for asset managers and for banks to tap into the retail space. And at the moment, WealthConnect is still retailfocused, because they do not allow institutional investors to approach us ASIAN BANKING & FINANCE | Q1 2022 15

ANALYST VIEW: CHINA AND GREATER BAY AREA for the WealthConnect platform yet. So that’s why e-distribution is very important at the moment.

regulations, we’ve also seen all these regulations come out very quickly, so there might be an impact.

What issues, if any, does wealth management connect present to the banking and finance industry of the markets? One thing the industry asks about a lot is regarding it being execution only. They cannot recommend which fund or which product the investor can buy. For example, if I’m a Southbound investor in the Mainland, looking at the products offered by my bank, and I am looking to invest in Hong Kong when I’m from the mainland, I will of course look into the bank’s website, where there are 50 to 100 funds listed. You can already tell how difficult it is for a normal investor just to pick out a fund from the long fund list there. At the moment, you can sort of do reverse solicitation, which means if the investor asks for the features of a particular fund, then the RM in Hong Kong can explain. But they still cannot make recommendations. So this is an issue the industry will need to think about how to tackle in order to make wealth connect work for their bank. The rules for WealthConnect at the moment use the word executiononly and the HKMA was very clear in their FAQs that you cannot make recommendations on the investments. If the regulator allows the banks to be able to sell and make investment recommendations, WealthConnect will work much more easily for the Hong Kong and the China banks. This is why the industry is asking that they be able to sell and make recommendations on investments.

It’s also been observed that the Chinese regulators seem keener to keep capital within the country and have made it harder for foreign listings. What is your view on this? Whether they keep funding within the mainland or make it difficult to invest into Mainland China...I am looking at this as the mainland government making the call. This is a kind of policy that, given the geopolitical environment at the moment, would probably be a temporary policy. I don’t think they’re trying to make it so difficult, or trying to cap the money within the mainland.

So you don’t think it’s going to affect the foreign firms? Will this discourage them from offering investments in China? I think in the short term, yes. But from a longer-term perspective, China is still being seen as one of the growth engines by many of these global companies. So I do think that in their long term business development plans, China still has a place in their development. In the short term it could be affected, [due to the] geopolitical issues, different 16 ASIAN BANKING & FINANCE | Q1 2022

Do you know if the Hong Kong industry is lobbying to have wealth management connect openly to institutional investors? At the moment, the banks are lobbying for a larger quota, lobbying for their product list to be larger because they want to include more products in the wealth management connect. Whether WealthConnect can be opened to institutional investors, for the longer term, yes, I think the banks will lobby for that as well. But at the moment, we haven’t heard that the banks are lobbying the regulator for institutional investors yet. Earlier you said that there are many foreign firms that are taking a wait and see approach. So what changes in regulation have made foreign firms rethink their strategies? I think for some of the firms, when they look at their whole China strategy, why they put it on a wait and see is because they can see their peers setting up, and can see how well their peers are doing, whether they are making profit or not, etc. There are a few things not purely from the regulatory perspective that push them to take a wait and see approach. Number one, actually, when you look at all the global banks and asset managers, talent is really an issue for them. I mean, onshore Mainland China talent. The lack of a talent pool in Mainland China makes hiring very difficult for global players, to get

The lack of a talent pool in Mainland China makes hiring very difficult for global players

the onshore people they need to help fuel their infrastructure. Chinese high net worth or ultra-high net worth investors follow their relationship managers a lot; and for many firms, it is very expensive and very difficult to find and retain a good relationship manager. I think the second one is also when you’re comparing those global players, their global minimum numbers sometimes are actually higher than the local China regulatory requirements and also the China market practice. From the global banks’ perspective, they will need to adjust this concept, if they want to go ahead with their China operations or China setups. Number three is from the value proposition perspective. The Chinese high net worth and ultra-high net worth investors may not see immediate value in using a foreign player unless they want to get exposure to overseas products or services. The Chinese banks will also need to offer well-designed products, which will be able to provide profitability and protection fit for the Chinese investors’ habits and preferences, as well, and be able to meet the needs of the current FinTech development in Mainland China. The last point I want to make is that the enhanced data security law in Mainland China, which came in force on 1 September 2021, actually contains provisions covering the usage, production and also protection of data in Mainland China. This is also another issue that the global banks and the global asset managers will need to talk about in terms of what data can be or cannot be transmitted outside of the mainland. How this will impact their China operations is something the global banks and global asset managers will need to figure out.

China is still being seen as one of the growth engines by global companies

FINTECH ANALYSIS: MASTERCARD Sandeep said they partnered with a lot of fintech firms to help service SMEs in various markets in Asia. One of these was the launch of the Soft POS in India. Soft POS enables any smartphone device to turn into a point of sale (POS) device. According to Sandeep, this makes it easier for merchants to accept payments from any bank as registering only takes about 30 minutes. From there, it takes just a tap from the contactless card of the consumer to the merchant smartphone with NFC functionality.

Mastercard Pay & Split, is ‘the next evolution of the payments model

SMEs are the lifeblood of Asia Pacific: Mastercard

Mastercard launched the world’s first ‘Buy Now, Pay Later’ commercial card solution for SMEs called Pay & Split.

he world’s first-ever Buy Now, Pay Later commercial card solution for small and medium enterprises (SMEs) was launched by Mastercard during the Singapore Fintech Festival 2021. Called Mastercard Pay & Split, Mastercard claimed it to be ‘the next evolution of the payments model’. It provides SMEs with the first-ofits-kind, network-based, open-loop installments solution to be made available anywhere in the world. Mastercard Pay & Split addresses the demand for flexible financing options, especially amongst underserved businesses. It is accepted by 80 million merchants around the world and aims to rekindle business growth. In an interview with Asian Banking & Finance, Sandeep Malhotra, executive vice president of products & innovation at Mastercard Asia Pacific, said that financing has always been the biggest hurdle for SMEs which was brought to a sharp focus because of the pandemic. According to a working paper by the Asian Development Bank, which surveyed eight developing countries,

Sandeep Malhotra

Mastercard Pay & Split brings new credit opportunities to smaller operators

SMEs experienced considerably reduced employment and sales revenues in the first few months after the COVID-19 outbreak. At least 50% of SMEs experience a temporary closure of their businesses whilst at least 60% face a cash shortage. What most of these SMEs do is rely on a personal credit or non-bank lenders to finance their operations, which, Sandeel said, is not ideal. “Mastercard Pay & Split brings new credit opportunities to smaller operators who may not meet certain thresholds for a traditional commercial credit card or term loan, but need working capital to stay afloat or expand. It also opens the door for businesses to generate a credit rating, which can then be used to apply for more sophisticated credit products as the business grows,” Sandeep said. Support for SMEs This is not the first time that Mastercard has set its sight on helping SMEs grow their businesses. Back in 2020, Mastercard committed $250m, spread out over five years to support small businesses in every market they operate.

Investments in Southeast Asia In October, Mastercard also announced a regional partnership with superapp Grab. Its goal is to provide millions of informal workers and small businesses on the Grab platform access to digital upskilling opportunities to create more pathways and income opportunities for them. According to the platform economy report by Bain and the Tech for Good Institute, platforms have invested in and contributed to Southeast Asia’s digital economy by developing critical physical and digital infrastructure, and providing access and convenience to consumers and micro, small, and medium enterprises. In short, Southeast Asia needs to focus on strengthening the population’s digital literacy and trust to drive deeper digital economy participation. The Mastercard-Grab partnership aims to fill this gap by granting underserved communities access to core digital, financial and business skills to help them better manage their finances and businesses and participate fully in the digital economy. These are just some of the projects that Mastercard piloted to help SMEs get paid, get capital, and get digital. “Pay & Split is a clear example of how we’re helping businesses to gain access to capital. In terms of getting paid, we’ve developed acceptance measures that give merchants and consumers flexibility in how they pay and get paid, using technologies such as QR codes, touchless payments, and smartphone-enabled POS devices,” Sandeep said. ASIAN BANKING & FINANCE | Q1 2022 17

TECHNOLOGY: BANK BOARDROOMS

Why banks need more tech experts in their boardrooms

Massive adoption of banking technology without critical tech advice from experts could spell doom for lenders.

rtificial intelligence, machine learning, data analytics, online apps – the finance world is all about the tech and the digital now, with banks noted to be massively adopting digital technologies over the past five years, according to a recent survey by professional services company Accenture of 2,000 directors from the world’s largest banks. But even with the rapid adoption of tech, banks’ board rooms still feature a severe lack of experts in this field. Only 10% of boards of directors have tech expertise in 2021. Less than one in ten of board members from China (4%) and Japan (7%) have a tech background; Australia, just a little above that, at 12%. Having board members with tech expertise is important as the board can often be critical in advising on how to minimise the risks and maximise the benefits of technology investments, according to Fergus Gordon, Managing Director and Banking Industry Lead, Accenture.

In 2015, only 6% of boards of directors had tech expertise – that number increased to 10% globally in 2021

“In general, we recommend that banks strive to fill 25% of their board of directors with technology experience – so there is still work to be done,” Gordon told Asian Banking & Finance in an intervew. A study by Accenture found that only 6% of board directors for banks have any technological expertise. What does this tell us about the nature of tech leadership and direction of financial institutions? When we conducted this research for the first time in 2015, only 6% of boards of directors had technology expertise – that number increased to 10% globally in 2021. The pandemic showed just one reason why technology experience at the board level is so important. The pandemic forced many banks to quickly shift to digital touchpoints and accommodate employees working from home, which required immediate additional technology investments, like accelerating cloud adoption. The perspective of the board, which has a high-level view of the

A study by Accenture found that only 6% of board directors for banks have any technological expertise

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organisation, can help advise which investments are compatible across various business units – and boards with technology experience can provide invaluable guidance. Banks are also facing complex decisions regarding how best to transform their core systems – whether to build or buy and at what scale – and those choices will have long-term implications. While banks spend huge sums on technology, a lack of tech experience at the boardroom level could ultimately undermine these investments. Why do you think banks have been quite slow to appoint tech experts in their board? What challenges are banks facing in building up their board’s tech proficiency? Banks haven’t made much progress in appointing tech experts to their board since the last time Accenture carried out this survey in 2015. Back then, only 6% of bank board directors had technology expertise – this was an era when cloud was gaining traction and emerging technologies like blockchain and AI were attracting interest from the financial services sector. The inertia is likely the consequence of a sector steeped in tradition. This is not necessarily a bad quality when that tradition encourages trust from customers who place their money with you, but it can be an obstacle when the pace of change accelerates and demands innovation. The importance of technology expertise within banks goes well beyond just the board level; banks need to elevate the skills and knowledge of key technologies that are essential to growth, like cloud, AI and cybersecurity, throughout the entire organisation. But a board with a high level of technology expertise can help drive and navigate complex operating model transformation, monitor progress and help steer the ship if it appears to veer off course. What can financial firms do to build their bank board’s tech proficiency?

TECHNOLOGY: BANK BOARDROOMS Percentage of all bank board members who have technology expertise in 2015 vs 2020

Fergus Gordon

Source: Accenture

Banks should make technology credentials a consideration in new appointments. Other ways to bolster expertise can also be explored, such as coaching members on the latest technology, dipping into the knowledge pool of third-party suppliers, and setting aside dedicated time to discuss technology during committee meetings. Some big banks have even established an advisory council to keep executive management up to speed with the latest innovations. It’s all about finding ways to keep the corporate finger on the technology pulse; to be aware of key developments around cloud, AI, and the Internet of Things. These are technologies that will pose questions around security, compliance, and governance – issues that intersect with business fundamentals. Could you give us examples of how the lack of tech expertise in boards or tech leadership in general have impacted banks, particularly in Asia, especially in the past year? One of the many elements of our lives that may have changed forever over the past year, is the way we spend money and interact with banks. In addition to a surge in contactless payments, we have seen a rapid shift towards digital touchpoints – half of retail bank customers now interact with their bank through mobile apps or websites at least once a week. This shift didn’t only impact consumers; with banks having to pivot to remote work, employees

at every level have been forced to sharpen their technology skills. The banks that pivoted successfully did so largely with the help of cloud technology, which enabled remote work and collaboration, quick upgrades of customer-facing applications, and helped banks deal with a flood of fraudulent transactions. However, for many banks, cloud adoption is in its infancy; many of the industry’s important innovations – like mobile banking, data analytics for risk assessment, and personalised experiences would be impractical without cloud. As banks try to keep up with the accelerated pace of change, broader adoption of cloud will be critical to modernise outdated legacy banking systems and adopt new business models. What are some good practices you have observed that banks in the APAC region have done to

bridge the gap and build up tech expertise in their boards? Some banks have introduced structured learning sessions to help boost tech expertise amongst board members. As part of these sessions, these banks bring in experts – both internal and external – to educate members on a broad range of technology topics and trends. Where possible, these sessions also leverage actual case studies as examples to showcase the real-life impact that technology expertise can have in boosting business in the finance industry. Taking this one step further, banks can also explore “digital safaris”. These are interactive showcases that show, rather than tell, what the future could look like with technology. Here at Accenture, we offer our clients the chance to experience our Accenture Digital Safari, where we showcase advanced technologies and how these are helping our clients create a competitive edge in their business. The live demos of AI, Blockchain, Advanced Analytics, Industry 4.0 and Extended Reality present executives the unique opportunity to fully immerse themselves in a technology-driven future, offering them a glimpse into the potential it can bring to their banks. Seeing and experiencing these opportunities through their own eyes may be the difference needed to motivate more board members to embrace technology.

Broader adoption of cloud will be critical to modernise outdated legacy banking systems (Photo by Dylan Gillis)

ASIAN BANKING & FINANCE | Q1 2022 19

CASE STUDY 1: CITI CHINA DESK

Citi Commercial Bank bridges cultural gap with China Desk initiative The desk opens Singapore to mid-sized Chinese firms seeking to penetrate ASEAN.

CCB opened a new China Desk in Singapore dedicated to China’s emerging market champions

sian consumers have started to thirst for Chinese brands. Take the demand for phone brands, for example—a survey found that these consumers’ top five picks, amongst the ten most preferred global brands, are from China. To support Chinese firms taking advantage of this trend, Citi Commercial Bank (CCB) opened a new China Desk in Singapore dedicated to China’s emerging market champions. The new desk adds to CCB’s expanding network of six Asia desks in the region. Although the China Desk concept is not new to Citi and Singapore, this recently established desk is unique because it is the first for Citi to support mid-sized businesses from China to use Singapore as a launching pad into the country and other markets in ASEAN, CCB’s Managing Director and Singapore & ASEAN Head Hsiu-Yi Lin told Asian Banking & Finance. “We launched the first Singaporebased China Desk to serve our

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With CCB’s China Desk, clients can have the complexity of entering new markets cut down significantly

Chinese clients in Singapore back in 2010. And a second desk in Singapore was launched back in 2018 to serve Chinese clients expanding into ASEAN from Singapore,” Hsiu-Yi explained, emphasising that these desks support Chinese multinational companies (MNCs). What makes the CCB China Desk stand out is that it is helmed by experienced bankers, with several of them from China—specifically from the CCB China branch. “These specialists have a deep understanding of the local operating and regulatory environments across the different ASEAN markets on top of Citi’s products and services. Importantly, many of these bankers have supported these Chinese firms back in China before their expansion into Southeast Asia, and so, they have deep knowledge of the requirements of these clients in addition to understanding the nuances of the Chinese business culture, language and etiquette,”

Hsiu-Yi said. One-stop-shop With CCB’s China Desk, clients can have the complexity of entering new markets cut down significantly. “We notice that as companies grow rapidly, expand internationally, or both, they inevitably encounter challenges in their banking flow that could slow them down or prevent them from reaching their full potential. Without a global bank or global solutions, these companies would spend endless hours on their banking needs to the point that it becomes an obstacle in their journey,” Hsiu-Yi said. Hsiu-Yi explained that, in the past, if clients want to enter several markets in ASEAN, they have to work with CCB’s local teams in every market. And if they don’t work with CCB, they would have to work with different banks across these markets. With the Singapore China Desk, it is now a one-stop-shop for them, made more easily as they are manned

CASE STUDY 1: CITI CHINA DESK by bankers who understand their business culture, language, and etiquette. “As we are present in six markets in ASEAN including Singapore, Indonesia, Malaysia, Vietnam, The Philippines and Thailand, this enables their expansion into the region to be much more seamless,” Hsiu-Yi added. Why Singapore? “For many years, Singapore has been the gateway to ASEAN for many global MNCs due to a host of reasons such as rule of law, robust infrastructure, ease of doing business, effective government and established regulatory frameworks, human capital, motivated workforce, intellectual property protection and in recent years, fintech and innovation,” Hsiu-Yi said. Hsiu-Yi also said that Singapore has a geographic advantage within ASEAN because it is situated at the tip of the Malay Peninsula where the main trading and shipping routes of the world converge. Additionally,

Singapore is also less than a fourhour flight away from most ASEAN countries. CCB anticipates more Chinese firms to set up their presence in Singapore to get better access to the ASEAN markets. Hence, the decision to place the first CCB China Desk in Singapore is timely as Hsiu-Yi said that they have seen steady growth in their portfolio of Chinese firms within the ASEAN region. “Client acquisition of Chinese corporates has grown at 46% compound annual growth rate (CAGR) and revenue at 76% CAGR between 2019 and YTD 2021. Not surprisingly, we are seeing high double-digit percentage growth across various industry sectors like industrials, consumer products, healthcare and tech,” Hsiu-Yi added. Right now, there are still no concrete plans on where CCB would expand their next China Desk; however, CCB plans to expand its Singapore-based China desk team over time.

Hsiu-Yi Lin

The bank also has several new projects in the pipeline that would leverage Citi’s global network. “Whilst we continue efforts to strengthen the ‘human touch’ of our business as relationships continue to be key for growth in a digital banking world, we are also doubling down on our digitisation strategy and leveraging AI technology to better support our clients. In addition to expanding into new markets, we plan to invest even more in countries where we are presently and this includes headcount expansion,” Hsiu-Yi said.

Singapore has been the gateway to ASEAN for many global MNCs

APAC banks’ outlook stable, but face uneven recovery: Moody’s The expected economic recovery in APAC will solidify in 2022 as pandemic effects subside, which should support banks’ creditworthiness—although the pace of recovery will be uneven. Diversified economies and those with higher vaccination rates will rebound faster, with about half of APAC economies seeing a growth rebound relative to prepandemic years, according to a report by ratings agency Moody’s. “Banks will maintain solid balance sheets with stable solvency and liquidity metrics. Problem loans will increase modestly with the ending of remaining government support measures in most markets, however, their strong credit reserves will mitigate the related asset risk for banks,” said Eugene Tarzimanov, a Moody’s vice president and senior credit officer. Tarzimanov added that core capital ratios will remain stable as improving profitability will support credit growth, dividend payouts and share buybacks. Some central banks may also choose to raise interest rates amidst higher inflation and fewer disruptions caused by the

COVID-19 pandemic. Overall, however, monetary policy will remain largely accommodative or neutral in most APAC economies. “Whilst private debt levels are high, generally low-interest rates and the broad economic recovery will support bank borrowers’ debt repayment capacity,” Tarzimanov said. Meanwhile, high asset prices across the region present mixed credit implications for banks. On the one hand, property price inflation is expected to strengthen its collateral value. But on the downside, the high prices increases the risk of a sudden market correction, should economic or financial market conditions abruptly deteriorate, Moody’s warned. Meanwhile, high commodity prices are positive for banks in commodity-exporting economies like Indonesia and Malaysia, as well as trade finance hubs like Singapore and Hong Kong. Moody’s also expects APAC regulators to introduce more rules to support and guide banks in this transition to low carbon or more environmentally friendly portfolios.

The expected economic recovery in APAC will solidify in 2022

ASIAN BANKING & FINANCE | Q1 2022 21

CASE STUDY 2: U-ENERGY

UOB simplifies and amplifies Singaporeans’ green energy journey with U-Energy The bank seeks to help address the energy crisis and rising electricity costs, says UOB’s Jasper Wong. they can service, and also the type of projects that they can do. So for instance, the customer may choose to do LED upgrades, they may do solar, and so on,” Wong explained. The platform also comes with an energy savings calculator that gives the client a rough idea of how much energy savings they can achieve, and what kind of greenhouse gas emissions impact that they can have, amongst others. Clients only need to fill out some questions about their home and building as well as their consumption needs, and select flexible financing options. Clients can then choose either to do a direct capital expenditure (Capex) or direct purchase of the equipment needed; or they can apply for the energy-as-a-service model, where they don’t have to upfront the cost and pay as they are able to save from the energy efficiency project. U-Energy is Asia’s first integrated financing platform to drive the adoption for energy projects

magine saving up to 40% of your current electricity costs whilst making your energy consumption more sustainable. It’s not just a fantasy; it’s a reality, according to UOB. But most Singaporeans apparently aren’t aware of this, and this is what pushed UOB to launch the U-Energy programme. “A lot of times when we approach our clients and say, ‘Hey, do you know that actually, you can save 30 to 40% of your energy costs by using an AI tool to monitor your electricity or optimise your energy usage,’ clients are very surprised,” Jasper Wong, Head of Construction and Infrastructure, Sector Solutions Group at UOB, told Asian Banking & Finance in an exclusive interview. “They know that there are key tools out there that can actually help them to save money. But because they are very busy, and they [do not] have anyone they can go and talk

22 ASIAN BANKING & FINANCE | Q1 2022

Jasper Wong

The energy crisis is one of the driving forces behind UOB’s decision to create and launch U-Energy

with to help them with their energy needs, they basically just set it aside. So promoting market awareness is something that U-Energy is striving to do, to help the industry,” he said. The bank didn’t just want to promote sustainable energy options—they also wanted to simplify sustainability for business and homeowners. That was how U-Energy came about. Unveiled in September, the programme—touted as Asia’s first integrated financing platform to drive the adoption for energy projects— can easily be accessed online. Better yet, customers signing up for the program will have easy access to nine energy partners to choose from who can help them meet their sustainable energy needs, depending on their preferences. “When they go to our website, they will see our partners, [who] will lay out what kind of building types that

Energy crisis, rising costs Wong named the energy crisis as one of the driving forces behind UOB’s decision to create and launch the platform. He added that there’s a lot of pressure being put on Asian cities in regard to whether they’re talking about energy usage, water usage, as well as the e-waste management— everything that needs power, and also everything that needs to be made more efficient. This demand for more energy, coupled with limitations in nonrenewable energy resources, is driving energy prices up, Wong explained. UOB found the answer in digitalisation. “It has accelerated the ability for us to effectively quantify and track and monitor in terms of how people use their energy,” Wong said, adding that through installing IoT and using AI technology, amongst other digital tools, you can better optimise your energy usage.

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In Print, Online, Mobile, Events, Awards, and Research ASIAN BANKING & FINANCE | Q1 2022 23

EVENT COVERAGE: SFF 2021

Singapore: Yes to wholesale, skeptical on retail digital fiat money SG’s regulator remains iffy on cryptocurrencies—or in MD Menon’s words, crypto tokens. issuance of a retail CBDC a socioeconomic rather than monetary consideration. “Moving to a fully cashless society with all money in the form of bank deposits will not make a significant difference to the conduct of monetary policy. The question is whether the public is comfortable with holding only bank deposits and whether there is public demand for a state-issued currency that is as safe as cash but in digital form. So for now, there is no strong case for a retail CBDC,” he said.

MAS is taking a more cautious approach to retail CBDCs (Photo: Ravi Menon, MAS Managing Director, Singapore Fintech Festival 2021)

hilst the Monetary Authority of Singapore (MAS) sees “much promise” in wholesale central bank digital currencies (CBDCs), they are a lot more hesitant in the retail version due to possible “significant risks to monetary and financial stability.” Retail CBDCs refer to digital currency issued by the central bank to the general public, essentially a digital version of cash. Meanwhile, wholesale CBDCs are restricted for use within the banking system. Of the two, Singapore’s regulator seems keener to explore wholesale CBDCs, with MAS Managing Director Ravi Menon noting their potential to radically transform cross-border payments. MAS is taking a more cautious approach to retail CBDCs. “There could be some disintermediation of the banks, particularly during stress periods if people can switch deposits into risk-free central bank money at the “click of a button,” Menon said in a speech delivered during the Singapore Fintech Festival 2021 held 24 ASIAN BANKING & FINANCE | Q1 2022

For a subject that has attracted much attention, there are neither strong reasons for nor against a retail CBDC in Singapore

on 9 November 2021. He warned that if people held a significant portion of their deposits in the form of digital Singapore dollars with MAS, it would considerably reduce our banks’ capacity to make loans. “On balance, the case for a retail CBDC in Singapore is not urgent,” Menon argued. “For a subject that has attracted much attention, there are neither strong reasons for nor against a retail CBDC in Singapore. Why do I say that? Physical cash is likely to be with us for quite some time more and so the need for a digital version of cash is moot at this point,” Menon explained. He added that the financial inclusion benefits of a digital Singapore dollar are not compelling. “A high proportion of Singaporeans have bank accounts and electronic payments in Singapore are pervasive, highly efficient, and competitive.” Possible currency substitution by foreign digital currencies is a remote tail risk at this point, Menon said. Menon and MAS consider the

Project Orchid Despite citing caution in regards to retail CBDCs, Menon said that MAS recognises the possible benefits retail CBDC solutions could bring to the financial sector. Singapore’s regulator then announced it is embarking on Project Orchid, which aims to build the technology infrastructure and technical competencies necessary to issue a digital Singapore dollar, should Singapore decide to do so in the future. As a start, Menon said that MAS will build on its Global CBDC Challenge that launched earlier this year, from which they received 300 proposals from over 50 countries in response to the problem statements we posed. ‘Cryptocurrencies are not money’ “Are cryptocurrencies money? So far, the answer must be no,” Menon told the conference attendees, who tuned in either live and live stream format. “Cryptocurrencies have performed poorly as a medium of exchange, a store of value, or a unit of account.” Menon said that it is more accurate to refer to them as ‘crypto tokens’. Whilst MAS recognises that crypto can bring many potential

EVENT COVERAGE: SFF 2021 benefits, including making crossborder payments faster, the regulator frowns at using cryptocurrencies or tokens as an investment asset for retail investors. “The prices of crypto tokens are not anchored on any economic fundamentals and are subject to sharp speculative swings. Investors in these tokens are at risk of suffering significant losses,” Menon said. Wholesale banks stuck in Web 1.5 The latest iteration of SFF carried the theme of Web 3.0, and the topic was very much at the heart of discussions that took place in the three-day festival. For wholesale banks, the future of payments is going to be 24/7; is going to be invisible to consumers; and is going to happen at virtually zero cost. But before achieving the financial nirvana promised by the adoption of blockchain systems, artificial intelligence, machine learning, and the whole Web 3.0 lineup, many banks and institutions are hindered with the need to wait for the rest of the business world to finish making their baby steps in digitising their services. “I would say 80% of our wholesale clients, the global multinational firms, are still somewhere around Web 1.5,” observed Takis Georgakopoulos, head of wholesale payments, JPMorgan Chase,

Are cryptocurrencies money? So far, the answer must be no

speaking about how Web 3.0 will change the wholesale banking industry. This is a reality that really dawned for JP Morgan & Chase once COVID-19 set in. “They entered COVID with not very robust supply chains,” Georgakopolos told attendees of a panel discussion livestreamed on 8 November. “They need to solve much more basic issues first, which is, how do I connect to my suppliers? How do I finance my suppliers? How [do] I digitise my payment flows, how I [do I] digitise my treasury function, and so on before they can think about anything else.” And whilst they do have clients already looking at blockchain solutions, they are in the minority, he added. “A lot of our clients still have a long way to go.” But the biggest issue is not really on technology, which he noted has reached a level of maturity. Most of the challenges for the wholesale banking industry on adopting Web 3.0 tools have to do with questions on regulation and compliance. For example, one of the biggest use cases being explored in applying Web 3.0 for wholesale banking is applying it to solve trade finance and supply chains. But a big issue lies in the fact that governments still rely on paper when it comes to trade. Tan Su Shan, head of institutional banking, DBS said that governments and different legal systems need to

Most of the challenges for the wholesale banking industry on adopting Web 3.0 tools have to do with regulation and compliance (Photo: Takis Georgakopoulos, Head of Wholesale Payments, JP Morgan Chase)

be convinced that EBLs or electronic bills of lading are okay, that trade documents can be digitised and put on the blockchain and that by doing so they are immutable, transparent, and trustworthy. “If you can do that, for trade, that solves a lot of problems. That solves problems around fraud, around potentially long trade finance turnaround time. And I think it’s a great use case for international trade,” she added. Navigating compliance rules JP Morgan Chase’s Georgakopoulos also named the different compliance rules per market as another challenge. For example, JP Morgan Chase moves nine and a halftrillion dollars every day in over 100 countries, and they, of course, face having to comply with the rules set by each country. “The conversations we have with our regulators is, number one, we need more clarity around the rules. And then second, we need more simplicity around the rules. Because the rules as they exist today, they create a huge inefficiency in the system. And the more they’re simplified, the more we can eliminate that inefficiency,” he said. In five years, both DBS’ Tan and JP Morgan’s Georgakopoulos expect Web 3.0 to make payments easier in the wholesale banking space. “So five years out, I do believe the blockchain will enable a lot of crossborder payments today,” Tan said, noting that by then payments will no longer be encumbered by holiday breaks or weekends. Blockchain will also help eliminate high friction costs, she added. Meanwhile, Georgakopoulos believes that government regulations will change little during the next half-decade, if at all. “So expect a lot of the same controls, especially around wholesale interbank and larger scale payments, to look not too dissimilar to today. They may be blockchainbased, but the governments are going to continue to put all of the controls that they have around them,” he remarked as the panel came to a close. ASIAN BANKING & FINANCE | Q1 2022 25

EVENT COVERAGE: FSI CONFERENCE

Could fintech overtake banks in the digital space with ‘buy now, pay later’? The Internet boom has pushed 9 out of 10 digital merchants to accept digital payments.

intech players are dominating the digital financial service industry but banks still have an ace up their sleeves according to Willy Chang, associate partner at Bain & Company. Speaking at the panel discussion at the Asian Banking & Finance FSI Conference, Chang explained that Southeast Asia has experienced extremely strong growth in the digital financial service sector however there is still plenty of headroom to go. As an example, Chang mentioned how overall consumer expenditure on e-wallets grew from 1% to 4%. “It’s a small number, but the relative growth is huge. And if you look at players like Shopee or Grab, and many other players, that kind of usage growth and value has been tremendous,” Chang told the conference attendees who tuned in last 1 December 2021. Fintech’s vast customer reach Chang said that fintech’s biggest advantage over banks is their reach. Fintech may have millions of customers registered to it or actively engaging with it on a daily basis. However, Chang noted that fintech does not have or is still starting to build the capability to assess creditworthiness or even have competitive sources of wholesale financing. “And that’s where banks have a different set of strengths. They may not have 20-30 million customers that they engage with on a daily or monthly basis, but they are more sophisticated in terms of credit scoring, in taking deposits and providing financing,” Chang said. It’s only a question of how fintech and banks play to each other’s strengths through partnerships, according to Chang. Digital payments eroding cash’s dominance in SEA 26 ASIAN BANKING & FINANCE | Q1 2022

Panel Discussion during the FSI Conference 2021

Banks may not have 20-30 million customers that they engage with like fintech, but they are more sophisticated in terms of banking services

Cash may remain king however digital payments are starting to wear down its dominance as the internet economy in Southeast Asia highlights the popularity of digital services like e-commerce, ride-hailing and food delivery according to Chang. Speaking in a separate panel, Chang emphasised how digital payments are starting to gain momentum on the back of the growth of the internet economy. According to Chang, the internet economy continues to attract new consumers every year with 40 million in 2020 and another 20 million in the first half of 2021. This is not surprising as nine in 10 new users from 2020 continue to be digital consumers today. Given these available data, Alessandro Magarini Montenero, Partner at Bain & Company posits that digital payments are eroding cash’s dominance with growth expected to further accelerate by 2025. Digital payments also see a boost from SEA as e-wallet adoption starts to take pace. According to Montenero, SEA is the home to

large underbanked and unbanked populations, which e-wallets can help leapfrog challenges in obtaining cards and bank accounts. For many, it is their first experience with digital payments. BNPL more needed in markets with credit under penetration Buy now, pay later (BNPL) services are not “urgently” needed in Singapore’s financial and payments sector, according to a senior executive from UOB’s digital banking arm. Speaking in the ABF FSI Conference, UOB’s TMRW Digital Group Chief Commercialisation Officer Jimmy Koh noted that there is no urgent need to roll out BNPL services in such a mature market, as compared to other underbanked markets. “[The] reason we started in Indonesia is that there is a certain unbanked population in Indonesia, there is low credit card penetration, where only like 10% [use a card], whereas Singapore is a fairly mature market,” Koh told attendees of the conference when asked whether UOB

EVENT COVERAGE: FSI CONFERENCE has plans to roll out BNPL services in the Lion City. “To be honest, do I need buy now, pay later in Singapore? It is not as urgent as those countries in which there is significant credit under penetration,” he added. The BNPL trend The digital arm of UOB recently launched a BNPL product in Indonesia, called TMRW Pay. “In fact, we are the first [to] actually have a buy now pay later product in the market because most of these buy now pay later [products] sits with the technology companies, and then the bank will facilitate in terms of the funding,” Koh said. “But having said that, we are not doing that in every market yet.” Instead of launching their own BNPL service in every market, UOB TMRW may instead opt to partner with companies. “The same company that you [working] with, you could be complementing in one market, you

could be collaborating in another market, you could be competing in another market because we don’t have a lot of runway,” Koh noted, adding that banks need to you need to do as much as possible in the BNPL space in the next two to three years in order to really get the most out of the product.

The current digital climate calls for all members of a banking team to become tech-savvy

Tech-savvy all-around The current digital climate calls for all members of a banking team to become tech-savvy, according to the tech head of one of Hong Kong’s virtual-only banks.

Gary Lam speaking at the FSI Conference 2021

Gary Lam, chief technology officer of Livi Bank, said that banks and financial companies who wish to do digital transformation should also prepare to have all their employees be technologically savvy. “If you want to do [a] digital transformation of a digital company, I would urge that every single member in your team--not only the technology team--they should be technical savvy. They need to stay on top of the technology trends. What are the major market events? How can the team quickly adapt to the changes in the market? How does the team use new technologies to enable new business opportunities?” he asked. Lam added that financial institutions need to strike a balance between their technical roadmap and their feature roadmap. “Whether the balance is 50-50 or 70-30 is up to you. It depends on your product characteristics and your market segments.”

BNPL more needed in markets with credit under penetration: UOB TMRW Buy now, pay later (BNPL) services are not “urgently” needed in Singapore’s financial and payments sector, according to a senior executive from UOB’s digital banking arm. UOB’s TMRW Digital Group Chief Commercialisation Officer Jimmy Koh noted that there is no urgent need to roll out BNPL services in such a mature market. “[The] reason why we started in Indonesia is because there is a certain unbanked population in Indonesia, there is low credit card penetration, where only like 10% [use a card], whereas Singapore is a fairly mature market,” Koh told attendees of the Asian Banking & Finance FSI Conference held virtually on 1 December, when asked whether UOB will roll out BNPL services in the Lion City. “To be honest, do I need buy now, pay later in Singapore? It is not as urgent as those countries in which there is significant credit under penetration.” The digital arm of UOB recently launched a BNPL product in Indonesia, called TMRW Pay.

“In fact, we are the first [to] actually have a buy now pay later product in the market because most of these buy now pay later [products] sits with the technology companies, and then the bank will facilitate in terms of the funding,” Koh said. “But having said that, we are not doing that in every market yet.” Instead of launching their own BNPL service in every market, UOB TMRW may instead opt to partner with companies. “The same company that you [working] with, you could be complementing in one market, you could be collaborating in another market, you could be competing in another market because we don’t have a lot of runway,” Koh noted, adding that banks need to you need to do as much as possible in the BNPL space in the next two to three years in order to really get the most out of the product. Popularity of BNPL services are on the uptick in SEA. According to the FinTech in ASEAN 2021 report, deferred payment services have emerged as a popular digital payment in the region, with one in three consumers indicated that they have used or will use such payment methods.

BNPL services are not “urgently” needed (Source: TMRWbyUOB.com)

ASIAN BANKING & FINANCE | Q1 2022 27

EVENT COVERAGE: HITACHI

Reach the future of banking through modern operations and data management Banks are now compelled to up the ante to compete with fintechs, which has grown wise in leveraging data.

anks have mainly supported customers’ financial needs in the past. However, as needs started changing and the technologies evolve, fintechs have entered the scene and are now becoming a threat for banks who are late to innovate. Now under extreme pressure to keep up with the competition, banks now have to employ the same technologies to ride the digitalisation and automation waves. They also have to modernise their operations and maximise the full value of data to reach the future faster. This has been the main topic of the latest virtual roundtable hosted by Hitachi Vantara, in partnership with Asian Banking and Finance. Entitled “Bringing the Bank of the Future to Today,” the event sought to identify the bottlenecks in data management that limits banks to utilise the full potential of data and reimagine data management practices that are fit for the future. Hitachi Vantara’s Chief Solution Architect at Asia Pacific Seng Joo Lim opened the roundtable with a discussion on the evolution of data architecture over the years, fast-forwarding to today wherein a data lake house has been established. It is a new open data management architecture that combines the flexibility, cost efficiency, asset transactions, data warehouse, enabling 28 ASIAN BANKING & FINANCE | Q1 2022

Demand requires improved efficiency, reduced costs, and agility to data. We call it DataOps

business intelligence machine learning on the data. “What does the future hold?. Demand requires improved efficiency, reduced costs, and agility to data. We call it DataOps,” Lim said. Right data, right time, right person Lim observed that data ops has been going up the innovation trigger. DataOps has three key pillars: agility, governance, and operations. The purpose of the office is to streamline the whole flow from source to consumer and be more agile. With banks having a lot of information and data to process, this raises the question of data protection. Lim mentioned that they can leverage on data catalogues, such as Lumada, or AI to automatically search and type such sensitive information. He added that the engineers for such solutions also increase the accuracy of protecting the correct data. Certain less sensitive data such as phone numbers are also masked for downstream consumption without any breach of customers’ personally identifiable information. Data liberation in the industry Meanwhile, CIMB Group’s Group Chief Technology & Data Officer Ros Yusoff shared her insights on how data can be leveraged responsibly. She said that over the years, CIMB

has begun using data to have more of a 360-customer view, to increase product penetration, and improve cross-sale rate but for nothing other than better revenue uplift, which she noted as ‘quite typical of any financial institution.’ Through the data CIMB has collected, Ros said the bank is now able to do real-time triggers, such as financial transaction reminders and targeted campaigns. The bank has also embarked on digital personalisation to provide solutions that matches consumers’ behaviours. However, this poses a challenge of struggling to find good use cases when it comes to data. Whilst they have the platforms and the means to leverage data, they have to see as well if the data is usable. “Coming up with good business, good cases that can be measured by linking it directly to revenue uplift, is an uphill battle, something that we have not figured out yet,” she said. Financial products and systems are added over a long period of time, having been developed with their own specific rules and specs. ‘Actionable insights’ For Ros, having that data quality can also be a problem, but there were bandages added for various reasons over time, which added to the complexity to get quality data across various systems. She emphasised that the main reason data and processes need to be liberated is to increase banks’ ability to use the information to generate ‘actionable insights’ that could help organisations achieve their goal. However, it is also crucial for banks to act responsibly and minimise the risk of any misuse of data, in line with regulations and privacy laws. Lastly, Ros mentioned that data ethics is also a challenge for financial institutions. Ros added that customers’ consent and transparency in collecting, storing and using data collected, followed by ensuring data subjects’ privacy, are key to banks.

ASIAN BANKING & FINANCE | Q1 2022 29

OPINION

SHUANG TAO

Climate risk and the role of the finance sector

limate change is the most urgent threat facing the world. It affects us all. The imminent risks are spelt out in detail in the recent IPCC Report, which was headlined around the world as “Code Red for Humanity.” The subsequent COP26 conference in Glasgow has seen world leaders agree on certain measures designed to reduce emissions and take concrete steps towards the decarbonisation of the world economy, including agreement on halting and even reversing deforestation.

SHUANG TAO Principal Solutions Architect, SAS Risk & Finance Advisory

The responsibility of business The crisis demands that we all as individuals change our behaviour, and remedial actions like recycling, reducing our use of water, and flying and driving less are important. However, it is industry and business that are positioned to take the most effective mitigating action. Businesses have to manage changing regulations, evolving consumer preferences and new technologies as they strive to reach carbon neutrality. Significant impact can be achieved by changes in the role played by finance. The goals of COP26 recognise the importance of action by the finance sector, with this stated objective: “Financial institutions must play their part, and we need work towards unleashing the trillions in private and public sector finance required to secure global net zero.” The funds involved are indeed huge. ESG (environmental, social, and governance) assets surpassed US$40 trillion globally in 2020 and may hit $53 trillion by 2025. Many organisations have been slow to react to the crisis, but now regulators are stepping in, supported by shareholder pressure, to change the way business is financed. Many providers of project and trade finance are setting standards for sustainability in their loan instruments. Physical and transition risk will also be priced into financing, making “green finance” a major factor. Climate risk is also becoming an important component of the risk analysis and stress testing that banks must undertake. The Basel Committee on Banking Supervision has published papers on climaterelated risk that will serve as a “conceptual foundation” as the committee seeks to incorporate climate risk into the Basel regulatory framework. The reports cover climate-related risk drivers and note that traditional risk categories used by banks— such as credit risk, market risk, liquidity risk, and others—can be used to capture climate risk. The impact of climate risk on financial institutions

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and systems Physical and transition risks will have a significant impact on the financial system. There is a growing focus on potential risks from climate change affecting financial stability. Numerous international initiatives by public and private sector bodies are underway to address climate risk. The International Sustainability Standards Board (ISSB) has been established to focus on climate-related reporting. Financial Stability Authorities globally are also working on strategies to protect the stability of the financial system from climate risk. In Asia Pacific, regulators in Australia, Singapore and Hong Kong have announced guidelines on climate change stress testing and scenario analysis, and Japan’s FSA is collecting stress testing results from mega banks. New Zealand has introduced a law requiring players in the financial sector to reveal the impact of climate change. In the past, many institutions have treated climate risk as part of their corporate social responsibility (CSR) agenda with a focus on reputational impacts and a relatively narrow, short-term perspective on financial risks. Now institutions plan to shift to a more comprehensive approach, embedding climate risk in their risk management frameworks and taking a longterm view of financial risks. Institutions are at different stages in the journey to integrate climate risk into enterprise risk management. According to a survey by the Global Association of Risk Professionals (GARP), about 33% of institutions introduced climate risk into their business more than five years ago, and 24% just during the last year. The need for data and analytics to drive action The financial sector is expected to play a key role in financing the transition to a greener and more sustainable economy. There are three ways in which FSI organisations can incorporate climate risk into their business activities. First is portfolio alignment, which looks directly at the ultimate goal of global efforts on climate change and explicitly defines the portfolio changes that would be required to align with the Paris agreement 2°C scenario. Second is the risk framework method, a risk-based adjustment that enables institutions to manage risks internally and allocate their portfolios in the most riskeffective way, taking into account climate risk. Third is the exposure method, which directly evaluates the performance of an exposure in terms of its climate risk attributes.

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OPINION

ALOYSIUS FUA

How financial services can heed regulators’ call for sustainable finance

n September 2021, the Monetary Authority of Singapore (MAS) announced the formation of a new Sustainability Group. The Group will coordinate the authority’s green finance and sustainability agenda, aimed at strengthening the financial sector’s resilience against environmental risks and developing a vibrant green finance ecosystem to support Asia’s transition to a low-carbon future. It will also identify strategic green finance collaborations with regional and international counterparts and reduce MAS’ own carbon and environmental footprint. This news is certainly welcomed. Regulatory interest in sustainability or environment, social and governance (ESG) factors is not new – the US Securities and Exchange Commission and Hong Kong’s Securities and Futures Commission have also set up similar task force or groups to look into ESG-related initiatives.

ALOYSIUS FUA EY Asean Sustainable Finance Lead and Partner, Ernst & Young LLP

Managing impact of ESG risks on financial stability Central banks and financial regulators now widely acknowledge that climate change and ESG factors can threaten financial stability via physical and transition risks – with financial institutions already reporting significant losses as a result of such risks. Pricing of climate-related risk is still a nascent field and, with its unique and longer-term characteristics, remains a challenge across the board for corporates, financial institutions and financial markets. Financial authorities recognise that, in general, assets continue to be mispriced and that there is a need for new data, methodologies and disclosures to better understand, size up and manage these risks. Prudential authorities, for their part, are increasingly focused on the necessity for financial institutions to expedite changes in governance, risk management and disclosure to ensure climate-related risks are properly accounted for and built into decision-making processes, including capital assessment and allocation. With MAS’ latest announcement of the Sustainability Group, coupled with the MAS Green Finance Action Plan announced in October 2020, the direction that Singapore’s regulators are taking is clear. The pace of supervisory and regulatory development is expected to hasten with the 26th United Nations Climate Change Conference (COP 26). Similar moves can be expected from regulators in other jurisdictions as well. Countries and regions will move toward greater accountability and transparency, and more will be making commitments to achieve net zero by 2050. As well, there will be increased legislations mandating sustainable finance for banking, capital

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markets and non-bank financial institutions. Three key actions for financial institutions Financial institutions are sitting up to climate risks too. Many of their stakeholders expect them to support their transition to a zero-carbon economy. The latest EY and Institute of International Finance (IIF) bank risk management survey revealed that climate change has topped the list of long- and short-term risks for AsiaPacific banks for the first time since 2010. In navigating the evolving sustainability risk landscape and regulatory requirements, financial institutions should look into three areas with urgency. First, adhering to regulatory guidelines is key. Globally, it is only a matter of time before sustainability risk management becomes a regulatory imperative, if not already. There are wide variations in how advanced financial institutions are in this regard. The institutions leading the way will set the baseline for peer comparison from supervisory and market perspectives. A defining feature of these financial institutions is the board-level commitment to understand and drive climate-related risk and sustainability considerations through strategy and into the fabric of how the institution governs the business. Second, financial institutions need to address the challenge in sustainability-related data, which will be critical to comply with regulatory expectations and requirements. Having a coherent and robust data strategy is particularly important, given the unique nature of the data required. There will likely be significant gaps in fulfilling regulatory reporting and disclosure requirements. Organisations may have to rely on estimates, best guesses and third-party data providers, and these could pose various reliability issues from an internal risk management and regulatory perspective. Third, financial institutions must consider broader sustainability factors beyond climate risk. While much attention has been placed on environmental concerns (climate in particular), there is a growing emphasis on social factors amid renewed considerations around governance, which in part, is due to reflections driven by the COVID-19 pandemic. In fact, new or planned regulatory requirements are placing a greater focus on these aspects. These include global initiatives such as the World Economic Forum working with major accounting bodies to develop frameworks, standards and metrics with respect to sustainability that considers ESG aspects and long-term value creation, in order to foster transparency and comparability in disclosures.

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Asian Banking & Finance (January-March 2022)

Articles inside

Climate risk and the role of the finance sector

How financial services can heed regulators’ call for sustainable finance

Reach the future of banking through modern operations and data management

Why banks need more tech experts in their boardrooms

Profits of Japan’s megabanks expected to rise in 2022

Singapore: Yes to wholesale skeptical on retail digital fiat money

China’s new foreign-friendly financial market laden with opportunities

How Livi Bank aims to make banking more rewarding

Citi Commercial Bank bridges cultural gap with China Desk initiative

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