Issue No. 109
DISPLAY TO 31 MARCH 2023
SERVING THE UNBANKED HOW GCASH CORNERED THE PHILIPPINES’ SACHET ECONOMY WITH SMS-BASED REMITTANCE SERVICE
Asian Banking & Finance
Arnaud Caudoux Deputy CEO, Bpifrance p. 22
FRENCH FINTECHS TAP INTO ASIA’S BOOMING MARKET REAL-TIME CROSS-BORDER PAYMENT EDGES CLOSER TO REALITY WITH ISO 20022 INFLATION, WEAK ECONOMIES TO ERODE APAC BANKS’ BUFFERS IN 2023 WHY THE UNIVERSAL BANKING MODEL IS NO LONGER SUSTAINABLE
FROM THE EDITOR
B
anks’ buffers, built over the past decade, are expected to come to the test amidst rising interest rates, inflation, and weakening economies. Come March, banks and financial institutions are mandated to begin steps to fully adopt ISO 20022 guidelines for cross-border payments and cash management messages. Meanwhile, BNPL regulations toughen debt prevention and financial literacy in the Asia Pacific.
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For French fintechs, Asia is a land of opportunities and learning. Compared to Europe, fintechs in Asia have struck a balance with banks, says Bpifrance Deputy CEO Arnaud Caudoux, in an interview on page 22. Philippines-based remittance service provider GCash transformed into an SMS-based all-in-one financial super app. GCash Chief Customer Officer Winsley Bangit shares the company’s journey into servicing unbanked Filipinos in an interview on page 20. At the recent Singapore Fintech Festival, experts share insights on the latest trends, strategies, and pain points of the industry. Browse through the full event coverage on page 36. Read on and enjoy.
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MICA (P) 249/07/2011 No. 67
ASIAN BANKING & FINANCE | Q1 2023 1
CONTENTS
20
INTERVIEW HOW GCASH CORNERED THE PHILIPPINES’ SACHET ECONOMY WITH SMS-BASED REMITTANCE SERVICE
FIRST
BRANCH WATCH
08 Loan demand to recover, but China’s
16 HSBC Singapore’s new head office
banks still need to buff loss cushion
embraces hybrid ways of working
10 P2P lending in regulatory shake-up 12 Revised license and laxer listing rules to rock Hong Kong fintechs
13 Only 1 in 10 of banks’ energy financing deals went to renewables
VOX POP 14 How will the FTX collapse affect the cryptocurrency industry?
17 Citi entices Hong Kong’s ultra-
18
BANKING OUTLOOK INFLATION, WEAK ECONOMIES TO ERODE ASIA PACIFIC BANKS’ BUFFERS IN 2023
26
REPORT RETAIL BANKS MUST OPERATE LIKE TECH FIRMS TO THRIVE
SECTOR REPORT 24 Real-time cross-border payments edge closer to reality with ISO 20022
30 BNPL regulations toughen debt
wealthy with first-ever Global
prevention and financial literacy in
Wealth Centre
Asia Pacific
EVENT COVERAGE
INTERVIEW 22 French fintechs tap into Asia’s booming market
28 Why the universal banking model is no longer sustainable in modernday banking
36 Tokenised assets, stable coins central to Singapore’s crypto hub ambitions
38 Better rates, lower fees will not be enough for digital banks to make a profit
40 Intent vs ability: Ghana’s Kwame Oppong on why banks should shift lending models
42 AI adoption in the banking sector is not a ‘race’ but a question of trust: HSBC
Published quarterly by Charlton Media Group Pte Ltd 101 Cecil St. #17-09 Tong Eng Building 2 ASIAN BANKING & FINANCE AND FINANCE | Q1 | MARCH 2023 2019 Singapore 069533
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www.asianbankingandfinance.net
ASIAN BANKING & FINANCE | Q1 2023 3
News from asianbankingandfinance.net Daily news from Asia MOST READ
BANKING TECHNOLOGY
Small step for Green Link Digital Bank, large leap for Singapore MSMEs Even the smallest of ripples can transform to be the biggest waves in the ocean–and a similar mindset is driving Green Link Digital Bank (GLDB), Singapore’s newest wholesale digital-only bank, which announced its soft launch in June.
RETAIL BANKING
UNO Digital Bank sets its sights on being Filipinos’ top virtual bank For the Philippines’ newest digital-only lender UNO Digital Bank, there’s no other place they want to be but at the top. “We want to be number one when it comes to impact on financial inclusion, number one in terms of lending balance sheet, number one in terms of innovation.”
4 ASIAN BANKING AND & FINANCE FINANCE | Q1 | Q3 2023 2021
BANKING TECHNOLOGY
Why LINE Bank chose Indonesia as its third home After successful launches in Thailand and Taiwan, LINE is going steady in Indonesia. The country released digital banking guidelines in mid-2021 that allowed digital banks to be built from scratch, through partnerships and acquisitions, or through reorganising current players into neobanks.
BANKING TECHNOLOGY
Does the future of banking lie in the metaverse? The future of banking may just lie within the comforts of your home while you transport yourself into a digital world and your digital self discusses finance with your digital banking assistant. At least, that’s what banks are betting on as they head into the metaverse.
BANKING TECHNOLOGY
The new brand of personalisation that’s shaping Citi’s digital banking The word personalisation gets thrown around a lot when it comes to digital banking. With 80% of their customers logging into their applications monthly, Citibank knows only too well about these expectations: a customer experience-centered banking journey, right at their fingertips.
RETAIL BANKING
Salaries soar as Hong Kong banks engage in poaching war Hong Kong banks are shelling out large sums of money to attract, retain, and develop key staff amidst a shrinking pool of talent. This, coupled with tough competition from their peers, has pushed up offers and counter offers to their highest rate in a decade, recruitment agents said.
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BTN’s housing loan innovation a big hit amongst millennials They have prepared 100 millennial housing projects spread throughout Indonesia with a potential of $1b (IDR 15.8t).
W
ith 5.8 million millennials facing the challenge of homeownership and a 79% occupancy rate amongst urban millennials, Nixon L.P Napitupulu, Vice President Director, cites the Ministry of Public Works and Public Housing report and shares his views on how Bank Tabungan Negara (BTN) offers an innovative solution through housing loans to make it easier for young Indonesians to own their first home. “One of the causes of the millennial generation not being able to own a house is the majority of them have an income of less than $ 645.49 (IDR 10m) per month. Meanwhile, land prices continue to rise every year,” Nixon said. According to Nixon, based on this ability, the housing range for millennials is between $12,909 (IDR 200m) to $25,819 ( IDR 400m). Nixon also saw several criteria needed by millennials in finding housing, such as proximity to public transportation (distance less than 5 km) from transportation facilities to urban areas, residential locations on the edge or city border, near sports facilities, jogging tracks, and swimming pools, and the availability of clinics, pharmacies, shopping centres, and parks. BTN is working with BUMN Karya and other top developers to develop housing based on Transit Oriented Development (TOD) in order to capture the desires of the millennial generation who prefer housing close to transportation and other public facilities. Currently, BTN has spread 100 millennial housing projects throughout Indonesia with a potential of $1b (IDR 15.8t). “So far we have 35,127 millennial housing stocks consisting of 16,912 highrise building units and 18,215 landed house stock units,” said Nixon. Therefore, the bank continues to develop innovations both in terms of the housing loan programme to make it easier for the millennial generation to have their first home as well as digital innovation which is not only a trend but also a demand, especially from the millennial generation. Flagship programmes Nixon said that there are two programmes that are currently BTN’s flagship. First, BTN has a programme called Graduated Payment Mortgage (GPM), a tiered 6 ASIAN BANKING & FINANCE | Q1 2023
Nixon L.P Napitupulu, Vice President Director, Bank Tabungan Negara
instalment system through a product called “KPR BTN Gaess”. “This product is indeed targeting the millennial generation where instalment payments in the first few years are lighter,” said Nixon. Second, BTN also launched “KPR Rent to Own” for segments of society who have not been able to prepare a down payment or have not been able to buy a house in a location close to their place of work so they are still hesitant to buy a house. “With this product, people can pay rent every month whilst at the same time allocating some of their savings for future home purchases,” said Nixon. In 2021, the BTN Gaess KPR programme has succeeded in distributing up to 203 housing units to millennials. Meanwhile, until June 2022, Gaess BTN KPR realisation has reached 946 units with a value of more than $24.66m (IDR 382b). Meanwhile, for the Rent to Own KPR product which was just released
in Quarter 3/2022, BTN is targeting more than 1,000 registrants in the first year this product is launched. Digitalisation in the residential corridor To support the customer journey for BTN customers in accessing housing finance from pre-sales to after-sales. BTN is developing BTN Properti as a service for prospective housing loan customers that provides easy access to choosing housing units that you want to apply for mortgages and submitting them online. Then they also developed BTN Properti for Developers, a service for property developers to carry out stock management online and at any time. As an after-sales service, BTN has also developed BTN Smart Residence as a medium for routine payment transactions to meet housing needs such as IPL, Electricity, PDAM, Security, Parking, Maintenance, etc. In addition, the Digital Mortgage Ecosystem owned by BTN offers convenience for prospective BTN housing loan customers in accessing housing options available throughout Indonesia. As of Q3 2022, there have been 19.6 million site visitors and 245,000 members as well as $60.8m (IDR 942b) mortgage distribution through the BTN Properti application. In the future, of course, we hope that these numbers will continue to grow. Solid performance As the largest mortgage provider in Indonesia, BTN continues to maintain a solid performance. Until November 2022, BTN continues to record solid performance amidst domestic and global economic challenges. BTN assets grew 4.92% to $25.6b (IDR 397t), then loans grew 8.09% to $19.1b (IDR 296t), Third Party Funds grew 7.38% to $20.78b (IDR 322t) and net profit grew significantly by 41.51% to $180m (IDR 2.79t). NPL also continued to decline to the level of 3.51% accompanied by reserves that continued to be increased with a coverage ratio of CKPN to NPL of 148.09%. Going forward, BTN remains optimistic that credit will continue to grow by around 10-11% amidst an increase in the benchmark interest rate. Then, DPK grew by 10-11%, NPL was below 3%, and Fee-Based Income was targeted at above $129m (IDR 2t).
BTN is working with top developers to capture the desires of the millennial generation who prefer housing close to transportation and other public facilities
ASIAN BANKING & FINANCE | Q1 2023 7
FIRST better than we previously expected, whilste growth in the banks’ risk-weighted assets has slowed. Proactive issuance of regulatory capital instruments by the big four banks over the past few years has also narrowed the shortfall,” Huang said.
China’s big four banks are still US$550m short of reaching the TLAC provision
Loan demand to recover, but China’s banks still need to buff loss cushion
LENDING & CREDIT
G
ood news and bad news for Chinese banks–they can look forward to a recovery of loan demand this year, but their biggest banks will need to beef up their bad loan buffers to meet international requirements. In a report, ratings agency S&P stated that the country’s four biggest banks are still US$550m (RM3.7t) short of meeting the total loss-absorbing capital or TLAC provision in order to meet international requirements for global systemically important banks. The Industrial and Commercial Bank of China, China Construction Bank, Agricultural Bank of China, and Bank of China are required to hold TLAC that is equal to 16% of their risk-weighted assets by 1 January 2025. Loss-absorbing capital is not paid back in the event of major losses at banks. Instead, the capital is used to “absorb losses,” and thus reduce the need and likelihood of governments bailing out the institutions, according to S&P.
8 ASIAN BANKING & FINANCE | Q1 2023
Expect more bond issuances This, coupled with new regulations in 2022 that widen channels for TLAC-eligible issuances from these banks, drive S&P’s belief that there should be a flurry of issuance of senior non-preferred bonds by the big four banks. “A wider range of TLAC-eligible instruments will help China’s big four banks to narrow gaps in regulatory capital requirements set to come into effect in 2025,” noted S&P Global Ratings credit analyst Michael Huang. On the upside, the banks have done well against S&P’s estimates. The ratings agency’s 2020 report had estimated that the lenders will have a RMB6t gap as the deadline approached. “Our forecast for the gap has narrowed in part because bank profits have been
Recovering demand China’s banks could also enjoy an increase in retail loan demand and decrease in loan delinquencies. The reopening of the country’s borders and easing of anti-COVID policies are expected to increase retail loan demand and decrease loan delinquencies. China reopened its border on 8 January, a move that UOB Kay Hian analyst Sabrina Soh expects to translate to substantial benefits for the country’s banks. “[A] more robust demand should support loan volume and pricing, stronger corporate and household balance sheets should support asset quality, and the improved risk appetite of the household sector and an increase in business/ household activities should boost fee income growth,” Soh wrote in a report. In 2022, China’s household loans increased only by RMB3.83t in 2022, about RMB4t short of the growth reported in 2021. Property sales have also fallen 25% in 2022, which meant that banks also provided fewer mortgage loans. Lending growth is expected to be supported by the government’s overall plan to rebuild the $17t economy following the COVID-induced slump in 2022. “We anticipate further measures to boost housing demand in 2023. These plans could include further reductions in mortgage interest rates, down payment requirements, and loosening limitations on property purchases in China’s premier cities,” Soh said. China Merchants Bank in particular is expected to “grasp the full benefits of the retail rebound resulting from the reopening of borders and real estate policy,” according to Soh. “China Merchants Bank’s retail competitive advantage is still compelling from a longterm perspective, the bank’s profitability has continuously surpassed its peers, and the forward looking strategic structure has become the key driver of the premium valuation over time. In addition, we believe that the good long-term trend in the China wealth management market has not changed,” Soh added.
Our forecast for the gap has narrowed in part because bank profits have been better than we previously expected
ASIAN BANKING & FINANCE | Q1 2023 9
FIRST SECURING TALENT IS SINGAPORE FINTECHS’ TOP PRIORITY: PWC FINTECH
F
intech firms in Singapore cited sourcing and retaining as their top priority over the next three to five years as it is one of the key obstacles to growth, according to a report by PwC. The PwC survey showed that over 60% of the respondents are targeting to pool talent as failure to do so may hinder the progress of their organisational value chains and their “full potential.” They are addressing this by offering better job packages. “[Whilst] various initiatives between the industry, policymakers and educational institutions are still in effect to increase the domestic supply of talent in the future, foreign talent is still set to play a substantial role in the competition for viable employees,” the report read. The lack of suitable domestic talent and inability to bring in overseas talent to Singapore was the second main weakness in Lion City’s fintech industry that hinders growth, following the “too small” domestic market and more focus on larger ASEAN markets. Funding Following this, fintech firms are also focusing on funding, capital raising, and listing. They are also looking at entering new markets and offering new products and services. The report also said that around 35% of the firm who said are focusing on expanding their footprint and products are categorised as “Seed” in their fundraising status, and another 20% are “unfunded.” PwC said it reflects the need for the firms to grow rapidly as “it is logical for relatively nascent start-ups to focus on these areas equally in order to increase their market share and drive future investment concurrently.” 10 ASIAN BANKING & FINANCE | Q1 2023
Digital Indonesian rupiah may be in the cards whilst cryptoassets, P2P lenders are taxed
P2P lending in regulatory shake-up FINTECH
I
ndonesia faces massive changes in its digital economy with the expected enactment of the PPSK Bill this 2023, which introduces broad changes to important regulations for the country’s financial and fintech sectors. The bill is expected to amend at least 15 existing laws related to digital finance and digital payments as well as introduce a new regulatory framework that will create an integrated fintech ecosystem, according to a review by Linklaters. One of the biggest changes that the PPSK bill introduces is an amendment to the currency law to include digital Indonesian rupiah as a type of currency, in addition to bills and coins. According to the bill, the digital rupiah shall be issued by BI upon coordination with the government and by considering monetary conditions, fraud risk mitigation and data protection. Cryptoassets Amongst industries most affected by the sweeping changes are cryptoassets.
Amongst industries most affected by the sweeping changes are cryptoassets
In 2022, the Commodity Futures and Trading Supervisory Agency or BAPPEBTI of Indonesia discontinued issuing registration licenses to potential crypto asset traders. BAPPEBTI also expanded the list of tradable crypto assets in the physical market from 229 to 383 assets. No provision in the PPSK Bill that acknowledges and allows cryptocurrency, according to Linklaters. Instead, the PPSK Bill classified crypto assets and directs it under the authority of the Bank Indonesia (BI) and the Financial Services Authority (OJK), instead of a commodity under BAPPEBTI. Fintech taxes will begin to apply in 2023. Crypto asset transactions will be subject to VAT. Crypto asset-related income is subject to income tax. Lenders also face a new taxation scheme. The local Minister of Finance (MOF) has stipulated crypto assets transactionsThe MOF has also issued a regulation imposing income tax on income derived from loan interest obtained by lenders–15% for domestic taxpayers and permanent establishments; 20% for foreign taxpayers–to be withheld by the licensed P2P lending organiser and 11% VAT on fintech services. The latter includes e-money, e-wallets, P2P lending and payment gateways, Linklaters noted. Lending Indonesia also now requires P2P (peer-to-peer) lenders and organisers to be licensed by the OJK. They also must now register as an “electronic system organiser” with the Ministry of Communication and Informatics. The regulation covers the minimum paid-up capital for the P2P lending services of IDR25 billion upon establishment (with equity maintained at minimum IDR2,5 billion up to 4 July 2023) and the maximum 85% foreign ownership, according to Linklaters. Any change of ownership of the organiser will need to be approved by the OJK. Privacy law changes Apart from changes in taxation and regulation, Indonesia has also recently issued a Data Protection Law, the first overarching regulation on data protection in Indonesia. The move marks a new era for privacy law, according to Linklaters.
ASIAN BANKING & FINANCE | Q1 2023 11
FIRST
Retail investors may slowly be permitted more access to virtual assets
Revised license and laxer listing rules to rock Hong Kong fintechs FINTECH
H
ong Kong’s fintech industry can face a new licensing regime and relaxed listing requirements in 2023, according to the latest fintech legal outlook released by the law firm Linklaters. Linklaters highlighted three key developments in Hong Kong’s fintech space in the next 12 months: a new virtual assets service providers licensing regime; expected widened access to virtual assets for retail investors; and the possible relaxation of listing requirements in the future. In 2023, there will be a new regime to license virtual asset service providers or VASPs, as set out by the revised guidelines under the Anti-Money Laundering and Counter-Terrorist Financing (Amendment) Bill passed in 2022. Under the bill, anyone operating a business providing a virtual asset service (VA service) in Hong Kong, or holding themselves out as doing so, will need to be licensed as a VASP by the local Securities and Futures Commission. “We are waiting for the SFC consultation 12 ASIAN BANKING & FINANCE | Q1 2023
on the regime details which will seek feedback on whether retail investors should be permitted to access these exchanges. This is a major change in approach, as previous proposals restricted the exchanges to ‘professional investors’ only,” Linklaters noted in their report. Another major change that will shake the fintech industry is that of retail investors slowly being permitted more access to VAs, Linklaters noted. “The SFC is cautious – at the beginning of 2022 retail investors were restricted to a limited suite of VA-related derivatives traded on conventional exchanges. However, in October 2022, the SFC announced it will consider applications to authorise some ETFs tracking VA futures, and therefore be offered to retail investors,” the law firm said.
Linklaters added that the SFC also promised a circular on a security token offerings regime, which will allow retail investor access for some offerings where there are proper safeguards. The Hong Kong Monetary Authority (HKMA) earlier this year issued a discussion paper seeking feedback on a regime for regulating activities relating to payment-related stablecoins. Linklaters expect the HKMA to announce next steps soon, as the HKMA intends to introduce the new regime no later than 2023 or 2024. These developments mark a shift from the start of 2022 when traditional financial firms were given guidance by the SFC and the HKMA in a joint circular on how they should carry out VA-related activities. A new listing regime might also be introduced over the next 12 months as Hong Kong continues to aim to be an attractive place for tech listings. The Hong Kong Stock Exchanged had launched a consultation for a listing regime for specialist technology companies. The consultation proposes to allow enterprises in specialist technology industries–which otherwise do not meet the eligibility tests for the main board on profit, revenue, or cash flow–to list in the city. Amongst the industries proposed are cloud-based services and artificial intelligence. Property rights, competition investigations In addition to the three key developments stated above, Linklaters further noted two more points that will affect Hong Kong’s fintech industry in 2023: competition investigations, and possible discussion regarding property rights for tokenised assets and legality of smart contracts “One is that the Competition Commission has said that the digital economy is a priority sector, and we are aware of investigations by the Commission in this area. It is therefore a ‘watch this space’ to see whether any actions arise, and a reminder that conduct and merger rules still apply in this space,” Linklaters wrote. Linklaters also noted that of a government’s policy statement, which noted that further work may be required on property rights for tokenised assets and the legality of smart contracts. “This may be an area where we see developments in the coming year,” it said.
This is a major change in approach, as previous proposals restricted the exchanges to ‘professional investors’ only
FIRST
Just $178b were for clean energy activities such as wind and solar
Only 1 in 10 of banks’ energy financing deals went to renewables LENDING & CREDIT
B
ank financing going towards green energy and net zero emissions changed little in the past six years, according to a report released by Sierra Club, Fair Finance International, BankTrack, and Rainforest Action Network. Total amount of clear energy financing totalled $34.5b in 2021, climbing from $23.2b in 2016, barely doubling in five years. Bank loans and bond underwriting
for renewables went from 7% of the overall financing of the energy companies examined in 2016, to 10% in 2021. Overall, of the $2.5t in loans and bond underwriting provided by 60 banks to energy companies between January 2016 and July 2022. Of that amount, $2.3t were for the production of fossil fuel energy and just $178b were for clean energy activities such as wind and solar.
The data shows that funding stagnated over the five years, rather than showing any positive trend, the report said. “Many banks claim that they continue to provide financing for fossil fuel clients in order to help those clients in their climate transition. This data calls into question that claim, and gives proof that banks must get serious about financing the clean energy transition,” said Adele Shraiman, campaign representative with the Sierra Club’s FossilFree Finance Campaign. Based on the data, no bank is set to reach the minimum requirement needed to reach climate goals, as set in the Glasgow Financial Alliance for Net Zero (GFANZ). The GFANZ research stated that low carbon energy investments need to account for at least 80% of energy investments compared to fossil fuels (4:1) by 2030 to reach climate goals. Citi and JP Morgan Chase pumped $181b into energy companies examined between 2016 and 2022 by Sierra Club’s research, but just 2% went to renewables. Similarly, only 2% of Barclays’ financing of the energy companies examined went to renewable energy sources. Royal Bank of Canada is at just 1% of its energy financing; Mizuho, 4%; BNP Paribas, 7%; and HSBC, 5%. The research said that banks that are members of GFANZ actually provide less financing for renewable energy, on average, than their counterparts that are not members of the alliance.
THE CHARTIST: DEMAND FOR BUY NOW, PAY LATER RISE AS INFLATION HIT CONSUMERS’ INCOMES
B
uy now pay later is expected to account for 41.% of the share of APAC e-commerce payments value in 2026, according to a report by data and analytics company GlobalData. BNPL has gradually gained traction in APAC markets due to a recent surge in inflation that adversely affected consumers’ disposable income. Inflation has also given rise to demand for shortterm financial solutions, a hole that BNPL currently fills. Furthermore, BNPL has emerged as a viable payment option for consumers, who do not have access to traditional credit options such as a credit card, allowing them to pay for purchases conveniently at later dates in installments.
Amongst countries in the region, Australia and New Zealand were noted for having well-developed BNPL markets far ahead of their peers. In Australia, BNPL now make up an estimated 20% of all e-commerce payments; the statistic is 12.5% in New Zealand. Afterpay, a BNPL brand in Australia, serves over 20 million customers in the country alone. Countries such as India, Singapore, and Japan are also now seeing high adoption of BNPL services. India has reportedly seen the fastest jump in BNPL share in the region, which increased from 0.1% of e-commerce sales in 2019 to 3.2% in 2021. BNPL is expected to account for more than 5% of all e-commerce sales transactions in 2022.
APAC: BPNL Share in E-commerce Value (%), 2019-26
Source: GlobalData
ASIAN BANKING & FINANCE | Q1 2023 13
VOX POP
How will the FTX collapse affect the cryptocurrency industry? CRYPTOCURRENCY
Analyst Moody’s Investors Service This crisis will have long-lasting effects on the crypto industry. Falling crypto asset prices will restrict businesses’ ability to raise funds and depress customer demand. Lower crypto asset valuations will restrict businesses’ ability to issue tokens to finance their expansion, constraining the industry’s future earnings. Falling asset prices will also depress demand for crypto services. The Bank of International Settlements estimates that 73%-81% of crypto investors have likely lost money on their investment as of November 2022. These factors will deteriorate the credit quality of CeFi companies and intermediaries managing their customers’ crypto transactions. DeFi applications, financial platforms allowing participants to interact without intermediaries will also feel the effects of FTX’s demise despite being more transparent. We anticipate that financing will continue to decline in the upcoming quarters.
Joshua Foo Regional Director, ASEAN and Central Asia, Chainalysis The impact of FTX’s collapse is significant, and many people will be directly and indirectly affected by these failures, the full details of which will only be fully known in the weeks and months to come. Our sympathies lie with them. What happened at FTX was not a failure of the crypto or blockchain ecosystem, but of a single organisation that acted irresponsibly and lacked transparency in its actions. Similar scenarios have happened across various industries - including in technology and financial services - and will likely happen again. The industry has an opportunity and responsibility to take stock of its values and advocate for a better, safer ecosystem that paves the way to new models of ownership. Together with regulators, we can capitalise on blockchain’s inherent transparency and help address issues that the traditional financial system cannot solve.
PRODUCT WATCH
Standard Chartered unveils funds based on its CIO’s views
S
tandard Chartered Bank has unveiled the Signature CIO Funds based on views released by its chief investment office, led by its CIO Steve Brice. For a minimum investment amount of S$1,000, retail investors can have access to four global diversified multi-asset fund portfolios – Signature CIO Income Fund, Signature CIO Conservative Fund, Signature CIO Balanced Fund and Signature CIO Growth Fund. These cater to different investment objectives and risk profiles. “Our Signature CIO Funds, backed by the CIO views, help investors avoid behavioural biases such as ‘analysis paralysis’ or excessive trading which may be detrimental to long-term investment returns,” Brice said, commenting on the launch of the funds.
14 ASIAN BANKING & FINANCE | Q1 2023
For example, Signature CIO Income Fund is designed for investors to generate a regular income, allocating 53% of its portfolio to fixed income, 34% to equities, 1% to cash, 9% to hybrids, and 3% to REITs and infrastructure. Standard Chartered developed the funds alongside asset manager Amundi. It leverages Amundi’s institutional relationships and direct pricing from market makers, allowing for optimal implementation, with the flexibility to choose between active and passive investments. Retail investors can now subscribe to the funds through their relationship managers. Subscription on SC online website and SC Mobile Banking App will be available from 17 February onwards.
Adrian Przelozny CEO and Co-founder, Independent Reserve, Singapore History is cyclical and has shown its tendency to repeat itself. Like the traditional banking industry, the cryptocurrency and blockchain industry is going through its rite of passage, with some inroads to make before it reaches the trust levels of banking. Here at Independent Reserve, we believe that the recent setbacks, FTX’s insolvency, and the Terra Luna collapse are watershed moments that can positively shape the industry’s future. Events such as these, albeit painful, would mean that the market will eventually converge and consolidate in the longer run, weeding out the bad players as institutions and retail customers demand stronger regulatory oversight and for exchanges to be more professional in their business conduct. To safeguard consumer interest, regulators need to steer exchanges to exercise greater agency over their operations and risk controls to ensure that the right level of risk in place.
WITH ACTIONS WE SHAPE THE FUTURE We b e l i e v e p e r s e v e r a n c e i s t h e k e y t o s u c c e s s . With the capability to act, Cathay United Bank constantly rise toward the distant goal, w i n n i n g m a r v e l o u s a c c o m p l i s h m e n t , h o n o r, a n d r e c o g n i t i o n . S u c h c o m m i t m e n t a n d f a i t h w i l l l e a d u s t o n o t c h u p a n o t h e r v i c t o r y.
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Asian Banking & Finance
Asian Banking & Finance
Asian Banking & Finance
Taiwan Domestic Project Finance Bank of the Year
Taiwan Domestic Cash Management Bank of the Year
Taiwan Domestic Trade Finance Bank of the Year ASIAN BANKING & FINANCE | Q1 2023 15
BRANCH WATCH 1: HSBC SINGAPORE
HSBC Singapore’s new head office embraces hybrid ways of working It incorporates design elements that minimise energy consumption.
Singapore is a critical market for HSBC (Photo: Noel Quinn by Owen Raggett)
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SBC Singapore unveiled its new head office at Marina Bay Financial Centre Tower 2 in Singapore in November 2022. This signals HSBC’s priorities in the Asian market over the next decade: wealth and treasury management, and sustainability. The 140,000 square foot space, located on the top floors of the 50-foot tower, will house the bank’s 4,000-strong local workforce and enable them to adopt hybrid ways of working. It incorporates design elements that minimise energy consumption and carbon emissions, according to HSBC. Noel Quinn, Chief Executive of HSBC, said that HSBC’s investment in the new space marks its commitment to leverage the Lion City’s strengths as a regional hub for wealth, treasury management, innovation and sustainability to build their
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HSBC SG ribbon cutting ceremony
workforce’s future skills and to serve their customers’ needs. “Singapore is absolutely a critical market for HSBC,” Quinn said during the unveiling ceremony. “We’ve committed to investing US$6b over the next few years in Asia. Fifty percent (50%) of that will be in this region – in the ASEAN region, in India. So US$3b of the investment is going to be going into the market here in South and Southeast Asia. Singapore is a critical market for us, and it’s critical for us in two principal areas – International Corporates and International Wealth.” The move also underlines the bank’s commitment to serve the wider Southeast Asian region, which is at the epicentre of four major global trends, according to HSBC: supply chain shift, climate change, digital acceleration and rising wealth.
Singapore is a critical market in two principal areas – International Corporates and International Wealth
Wong Kee Joo
The bank first made the move from its old 21 Collyer Quay office to the Marina Bay Financial Centre in 2020. However, celebrations for opening the new office were withheld due to the rise of the COVID-19 pandemic, as noted by Wong Kee Joo, CEO of HSBC Singapore, in his speech during the ceremony. We have every ambition to grow our business substantially here in Singapore. We know there is very strong competition, strong competition is good, and we want to continue to develop,” Quinn said during the event. Quinn also thanked his colleagues in the Lion City. “They’ve done an exceptional job here in Singapore and globally over the past two to three years during COVID. They’ve gone above and beyond in helping each other when they were in time of need.”
BRANCH WATCH 2: CITI HONG KONG
Citi entices Hong Kong’s ultra-wealthy with first-ever Global Wealth Centre It also launched a digital twin in the metaverse called Citi Digital Wealth Centre.
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iti is ramping up its global wealth strategy with the launch of its very first Global Wealth Centre in Hong Kong: a curated space aimed at serving the bank’s affluent and ultra-high net worth clientele in Asia. The 10,000-square-foot space in Tsim Sha Tsui features meeting rooms and seating areas for the exclusive use of the bank’s Citigold Private Client and Citi Private Bank customers in Hong Kong. The space is staffed by senior bankers and industry specialists. “As part of this signature experience, every client is served by a team of relevant experts – a designated Banker, Portfolio Counselor, and a team of Specialists who take a holistic approach to a client’s portfolio and needs. The centre also supports banking services including noncash transactions and account opening,” said Vicky Kong, Consumer Business Manager for Citibank Hong Kong.
As part of this signature experience, every client is served by a team of relevant experts who take a holistic approach to a client’s portfolio and needs
Vicky Kong
The Global Wealth Centre clients will also enjoy a variety of privileges in partnership with lifestyle brand operator K11 group. The centre’s clients can enjoy a complimentary afternoon tea set at the K11 Musea Artisan Lounge, with food made of sustainable ingredients. Clients will also receive a complimentary gift set from the K11 MUSEA 181 at Fortnum & Mason. In the future, GWC clients will also enjoy exclusive K11 Lifestyle Passport privileges ranging from gourmet to beauty collections. The bank’s renewed efforts to better serve its affluent customers in the region stems from Asia contributing 34% of Citi Global Wealth’s overall revenue of US$7.5m in 2021. Alongside the launch of the global centre, Citi also unveiled an equivalent space to meet their ultrawealthy clients’ financial needs–this time within the metaverse. “A first for Citi in Hong Kong, we simultaneously launched the Centre’s digital twin – Citi
Digital Wealth Centre – in the metaverse, incorporating interactive and engaging experiences, and capabilities including making appointment bookings, streaming live webinars and offering seamless offline and online client experience,” Kong said in an interview with Asian Banking & Finance. In the metaverse, clients will be able to make appointment bookings, live stream webinars, and access both offline and online client services, Kong added. Looking ahead, Citi committed to focusing on building its core capabilities and strengths, especially in Hong Kong, said Angel Ng, Head of Asia Pacific Global Wealth Management. “This includes strengthening our various propositions across the wealth continuum whether by building new capabilities or leveraging existing ones to make them relevant to clients across more than one segment or proposition,” Ng said.
Inaugural launch of Citi Global Wealth Centre in Hong Kong (Photo courtesy of Citi)
ASIAN BANKING & FINANCE | Q1 2023 17
BANKING OUTLOOK
Inflation, weak economies to erode Asia Pacific banks’ buffers in 2023 The falling valuation of assets worldwide and supply disruptions weigh on banks’ profits. ASIA PACIFIC
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inancial industries should brace for tough times as analysts forecast a difficult year ahead. Banks’ buffers, built over the past decade, are expected to come into test amidst a period of rising interest rates, inflation, and weakening economies, S&P Global Ratings noted in its annual banking outlook. “Higher inflation and weakening economies may eventually catch up with banks. Inflation is at 40-year highs in some banking jurisdictions, and this is feeding into higher. Inflation is also putting the brakes on the outlook for economic growth,” the ratings agency warned. Quintuple whammy In a banking review, McKinsey & Co. listed five shocks affecting banks globally, including those in APAC, as a result of the longtail effects of the COVID-19 pandemic and ongoing geopolitical tensions in Europe and East Asia: macroeconomic shock; asset value shock; energy and food supply shock; supply chain shock; and talent shock. “Soaring inflation and the likelihood of recession are sorely testing central banks, even as they seek to rein in their quantitativeeasing policies,” McKinsey wrote. Another notable issue that banks face is falling valuations of assets worldwide. In China, the decline is felt especially from its property market, which in turn will contribute to its expected slowing loan growth. In a separate report, S&P Global Ratings Senior Director & Sector Lead Analyst Harry Hu said that the country’s overall loan growth will likely come at below 10% in 2023, worsening from the 10.6% expected for the full year of 2022. “A moderately easing monetary environment, fierce deposit competition, and concessional loan rates to policy-preferred sectors continue to erode the sector’s profitability. Property development stress lingers despite initiatives to contain the risk,” Hu noted. 18 ASIAN BANKING & FINANCE | Q1 2023
APAC banking systems should be able to weather the deteriorating global economic landscape in 2023 better than other regions: S&P Global
Inflation is at 40-year highs in some banking jurisdictions
Harry Hu
China is not the only market with property woes. Property sector refinancing risk has also risen in Vietnam, S&P analysts noted. In contrast, Australia, New Zealand, Hong Kong, and South Korea are experiencing house price declines after years of sustained increases. “A sudden drop in market confidence could heighten systemic risks,” the analysts said. “Nevertheless, healthy loan-to-value ratios in Hong Kong, South Korea, and Singapore; healthy mortgage insurance in Australia; and debt serviceability limits and tests in all four markets should partly mitigate asset quality risks.” Fintechs and cryptocurrencies are noted to also be losing their values. The crypto industry in particular is in tough times, with notable high-profile bankruptcies of cryptocurrency organisations, most recently that of cryptocurrency exchange FTX.
Banks will also be affected by disruptions to the energy and food supply related to the war in Ukraine. The ongoing conflict reportedly contributes to inflation and puts millions of livelihoods at risk, McKinsey warned. Supply chain disruptions that began during the pandemic persist, and continue to affect global markets. The fifth shock is related to employment. COVID-19 has reshaped and shrunk the talent pool as more people began to work remotely or left the workforce altogether to join what McKinsey calls “the great attrition.” Some rise, some fall In Asia Pacific, a gap will exist between the performance of banks in emerging markets (EM) and those in developing markets (DM). “We expect most APAC EM banking systems to report steady
BANKING OUTLOOK: APAC financial performance in 2023 or only mild variance versus 2022. This partly reflects our forecasts for continued robust economic growth in India and Southeast Asia, and stronger growth in China, despite the weaker external environment. This should support loan expansion, with benefits to net revenue, which will largely offset weakening asset quality,” S&P said in a recent report. In contrast, banking systems in APAC DMs–Australia, Singapore, Japan, South Korea, New Zealand, Taiwan, and Hong Kong–will post a more mixed financial performance. Loss absorption buffers in these markets should remain similar to 2022 levels, S&P said, adding that in general APAC DM banking systems should be able to weather the deteriorating global economic landscape in 2023 better than other regions globally. The exceptional and the egregious Two markets will buck the trend: Sri Lanka and Singapore. Singapore banks’ profitability metrics are expected to strengthen further to above pre-pandemic levels in 2023, even taking into account credit costs and their loan growth being hit by the ill effects of the external environment.
“Singapore banks are well placed for margin upside over 2022 and 2023 as rate hikes gain momentum. Balance sheets of large Singapore banks are rate-sensitive and benefit from an extensive buffer of low-cost customer deposits,” said Ivan Tan, Primary Credit Analyst for Singapore, S&P. Tan added that a NIM (net interest margin) expansion of 10 bps-15 bps in 2023 is possible. However, the nonperforming loan ratio could weaken over the next 18 months. “We have become more circumspect on mainland China and some regional economies to which Singapore banks are exposed. China’s economy faces downside risks from its property downturn and strict COVID curbs,” Tan warned. “[However] we believe general provision buffers built up during the pandemic offset downside risks to asset quality, and the overall financial impact should be manageable.” On the other end of the spectrum, Sri Lanka’s banks face a tough 2023. S&P named banks in Sri Lanka as having the highest financial profile vulnerability in its metrics. “The operating environment remains challenging for the lenders following the sovereign’s default on its foreign currency obligations in May 2022,” S&P reported.
APAC banking industry outlook by market
Hong Kong: “Stronger net interest margins should help offset the weakness in fee income from wealth management and bancassurance activity. Credit cost is expected to decline as incremental provisions from the China property sector stay low.” (Shinoy Varghese, S&P primary credit analyst, Hong Kong) India: “We project that the banking sector’s weak loans will decline to 4.5%-5% of gross loans by March 31, 2024. Likewise, we forecast the credit costs to normalise to 1.2% for fiscal 2023 and stabilise at about 1.1%-1.2% for the next couple of years. This makes credit costs comparable to those of other emerging markets and India’s 15-year average. The small and midsize enterprise sector and low-income households are vulnerable to rising interest rates and high inflation. But, in our base case of moderate interest rate hikes, we view these risks as limited.” (Deepali V Seth Chhabria, S&P primary credit analyst, Mumbai) Indonesia: “Indonesia banks are enjoying a revival of loan growth and profitability. Elevated credit costs seen during COVID are receding. We expect credit losses for Indonesian banks to gradually decline to 200 basis points (bps) in 2022 and 180 bps in 2023, from their peak of more than 270 bps in 2020. We also expect the sector’s profitability to improve to the pre-pandemic 2.4% in 2023. Higher interest margins and lower credit costs will support this. The banking system will likely rank among the most profitable in the region by a considerable margin.” (Ivan Tan, S&P primary credit analyst, Singapore)
The crypto industry in particular is in tough times, with notable highprofile bankruptcies of cryptocurrency organisations
Taiwan: “We expect higher credit costs as loan moratoriums end but asset quality is satisfactory. [Banks’] solid capitalisation will provide sufficient cushion to absorb higher credit losses. We anticipate further rate rises in the U.S. and Taiwan in 2023, which will continue to lift banks’ net interest margin.” (Yuhan Lan, S&P primary credit analyst, Taipei) ASIAN BANKING & FINANCE | Q1 2023 19
INTERVIEW
How GCash cornered the Philippines’ sachet economy with SMS-based remittance service With over 66 million users – more than half of the country’s population – what’s next for the fintech firm? PHILIPPINES
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ost people would not remember the long string of numbers that makes up their bank accounts but many will always remember their mobile numbers. This was the idea that latched on to Globe’s decision makers when they created GCash to provide an accessible and efficient way for consumers in the Philippines to handle their financials. GCash was first conceptualised in 2004 as an SMSbased domestic remittance service. This was due to the number of Filipinos working abroad and finding it difficult to send money back to their families as most people in the country are unbanked. “The latest statistics said that 44% of Filipinos still don’t have a bank account. What if we make every mobile number a financial account?” GCash Chief Customer Officer Winsley Bangit said during a quick chat with Asian Banking & Finance. From there, GCash transformed into more than a remittance service. All-in-one financial app GCash would be considered an all-in-one financial app and even a super app. First, there are its e-wallet services. During the pandemic, GCash was the most downloaded financial services app in Google Store and the App Store in 2020 according to mobile data and analytics firm App Annie. According to the report, for nine months since January 2022, the app took the top spot for both Android and iOS users, recording 10 million downloads. GCash grew its active user base by 130% by September of that year compared to 2019. Its other services also grew in popularity. At least one out of five consumers in the Philippines who have bank accounts also has a GSave account, the savings account created by GCash together with CIMB. In its GInvest service, GCash has over four-fifths of total Philippine Unit Investment Trust Fund accounts and at least one-fifth of the market share in PH Mutual Funds. Additionally, one out of three new life, non-VUL (variable universal life) policies in the country comes from GCash. Turning point What helped GCash gain popularity in the Philippines is large because the country is a ‘sachet market’. In retail, this means that consumers would rather buy products in smaller, affordable packs than buy in bulk. So when GCash started to develop and expand its financial services, it brought being a sachet economy into consideration and was mindful of the needs of the consumers in the market. “For example, when we developed GSave, it has no minimum deposit requirements, unlike banks. For those 20 ASIAN BANKING & FINANCE | Q1 2023
When mobility was restricted for both consumers and businesses, GCash was one of the few things that worked (Photo: Winsley Bangit, Chief Customer Officer, GCash)
who wanted to try their hand at investing, our GInvest can let you buy stocks or invest in local stocks for as low as P50 (US$0.91c) and P1,000 (US$18.29) for global funds. We simplify this for our customers by saying that for less than the price of one milktea, they can start investing,” Winsley explained. Another turning point, according to Winsley, that cemented GCash’s dominance over the Philippine market was during the COVID-19 pandemic. “When mobility was restricted for both consumers and businesses, that’s when people turned to technology. And at that time GCash was one of the few things that worked. Now, there are over 66 million users of GCash.” Since we are an e-wallet, we are able to collaborate instead of compete
Key milestones Winsley said that one of the top milestones they evolved their SMS-based services into an app that created easier and faster ways to send money. This is particularly important for an economy like the
INTERVIEW The gamechanging experience is we were able to digitalise small, informal entrepreneurs
GCash’s purpose is to focus on financial inclusion (Photo from GCash.com)
Philippines which relies on more manual processes that could take days. Second is how they transformed financial services and digital payments into daily essentials. They did this by giving more control to consumers. “For example, when you need to pay your bills and you live in a province where payment service centres are only found in city centres, you have to spend time and money just to pay your electric bills. But with GCash, you don’t have to chase your due dates. You can pay them anywhere, even in the comfort of your home. You can even pay bills for other members of the family. This makes the use of financial services incorporated into the daily routine of consumers,” Winsley explained. Another milestone is that GCash became a digital enabler for entrepreneurs. “The game-changing experience is we were able to digitalise small, informal entrepreneurs who are selling their products on their own like through their social
media channels. More than five million merchants and social sellers use our platform as a payment portal for their consumers to use,” Winsley said. A financial ecosystem From being an e-wallet to a financial service app that consumers can use to spend, save, invest, and shop, Winsley said this is only made possible through various partnerships that GCash entered into, essentially creating a financial ecosystem. According to Aaron Byrne, EY-Parthenon Financial Services Leader, ecosystems are defined as purposeful arrangements between two or more entities to create and share in collective value for a common purpose and customer. “What’s interesting is that since we are an e-wallet and not a bank or digital bank, we are able to collaborate instead of compete. Currently, we have partnerships with BPI, CIMB, Maybank. We’re also working with Singlife. The ecosystem is diverse, but it’s essentially about partnering especially in trying to reach the unbanked,” Winsley said. Purpose-driven goal Winsley explained that GCash’s one and only purpose is to focus on financial inclusion, though admittedly this is a lofty goal for any company and industry. “What we realise is that it’s not impossible. It’s solving the problems that are right in front of us. Problems of small entrepreneurs who don’t have access to credit because they live far from the city. The future we are looking at is that GCash, e-wallets, digital payments, and financial inclusion should be for everyone,” Winsley said. In the first 11 months of the pandemic alone in 2020, GCash inducted over 3 million Filipinos to open their own savings accounts through GSave. It has also extended over US$146m (PHP8b) in much-needed credit through GCredit, according to earlier data released by GCash and it’s parent company Globe. As of September 2022, GCash said that it has already disbursed more than US$730m (PHP40b) worth of loans as it expanded to more relevant lending products like GLoan and GGives. With GCredit, GLoan and GGives altogether, GCash has logged 1m active users.
GCash transformed financial services and digital payments into daily essentials
ASIAN BANKING & FINANCE | Q1 2023 21
INTERVIEW
French fintechs tap into Asia’s booming market
Compared to Europe, fintechs in Asia have struck a balance with banks, says Bpifrance.
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ASIA PACIFIC
PIFrance deputy CEO Arnaud Caudoux believes that there are boundless space in the Asia Pacific region for France’s financial technology (fintech) companies to make a splash. During the recently concluded Singapore Fintech Festival 2022, the bank teamed up with Aurexia to bring a delegation of nine French fintechs to Singapore and give them a taste of the market. “A lot of these companies may want to expand in the APAC region, and we want them to get a taste and a feeling of what the market is like,” Caudoux told Asian Banking & Finance. “This market is very different from the European markets. The companies can get inspired by what they see happen faster, and they may see a lot of opportunities at present based on what has been shown here. It’s a mix of opportunities, and learning.” Asian Banking & Finance spoke with Caudoux to learn more about the delegation, the difference between the APAC and European fintech markets, and what opportunities they see in the APAC region. How did Bpifrance vet the 9 fintechs? Why did you choose to present these fintechs specifically? We have a network of branches across France—around 50 branches—which deal with French startups and companies on a daily basis. We have one thousand people in these branches, so we know all these companies very well. When we organise this kind of expedition, first we ask our branches for a specific region: in this segment of business, who would you send? They come up with let’s say 50 names. And so we have 50 names of fintechs that would be fit for Asia and Singapore. Then we make a second selection from these 50 companies: which one do we know best, which are the best ones, who do you really want to take with you for one week in Asia, and we just select out of the 50. The most important part is we have the ability to identify companies across France, and then we make the selection from a shortlist. What pain points are these fintechs looking to fill in APAC? Can you give us three to five reasons why you chose to enter APAC’s fintech space? I would not pretend I see pain points in APAC. I don’t see them. I’m here also to learn. I don’t know APAC too well, but what I can see is what has gone fast, and what has gone slow. In Europe, what has gone fast, for instance, is regulation. We’re very good at regulation. If you look at ESG issues, ESG for financial data, I think it has gotten faster in Europe, because of regulations in Europe. For instance, some of these fintech companies can really be helpful here in the crypto area. I think it’s still very open [and] we have some very good companies in Europe, we have very
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Asia is a very interesting mix between very mature industries and very open markets (Photo: Arnaud Caudoux, Deputy CEO, Bpifrance)
good tech in the blockchain area. It’s not about pain points. It’s just a land of opportunity. I think the regulation is softer here. So it’s good for these companies to develop in both Europe and in Asia, or Europe and the US, because you have different regulatory playgrounds and you don’t know what will be the end game, so you need to try different things. So it’s not really about pain points. I think the big difference between Asia and Europe is the place of the incumbent banking industry. In Europe, you have a very strong incumbent banking industry, [and] everyone is banked. In Asia, you still have a lot of unbanked people. And at the same time, you have very good financial hubs like Singapore. So it’s a very interesting mix between very mature industries and very open markets. Whereas in Europe, it’s tougher to address.
It’s not about pain points; it’s just a land of opportunity
Why do you think APAC is a market suited for the French fintechs to conquer? No, I think it’s suited for some companies. Not for all. But I think it’s super easy, if you’re a data analytics provider, if you’re in the regulatory area, you’re a fit. And definitely, if you’re in the environmental transition industry, the ESG part of the business, it is very suited too because we have a lot of constraints already in the EU, to which people have had to adapt.
ASIAN BANKING & FINANCE | Q1 2023 23
SECTOR REPORT: CARDS & PAYMENTS
Real-time cross-border payments edge closer to reality with ISO 20022 ISO 20022 is set to become the universal language of payments. ASIA PACIFIC
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ne of the biggest changes in the history of the payments industry is scheduled to set sail in 2023. Come March, banks and financial institutions within the SWIFT ecosystem are mandated to begin steps to fully adopt ISO 20022 guidelines for cross-border payments and cash management messages. The guidelines standardises the language and approach used by financial institutions for real-time payments, whether low or high value, across domestic, regional and international payment flows. Although it has existed for years, it is only by March 2023 that SWIFT will phase in ISO 20022 as the standard for cross-border payments and cash reporting for all banks and financial institutions under its network. As J.P. Morgan Chase Bank puts it, “ISO 20022 is expected to be the native language of payments by 2025.” Data held by SWIFT supports this sentiment. By 2023, 87% of the total value of high-value payments worldwide are expected to be made up or enabled by ISO 20022-enabled systems; for low-value payments, over half or 65% would be by systems that use ISO 20022, SWIFT’s report estimates. All aboard In terms of volume, almost 8 in 10 high-value transactions worldwide would be making use of the ISO 20022 system, whilst for low value payments, it will be 5 in 10 or 53% of transactions. These figures are just within the year of adoption–which highlight why understanding ISO 20022 is important if relevant players are to consider what the future of payments will look like. “The key value drivers of ISO 20022 are rich formatting options and the ability to capture structured and unstructured information, which seamlessly gives way to efficient processing and time savings
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By 2023, 87% of the total value of high-value payments worldwide are expected to be made up or enabled by ISO 20022-enabled systems (Photo from JPMorgan.com)
ISO 20022 is expected to be the native language of payments by 2025
Jennifer Lucas
from reduced manual intervention,” said Jennifer Lucas, Consulting Leader for EY Americas Payments; Alla Gancz, EY UK Payments Consulting Leader; and Joanna Forman, Senior Manager, Financial Services, EY. “Although migrating infrastructure to be compliant is a major change that can present challenges, banks can use this opportunity to ultimately offer better services and maintain clientcentricity, while corporations and clients can benefit from the data-rich messages,” the trio wrote in a report “Understand key challenges and benefits to ISO 20022 migration.” The most common view is that ISO 20022 should strengthen operational resiliency in payments, enhance straightthrough processing, and make the application of sanctions more efficient, according to Accenture’s
Sulabh Agarwal, Managing Director for Global Payments, and Ciarán Byrne, Executive Director and Global Head, Clearing Transformation, for J.P. Morgan Payments. Agarwal and Byrne listed potential use cases for ISO 20022 in their report “5 ways ISO 20022 could rewrite the future of payments.” The first is more accurate reporting and significantly boosted matching rates thanks to the use of automated receivables matching or ARM. The most obvious impact, of course, is that in the long run, payments, in particular, will be processed and settled more quickly, thanks to reduced errors/failures and investigations throughout the payment lifecycle, EY stated in a separate report. Automatic reports will also now come to clients when the bank receives their payments. Currently,
SECTOR REPORT: CARDS & PAYMENTS
Alla Gancz
Joanna Forman
Conversion will impact payment initiation, client information, payment channels and payment processing
banks have to use static data tables to build the payment status report, but with ISO 20022, banks will no longer need to maintain these tables, said Accenture’s Agarwal and JP Morgan’s Byrne. Instead, clients will receive payment confirmations through their phones or across multiple email addresses. ISO 20022 also holds the potential to offer real-time data to customers via payment dashboards that banks offer to their customers currently, according to a report by Accenture. The kicker is that the accuracy and quantity of the data offered are expected to radically expand once the guidelines come into effect. Agarwal and Byrne also believe that the enhanced data available in an ISO 20022 payment instruction will “provide banks an opportunity to better understand every transaction on the standard.” “The structured name and address details for both sender and beneficiary has the potential to unlock improvements for AML and KYC practices, which should in turn enable more efficient and error-free screening processes,” Agarwal and Byrne wrote in a joint report on ISO 20022 migration. Finally, banks have the opportunity to identify potential cross-selling opportunities to customers based on data at hand. “For instance, it could give mortgage providers greater insight into originations and
refinancing opportunities,” Agarwal and Byrne said. EY’s Lucas, Gancz, and Forman agreed that the significant improvements to the payment procedure and newly added insights from the ISO 20022 enriched data will provide notable monetisation opportunities for banks. “Robust data provided by ISO 20022 standards enables banks and nonbanks to better identify customer trends and provide improved services to their clients,” the experts said. Navigating choppy waters Whilst the standardisation had been a long time coming for the financial industry, the transition would still be a big challenge for banks, who face navigating varying countrymandated timelines. “Banks need to balance an array of timelines and custom requirements across each market. This is especially challenging, as there is not a one-size-fits-all approach to managing system upgrades across the ecosystem to be compliant,” EY’s Lucas, Gancz, and Forman pointed out in their report. In particular, EY noted four challenges that its clients faced while migrating to ISO 20022 standards: global prioritisation and resourcing; consistent interpretations of data; length of time before benefits are realised; and operational impact. Migrating to ISO 20022 standards requires banks to invest heavily.
Sulabh Agarwal
Ciarán Byrne
“Prioritising which jurisdictions, products and services should be migrated first will create a competition for global funds and resources to manage the project. Because ISO 20022 return on investment (ROI) tends to be long term due to migration effort complexities, banks will need to evaluate their business case to determine when cost savings will take effect and strategically communicate the benefits to program sponsors,” EY said. Whilst standardisation of messages will be more beneficial for payments processing in the longterm, conversion to one standard will affect the whole cross-border payment processing, especially for clients, who will have to familiarise with a new process. “Conversion will impact payment initiation, client information, payment channels and payment processing. [It] will require careful consideration and time to reflect the new standard,” EY noted. This lead time will further require internal rework and delay the benefits related to customer journeys. Banks and companies will need to factor in the impact to their internal systems that do not share the same migration priorities as their core processing applications. In particular, EY said that those used for accounting, reconciliation and liquidity management may require legacy tech to be retrofitted. “To establish a seamless transition to ISO 20022, banks should focus on building interim solutions that support business continuity, while simultaneously focusing on updating legacy systems,” it said.
Migrating to ISO 20022 requires banks to invest heavily
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REPORT: UNIVERSAL BANKING MODEL
Retail banks must operate like tech firms to thrive They must develop a platform that supports the full search-shop-manage value chain, McKinsey and Co. reports. ASIA PACIFIC
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n late 2021, Thailand’s oldest bank Siam Commercial Bank made a bold step: it announced that it will be reorganising under a new parent company SCBx. The century-old bank aimed to position itself as a financial technology company, recognising the need for faster innovation in digitalisation. In an interview with Asian Banking & Finance at the time, the bank’s CEO and Chairman Arthid Nanthawithaya noted that the traditional banking structure was limiting its growth potential, leading the bank to reimagine the entire group structure. Whilst the long-term success of SCBx and whether it will achieve its 2025 goals remain to be seen, the bank may have just made the right decision to adopt a more digital-focus, startup-like mindset. In a report, McKinsey & Company highlighted that the current model of universal retail banking is
To thrive, banks need to reinvent themselves
unsustainable over the long term. “To thrive, banks need to reinvent themselves, focusing on businesses where they can achieve and extend market leadership in the new digital world,” the management consulting company stated. Operate like a tech company To deliver a market-leading platform-based value proposition, banks will need to work like a tech firm with advanced data capabilities, a cutting-edge tech stack, and an agile operating model, McKinsey experts explained in the report Reshaping retail banks: Enhancing banking for the next digital age. The report warned that lenders running the old playbook will not survive. “Leaders should act promptly to take advantage of strong financials and double down on three key capabilities essential to a platform-based business model:
Banks will need a comprehensive data infrastructure to support data collection, storage, and advanced analytics
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data analytics, a cutting-edge technology stack, and an agile operating model,” it added. On the one hand, banks have real advantages against the Big Tech firms in regard to customer engagement and data. However, they have yet to extract the full value of these assets. “To compete for data on an equal footing with technology companies, banks will need a comprehensive data infrastructure to support data collection, storage, and advanced analytics, as well as a digital marketing engine to translate analytical insights into personalised messages that anticipate individual customer needs and intentions,” the report said. Furthermore, their business models should have an IT infrastructure that is capable of handling significant variations in demand for streaming and processing capacity and delivering new solutions through fast innovation cycles. The main challenge, the report said, in designing the new architecture is deciding which components should be developed in-house to strengthen competitive differentiation and which elements of the infrastructure can and should be outsourced to reduce the cost and the risk of service interruptions attendant to updates and upgrades. “In addition, the cloud services available today have reached a level of maturity and accessibility that affords banks diverse options– including in-house development and various partnership models–for meeting the requirements of a maximally automated, digital-first business,” McKinsey’s report read. The need for speed Winning banks will develop speed as a core competitive advantage, McKinsey noted. Banks have two avenues to achieve this: an agile operating model, and building the right mix of talent and skills. Banks must push ahead with their transition to an agile culture, removing barriers to crossfunctional collaboration and creating semi-autonomous teams that can deliver solutions quickly in alignment with enterprise strategy, the McKinsey report said.
REPORT: UNIVERSAL BANKING MODEL onboarding, credit underwriting, servicing, and more. In addition to increased product penetration across the customer base, income levers include new revenue streams with ecosystem partners, according to the McKinsey report. Arthid Nanthawithaya
Banks should prioritise a retail business and develop a digital platform that supports the full search-shop-manage value chain of the priority businesses
“Consistency in roles, communication, and work patterns across teams enables an organisation to reallocate funding and form new teams quickly as new opportunities arise and priorities change,” it noted. Sustaining this more dynamic operating model whilst adapting to a new, more digital environment will require a dramatic shift in skill profiles, it added. “For example, the primary role of branch professionals will shift from teller to universal banker, and with an agile tech organisation, a bank may see its ratio of developers to tech operations and infrastructure specialists flip from 1:2 to 1.5:1,” McKinsey said. New ways of engaging The McKinsey report also noted that each bank should prioritise a retail business—or, depending on capital resources and competitive strengths, multiple businesses— and develop a digital platform that supports the full searchshop-manage value chain of the priority businesses. In particular, the management consulting firm named three models. The first is the daily banking platform, which would focus on simplifying daily shopping activities by embedding transactions seamlessly within customer journeys and giving customers fast, convenient access, to diverse retailers and service providers. Second is the home and life events (or complex lending) platform, which it said would
increase customer value through ecosystem partnerships supporting end-to-end journeys for major life undertakings, from search and selection to financing and ongoing management and maintenance. Finally, the platform for wealth and protection services would compete on the appropriate use of customer data to deliver hyperpersonalised advisory support, enabling investors to make wellinformed decisions about increasing and protecting wealth over decades. “The most direct path to success is to target profit pools in specific businesses of the universal banking model—daily banking (deposit accounts, payments, and credit cards), navigating life events (with complex lending products), or building and protecting wealth— where the bank can define and deliver a value proposition that can win in our new digital age,” McKinsey’s experts wrote.“Whilst much has been made of the threat from fintechs and Big Tech, we believe incumbent banks will continue to lead in retail banking.” Each of the three business models—daily banking, navigating life events, and building and protecting wealth—if executed successfully, could provide a muchneeded boost in profitability for retail banks, with target cost-toincome ratios between 40% and 50%, McKinsey added. Cost-reduction levers would differ for each model but would include optimisation of branch networks and maximum automation of customer acquisition/
The most direct path to success is to target profit pools in specific businesses of the universal banking model
The key to success today Today’s fast-evolving market leaves little margin for underperformance, making it imperative for banks to know where they make a profit and where they do not. The severity of the banks’ challenges depends on the region. In Europe, North America, and developed Asia, retail banks must embrace new technology in order to lower their cost curves, keep up with innovation, and identify new sources of revenue. Possible new revenue could be found in complex lending and wealth protection services via end-to-end journeys and personalisation. Amongst new technologies, they are called to embrace include a digital-first business model and a hybrid-cloud core technology stack. Meanwhile, banks in China and emerging Asia will have to fight for a share of wallets whilst also focusing on increasing the penetration of higher-value businesses, especially complex lending. “They should improve the economics for complex lending and wealth/protection through product innovation and segmentation,” the report said. “In the new world, the winning banks will be those that carefully choose the businesses in which they can lead and commit to building a value proposition, core technology, and operating model fit to win on the digital battlefield,” the reporters concluded. Text and data adapted from McKinsey & Co’s “Reshaping retail banks: Enhancing banking for the next digital age.” Authors are Ashwin Adarkar, a senior partner in McKinsey’s Southern California office; Stefano Cantù, a partner in Milan, where Enrico Lucchinetti is a senior partner and Zaccaria Orlando is an associate partner; Klaus Dallerup, a senior partner in Copenhagen; and Vito Giudici, a senior partner emeritus in Hong Kong. ASIAN BANKING & FINANCE | Q1 2023 27
INTERVIEW
Why the universal banking model is no longer sustainable in modern-day banking
Changing customer attitudes and lowered barriers to entry has transformed how banks’ fortunes are made. ASIA PACIFIC
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n the past, the universal banking model has ensured that traditional banks retain their dominance in the banking sector. But changing customer attitudes and the crumbling entry barriers for new players has vastly transformed modern-day banking, and lenders will have to rethink dipping their toes on a little bit of everything if they wish to trim costs and supercharge revenue streams. “Historically banks, when they talk about customers, refer to transactions. Banking was seen as sticky because customers tend to transact in everyday banking on a more regular basis, maybe several times a month,” Renny Thomas, Senior Partner at McKinsey & Co., told Asian Banking & Finance in an interview. “That’s getting completely redefined with what I call as top of the funnel engagement, where a customer is not buying anything, or transacting or anything, but basically engaging with the bank. Nowadays it’s more on consumer engagement, not sales or service.” Instead of just transacting, customers instead now go to the bank to ask questions surrounding personal financial management, for example. And traditional banks are finding it tricky to adapt to this, Thomas noted, with the advent of technology has given rise to specialist banks and lessened the importance of an extensive branch network, he added. “Banking has always been a technology business with risk intermediation. We’re getting another wave of new technology where some of these entry barriers are fundamentally changing. These entry barriers are still necessary–customer acquisition, historically you needed a very large branch network, you still need these. But you don’t need the same density of branch network that you historically needed,” Thomas said. Asian Banking & Finance spoke with McKinsey’s Thomas to learn whether the universal banking model is still applicable today–and why traditional banks and specialist neobanks are competing in two different races. Is the universal banking model still sustainable for banks? Why or why not? If you look at how the universal banking model has evolved over the years, it provided us a source of portfolio diversification, natural hedges, etcetera. Over time, it ensured that the balance between the different businesses, the flows between them, would actually work out well. And if you look at some of the most successful banks in the world, they are universal banks. Now, what is changing is the following: historically, to set up a new bank, the entry barriers are pretty high. If you take a large part of the banking business, which is retail banking, the cost of the infrastructure, the branch network, the fixed costs are actually very, very high. If you have to set up a new bank from scratch based on a historical model, it would easily take somewhere between five and 10 years to not just breakeven, but get to any acceptable level of profitability. It’s the huge entry barriers which has actually protected the universal banking business model.
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Structurally, growth in many of the Asian markets makes the banking business still highly profitable (Photo from McKinsey.com: Renny Thomas, Senior Partner, McKinsey & Co.)
Banks in Asia are some of the most innovative and successful
Similarly, if you look at the cost of technology, some of the neobanks have established that the cost of technology could be one-tenth that of universal banks. So the combination of these things is basically making the entry barriers much lower. And the emergence of specialists business models, which are able to leverage technology and scale rapidly, is what’s actually leading to a number of some of these specialist players being valued a lot more richly than the universal banking model. However, it’s still the early days. I do think that in many of these cases, we still have to fully see if the cost model is fundamentally better and more efficient. But clearly, it’s been pretty well established now that the role of technology in actually helping scale these specialists models could lead to a completely different business model going forward. What shifts have taken place in the banking industry that made the universal model insufficient in modern times? Let me talk about a few. The first one is around how you actually engage with customers. Nowadays, it’s more on consumer engagement, not sales or service. This is something that traditional banks find very hard to do. If you are more of a consumer tech kind of neobank, then your ability to actually engage with customers more naturally
INTERVIEW online without really getting into sales or service is very high. So that’s one huge difference. The second is personalisation at scale. When we think about personalisation, we’ll think of it from level one to level five. Most banks tend to be as high as level two; good banks tend to be at level three. The other thing is around core technology. We were getting into the world of new core banking systems, which are actually less product systems, more product is a core, [and] that is totally changing the cost of technology, which again, the universal banks are set up very differently. There’s emerging new ways of interrupting traditional channels, by using enterprise-wide machines to engage with customers. The Alexas and Siris in the world make up seven and a half billion devices globally today, and they’re training consumers everywhere to speak to a machine and kind of engage in a human-like way. And some of these new banks, the specialists banks, would use that service much more than traditional banks. These specialist models are fundamentally different in terms of how they use technology, in terms of engagement, in terms of personalisation, in terms of channels, in terms of core technology. As a result, they don’t necessarily need to be across all of the businesses that a traditionally universal bank does. You could have a very specialised consumer finance model or a very specialised consumer banking model or a very specialised small business model. And some of these efficiencies and ways of engagement make it possible for them to still scale and be profitable. The report states that in Asia, daily banking revenue is roughly equal to the average cost per customer– meaning it is hardly profitable if at all. What has led to this situation? What can banks do to supercharge their retail banking businesses? Banks in Asia are some of the most innovative and successful. When we look at some of the most highly valued banks in the world, both traditional and non-traditional banks, they come from broad markets in Asia. So in general, banks in this part of the world tend to be doing better. When you ask about everyday banking, the reality is no, as a bank, you can’t survive only doing everyday banking. You also do products like, you know, mortgages and, and kind of other complex products, etc. One way to think about it is the everyday banking keeps a customer connected and engaged and helps you break even, but every bank does other businesses too, which are part of the portfolio of the incumbent banks in the region. Now, I think what you’ll find is, if you were to think of what you can do now with technology, you would end up asking the question, what is the future of the branch network? What is its role? Do you need so many traditional branches or is it completely different? How do you think about technology? Can you move to a completely new technology stack that’s fundamentally more efficient? Those are some of the ways to get your cost income ratio down further, so that now you get to a point where even everyday banking costs are lower. I do think structurally, growth in many of the Asian markets basically makes the banking business still highly profitable overall, which is why they are actually valued pretty well. Some of the most highly valued banks are in markets like Indonesia, and India, and Vietnam, and so on.
It’s a pretty high-stakes game at this point in time
There is the growth potential, of course, also, the sense of the business continues to be attractive. Could you name some of the products and services that banks should consider as “high value”? When you think about the more traditional products, products that tend to be of higher ticket size, products like housing loans, those in terms of volumes of revenues, tends to be quite significant, therefore, they are reasonably higher valued. But you also have business models of embedded finance. I think we’re moving into a world where increasingly banks are kind of partnering with ecosystems, to actually embed their products and services into these ecosystems, and that tends to be a lot more sticky and also high value in some way. So it’s a combination of work product, business models, which actually gets you there. Inversely, are there services that incumbents champion or are pushing for that contribute little to their future or their bottom lines? The way I would think about it is the following: we are in the middle of a race where you have digital neobanks which are coming in with a cost structure that’s one tenth that of a traditional bank, but their revenues are also wanting that of a traditional bank. So they are in a rush to figure out how to expand their revenue pool. Now, a traditional bank is in a different race, they’re in a different race to figure out, “How do I revert and transform myself to have a much more efficient cost structure both in technology and distribution?” So that’s a little bit of the race between the neo banks which are fundamentally more efficient are trying to expand their revenue pool, the revenue per customer by getting into more complex products; and race with the incumbent banks which have the broader revenues but have a much higher fixed cost structure base with their distribution and with their technology. These two parts will converge over time, and this is why it’s a pretty high-stakes game at this point in time, which is why we came up with this report as well--talking about this fairly dramatic set of business model shifts.
Retail banks’ talent needs will shift dramatically from processors to problem solvers
Includes loan officer, financial advisor, small-business banker, personal banker, and affluent banker. Includes database administrator, research analyst, and hardware engineer. Source: Bureau of Labor Statistics; Finalta; LinkedIn; McKinsey Future of Work banking research, 2020 1 2
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SECTOR REPORT: BUY NOW PAY LATER
BNPL regulations toughen debt prevention and financial literacy in Asia Pacific The Philippines, Vietnam, and Indonesia are more vulnerable to the risks of credit products. ASIA PACIFIC
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s the buy now, pay later (BNPL) payment scheme is growing in popularity in the Asia Pacific markets, regulators are working to prevent accrued debts and educate consumers on how to manage their finances, Euromonitor International said. It urged underbanked populations, such as the Philippines, Vietnam, and Indonesia, to work closely with those in more experienced markets like Singapore and Australia, to strike the balance between allowing companies to operate whilst also keeping consumer debt at a manageable level. Herbert Yum, Euromonitor International’s Research Manager in APAC, said the regulations revolve around “the risk of putting consumers overly in debt when using BNPL products are well under control, consumers having a good understanding of contractual terms of BNPL products, and the ability for BNPL providers to conduct a thorough assessment of consumers’ creditworthiness.” Yum said markets can better manage their financial health after having been exposed to credit products earlier than others in the
The risk of putting consumers overly in debt when using BNPL is well under control
region. In Hong Kong, for instance, some consumers try not to use credit cards to ensure that they are not heavily hurt by debt because of the misuse of those consumer credit products. “In Hong Kong and Singapore, consumers are relatively knowledgeable and educated in terms of the risks and the value associated with the consumer credit product,” said Yum in an interview with Asian Banking & Finance. But the Philippines, Vietnam, and Indonesia have low exposure to financial technology services, said Yum. A Euromonitor, Bain & Company, Temasek, and Google joint study showed that most underbanked populations are in Vietnam (79%), the Philippines (78%), and Indonesia (77%). Euromonitor’s Consumer Finance data showed that the transaction size of BNPL is still low in the APAC region against other payment methods such as credit and cash payment despite BNPL’s growth seen over the past year. Yum said this is because the payment platform is still in the early stages of development. Hong Kong’s BNPL accounts for
BNPL regulators must educate consumers on how to manage their finances (Photo by Dave Dugdale)
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0.3% of the other personal loans market. BNPL penetration of other personal loan markets is 1.9% in Indonesia, 0.5% in Malaysia, 6.8% in the Philippines, and 3% in Singapore, respectively, in 2022. Best practices Australia started requiring members of the Australian Finance Industry Association to impose limits on how much can be paid in late fees. One of the BNPL platforms in Australia is Afterpay, founded in Sydney in 2014. The BNPL providers must also think of an internal dispute resolution process to ensure customers can be assisted when they have difficulty repaying the instalments, Yum said. Despite being the early adopter of BNPL solutions in the region, its government is still considering feedback on the future regulatory framework for BNPL products due to the gaps in BNPL regulation under Australia’s laws. “However, since BNPL products fall under the exemptions available to certain types of credit in Schedule 1 of the Credit Act or the National Credit Code, it is not properly regulated in Australia,” said Yum. According to Australia’s treasury government, the exemptions create “potential for consumer harm due to the absence of key protections” such as responsible lending standards or other requirements of the Credit Act. In Singapore, a US financial technology firm, FIS, reported that the BNPL market is expected to grow at a compound annual growth rate of 40% through 2025. This makes it the fastest-growing online payment method in the Lion City. As this happened, the Singapore FinTech Association put up a BNPL Working Group and created a code of conduct for BNPL providers that was launched in October 2022. Yum said the BNPL providers will self-regulate to help consumers spend their money wisely. To do so, a cap of SG$2,000 (US$1,522) was imposed. BNPL providers should also suspend
SECTOR REPORT: BUY NOW PAY LATER
Herbert Yum
Anton Ruddenklau
Regulations will increase customer confidence in BNPL (Photo by AndreyPopov from Getty Images)
a customer’s access to its services if the consumer fails to comply with payment obligations. “Both the Australian and Singaporean governments have their next step to further impose industry guidelines and potential to ensure BNPL users are well educated with the BNPL solutions, and to reduce the risk of being overly in debt by improving the BNPL providers’ ability to access consumers’ creditworthiness,” said Yum. For Hong Kong’s central bank, it enforced seven consumer protection measures on BNPL products, which seek to educate consumers to have a clear understanding of the contractual terms of BNPL products. “To ensure BNPL products are well regulated or monitored in HK, it is essential for such measures to be imposed on both bank and nonbank product and services providers,” said Yum. He also advised BNPL providers or regulators to impose measures to educate consumers on using the platform and better manage to spend their money. One such way is Hong Kong’s encouraging marketing campaign for BNPL providers. “[BNPL providers] must include a message such as, if you cannot repay, don’t borrow money. Consumers need to be aware of the risks. This kind of message is not necessarily
the most useful but it’s a must,” Yum added. Malaysia has yet to impose specific regulations on BNPL providers. They intend to roll out a consumer credit act that will cover BNPL platforms, Yum said. Building confidence Yum said regulations will increase customer confidence in BNPL and there will be a “healthy growth of BNPL transactions.” “In other words, this would increase both customer conversion and retention in the long run,” said Yum. Specifically, in Singapore, Anton Ruddenklau, Partner and Head of Financial Services in KPMG, consumer trust will be raised knowing that their BNPL provider is following the measures that are meant to guide them in spending and avoid accruing debts. “Strangely enough, it gives you comfort when you’re dealing with an industry that has got some rules,” said Ruddenklau in an interview with Asian Banking & Finance. BNPL expected to grow With the high inflation and interest rate in APAC markets, Yum sees that these could affect consumer spending and increase consumer demand for consumer credit products, which include BNPL products. Analytics firm, GlobalData,
It is likely for consumers to spend less on luxury goods, or to trade down when making purchasing decisions
said India posted a consumer price inflation of 6%, which it said was the highest inflation rate in the APAC region in 2022. On the back of the tightening global financial situation and the Russia-Ukraine conflict, the average consumer price in APAC was 3.6%, excluding Argentina. Yum said this is because consumers will likely need liquidity whilst macroeconomic uncertainties are ongoing. “It is likely for consumers to spend less on luxury goods, or to trade down when making purchasing decisions,” said Yum. When this occurs, Yum said, consumers will likely be lured by BNPL applications, to ease the stress of cash flow, especially for shoppers who are rejected by banks. Using BNPL platforms slowly shifted from less pricey items, such as food deliveries and fashion accessories, to moderately expensive and expensive items, including electronics and appliances, Yum said. “The rationale behind such tendency in moving towards more expensive items is the need for consumers to pay the full payment of the purchase in multiple instalments is higher for expensive items due to the liquidity constraints,” the Euromonitor expert explained.
Using BNPL slowly shifted from less pricey items like food deliveries and fashion accessories, to expensive items, including electronics and appliances
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SECTOR REPORT: CARDS & PAYMENTS
Meaningful experiences, wellness as key pillars of the return of travel: Mastercard Mastercard’s cardholders in its affluent portfolio can access wellness programs on the go. ASIA PACIFIC
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ant to try mixing your own gin in a gin distillery? How about securing a table at a Michelin star restaurant even on a short notice? All of these are unique experiences now at the fingertips of Mastercard World and World Elite cardholders, under the new service proposition created by the payments platform in order to meet with travellers’ changed priorities. “One of the big things that came out of the report was that people are actually looking for meaningful experiences. So we looked back at what our platform offers to bring priceless experiences to the fore,” Mayank Dutt, Head of Marketing and Communications, South East Asia, Mastercard, said in an interview with Asian Banking & Finance. With countries finally reopening borders and relaxing travel regulations, global travel is finally headed for a recovery. Approximately 1.5 billion more passengers are expected to travel in 2022 compared to the year prior, the Mastercard Economic Institute estimated in May. “Travel is one of the biggest indicators of the post pandemic recovery happening. Everybody, be it for leisure or business, are traveling a lot,” Dutt noted. Priorities, however, have transformed. The travel restrictions, coupled with health fears arising from the pandemic, led to two big seismic shifts of people putting emotional and physical well-being as being critical, and digitalisation. These two factors also influence what travellers now seek to find from their home aways: that is, meaningful experiences, and improved health and wellness. Wellness as a pillar It was no longer just about deals and discounts anymore. “There was a huge shift towards wellness. That’s why, we kind of look back and say, ‘If consumers are looking at self improvement, wellness and health being more important to them going forward, our benefits need 32 ASIAN BANKING & FINANCE | Q1 2023
People are looking for more meaningful experiences post pandemic
Consumers feel that emotional and physical well-being is very important. We have to be responsive
Mayank Dutt
to be at par with that if not exceeded,” Mastercard’s Dutt explained. In the last two to three years alone, the entire wellness market has increased rapidly, and is now an industry topping $1.5t, he noted. “It’s not a fad, it’s not just a trend, it is something which is real. Consumers feel that emotional and physical wellbeing is very important. We have to be responsive,” he added. This has led Mastercard to embark on partnerships in order to make health and wellness a central pillar of their travel offerings. For example, the card payments platform teamed up with Chris Hemsworth’s holistic wellness and fitness brand Centr, granting Mastercard World and World Elite cardholders a complimentary Centr membership for a year. With this, cardholders now have access to a coach and a team of coaches who will guide them to a “lifestyle reboot”, amongst other perks. Mastercard also tied up with MyDoc, a telemedicine consulting service, as a means of adapting to what the company believes are new health needs that their customers developed during the pandemic. “Consumers, who went through the pandemic, did use telemedicine and it’s here to stay. It’s very quick, it’s very responsive, and at the same
time you can do it on the go. So even though the pandemic recovery phase has begun, people will still stick to telemedicine,” Dutt said. Travel, sports Mastercard also shifted their services to strengthen two other key pillars of post-pandemic recovery: travel, and sports and lifestyle. Dutt shared that they’ve rolled out many services such as airport concierge, limo services, and data roaming. For the latter, they partnered with Flexi roam to offer data roaming services to Mastercard World and World Elite cardholders. Mastercard also has something in store for the fervent golf fans, with Dutt observing how a big passion point for the affluent portfolio is golf. Mastercard’s Southeast Asia golf programme–gives cardholders discounted or complimentary access throughout the region to play golf on the go. Ultimately, Dutt said that meeting the ever-changing needs of their affluent consumers goes beyond simply offering or even replicating the deals, discounts, and product features currently available in the market–a mindset that Mastercard seeks to embody.
ASIAN BANKING & FINANCE | Q1 2023 33
ANALYSIS: DIGITAL ADVISORY
Why a hybrid platform is key to banks’ digital advisory woes Customers seek confidence and clarity from financial advisers. ASIA PACIFIC
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oo much of anything is the beginning of a mess, interior designer Dorothy Draper once said, and it’s a reality that financial institutions may want to take heed when it comes to creating new banking experiences. “Too many experiences, offline or online, are not yet designed with the benefits of Human Centered Design Thinking,” said Laurent Bertrand, CEO and co-founder of BetterTradeOff. “The constraints of the banks, rather than the needs of the customer, too often come first. This is improving but as an industry, we still have some work to do to match what everyone is experiencing, and thus expecting, from digital leaders.” Speaking with Asian Banking & Finance, Bertrand noted that despite the enormous investment that banks have sunk into technology– US$70b from major US banks alone in 2021–
The constraints of the banks, rather than the needs of the customer, too often come first
most consumers remain diffident on completing complex banking activities by themselves online. “One of the reasons is that existing online wealth planning solutions are either too simple to provide the clarity people want and need, or too complex to provide people with sufficient control when using them on their own. The result is a lack of confidence in the process and the results,” Bertrand noted. On the other end of the spectrum, the traditional advice model meanwhile suffers from transparency issues, leading consumers to question whether they really are receiving the best advice and product recommendations. “Traditional financial planning can be a complex, slow and often intrusive process that, for most, requires the support of a professional adviser - advisers who are often available only to the wealthy, or in some cases not
believed to have their client’s best interest at heart,” Bertrand said. Hybrid is key Bertrand touts a digitally powered hybrid model–where customers and advisers plan together on the same platform–as the answer to meeting customers’ yearning for financial independence and transparency from financial advisers. He shared that from their experience, they noted higher up-sell and cross-sell delivered by those using hybrid platforms, with revenues increasing by up to and even over 20%. “From our work with leading global banks and insurers in Singapore, HK, the Philippines, Dubai, and Switzerland, we’ve seen a number of benefits. Firstly, the better client engagement you get with a highly visual and interactive platform empowers customers to be fully in control of their financial decisions. That clarity leads to higher confidence, and higher confidence leads to action,” Bertrand noted. This leads to the second improvement–faster and higher sales. “Advisers have the data and tools to demonstrate the value of their advice when recommending
A digitally powered hybrid model is the answer to meeting customers’ yearning for financial independence and transparency from financial advisers
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ANALYSIS: DIGITAL ADVISORY Singaporeans expect better experience from mobile banking
Singaporeans remain unsatisfied with their banking provider’s digital capabilities
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Confidence is a key expectation customers seek from financial advice (Photo: Laurent Bertrand, CEO, BetterTradeOff)
products. Finally, the demand of society for higher ethical standards and greater digital convenience drives the need for a platform that delivers a compliant and intuitive journey while managing the complexity associated with sound financial advice in the background,” Bertrand said. C&C: Confidence & Clarity One key observation that Bertrand and BetterTradeOff saw from wealth management customers’ behaviors is that confidence is a key expectation they seek from financial advice. “What they want most of all is confidence that they’re doing the right things financially for their future. The future can be a scary place. And many people have limited financial knowledge. There’s a seemingly unlimited amount of information online, but this can be confusing and overwhelming at times - which only serves to create more anxiety,” Bertrand said. Banks and financial management institutions in particular must be able to clearly answer customers’ needs– such as how much they need to retire and still be able to enjoy the lifestyle they desire, whether they have enough coverage from the unexpected, amongst others.
“Customers usually want a quick answer to their questions to start with, but usually don’t stop there - [they seek] further reassurance about their decisions before committing. This requires the capacity to explore options on their own, in the privacy and comfort of their home, without the feeling of being judged, while at the same time accessing expert advice to select the right product to address their needs,” Bertrand concluded. This is where technology can come in. For example, BetterTradeOff offers a platform that delivers the 80-20 rule online, with a volume-based commercial model that makes it affordable even in markets where FIs don’t have a large wealth presence. They do this by offering a platform that enables banking customers to build a financial plan on their own in 15 minutes, that is also sophisticated enough to need collaboration with an adviser. “Technology can help people answer many of these questions on their own, or collaborate with advisers in a transparent manner, so they can see for themselves what they really need, and make decisions with more control, clarity, and confidence,” he said.
hilst 8 in 10 of Singaporeans now use mobile apps for banking services, most remain not fully satisfied with their banking provider’s digital capabilities, with almost the same ratio of users (77%) saying that they “definitely” want a better experience. In its Bank of the Future Survey, which involved 1,000 respondents from the Lion City, Capco found that Singaporean consumers sought a key number of changes from their mobile banking experience. Amongst the top changes sought were easy and clear navigation (59%), mobile applications (51%), and face ID and fingerprints logins (46%). The “Big Tech” firms garner much trust from the respondents, with 8 in 10 indicating that they trust a “Big Tech” firm at least as much as a bank to fulfull banking services. Over 2 in 5 or 42% of respondents even said that they would trust them more than an actual bank. “Our Singapore respondents’ willingness to view ‘Big Tech’ firms as attractive future providers of banking services indicates that the competitive landscape could develop in some intriguing directions as Singapore’s financial sector continues to evolve,” Hayley Haupt, Partner and APAC Head of Strategy & Consulting, noted in the report. Haupt added that Capco had identified strong appetite for innovation in banking services among Singapore’s consumers. “When it comes to more individually tailored customer offerings and experiences, they are focused on greater personalisation, in line with our findings in other regional markets,” Haupt said. “There is clearly demand for a more aggregated view of financial information. To enhance customers’ digital journeys, banks should continue to explore how they can best educate consumers and provide clear insights around products and services,” she added. Digital bank adoption rises Adoption rate of digital bank accounts is expected to continue to rise over the years, and hit 30% in 2023, according to a report by Finder.com. In 2022, the adoption rate reportedly stood at almost 22%, the highest amongst all countries in Asia surveyed by Finder. “Singapore has similar levels of banking adoption to Hong Kong (20%) but is well ahead of countries like Malaysia and the Philippines (13% each),” said Finder’s global fintech editor Elizabeth Barry. ASIAN BANKING & FINANCE | Q1 2023 35
EVENT COVERAGE: SINGAPORE FINTECH FESTIVAL
Tokenised assets, stable coins central to Singapore’s crypto hub ambitions Collaboration is key to achieving financial goals, says MAS’ Ravi Menon. SINGAPORE
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ingapore touts a future as a crypto hub—not for cryptocurrency, but rather for the use and adoption of tokenised assets and stable coins, a central bank official said. “If a crypto hub is about experimenting with programmable money, yes we want to be a crypto hub. If it is about applying digital assets for use cases like atomic settlement, yes we want to be a crypto hub,” Ravi Menon, Managing Director of the Monetary Authority of Singapore, told attendees of the Singapore Fintech Festival 2022. “If it is about tokenising real and financial assets to increase efficiency and reduce risks in financial transactions, yes we want to be a crypto hub. But if it is about trading and speculating in cryptocurrencies, that is not the kind of crypto hub we want to be.” Menon, who delivered the event’s keynote speech for its second day, named tokenised assets as “most promising” in helping the financial markets attain instant settlements, and in improving both the efficiency and accessibility of financial services. “If I can summarise, MAS is essentially: discouraging retail investment in cryptocurrencies; facilitating stablecoins through sound regulation; allowing tokenised bank deposits; and experimenting with CBDCs,” he stated. Stable coins Menon firmly reiterated Singapore’s discouragement of retail investments in cryptocurrencies, calling the medium a “non-starter.” “They have performed poorly as a medium of exchange and value,” Menon told attendees of the Singapore Fintech Festival 2022, where he delivered the opening address on the second day of the event. Menon was more open to stable coins, sharing that Singapore is more open to facilitating it so long they “meet a standard.” “If well regulated and securely 36 ASIAN BANKING & FINANCE | Q1 2023
With programmable money, there can be better assurance that donations reach their intended beneficiaries and the funds are used for their intended purposes
If well regulated and securely backed by reserves, [stable coins] combine the benefits of stability and programmability
backed by reserves, they combine the benefits of stability and programmability. But pervasive take up remains to be seen,” he said. Programmable money Menon spoke at length about the advantages of programmable money or money where rules of the exchange are embedded in the money itself. These rules are retained even when the money is transferred. As an example, Menon cited donations, where the money sent can be programmed to only be used for the intended purpose. “With programmable money, we can have better assurance that donations reach their intended beneficiaries and the funds are used for their intended purposes. We can programme the beneficiaries and purposes into the money itself,” he said. Menon also floated the possible use of tokenised bank
deposits and central bank digital currencies or CBDCs for this, apart from stable coins. For their part, Singapore has already launched Project Orchid, which introduced the concept of purpose-bound money. Under Project Orchid, senders may programme money to be used only for a specific thing by the receiver, Menon said. Apart from programmable money, real-time settlements, and tokenised assets, instant remittance and atomic settlements are two of the five desired outcomes that fintech collaborations in Singapore are reportedly trying to solve, according to Menon, who shared that Singapore is working to link its real-time payments service PayNow service to Malaysia’s DuitNow and India’s UPI. Atomic settlements, or a realtime settlement payment system, remain an issue for all. Currently, it
EVENT COVERAGE: SINGAPORE FINTECH FESTIVAL
Ravi Menon
Menon expressed hopes that tokenised assets will help the simultaneous exchange of funds
takes at least two days for funds to be transferred from bank to bank. On this end, Menon expressed hopes that tokenised assets will help the simultaneous exchange of funds—both remittance-wise and settlement-wise—using a distributed ledger. On to the Nexus Menon touted Singapore’s Project Nexus at the event. Proposed by the Monetary Authority of Singapore (MAS) and the Bank for International Settlements (BIS) Innovation Hub Singapore Centre, Project Nexus is a proposed blueprint for a system that would enhance the network connectivity of global retail payments. “With this solution, each country would only need to link its real-time payment system once to a Nexus gateway, which in turn provides direct connectivity to all the other countries already within the network,” Menon shared. The planned unified solution coordinates payment, foreign exchange conversion, message translation as well as compliance. This is expected to streamline the entire cross-border payment process, he added. “MAS believes that Project Nexus can be a key enabler towards realising this vision. ASEAN is well placed to be a first-mover on this multilateral solution. As this network expands, we hope to see more countries coming on board as we build connectivity from ASEAN to the rest of the world,” Menon said.
The green data problem Another desired outcome is access to trusted sustainable data, with Menon expressing Singapore’s aim of creating a trusted data ecosystem, in part through collaboration with fintechs. “We need fintechs to do to sustainability space what it is doing to the inclusion space. We need green fintech,” Menon said, adding that collaboration is the essential feature that Singapore needs to achieve its five desired outcomes. Menon noted that financial institutions and corporates need good data on their customers’ and suppliers’ carbon footprints and compliance with their respective transition targets. These firms also need good data on the climate-
We need fintechs to do to sustainability space what it is doing to the inclusion space; we need green fintech
related risks their physical assets are vulnerable to. “Quality data is key in the fight against greenwashing and in enabling stakeholders to make well-informed ESG investment decisions,” he said. “Just as Earth provides a firm, steady ground upon which we stand, we want to create a trusted data ecosystem that provides a firm foundation for sustainable finance.” Menon concluded that the five desired outcomes–instant remittance, atomic settlement, programmable money, tokenised assets, and trusted sustainability data–remind the industry that everything they do in finance, technology, and in the fintech space must have a larger purpose. He highlighted that of all the fintech projects that MAS has embarked on to achieve these outcomes, collaboration is an essential feature. “Collaboration between the public and private sectors; collaboration between incumbent financial institutions and emerging fintech firms; and collaboration across borders. Like the five elements of water, fire, earth, metal, and wood, it is exchange and interactions that generate growth and new possibilities,” he said, concluding that collaboration is what the Singapore Fintech Festival is about.
Nexus is a proposed blueprint for a system that would enhance the network connectivity of global retail payments
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EVENT COVERAGE: SFF PANEL 1
Better rates, lower fees will not be enough for digital banks to make a profit Those who can tap into their parents’ customer base have the best chance of success. “If we look at the digital banks that are profitable today, most of them, almost all of them belong to parent groups that have already invested over the years in building that customer platform and building that customer ecosystem that the digital offerings can then write on top of,” Chew explained. “Advertising the acquisition costs to customers of other products and services that the parents have built up, and then putting a financial product on top of that–that makes a huge difference in terms of the path to profitability for the new player,” Bain & Company’s expert added.
If done right and done well, digital banks would pave the way to financial inclusion and security in digital financial services
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o, building a successful digital bank will not come about by wading into an interest rate war with incumbent banks. Neither will targeting just the younger demographic work. These are just some of the myths dispelled by senior executives of Southeast Asian banks and industry experts in a panel discussion on driving digital banking profitability during the Singapore Fintech Festival 2022. “A lot of people think that the way for digital banks to win is to compete on the basis of better value, and value in terms of better rates, lower fees, and that will be the way for digital banks to win. That’s a myth,” Seow-Chien Chew, Senior Partner, Bain & Company, told attendees of the conference. “Initially, perhaps, there might be more competition on the basis of value to gain customers. But over time to win more sustainably, I do think the basis of competition is going to be around customer experience.” This is one advantage that digital banks have over incumbents, Chew said, sharing that Bain & Co’s study on banks’ net promoter scores–a
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If you look at how many [digital banks] are truly profitable, the sobering truth is you can count the number today on two hands
measure of customer satisfaction to banking service providers– found that digital banks and new banking players tend to actually perform better than traditional incumbent players. “If digital banks and also incumbent banks can make that the real basis of competition, that becomes a much more sustainable way to win in the longer term,” she added. Nepo babies win The real warfront, however, lies not with their peers or their incumbent rivals, but rather with their own ability to make a profit. “I think the difficult question here is around profitability,” Chew said. “If you look at the world today, there are hundreds of digital banks. But if you look at how many of them are truly profitable, the sobering truth is that you can count the number of profitable banks today on two hands.” Chew named customer scale acquisition as the most important factor that will determine whether a digital bank becomes profitable or not. In this regard, neo banks, which are the brainchild of larger corporates, tend to win.
Incumbents are learning Incumbents are not sitting pretty doing nothing either–and are more than capable of learning new tricks, as noted by Darren Buckley, Chief Retail Banking Group Officer for Vietnam Technological and Commercial Joint Stock Bank or Techcombank. Buckley highlighted his 35-year career working with incumbent banks, noting that in 2005, a bank he worked in was able to put live into the market a mobile phonebased, fully digital unsecured loan proposition that was fully digital, for an average application time of 17 minutes. This, he said, dispels the myth that before digital players came into the fray, incumbent banks have not done any steps to make leaps in the digital space. Nowadays, traditional banks have been trying to focus on customer journeys and delivering very targeted solutions on seamless customer journeys. He conceded that it is true that traditional banks haven’t always been so good at it. However, they are learning, he said. “FinTechs have been great in coming in and taking specific pain points, and saying, “Hey, look, there’s a better way to do this. There’s a more seamless, intuitive way to deliver a solution or a service or an experience to banking clients.” But that doesn’t mean that traditional
EVENT COVERAGE: SFF PANEL 1
Darren Buckley
To win more sustainably, the basis of competition is going to be around customer experience (Photo: Seow-Chien Chew) Karim Siregar
banks can’t learn these things. And they are. And so the competition between all is actually very healthy for the consumer,” Buckley said. Buckley also said that areas in which traditional banks have been slower were due to regulations in infrastructure, capabilities, and governance–high barriers of entry which actually present an advantage when it comes to the brand name. It gives consumers and customers a certain sense of trust, he argued. Clear answers only Karim Siregar, President Director of Indonesia’s PT Bank Jago, dispelled the notion that digital banks are only for younger users, or the demographic considered to be more “tech-savvy” than their older peers. “We have to break that myth that digital banks are only for digital savvy,” Siregar told conference attendees, “We should not be constrained by that [mindset].” Siregar observed that funds often come from those who belong in older demographics, and that in order for banks to become selfsufficient, they should also target that demographic. Meanwhile, Chew noted that the digital bank should be able to clearly explain the reason why they exist. “What is it that you’re offering that is differentiated, that is different from what’s already available in the market. And the other factor is really around, have you really designed a digital bank for a low operating cost?” Chew said. “A lot of digital banks, you would assume, have been designed for low operating cost. But as we look
around the world, you’ll find that even though they started off that way, over time, there’s a lot of back office operations people that they have had to add, as a result of adding additional complexities of the business,” she added. Dispelling doubts For Toh Su Mei, Chief Executive Officer of ANEXT Bank, one of Singapore’s newest digital-only banks, noted the amount of doubt placed upon digital banks–in particular, the mindset that digital banks can only earn money if they lose money. “Some say digital banks can earn money without losing money, or can make money without losing money. I’ve heard it a lot even before taking up this role, from clients, that digital banks are more vulnerable to security threats, [to] losing clients money, [to] shutting accounts without rhyme or reason,” Toh said. “In my opinion, if done right, if
Toh Su Mei
Manish Bhai
People are not yet ready to transition [away] from branches
done well, digital banks would pave the way to financial inclusion as well as security in digital financial services. And all SMEs will be empowered with new growth opportunities when the new digital banks craft out a framework,” she added, noting that these SMEs have the opportunity to be deemed credit worthy by the new system being pushed by the virtual banks; otherwise they will remain with little financing options under the existing financial system. Experience is king Customer experience is also a key topic for Manish Bhai, Founder & CEO of Philippine-based UNO Digital Bank. In particular, Bhai said that the myth that digital banks offer less personal experiences is not true. “One of the biggest myths for an end user is about the nonpersonal experience, which [is] the thing they will interface with the digital bank. My view on this is that it completely depends on the strategy of the banking organisation, [on] how much you want to engage,” Bhai said. He shared that UNO Digital Bank created a human-backed contact centre which they call the customer happiness centre to meet the personal experience needs of their customers. “We felt that personal experience is key, especially in emerging markets, and people are not yet ready to transition [away] from branches–from a lot of interaction to completely interacting with [a] technology box,” Bhai said.
Personal experience is key, especially in emerging markets
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EVENT COVERAGE: SFF PANEL 2
Intent vs ability: Ghana’s Kwame Oppong on why banks should shift lending models Current mechanisms leave out SMEs and MSMEs from accessing much-needed credit. SINGAPORE
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anks and regulators must rethink their lending models if they want to foster a loan environment that is more accommodating to the financial needs of small and medium enterprises. Speaking in a panel during the Singapore Fintech Festival, Kwame Oppong, Director of Fintech and Innovation for the Bank of Ghana, said that financial institutions should do away with the model that looks at SMEs’ ability to pay, and rather focus on the intent to pay and find a means from there. “The problem is it [traditional lending] has been incompatible with the SME space. Frankly, even when it comes to just basic payment collection, and the KYC around creating accounts for merchants, the due diligence requirements–we noticed that even at that level, there was a problem,” Oppong told attendees of the conference, which took place in at the Knowledge Plenary Singapore. He said that regulators at the Bank of Ghana then looked at international standards. “We realised that we put in place a mechanism that is only really applicable to larger SMEs and perhaps
The existing model of credits and delivery has worked for a while but has it worked enough?
Kwame Oppong
larger institutions. SMEs and MSMEs are just left out, which means the basic points of even being able to get access to an account, a digital means of collecting payments, was a problem [for them]. So as a starting point, that was an issue,” he said. SMEs are often a focal point of regulators when it comes to the issue of financial inclusion. Some financial authorities–notably those from Singapore–even mentioned financial inclusion for SMEs as a consideration for whom to hand out their digital bank licenses. Fixing the model Oppong highlighted the need to start looking at intent to pay as well as a criterion for lending. “The NPLs were no worse than the traditional portfolios of banks using the existing models. So clearly rethinking the approach was important,” he said regarding lenders who adapted new models that looked at intent to pay or lent to SMEs or entities whom traditional banks would have skipped or rejected. “We really took a step back and asked ourselves, this existing model of
SMEs are often a focal point of regulators when it comes to the issue of financial inclusion
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credits and delivery has worked for a while but has it worked enough? And in spite of all our efforts, I don’t think anyone can with a straight face say ”yes”, at least in Ghana’s context,” the fintech expert said. “We had to rethink these things. It may work for a segment, but for the largest segment of SMEs, for a larger segment of entities in the business community, this just does not work,” Oppong added. With this in mind, the Bank of Ghana recently launched a digital regulator sandbox, bringing in some banks to offer loans where some of the usual requirements they imposed as regulators have been suspended. This is in order to test and learn whether the new model could work. “We may find out this is the worst decision possible, and perhaps does not require scaling. But we would at least have learned what not to do. But our hunch, and with everything we’ve seen thus far, there’s a likelihood that this may be the game changer that we want. So we’re pretty excited about that, and we’re looking forward to executing that project,” the Bank of Ghana director shared.
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EVENT COVERAGE: SFF PANEL 3
AI adoption in the banking sector is not a ‘race’ but a question of trust: HSBC AI achievers enjoyed 50% greater revenue growth on average.
safer, easier to drive, and also faster in races. That’s similar to banking.” Instead of a self-piloting customer interface, HSBC is using AI to enhance its security and the backend, according to Wong. “We use AI to protect our customers’ money, and our data as well. For example, we use AI to help us fight financial crime. We use AI to monitor our customer activities, to make sure that we can recognize any irregular behavior, so we can spot fraud,” she said, on fraud. “We use AI to make sure that we’re not doing anything illegal or unethical when it comes to our trading practices. So that’s the safer part.” She added that AI has been used to make loan processing faster, and to help with speech recognition processing in foreign markets.
From L-R: Lee Joon-Seong of Accenture; Charmaine Wong of HSBC; Dong Shou of ADVANCE.AI; and Manohar Chadalavada of Standard Chartered Bank
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anks and industry leaders should not see the adoption of artificial intelligence (AI) as a “race”, as safety and maintaining the trust of customers should remain their first priority when embracing new technology, says HSBC’s Charmaine Wong. “I wouldn’t say we’re slow to adopt or we failed. I think that we’re doing it (AI adoption) in a safe way, and not necessarily visible to the customers,” Wong—who is HSBC’s head of group BI & analytics as well as group head of ESG data & analytics–told attendees of a panel on AI in banking during the Singapore Fintech Festival 2022. “Banking is about the business of trust; [and so in] adopting AI, we need to do it in a safe way that maintains the trust of our customers.” Wong’s comments come after the panel’s moderator, Accenture managing director Lee JoonSeong, shared a survey of 1,200 executives globally that indicated that the banking and capital market executives don’t believe that banks are high in the AI maturity curve. AI adoption can offer a muchneeded boon for banks: the study noted that leaders who mentioned AI
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Charmaine Wong
Lee Joon-Seong
Manohar Chadalavada
on their 2021 earnings calls are 40% more likely to see their stock prices shoot up. In the same study, this time looking into 1,000 companies, Accenture found that only 12% are what can be called AI achievers. These are firms whose AI maturity is advanced enough to achieve superior growth and business transformation. According to Lee, AI achievers can attribute nearly 30% of their total revenue to AI on average. And even in the pre-pandemic era, they enjoyed 50% greater revenue growth on average, compared with their peers. They also outperform in customer experience and sustainability, Lee said. In response to these, Wong noted that customers may have a different expectation of how AI should be adopted by banks versus how adoption is in reality. “Let’s rewind back time, about five to 10 years ago, if you were to say where AI in banking is, we would have imagined that AI would be doing banking for us, and there would be very little human interaction. But we all know now that’s not necessarily the case. [For example] within the automative industry, AI is being used to make it
Two halves Standard Chartered’s Manohar Chadalavada has a different take on the maturity of AI adoption amongst banks. Chadalavada, who is the bank’s global head of ecosystems and open banking, noted that in Asia, integration of AI into their products depends on whether a service is classified as “high risk” or “low risk.” “The adoption of maturity on low risk items is slightly higher,” Chadalavada said, with banks in Asia readily adopting and using robotic process automation (RPA) tools, conversational AI, chatbots.“But when you go into high risk models, I think the maturity is still way off because we are still in the experimental stage and it will take us some time to adopt that.” In that space, banks are lagging behind their fintech peers, he said. “The high risk models which they use in many banks, which has an impact on capital or customer decisioning, is still nascent. We are way behind many of the fintech lenders who are operating in this market,” Chadalavada noted.
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CASE STUDY 1: DBS CARD LOANS
DBS HK introduces fully digital card loans for instant cash Users and even non-current customers just need to scan their HKID to get both cash and a digital card in a single application. HONG KONG
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ong Kong citizens strapped for cash but unwilling to undertake the lengthy loan process or turned off by highinterest rates offered by non-bank lenders now have a new path to get their much-needed money. DBS Hong Kong has recently unveiled its first fully digitalised Card Loans experience, offering application, approval, and disbursement in as fast as just minutes. “We found that many customers who had immediate financial needs took a long time to prepare supporting documents to apply for a loan,” Emily Ip, Executive Director, Head of Cards & Unsecured Lending, Consumer Banking Group & Wealth Management, DBS Bank (Hong Kong) Limited told Asian Banking & Finance. With the new digital card loan application journey, even noncurrent customers of DBS could walk away with both cash and a credit card. They only need to
We strive to offer them the same convenience, but with better control and protection over their spending
present two things: the DBS Card+ app, and their HKID. Customers need only to scan their HKID on the app, and immediately after signing up, they just may be touting a new digital credit card and an approved loan. “The card application is submitted via customers’ smartphone which we ensure the DBS Card+ app runs on a secure device, moreover, all personal particulars and HKID images are encrypted to ensure data security,” Emily said. Most importantly, thanks to the use of HKID, customers no longer need to submit any other additional documents before getting their credit card lines approved, although there are some cases when the bank may request additional documents such as address and income proof, depending on the individual. DBS Hong Kong shared that the solution has led to a 10% increase in its card loan sales since launching in August 2022.
DBS HK’s first fully digitalised Card Loans experience has led to a 10% increase in card loan sales (Photo from DBS.com)
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DBS’ revamped digital ecosystem The instant credit card and loan approval services were just some of the improvements that DBS Hong Kong has introduced to its Card+ app over the past year. In light of the rise of buy now pay later services in the city, DBS also rolled out improvements to its Flexi Shopping options. Chief amongst this is an expanded repayment tenor period, wherein customers can choose to pay back their purchases from a period of between 3 months to up to 60 months. Prior to the revamp, DBS conducted research in order to obtain the necessary data and insights to support the update. “More than 50% YoY sales incremental has since been achieved since the relaunch, making DBS’ Flexi Shopping services one of the best in the field,” Emily shared. Customers can also regulate their shopping through the “limit retail spending” function, which allows them to set a monthly limit to retail spending on their principal and supplementary cards. This is instantly effective and will not impact their credit limit, according to DBS. “Credit cards are undoubtedly a blessing to many of us because of their convenience. However, because of how convenient it is to pay with credit cards, it has become easier for people to overspend or be scammed whilst shopping online. All these caused worry and stress amongst our customers, and we strive to offer them the same convenience, but with better control and protection over their spending,” Emily said, regarding the limit retail spending option. They are also given the freedom to turn on and off specific transaction types, such as online spending, local spending or overseas spending, for safety reasons. “Once disabled, that spending type will be declined immediately. It is instantly effective and valid until change is requested from the customer, and DBS Card+ App will send out push notifications if a disabled transaction type has been attempted to maximise security,” Emily explained.
CASE STUDY 2: PAYWATCH EWA
Paywatch enables early salary withdrawal for Malaysians All withdrawals will automatically be paid back to the bank by the employer on payday. MALAYSIA
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alaysian employees know what it’s like to be short on cash with few options for financing. Over half of the population remains underbanked, with 55% of adults living in the country, according to data from consultancy firm Bain & Company. As a result, many are forced to rely on unsustainable borrowing practices, such as getting muchneeded cash from informal lenders and shouldering the burden of high-interest rates. Paywatch is floating them a new solution, however: employees can now withdraw up to half of their monthly income in advance at no interest. In partnership with Hong Leong Bank in Malaysia and Hana Bank in South Korea, employees can withdraw up to 50% of their monthly income instantly at no interest through a regular ATM, at the rate of just a regular ATM withdrawal fee. “In addition to providing liquidity to the workforce, through Paywatch’s partnerships with major banks, Paywatch also connects underbanked users with direct financial access to these reputable banks. We thus serve as a bridge for our users to start accessing the banking system, as well as certain financial services that, frankly, they otherwise would not have,” Alex Kim, President and Co-Founder of Paywatch, told Asian Banking & Finance in an interview. Bank partnerships Paywatch’s offering is in stark contrast to other EWA solutions in the market, who are not partnered with other banks. According to Kim, other players have to borrow money themselves to fund their EWA services. This results in users having to shoulder high withdrawal fees in order for the service provider to pay the interest. “That’s where our partnerships
We are giving users the same access without the high-interest rates we find on other financial solutions
Alex Kim
Richard Kim
with banks come in. When our users request access to their earned wages, the funds are remitted directly by our bank partners to the user, and then repaid by the employer on payday. This allows us to keep withdrawal rates very low, akin to a nominal standard ATM withdrawal fee, safeguarding our users from additional financial burdens,” Kim said. It’s not just the customers whose credit is safe with this arrangement. Banks and Paywatch itself hold more assurance that the withdrawn money will be paid back. “All withdrawals will immediately and automatically be paid back to the bank by the employer, on payday. That being said, we recommend a withdrawal limit to safeguard employees from any financial issues. Employers can decide what that limit is, but generally, it ranges from 20% - 50% of their earned wages,” Kim shared. The concept in itself is not foreign. Kim said that the same arrangement is often being used by people with credit cards to cover certain payments that are due immediately,
and then use a certain percentage of their salary the following month to make the necessary repayments. “With Paywatch, we are giving users the same access, but without the high-interest rates we find on other financial solutions,” he said. The service first launched in South Korea, with Paywatch teaming up with Hana Bank to service cash-strapped Koreans. Prior to that, Paywatch was accepted in the regulatory sandbox of the Korean financial regulators, which led to their partnership with Hana Bank. “Our founder and CEO, Richard Kim, as well as our senior officers have had decades of experience in consumer finance at Citibank, MasterCard and HSBC throughout Asia. With this combined background in banking from our leadership team, we were able to create a solution that addressed pain points in the market,” Kim shared. The service has since softlaunched in Malaysia in 2022. Paywatch now counts Lotus, Metrojaya, QSR Brands, Wilmar, and redONE amongst their customers. Filipinos may be next to enjoy the service in the near future. “Our main focus for 2023 is growing in Malaysia. However, we are also looking to expand our service into the Philippines by the end of 2023, and more markets across Southeast Asia the year after,” Kim said.
Paywatch connects underbanked users with direct financial access to reputable banks (Photo courtesy of Paywatch)
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OPINION
DEREK LEATHERDALE
Steering a bank through geopolitical rapids
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inancial services firms exist to manage risk and, to do that, they have three lines of defence. That sounds robustly martial – and straightforward. The reality is that banks sit within a flow of capital and information that has many more, and more fluid, geopolitical dimensions than compliance textbooks tend to suggest.That is because geopolitics exposes banks both to so-called ‘upstream’ risk – i.e. forces beyond their control – and to ‘downstream’ risk. The latter can be strategic, financial, operational, or reputational, and include threats to clients’ interests. And all of this is multifactorial and hard to quantify. Geopolitical risk Over most of the past thirty years, political risk in banking has effectively been shorthand for credit risk in sovereign lending. Analysts built political stability measurements into their quantitative country risk models, with higher risk numbers typically associated with emerging markets, rather than mature developed economies. More recently, political risk has been synonymous with sanctions risk, as Western governments have ramped up sanctions in response to geopolitical concerns. Again, it seemed relatively easy to define. However, neither a set of numbers, nor a list of sanctions, can now capture the increasing magnitude and velocity of geopolitical instability. There are wide-ranging 2nd and 3rd order impacts across large parts of the global economy. Geopolitical risk covers many interrelated challenges that can touch almost all aspects of a bank’s activities. This heightened geopolitical risk flows from the increasingly antagonistic way that governments use foreign policy to achieve domestic political objectives. Banks have no direct control over geopolitical risk but, for several decades, that was a limited problem. In the years immediately after the end of the Cold War, the vicissitudes of diplomacy had little bearing on increasingly globalised banking business models. It seemed reasonable to assume that the world was moving gradually in one direction – globalisation – and that disruptions on the way were no more than localised bumps in the road. That has now changed. The greater use of geo-economic policy measures in pursuit of national security objectives is biting financial services in many ways. DEREK LEATHERDALE Managing Director GRI Strategies
Banks as weapon and shield Bank boards need to reassess their understanding of the impact that geopolitical risk can have on both
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their business and their clients. One of the basic challenges for bank boards tackling geopolitical risk is cognitive: geopolitics can be seen as something that only happens in far-off places, or in war zones. But financial services firms are on the front-line of geopolitical risk because governments have been weaponising the sector. And that weaponisation is not just about relations between financial institutions. There’s a wider use of geo-economic tools for national security purposes, such as tariffs and the use of investment restrictions, all of which can directly and indirectly affect the performance of banks. Weaponising financial services is not new, of course. The Bretton Woods agreement at the end of WWII could be seen in that light and the Bank of England was founded in 1694 to help finance a war with France. The Chinese would say the US are weaponising the dollar, aimed at China. There’s a fascinating set of questions about how this will evolve as countries like China and Russia and, to some extent, countries like Iran, look at alternatives to the dollar. That could mean alternatives both in terms of currencies and in terms of payment systems. It’s quite clear that SWIFT, the financial messaging service, makes it very easy to weaponise international payments, from a US point of view. Substitutions for SWIFT are being considered in Moscow and Beijing. Wielding financial services to meet political ends can have unintended consequences. If policymakers use the financial system too aggressively, they might blunt its utility as a source of intelligence on, for example, Iranian nuclear activity or sanctionable activity by Russia, because that they accelerate the process of creating alternatives. The moment of greatest risk Between the fall of the Berlin Wall in 1989 and the global financial crisis of 2008, Western financial institutions tended to put geopolitical risk on the back burner. At that time, many assumed that the global geopolitical order was essentially uni-polar and that politics had dropped away as an issue. A whole generation of management teams and boards didn’t really focus on geopolitics. They may not always have believed in “the end of history” – the phrase famously coined in 1992 by Francis Fukuyama and taken to mean that all countries would end up as liberal democracies. But they did believe in unfettered globalisation and that has served them well – until now.
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OPINION
PAT PATEL
Economic lifeline: The coming together of fintech leaders in driving growth amid crisis
T
he Times They Are A-Changing. Three months ago, I wrote a piece calling for an urgent step change in the FinTech industry in this very tune of Bob Dylan. In perspective, the modern-day FinTech industry has been battling with macroeconomic issues — from rising interest rates, soaring inflation, industrywide layoffs, and dwindling consumer confidence. A decade of good times has created some complacency, and with the cold winds of winter upon us, businesses desperately need to become more adaptable and resilient to survive long term. Now, three months later, and after hosting the largest gathering of the FinTech community ever, the industry is beginning to sing a different tune—one that chants about coming together. Come together, right now, over FinTech At the Singapore Fintech Festival (SFF) last year, we saw this very hymn of collaboration come to fruition, with the community coming together to support one another by exchanging valuable insights on business resilience and building new relationships. When it was all said and done, we saw record turnout totalling over 62,000 across 115 countries. It was absolutely astounding given what was happening in the background, with budgets slashed and rising travel costs from the macroeconomic conditions. Instead of the community turning inward, we saw an incredible embrace and cross-pollination of ideas from people from all walks of life. There were lots of discussions about why now is the time to build and in many cases, organisations coming together to explore a variety of partnership constructs and M&A activity. It might seem like the start of a bar joke, but how often do you see a sustainability and educational reformist, a major tech company founder, and a chief executive of a financial regulator walk into a room together? This is the only place I’ve ever witnessed such an open and diverse dialogue in FinTech with corporate leaders, policymakers, and regulators.
PAT PATEL Executive Director Elevandi
And now the work begins Some may think of SFF as a culmination of the FinTech industry, but I think of it as a springboard for propelling the industry forward. And now it’s time to deliver on the promising conversations and insightful dialogues. To encapsulate key learnings from SFF, we’ve collaborated with a few of the world’s leading consulting firms such as McKinsey & Company and Oliver
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Wyman to release seven post-event reports to the community. These reports include insights such as Web3 and digital assets, banking for business, balancing innovation and regulation, the future of FinTech in growth markets, and how FinTechs can become more resilient. The roundtable dialogues during the event also gave birth to working milestones that would benefit FinTech leaders and businesses in the long run. Up to 13 reports from these roundtables are to be released to the FinTech community in early 2023. These reports outline solutions and steps for tackling complex industry issues that were discussed by public and private sector leaders during the Elevandi Insights Forum at SFF 2022. Key reports include a focus on building cross-border payment systems, overcoming talent shortages, and responsible AI in financial services. Likewise, The Milken Institute and United Nations ESCAP—organisations that focused on problem statements around sustainable finance—will be publishing their reports, which would serve as a reflection of the COP27 goals. And further follow-ups will take place in 2023. First, will be the convening of FinTech communities from the Global South — Africa, Latin America, and Asia—at the Inclusive FinTech Forum in Kigali, Rwanda on 20-22 June. There we’ll work towards promoting technology and policy conversations to enable FinTech development to become equitable, accessible, and sustainable to all people of the world. Immediately after, we’ll head to Zurich, Switzerland for the second edition of the successful Point Zero Forum (26-28 June) to advance Web3 and sustainable finance together with regulators and policymakers. Then on 14-17 November, the global FinTech community will unite once again at the Singapore FinTech Festival—to reflect on the year’s progress and discuss efforts for 2024. Onward and upward Now, as more organisations begin to see the importance of dialogues between the public and private sectors to build resilient and adaptable businesses, there’s certain to be a stronger call for open dialogue and collaboration globally. Ultimately, the future of the FinTech industry is in our hands. While it is uncertain what the economic and industry landscape will look like over the coming years, coming together will serve as a burgeoning economic lifeline that will enable us to thrive together as a community.
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