Asian Banking & Finance (January - March 2024)

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Issue No. 113 DISPLAY TO 31 MARCH 2024

Asian Banking & Finance

NETS BOOSTS SMES’ REVENUES WITH CARD DATA

GCASH GOES CROSS-BORDER, EYES ‘BIGGEST IPO’ TITLE

BANKING IN A TECH GLITCHES, FAILED COST TARGETS MINIMART WITH PLAGUE THAI BANKS BANK ALADIN SYARIAH Lawrence Chan CEO, Network for Electronic Transfers (NETS) p. 12

Dyota Marsudi President Director, Bank Aladin Syariah p. 14



FROM THE EDITOR PUBLISHER & EDITOR-IN-CHIEF EDITORIAL MANAGER PRINT PRODUCTION EDITOR LEAD JOURNALIST JOURNALISTS GRAPHIC ARTIST COMMERCIAL TEAM

Tessa Distor Eleennae Ayson Frances Gagua Aulia Pandamsari Ibnu Prabowo Emilia Claudio

Bank Aladin Syariah is taking a more direct approach: banking whilst grocery shopping. President Director Dyota Marsudi tells more about this unique partnership on page 14.

Janine Ballesteros Jenelle Samantila Cristina Mae Posadas

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EDITORIAL

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rust Bank just turned one in late 2023, but that hasn’t stopped it from clinching the title of the world’s fastest-growing digital bank. One secret ingredient is transparency, said CEO Dwaipayan Sadhu. Take cues from Sadhu and read his insights on page 10.

Tim Charlton

abf@charltonmediamail.com

Back in Singapore, NETS CEO Lawrence Chan shares how the company is using its 10-million card network to help small and medium enterprises raise their revenue. Head over to page 12 to learn more. In Singapore, MAS and OCBC demonstrate the possibilities and uses of digital currencies. Know the updates on pages 20 and 26. Finally, experts from various finance sectors discuss how tech disruption and branding innovation can shape the future of finance. Join the conversations on pages 22 to 25.

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CONTENTS

EVENT COVERAGE

MARKETS: PIONEERING THE FUTURE OF 24 UNTAPPED FINANCE BEYOND TRADITIONAL BANKING

FIRST 06 Default risks, peaking margins push APAC banks into a ‘mixed bag’ situation 07 Australian BNPLs, mobile wallets face tougher regulations

VOX POP 08 How can banks ensure the safe adoption of Generative AI?

BRANCH WATCH 09 Techcombank opens headquarters in Hanoi and Ho Chi Minh

Published quarterly by Charlton Media Group Pte Ltd 101 Cecil St. #17-09 Tong Eng Building ASIAN BANKING & FINANCE 2024 2019 2 ASIAN BANKING AND FINANCE| Q1 | MARCH Singapore 069533

CEO INTERVIEW 12 NETS boosts SMEs revenues with card data 16 GCash goes cross-border, eyes ‘biggest IPO’ title

CASE STUDY 17 DBS’ digibank shrinks loan approval time to a maximum of 10 minutes 25 OCBC unveils blockchain-powered CBDCs at Singapore Financial Festival

COUNTRY REPORT

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CEO INTERVIEW HOW TRUST BANK WON THE TRUST OF SINGAPORE’S 12%

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CEO INTERVIEW GROCERY RUNS CAN NOW DOUBLE AS SHARIAH BANK VISITS

EVENT COVERAGE 22 How financial institutions can build customer loyalty 23 From sandbox to success: how PH neobanks disrupt banking

COMMENTARY 28 The resilience and growth of Islamic banking in Bangladesh 30 How open finance transforms emerging economies like the Philippines 32 Plotting a roadmap to a thriving digital finance ecosystem

18 Tech glitches, failed cost targets plague Thai banks 20 Gen AI, CBDCs to shape Singaporean finance in 2024 For the latest banking news from Asia visit the website

www.asianbankingandfinance.net


ASIAN BANKING & FINANCE | Q1 2024 3


News from asianbankingandfinance.net Daily news from Asia

RETAIL BANKING

Why the bank of the future is not really a bank One year after kicking off operations as a full-fledged digital bank, ANEXT Bank CEO, Toh Su Mei shared one of her key takeaways from Singaporeans’ modern banking needs, “Nobody needs another bank in this day and age!” ANEXT Bank serves customers who are typically not “digital-first”.

MARKETS & RETAIL BANKING

FINANCIAL TECHNOLOGY

DBS explores digital currency and future M&A opportunities Managing Director Sanjoy Sen affirmed that as, Singapore’s largest bank by assets, DBS is prepared for the various digital transformations taking place in the industry. DBS is open for both the impending entrance of digital currencies and other further M&As that come streaming following its Citi Taiwan integration.

CARDS & PAYMENTS

SUSTAINABLE FINANCE

More fines, data touted as solutions to banks’ ‘greenwashing’ epidemic How much of the sustainability initiatives reported by banks are true, and how much are conflated? The reality is it is hard to measure how prevalent greenwashing has become or even just the level of how green a bank has become. Banks now field questions on the veracity of their sustainable initiatives.

BRANCH BANKING

Revised rules bolster Korean banks’ competition, but no instant fixes

PH central bank eyes direct debit and digital payment ambitions

Danamon rolls out next-generation branches for coffee talks

South Korea’s recent moves to ease ownership of financial institutions will bolster competition amongst regional banks, but don’t expect a big shake up in the market share, analysts told Asian Banking & Finance. The Financial Services Commission (FSC) floated plans to ease rules in foreign ownership.

The Philippines is seeking to ride the momentum of its recent digital payments surge and further widen the adoption of digital payment services, floating plans to roll-out request-topay services and a direct debit facility. The country is currently on track to meet its goal of converting 50% of retail payments to digital form by 2023.

PT Bank Danamon Indonesia has launched its next-generation bank branch concepts, highlighting spaces for conversations between bank agents and customers, as it faces a decline in customer visits. The concept, first launched in late 2022, stems from the bank’s study to improve its advisory function.

ASIAN BANKING BANKINGAND & FINANCE 2024 4 ASIAN FINANCE| Q1 | Q3 2021


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FIRST But earnings have already peaked in 2023, at 1.5%, with net interest margins expected to decline over the next 12 months. “We forecast a manageable deterioration in the non-performing loan ratio. Large corporates, which form the bulk of the sector’s loan portfolio, should be able to absorb the higher input and financing costs,” said S&P’s primary credit analyst, Nikita Anand. Risk should remain manageable, however. At 12%, Philippine banks have a relatively lower share of riskier unsecured consumer loans and small business loans compared to nearby countries. Philippines’ low household leverage of 10% of GDP also mitigates risk, Anand added.

Thailand’s banking market may face a challenging 2024 due to elevated default risks

Default risks, peaking margins push APAC banks into a ‘mixed bag’ situation RETAIL BANKING

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hilst the majority of emerging market banks in Asia Pacific are expected to log better financial results in 2024, unique hurdles in loan defaults, credit growth, or net interest margins will engulf each banking system over the next 12 months, Fitch analysts said in a report. The one exception is China, whose outlook is deteriorating. The government has enacted policy measures to support its economy, which is expected to weigh on system growth and profitability in 2024. The negative impact, however, will be felt less by the country’s domestic systemically important banks that the Fitch agency rates.

household debt and corporate debt as well as pre-existing weaknesses in the small to midsize enterprise (SME) segment,” S&P primary credit analyst, Deepali V Seth Chhabria, said in his report. Banks’ credit costs for the system — as measured by credit costs of the top six banks, which form 80% of the banking system — should remain elevated at 1.5% for the next two years at least. Whilst the government is said to be taking steps to repair household balance sheets and boost SMEs’ competitiveness, it would take time to see a structural shift, Seth Chhabria warned.

Thailand: high risk of defaults In Southeast Asia, Thailand is notably one of the banking markets that faces a challenging 2024, with structural issues pushing up credit risk in the market. Thailand’s household leverage, at 89%, is one of the highest amongst emerging markets globally. S&P Global Ratings warned that it has reached “unsustainable levels” and leads to elevated risk of default. “Credit risk remains heightened due to structural issues. These include high

Philippines: more loans, less profits Banks in the Philippines, meanwhile, will see demand for loans rise — but earnings in 2024 will be lower than the previous year. Credit growth will likely rise between 10% to 12% in 2024, higher than the forecasted 7% to 9% in 2023.

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Singapore: margins to peak Down at the Lion City, it’s a different story. Whereas the Philippines is on the way down from its summit, Singapore is just on its way to the peak. The country’s net interest margins (NIM) are expected to peak in 2024, at between 2% to 2.2%, said S&P primary credit analyst, Ivan Tan, in an outlook report. This does not mean that Singapore banks are fully in the clear, however. The realities of higher borrowing costs, coupled with macro headwinds, will register more prominently in 2024, the ratings agency said. “This could result in some backsliding in nonperforming loan (NPL) ratios following a relatively stable 2023,” Tan warned. The bad loans ratio is expected to remain below 2%, however, which should be manageable for banks. Indonesia and Vietnam: resilience Elevated interest rates and near-cyclical-high net interest margins (NIM) will lend support to profits for 2024. In return, there will be minor asset-quality deterioration, Fitch Ratings said in a separate report. Notably, Indonesia and Vietnam are facing improving bank operating environments. India also has a more positive outlook compared to 2023. “Banks with the largest franchises or lowest-cost deposit bases should be most resilient to interest rates remaining high. We expect only modest loan deterioration – given the solid macroeconomic backdrop and some remaining forbearance – whilst existing loan provisioning should limit any rise in credit costs,” Fitch said.

Credit risk remains heightened due to structural issues like high household and corporate debt, as well as weaknesses in the small to midsize enterprise (SME) segment


FIRST

Transparency in cost of payment services promotes competition, said Governor Michele Bullock (Photo from AusPayNet)

Australian BNPLs, mobile wallets face tougher regulations

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CARDS & PAYMENT

uy now pay later (BNPL) providers and mobile wallets in Australia, look out: the central bank is pushing to amend its retail payment laws in 2024 to better regulate the up-and-coming payment entities. The Retail Bank of Australia (RBA) noted the need to modernise Australia’s regulatory architecture and payments infrastructure in order to support innovations in the payments industry, says Governor Michele Bullock in an address at the Australian Payment Network Summit. “The payments landscape is changing

rapidly, with new business models and technologies entering the space. The industry is also moving from legacy systems towards new platforms that can deliver payment services that are faster, safer and more convenient,” Bullock told attendees of the summit in Sydney, emphasizing the need to strengthen the resilience of Australia’s payments and market infrastructures. Expanding regulation Australia is particularly looking to amend the Payment Systems (Regulation) Act 1998 in order to ensure that newer players in the

payments system, including ‘buy-now- paylater’ providers, payment gateways, payment facilitators and mobile wallet providers, can be regulated. Reforms are expected to be in place sometime in 2024, Bullock said. Amongst the reforms RBA is looking to enact is better transparency over the cost of payment services. “The cost of payment services should be clear for businesses and consumers, because transparency helps to promote competition,” Bullock said. Mobile wallets and BNPL providers, in particular, are in the spotlight. “Usage of mobile wallets has grown rapidly, but the costs associated with these services remain opaque and payment service providers can face barriers to access. We will need to consider whether regulatory action is needed in this area,” Bullock said. Retire BECs? Another question that regulators in Australia will face in 2024 is the industry’s plan to transition from the Bulk Electronic Clearing System (BECS) to a more modern payment system, the New Payments Platform (NPP). “The payments industry, through AusPayNet, has been discussing whether to transition away from BECS and has recently decided to retire the BECS framework with a target end date of 2030,” Bullock said, noting that the limitations of BECS are becoming more significant as users expect fast payments and the economy becomes increasingly digitised.

Real estate woes drag down foreign banks in China LENDING & CREDIT

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oreign banks in China will see continuous pressure in their asset quality amidst ongoing stress from local real estate and changes to the regulatory environment, according to Fitch Ratings. Foreign banks’ assets make up 1.3% of the system assets in China as of the first half of 2023. “We believe the banks’ performance and prospects remain highly sensitive to changes in China’s regulatory environment and that the ratings of Fitch-rated foreign banks in China will remain driven by our expectation of shareholder support,” Peiyi Zhang, Fitch analyst for financial institutions banks, wrote in a commentary. Advantage of foreign banks One advantage of these foreign entities is that their parents’ banks are shouldering impairments related to mainland China-linked exposures.

“Furthermore, the banks have always maintained higher capital ratios than domestic banks in China, in part due to their differentiated strategies that also lead to different risk profiles,” Zhang said. Regulatory burdens Changes over the past decade have further reduced the regulatory burden and entry barriers for foreign banks. However, most still face hurdles, such as licence requirements and cross-border capital flow limitations. Foreign banks are not the only ones expected to struggle in 2024. China’s structured finance market is also expected to be stagnant throughout 2024. Ratings agency S&P expects overall issuance to stay flat in the next 12 months, after declining 7% in 2023. Momentum will reportedly remain constrained in the dominant market segments of residential mortgage-backed

Fitch’s rating actions on Chinese property developers

Note: Data for the latest month as of the day before publication Source: Fitch Ratings

ASIAN BANKING & FINANCE | Q1 2024 7


VOX POP

How can banks safely adopt generative AI? BANKING TECHNOLOGY

Thanh Tai Vo Director of fraud and identity strategy, APAC, LexisNexis Risk Solutions

John J. Duigenan General Manager, Financial Services Industry, IBM Technology

Andy Cease Director of Product Marketing, Entrust

Cybercriminals are exploiting deepfake Whilst Gen AI has enormous potential, in the technology to steal identities.They fabricate wrong hands, it has the capacity to wreak havoc; fraudulent documents and manipulate facial it’s a double-edged sword that brings both features or voices to establish counterfeit significant benefits and risks to organisations. accounts or applications. Scammers can use For cyber criminals, Gen AI not only deepfake technology in authorized push increases the scale of cyber-attacks but also payment (APP) fraud to replace, alter or lowers the skill and resource barriers for mimic someone’s face in video or voice. This is executing them. especially troublesome as victims will believe Deepfakes and synthetic identities have posed fraudsters are actually loved ones. significant challenges for banks and financial Businesseses should ensure they incorporate institutes seeking to prevent fraudulent account multiple layers of defense including behavioral openings and takeovers. intelligence, digital intelligence and beneficiary But the good news is that just as Gen AI is insights. Behavioral intelligence serves as a also a powerful cybersecurity tool. By generating passive yet proactive method to identify and synthetic data in volume, banks and financial understand people’s usage patterns at the start of institutes can train and refine fraud detection a transaction across the entire customer lifecycle, models more quickly and effectively, allowing providing a smooth customer experience. them to improve the robustness of their solutions.

I think it’s important to note that [whilst] we will see the regulatory landscape transform from here, no matter what, bad actors will still be bad actors and they will still use [and] misuse AI. There will be little that any of us can do about bad actors, other than to be able to detect them and prevent them in the future. There’s an aspect of responsibility and trust around all of this that matters. Thinking about this in IBM terms, I would say from the very beginning of AI, we understood that trust and ethics and responsibility was super important. The reason we can build models in a certain way, is because we’ve had some of our most senior leaders in AI ethics writing our policies and ensuring that we live our policies. Our clients expect us to deliver trusted AI, aware that public mindset leans towards distrust in AI.

PRODUCT WATCH

OCBC rolls out Gen AI chatbot for employees

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CBC has deployed a generative artificial intelligence (AI) chatbot to its 30,000 employees in November 2023, making it one of the first-ever banks globally to roll-out gen AI tools at scale. Launched in collaboration with Microsoft’s Azure OpenAI, the gen AI chatbot is expected to assist employees with writing, research, and ideation. A bank-wide roll-out has been set following a six-month trial period conducted between April and September, 2023. About 1,000 OCBC staff across multiple functions have been testing the generative AI chatbot OCBC GPT in areas such as writing of investment research reports, translating of content in multiple languages and drafting of customer responses. On average, participants of the trial had shared that they were able to complete their tasks about 50% faster than previously, OCBC said in a press announcement. This included time taken to check OCBC GPT’s

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output to ensure factual accuracy. More time for value-added work Currently, more than four million decisions – in processes such as risk management, customer service and sales – are made by AI in the OCBC daily. This is projected to increase to 10 million by 2025. Donald MacDonald, OCBC’s head of Group Data Office, expressed excitement in being one of the world’s first banks to roll out generative AI tools at scale. “We believe that these tools have the potential to transform the way our employees work by automating a wide range of time-consuming tasks, freeing up their time to focus on more strategic and value-added work,” MacDonald said in a statement announcing the new tool. “This, in turn, helps us provide better customer service by spending more time building relationships with customers and developing innovative products and services,” he added.

OCBC GPT in use (Photo from OCBC Bank)


BRANCH WATCH: TECHCOMBANK

Techcombank opens headquarters in Hanoi and Ho Chi Minh The two new buildings are sustainable and fully-owned by the bank.

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he Vietnam Technological and Commercial Joint Stock Bank (Techcombank) officially inaugurated the doors to two new headquarters in Hanoi and Ho Chi Minh City in September 2023, just in time for the company’s 30th anniversary celebration. Designed by world-renowned architectural firm, Foster + Partners, the buildings are energy efficient and reflect the historic and cultural heritage of their respective cities. The Techcombank Tower Headquarters at 6 Quang Trung, Hanoi is designed around the theme “Future in the Old Town Tradition.” It elegantly melds Vietnamese materials and modern architectural design, with a main facade of interlaced wooden panels set against a golden backdrop, Techcombank said in a statement. The head office at 23 Le Duan, HCMC, meanwhile, is reflective of the city’s “dynamic and constant movement.” The building is designed as two stacked Rubik’s blocks,

Jens Lottner

with glass windows across 20 storeys. It also features a large internal atrium that ensures natural sunlight fills the building during the day. At night the building’s interior lighting transforms Techcombank Le Duan into sparkling crystal. Techcombank CEO Jens Lottner said that their new headquarters’ reflect the bank’s dedication to excellence. “These fantastic new buildings embody Techcombank’s vision to “Change Banking, Change Lives,” Ho Anh Ngoc, vice chairman of Techcombank, said. “They bring together outstanding design with modern technology to create two new iconic financial buildings for Hanoi and HCMC and push the boundaries in sustainability.” “With modern amenities, sustainable design, and workspaces that foster creativity and collaboration, we now have head offices that truly reflect the Bank’s dedication to excellence”, Lottner added. ASIAN BANKING & FINANCE | Q1 2024 9


CEO INTERVIEW

How Trust Bank won the trust of Singapore’s 12%

It is currently the world’s fastest growing bank by market share.

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RETAIL BANKING | by Frances Gagua

ne year after being launched, Singapore’s Trust Bank has already declared a very ambitious plan: become the fourth largest retail bank in the country. It may seem like a tall order, but in just 12 months, the digital bank — the brainchild of global banking giant Standard Chartered and Singapore supermarket chain Fairprice Group — has made great strides that other digital banks across Asia Pacific are struggling to replicate. In its first anniversary in September 2023, the bank listed 600,000 customers. That’s easily 12% of the total population of Singapore. These metrics make Trust the “world’s fastest growing digital bank by market share,” Dwaipayan Sadhu, CEO of Trust Bank, told Asian Banking & Finance in an exclusive interview. Two things are key to this: its ecosystem and its real-time feedback. “Today, over 70% of our clients join us as reference from another client. So, you can see how strong our wordof-mouth referral has been,” Sadhu told attendees at the Asian Banking & Finance Summit in Singapore. “Every nine days, we have a new app update going out. That’s twice as fast as in the market. In about 90 days, we have delivered over 700 product enhancements,” he added. Asian Banking & Finance spoke with Sadhu to gain a deeper understanding of how Singapore Trust Bank succeeded in a highly-banked market. How has your past year’s operation shaped your views about Singapore’s digital banking landscape? Clearly, what we have seen is that Singapore customers are very willing to adopt a new bank if we offer them real value and a great experience. Early in our journey, we had heard that Singapore supposedly may not need a digital bank. Some naysayers said that there are already many digital banking apps, so do we really need a digital bank? But what we’ve seen since is that over 600,000 customers have joined Trust. That’s over 12% of the Singapore market. What’s made the difference for us is the extensive FairPrice consumer ecosystem which we are integrated with, as well as the personalised and real-time experience that we have brought to the market. What sets your transparency approach apart in the market? We differentiate ourselves by being very transparent with our customers. For example, everything in our app happens in real time and it’s always transparent to our customers. We have specific conditions that customers have to meet in order to receive their bonus rewards or interest. Now, there are similar products which exist in the market, but customers have to do multiple things in order to get their bonuses or rewards. What we’ve seen is that it’s always the customer’s responsibility to keep track of their progress — banks don’t

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Dwaipayan Sadhu, Trust Bank CEO

Every nine days, we have a new app update going out— that’s twice as fast as in the market

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make it easy for them. Customers sometimes even have to keep spreadsheets in order to keep track of them! At Trust, our updates are in real time so you can track how you’re progressing in the app and what you need to do in order to maximise your rewards. This makes the experience not just transparent but also very easy for our customers. What did Trust Bank do to earn the confidence of the 600,000 customers it gained the past year? Trust has differentiated itself in many ways. First and foremost, we are integrated into the extensive FairPrice consumer ecosystem which delivers more than 1 million customer experiences nationwide each day. Secondly, Trust is built using the latest and best technology which allows us to deliver personalised and real-time experiences to our customers. Lastly, Trust has truly innovated to bring market-first propositions to its customers, even creating new experiences for existing products. We believe that all these have made a huge difference to the everyday lives of our customers. How does Trust Bank prioritise innovation in its services? Since Day 1, Trust has focused on innovation. We introduced the first card in Asia which can be used as both a credit and debit card. You can toggle between credit and debit and choose how you want to use the card within the app. This eliminates the need to carry multiple cards. Or take for example, how you would typically activate your card. Every bank will send its customers a blocked card. In order to activate it, sometimes the bank has to send an SMS or sometimes you have to go to a website. At Trust, you just need to tap on your Trust app, and the card gets activated.


ASIAN BANKING & FINANCE | Q1 2024 11


CEO INTERVIEW

NETS boosts SMEs’ revenues with card data

With over 130,000 touchpoints, NETS uses data on spending habits to help SMEs.

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RETAIL BANKING | by Frances Gagua

ingapore’s major payments and card network NETS says that it is leveraging its 130,000 payment touchpoints in the city to help small and medium enterprises (SMEs) increase their revenue. The company is using the data collected from the spending habits from the over 10 million cards in the country for SMEs to get to know their customers better. “We may not know them by name but from where they spend, we know that they are millennials. We will know that you own a car, because you may not use your NETS card to pump petrol, but you will use it to pay for changing the tire and repairing the car engine,” Lawrence Chan, CEO of Network for Electronic Transfers (Singapore), told Asian Banking & Finance in an exclusive interview. “We know the customer profile, [and] by knowing the customer profiles, we can help our merchants know who shopped with them. And we can actually then compare, not by exact name but against the industry, whether they are weak or they’re strong in certain customer segments,” he added. Over three-decades worth of changes and advancements in the payments industry, Singapore-based payment network company NETS’ goal remains clear: connecting communities and empowering lives. “Our key question is always, how can we do good? How can we leverage technology, leverage our understanding of the business that we do?” Chan said. What are the current payments and technology needs of small businesses in Singapore? For the first question, I’ll cite the Singapore Business Federation survey that was done recently as a reference. Their survey shows that revenue increase and cost declines are the top two needs of SMEs in Singapore. Digitalisation of the business actually comes at the lowest in that research survey. This points to one fact: you don’t do digitalisation for digitalisation’s sake. You do it to impact the business. Revenue and costs are key. That hasn’t changed over the years right now. Now, with more digital assets available, the core needs to be sustainable as a business to make money, increase revenue, reduce costs, is still a very core need for SMEs in Singapore. What latest tech solutions has NETS rolled out recently? One of the latest things we have done is we really tried to understand — with the scale that we have in Singapore — how we can make an impact on our merchants; how we can help them. Going back to the business survey that I mentioned, in terms of increasing revenue and reducing costs, let me focus on revenue first. We have the privilege of being very dominant in the faceto-face merchant space. For most face to face merchants, the biggest challenge from a revenue growth standpoint is they actually do not know who their buyers are. [For

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Lawrence Chan, Network for Electronic Transfers (NETS) CEO

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By knowing the customer profiles, we can help our merchants know who shopped with them. We can then compare, not by exact name but against the industry standards

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example], a small merchant sells 100 bottles of drinks a day, maybe they can remember all 100 names. But if I’m bigger, say I have two or three locations, it is very difficult for a merchant to really know who their customers are. You’ll have to ask customers to download and register [an app], and most customers will not want to do that. Understanding the merchants is understanding that their customers are a very big part of increasing their revenue. If you do not know who your customers are [and] who you’re serving, how do you then meet their needs? NETS may not know each person individually like where he lives, where he stays, and what exactly he buys; but we know the customer profile. By knowing the customer profiles, we can help our merchants know who shopped with them. And we can actually then compare, not by exact name but against the industry, whether they are weak or they’re strong in certain customer segments. Understanding who the buyers are is a key part that we can help our merchants in, not by giving them individual names, email address, no, but by the customer profile of who is buying from them. How do they compare against the competition or the industry? In your view, what will the future of payments look like? Okay, do you have a crystal ball? (Laughs) I believe that the future is now — and with that, we can predict what it will be like as well. Not so long ago, we were all wearing masks, we didn’t know what the future would be. But we worked very hard during that time to do cross-border payments. So today with NETS, Singapore residents can go to Malaysia and Thailand and, likewise, when they come to Singapore, they can just scan up our QR and we can scan their QR.

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Understanding Brings Us Closer

With our reliable transaction banking services, we are committed to supporting you in cash management and trade finance to achieve your financial goals of optimizing working capital cycle and enhancing treasury efficiency.

Hong Kong Domestic Cash Management Bank of the year

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The above product(s) and service(s) provided by Bank of China (Hong Kong) Limited are subject to the relevant terms and conditions.

ASIAN BANKING & FINANCE | Q1 2024 13


CEO INTERVIEW

Grocery runs can now double as shariah bank visits

Bank Aladin Syariah partners with Alfamart, which has 18,000 outlets nationwide.

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BANKING TECHNOLOGY | by Aulia Pandamsari

ndonesians can now integrate banking into their daily errands, accessing banking services without an internet connection during a routine visit to their neighbourhood Alfamart. This is just one of the three unique propositions that Bank Aladin Syariah has up its sleeve to capture the country’s unbanked and underbanked market. “We want to be present in locations where people usually do transactions offline, namely minimarkets like Alfamart,” the digital bank’s president director Dyota Marsudi told Asian Banking & Finance in an interview. Alfamart– who is one of the bank’s main investors– has over 18,000 outlets across Indonesia. Customers of the digital bank can access cash deposit and withdrawal services in all these locations, and would-be customers can enjoy account opening services by visiting the nearest minimart branch. They will also enjoy in-store promotions; whilst employees also benefited from this, as they can access payroll financing through the bank. It also offers invoice financing and working capital financing for Alfamart suppliers, franchisees and contractors. “So individual customers and MSMEs (micro, small, and medium enterprises) do not need to sacrifice time, effort and distance because Alfamart’s operations are also longer in terms of opening hours and not as busy as branch offices,” said Marsudi, who had previously served as Senior Executive Director of Investments at Vertex Ventures (Temasek’s VC arm). This strategy has received positive results from locals: by end-2022, thet bank already has 1.7 million users. For end-2023, Marsudi and Bank Aladin Syariah are targeting the growth it achieved in 2023. A digital Shariah bank With Islamic banking making up only 6% to 7% of Indonesia’s banking industry, Marsudi sees much opportunity in the market. Marsudi noted that not many digital banks in Indonesia follow shariah compliance. This meant that internally, the bank has followed sharia principles. These provisions follow regulatory rules stipulated by the Financial Services Authority (OJK) and the Sharia Supervisory Board. “Our approach to customers in this case is to provide what they need. We provide product offers that customers already have or don’t have access to with a comparison of products they already know from conventional banks. For example, in providing financing, we can use a murabahah contract where the bank buys the goods for the customer and the bank earns a good income margin. At the same time, in terms of payment, the customer is given the flexibility to make payments in installments,” Marsudi explained. 14 ASIAN BANKING & FINANCE | Q1 2024

Dyota Marsudi, President Director of Bank Aladin Syariah

We want to be present in locations where people usually do transactions offline, namely minimarkets like Alfamart

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Streamlining the process Its third guiding principle is to help the unbanked and underbanked individuals and businesses of Indonesia. “There are segments in the market whose needs have not been met properly, especially micro, small, medium enterprise (MSME) and household players who often make transactions in small nominal amounts and loan penetration is still low, less than 20%,” said Marsudi. Banks adopt the principle of efficiently serving customers as a means to address the persistent issue of high unbanked and underbanked populations, particularly by streamlining the customer onboarding process that previously necessitated branch office visits. Bank Aladin Syariah, for instance, acquired its mobile banking license from Bank Indonesia at the end of 2021. “We want to make it easy for customers to open their accounts from anywhere as long as they have a good internet signal,” Marsudi said. The future Marsudi also shared the bank’s plan to achieve profitability: to continue to grow its financing portfolio, expand deposits and CASA balance, as well as managing cost efficiently. “For example, if we plan to receive multiple income in the future, that is definitely a profit because the cost for people, for example, is unlikely to increase multiple times as well as in technological aspects where the spending will not be as high as in earlier years,” he noted. “Maybe spending on marketing can go up, but the bank is a highly regulated institution and has the clearest plan for profit,” he shared with Asian Banking & Finance.


ASIAN BANKING & FINANCE | Q1 2024 15


CEO INTERVIEW

GCash goes cross-border, eyes ‘biggest IPO’ title

It aims for full launch and expansion into 10 markets in 2024. CARDS & PAYMENT | by Frances Gagua

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he golden question that GCash is facing right now is this: when’s the IPO happening? G-Xchange CEO and President Ren-Ren Reyes told Asian Banking & Finance that the Philippines’ largest mobile wallet and digital payments app is just waiting for the right moment, eyeing to become one of the country’s largest IPOs in history. “We want Filipinos to participate in our IPO, whether to invest in GCash, or at least be proud that the brand they use every day is now one of the biggest IPOs in the country,” he said. Even without the IPO, GCash already has quite a lot to be proud of: it now has over 75 million active users, expanding from the 60 million it had in May 2022. GCash has also issued 13.5 million insurance policies, and 9.1 million users are actively registered in GSave. Most recently, they also launched GSave and GCrypto. But GCash’s ambitions for 2024 far exceed just going public and getting listed in the stock exchange, with Reyes sharing overseas and local expansions on the horizon. Going cross-border Under the pilot of its GCash overseas service, the app has already enabled overseas Filipino workers (OFWs) from six foreign countries to sign up for the GCash app regardless of whether they have a Philippine subscriber identity module (SIM) or not. By doing so, they are enabled to send money back home through their GCash accounts. In 2024, GCash will be looking at not just fully launching the service, but at adding 10 more markets in the service as it seeks partnerships from Singapore and countries in the Middle East, Reyes told Asian Banking & Finance Before this, GCash had already expanded beyond Philippine shores with its partnership with Alipay+, through which GCash users are able to pay on international markets and payment terminals through the app. In Japan alone, Filipinos can enjoy cross-border payments from over 50,000 convenience stores with their GCash app via QR payments. Overall, GCash users can now use their app to pay at over 90,000 convenience stores across Asia. “We continue to acquire more merchants and are bringing in more MSMEs (micro, small, and medium enterprises),” Reyes added. The SME conundrum For 2024, GCash plans to roll out more ways to help small businesses attain financial inclusion and continue making great strides in the micro-lending space. “Today, we’ve already disbursed over P100 billion (US$1.79b) in consumer loans to over three-and-a-half million Filipinos,” he said, adding that this is formal lending at non-collaterised loans. However, financial access remains a key issue for small businesses coming up in 2024. “We’ve been in discussions and working with the government on how we can really help the

16 ASIAN BANKING & FINANCE | Q1 2024

Ren-Ren Reyes, G-XChange CEO and President

We want Filipinos to participate in our IPO, whether to invest in GCash, or at least be proud [of] the brand they use every day

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micro SMEs,” Reyes said. “The biggest problem with micro SMEs is that they don’t have the documentation that they need, so that they can be classified as a business account.” Right now, the solution is to have a proxy, Reyes said. Whilst this helps them, it is not the best fit as they are locked out of much-needed services such as merchant loans and opening business accounts with banks. “That’s why we’ve been working with [the central bank] to try and lower and find a way to simplify the business requirements, so that we can classify them as a merchant and offer them the right products,” he added. Trust and the community At the start of the new year, GCash is also mindful of two things – trust and security, which Reyes has already referred to as “their number one priority.” In 2023, GCash prevented almost 750,000 account takeovers. Reyes noted that the formidable protection of these accounts is attributed to the app’s new security features, which include reconfirmation before sending money and a two-factor authentication. “Simple UI tricks or UI interfaces like that help make sure that they’re sending money to the right person,” he said. Finally, Reyes noted the users’ call for sustainability, highlighting their achievement of 2.5 million trees planted and repopulating nearly 11,000 hectares, with around 5 million GForest warriors contributing to their ESG goals. “In terms of our ESG goals, we have around 15 million GForest warriors, we’ve planted 2.5 million trees, around almost 11,000 hectares that we’ve repopulated with our efforts, and that’s something that we’re, again, very proud of,” Reyes shared.


CASE STUDY: DIGIBANK BY DBS

DBS’ digibank shrinks loan approval time to a maximum of 10 minutes The bank is making use of government population data for its face recognition service.

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BANKING TECHNOLOGY

BS Indonesia’s mobile application digibank by DBS is promising to approve customers’ loans instantaneously from the previous 10 working day cycle. “We transformed our process that usually takes one week to 10 working days for loan disbursement. Now, we can do it within a maximum of 10 minutes,” said Erline Diani, Head of Digital Banking at PT Bank DBS Indonesia. To do this, the bank employed a credit-decisioning engine, including live verification within the data. Additionally, to ensure the legitimacy of applications, it uses a fraud prevention engine equipped with data pattern analysis. Meanwhile, an e-KYC (electronic Know Your Customer) process was adopted, making use of government population data, for the face recognition part of using the app. “So, we can verify if the application is genuinely made by a real customer,” Diani said. Apart from lending, DBS is also offering instant disbursement through a virtual credit card and bank transfer. Service democratization It would be incomplete for the digibank by DBS if it did not provide affordability. “Currently, we offer unlimited fee-free transfers, attractive deposit rates competitive with the market, and investment products starting from 100 thousand rupiahs,” Diani said. DBS Indonesia has also made bond trading affordable and easier to access for its interested clients. “One unique aspect, probably not widely available amongst other competitors, is secondary and primary bond trading. Usually, such transactions involve several steps, including branch visits and various registration processes,” Diani explained. It is in this aspect that digibank by DBS also provides affordability. For example, in the secondary bond market, trading

Erline Diani, Head of Digital Banking of PT Bank DBS Indonesia

Educating customers about ongoing trends and ways to protect their data is equally important as securing our application

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often requires a minimum share of 50 million rupiahs. Through this digital bank, the service has been democratised to allow trading to start with only 1 million rupiahs, according to Diani. The next differentiating factor lies in the diversity of product offerings. Again, she emphasised that the fundamental aspect of a digital bank is to simplify customer budgeting and provide access to optimal investment products. As a major player in personal wealth, digibank by DBS offers various wealth management products. Its “DBS Treasures” banking proposition remains robust, managing one of the largest funds. “By utilising this, we provide various products through digital means, catering to various customer needs and profiles. This is our current difference,” said Diani. Security measures Switching to the topic of security, Diani assured that it is a primary focus

especially given the rapidly evolving digital security landscape. Accordingly, digibank by DBS has several security steps, including biometric verification, involving fingerprint and facial recognition, both connected to the government’s population database. In addition it has “soft tokens” that limit access to the digital platform from specific devices. Regarding authentication, it also employs the standard two-factor authentication for all transactions. Diani added that they are further tightening security by implementing measures to prevent their application from running on “jailbroken” devices. “This is important in combating emerging threats like malware,” she said. Ongoing efforts in securing the digital bank’s backend include monitoring to detect suspicious transactions and providing early warnings to customers. Diani says, “Educating them about ways to protect their data is equally important as securing our app.” ASIAN BANKING & FINANCE | Q1 2024 17


COUNTRY REPORT: THAILAND

Tech glitches, failed cost targets plague Thai banks

KBank’s credit costs rose by 11 basis points to 219 bp in 2023, a step further from its target range of 140 to 160 bp.

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hailand’s largest banks grapple with mobile app glitches and escalating bad loans through 2024 and into 2025, among other challenges. Three of these banks– Siam Commercial Bank X (SCBX), Kasikornbank (KBank), and Krung Thai Bank (KTB)– will face credit cost pressures in 2024, on top of their own individual challenges, UOB Kay Hian analyst Tanaporn Visaruthaphong and assistant analyst Thanawat Thangchadakorn said. All three banks already saw their credit costs rise in 2023 despite targeting otherwise. KBank saw its credit costs rise by 11 basis points (bp) to 219 bp, casting it further from its target of between 140 to 160 bp. SCB– the traditional banking arm of SCBX –exceeded its target credit costs for 2023, at 182 basis points (bp). It’s the same story for KTB, whose credit costs were at 199 bp at the end of the fourth quarter. In comparison, its credit costs were just 124bp in the third quarter, and 115 in Q4 2022.

SCB needs to set aside expenses for overhauling the mobile banking application. As a result, we reckon the operational costs will increase.

SCB called to overhaul mobile app Siam Commercial Bank (SCB)’s tech difficulties in its mobile

SBC’s mobile app Easy logged the most “failures” in 2023.

18 ASIAN BANKING & FINANCE | Q1 2024

banking app had the analysts advise it to overhaul the app. Statistics showed that SCB’s mobile banking app logged the most “failures” in 2023, with 26 occurrences, according to Visaruthaphong and Thangchadakorn. Notably, the mobile app experiences issues during the end and beginning of every month, especially for the monthly payroll date, the analysts noted. “In our view, SCB needs to set aside expenses for overhauling the mobile banking application. As a result, we reckon the operational costs will increase,” Visaruthaphong and Thangchadakorn said. Another scenario they suggested is for the bank to renew the whole banking system, which may result in higher expenses and a higher cost-to-income ratio. On a more positive note, SCB is said to have resolved its credit card business’ issues– notably, the problem that occurred whilst migrating clients to its new system. With this, the analysts expect that SCB’s confidence in credit costs related to its credit card business will improve in 2024.

“In our view, we believe that the credit cost in the credit card business should be better than in 2023,” Visaruthaphong and Thangchadakorn said. KBank’s high credit costs Thailand’s Kasikornbank (KBank) will have a difficult time achieving its target of normalising its credit costs by 2025, the two analysts said. KBank’s management is eyeing to normalise its credit costs to between 140 and 160 basis points (bps) in 2025. This will mostly be done by KBank continuing to reduce its loans to small and medium enterprises (SMEs). However, in the fourth quarter of 2023, asset quality showed some weakness with its non-performing loan (NPL) ratio rising to 3.19% and credit costs rose to 219bp. This was the result of an increase in provision expense by 6%, noted Visaruthaphong and Thangchadakorn. “We believe the credit cost will remain at a high level in 2024 and normalisation will be difficult in the mentioned period. We think a deterioration in the SME segment will pressure KBANK’s credit cost and asset quality,” Visaruthaphong and Thangchadakorn wrote in their latest company report on KBank. The two analysts did note KBANK’s efforts to clean up its portfolio. “KBANK currently avoids lending unsecured loans unless it has already prepared the system and is more comfortable to penetrate again.” “Therefore, we expect the credit cost in the credit card business will remain high and SCB will need to monitor closely and be prudent in 2024,” the analysts said. Krung Thai’s mounting bad loans Visaruthaphong and Thangchadakorn expressed concern for Krung Thai Bank’s asset quality after the bank missed Q4 profit estimates by a large margin. Instead of the expected 34% yearon-year rise in net profits for Q4, Krung Thai Bank instead reported a 25% contraction. This was a result of provision expenses: THB is bracing for negative impact from one of its corporate clients and its related companies, where it expects credit deterioration.


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ASIAN BANKING & FINANCE | Q1 2024 19


COUNTRY REPORT: SINGAPORE

MAS Managing Director Ravi Menon giving what may be his final speech as he stepped down on 1 January 2024 (Photo from Singapore Fintech Festival)

GenAI, CBDCs to shape Singaporean finance in 2024 Singapore will be piloting the use of wholesale CBDCs next year.

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BANKING TECHNOLOGY

ook forward to new payment methods, clearing systems, and fraud detection bots in the Singapore finance scene as generative AI and central bank digital currencies (CBDCs) will start to be mainstays in the industry, according to experts and regulatory authorities in the eighth Singapore Fintech Festival (SFF). The 2023 iteration of SFF placed generative AI as its central theme, and banks, financial institutions, startups, and technology companies showcased their latest developments during the three-day event held, drawing a record 66,000 participants from across 115 countries. Over 2,400 of them were government and regulatory attendees across 530 central banks, regulatory institutions, and government organisations. CBDCs and stablecoins In his annual address, the Monetary Authority of Singapore’s (MAS) managing director, Ravi Menon, revealed the country’s plans to pilot CBDC use in 2024 for wholesale transaction purposes. During the pilot, wholesale CBDCs will be used for domestic payments. Banks will issue tokenised 20 ASIAN BANKING & FINANCE | Q1 2024

Clearing and settlement thus occur in a single step, on the same infrastructure, unlike the current system in which clearing and settlement take place on different systems

bank liabilities through the form of claims in balance sheets. Retail customers can then use the tokenised bank liabilities in transactions with merchants, who will then credit these with the participating banks. “Clearing and settlement thus occur in a single step, on the same infrastructure, unlike the current system in which clearing and settlement take place on different systems, and settlement occurs with a lag,” Menon said in his address. SFF 2023 participants got a sample of how CBDCs will work in Singapore, with OCBC and UOB collaborating to demonstrate the fungibility of digital Singapore dollars. During the event, attendees were able to get a S$5 digital gift from the OCBC booth, which they can then redeem at the UOB booth. The settlement and the clearing of that digital money between two banks is all done on the blockchain, Ravindra Kumar, Managing Director of Group Technology Architecture at OCBC, told Asian Banking & Finance. Singapore has been hinting on its interest in wholesale CBDCs as early as 2021. In the 2022 edition of SFF,

Menon had said the same, whilst reiterating Singapore’s discouragement on investing in cryptocurrencies, calling the medium a “non-starter.” Menon said that Singapore was more open to the idea of using stablecoins. “Stablecoins — if well regulated — can potentially play a useful role as digital money alongside CBDCs and tokenised bank liabilities,” he said. In 2023, MAS granted in-principle approval under the Payment Services Act to three entities — StraitsX SGD Issuance, StraitsX USD Issuance, and Paxos Digital Singapore — that are expected to issue stablecoins that comply with MAS’ upcoming stablecoin regulatory framework. Generative AI Artificial intelligence (AI) is nothing new to banks: global and Asian heavy weights such as JPMorgan & Chase, Citibank, and Bank of America, to name a few, have long applied AI for automated chatbots, fraud detection, biometric identification, money laundering risk detection, to name a few. But these AI applications are specific to one or two tasks which they have been programmed to do. Generative AI takes the step further, breaking down former limits with its ability to generate responses, data analysis, risk strategies, amongst others. “Computer-generated AI is about creating content, whether the content is about images, text and video,” HSBC Singapore chief operating officer Tancy Tan told Asian Banking & Finance in a chat during at the SFF. “With that itself, you can imagine the number of use cases that could possibly happen, whether it’s optimising operational efficiency, whether it’s creating customer experiences.” More recently, OCBC rolled out a generative AI chatbot to its 30,000 employees globally in November, 2023. This follows a six-month pilot involving 1,000 OCBC staff across multiple functions who have been testing the generative AI chatbot OCBC GPT. On average, participants of the trial shared that they were able to complete their tasks about 50% faster than their pervious speed, OCBC said.


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ASIAN BANKING & FINANCE | Q1 2024 21


EVENT COVERAGE: MANILA FORUM

How financial institutions can build customer loyalty

able to hashtag it into one significant experience?” Mishra noted, adding that banks face risks in screening and choosing which people can access their services.

It’s no longer just about giving perks, but about offering experiences.

Digitalization China Banking Corporation’s Executive Vice President & Head of Consumer Banking Segment, Aloiysus C. Alday Jr., also noted the rising expenses associated with building customer loyalty. “Some advantages, it’s easier to communicate now. And disadvantage, it’s difficult to stand out. There’s so much clutter embedded, [and] it used to be so much cheaper. Now it’s becoming more expensive,” Alday noted. Alday added, however, that digitization had made it easier to deepen relationships with existing customers. Acquiring new clients have also gotten easier thanks to the rise of social media and online selling, which allows FI’s services to be integrated in online platforms’ ecosystems. “We have digital stores where we can do active usage campaigns for our credit cards. These are the actual cases that we can see that there are some benefits with using digitalization,” Alday said. Rahul Rasal, Security Bank’s Head of Retail Banking Segment, highlighted experience as a driver of loyalty, noting that technology should not be used as a gimmick. “It [technology] cannot be gimmicky. It has to solve a real customer pain point ideally,” Rasal said.

CARDS & PAYMENT

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xpectations from customer loyalty rewards are seeing a massive shift today: customers are no longer satisfied with just receiving cashbacks or coupons, they want an emotional experience. “We are seeing a real change in what the younger generations expect from brands today. It is moving away from the tangible rewards (for example, points or cashback), which is what we previously associate loyalty with, to more emotional, experiential benefits (for instance, travel experiences),” James Ellis, Vice President, Business Development, Asia Pacific, Collinson, told attendees of the Asian Banking & Finance Manila Forum held at Shangri-La The Fort. “This is also aligned to their social media use where they share their life moments and or experiences through channels such as TikTok and Instagram,” Ellis said. Customer engagement Ellis joined a panel of top industry analysts and Philippine bankers to talk about how financial institutions can deliver the best customer experience today. The consensus: a swift, measurable engagement across all services. “An important trend that we’ve identified through working with companies, particularly within the financial services industry, to design their customer engagement strategies, is that there is real pressure to deliver measurable engagement across the board,” Ellis noted. Travel, in particular, seems to have a strong correlation with encouraging customer loyalty. A survey by Collinson of 4,750 consumers in Asia Pacific found that customers who take 10 or more trips a year are members of twice as many loyalty programmes than those that took 1 or fewer trips per year. “60% of the respondents that we surveyed – those that took 10

22 ASIAN BANKING & FINANCE | Q1 2024

There is real pressure to deliver measurable engagement across the board

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or more trips in a year – said their spending behaviours are influenced by the loyalty programmes that they are a part of,” Ellis added. Challenges Beyond travel, customers still expect to access loyalty programmes and loyalty-related perks across all services on offer, said Anurag Mishra, Partner, Financial Services, Technology Consulting, EY. Mishra noted the challenges of building loyalty in the digital era, however– especially as FIs will have to balance maintaining their standards with customers’ expectations for a swift service. “Let us also be cognitive of the fact that a financial institution typically works with credit scoring methods. You have to score your customers on the fly in a minute. That’s a challenge. That’s a journey for a lot of incumbent institutions to take. And that’s not going to be an easy journey to take,” Mishra said. Just the ability to offer an experience is a challenge. “The big question to ask is, do you as a financial institution, understand across products, what are the different engagements your customers are having? And are you

Experts agree on the importance of swift, measurable engagement across all services (Photo by Tessa Distor)


EVENT COVERAGE: MANILA FORUM vision is really to keep on building on the embedded experience,” Madrid shared with the panel.

Tonik Bank CEO Greg Krasnov talks about building the digital licence category from scratch.

From sandbox to success: how PH neobanks disrupt banking They made use of their old payments model and partnerships to scale operations. CARDS & PAYMENT

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or the Philippines’ newest digital banks, it was a leap into the unknown to launch in the country– especially as they have to help create the concept itself. “There was a huge amount of unknowns when we were starting because the digital bank licence category didn’t exist yet. We actually co created with the BSP in the sandbox mode, we co-created the digital licence concept,” Tonik Bank CEO Greg Krasnov told attendees of the Asian Banking & Finance Forum held at Shangri-La The Fort, Manila. Right mindset, right model Maya Bank President Angelo Madrid recalled how he was tapped into his role in Maya Bank in order to instill the necessary tech mindset which he said was needed in order to build a successful digital bank in the Philippines. Apart from mindset, adopting the right model was also needed to scale. In Maya’s case, they built up

There was a huge amount of unknowns when we were starting because the digital bank license category didn’t exist yet.

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from its predecessor, PayMaya, a digital payments app. “We created an embedded finance model where we’re kind of layered in or sandwiched in between the payments ecosystem. So the customer will not be removed from the current relationship that they have or payment behavior,” Madrid said. Madrid particularly highlighted the layers involved in digital banking and customer loyalty: first, the trust that Filipinos now hold for accounts that are phone-based; second, the ability to use the layer of data you obtain to understand consumer accounts and behaviors. From these, Maya built up their embedded finance model, harkening back to their roots as a payments app. This helped not alienate their former customers as well as tapped into pre-existing digital payments behaviours that Filipinos exhibited. “That was really the key, to embed experience in that ecosystem. The

Partnerships GoTyme Bank, meanwhile, adapts a hybrid model: it has teamed up with physical retail channels in order to reach the human customers. “Two thirds of our customers actually come through in the sign and sign up for us through a physical retail channel or an office building,” Nate Clarke, GoTyme Bank’s president and CEO, said, sharing that they have sign-up spots and kiosks in 400 locations across the country. These locations have an ambassador that will help the customer download their app and set-up a new bank account. Partnerships are at the heart of GoTyme’s operations, with Clarke sharing that they have specific people in the bank focused on partnerships and creating commercial models that offer the right-aligned incentives for their customers. “So it’s kind of very much in our DNA to be partner led,” Clarke said. As an example, Clarke noted the retail loyalty program Go Rewards, which they are affiliated with. When a customer signs up for a GoTyme account, GoTyme will automatically open a Go Rewards account for that customer; if they already have a rewards account, it is merged. New marketing tactics Krasnov touted Tonik Bank’s unique approach to marketing. “We’re also taking a radically different approach on promotional branding. I don’t think any bank in the Philippines has ever taken such an FMCG, kind of funny, humorous approach to their branding,” Krasnov shared. “I’m very happy to see that most of these things have worked out well.” Currently, Tonik Bank is looking to scale its lending portfolio, which is a mark of the profitability journey that the bank will undertake. So far, they’ve worked for a year and a half on this, Kransov said. “In the consumer finance space, where you’re reaching into the people that haven’t been banked before, you need to take time to really build your credit models, customer acquisition, profitability,” he said. ASIAN BANKING & FINANCE | Q1 2024 23


EVENT COVERAGE: ASIAN BANKING & FINANCE SUMMIT

Untapped markets: pioneering the future of finance beyond traditional banking Brands must shift from running campaigns to building platforms. BANKING TECHNOLOGY

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isruption, differentiation, and development– the three d’s that are shaping the banking and finance industry. These are just some of the nuggets of wisdom shared by experts and analysts in the Asian Banking & Finance Summit 2023, held at Sofitel Singapore City Centre. The afternoon session was attended by 70 people across two tracks and eleven sessions, panel discussions, and speeches.

Dynamic pricing Simon Kucher’s Silvio Struebi kicked off the Brand and Marketing track with a discussion why dynamic pricing will allow you to capture more value. He noted the differing price thresholds of customer segments– tech savvy millennials, gig workers, urban professionals, for example. “One of the commonalities of successful digital products that are profitable is that they focus on segments that are willing to pay for services. They offer these segments more high margin products,” Struebi noted to attendees. Amongst benefits that banks can enjoy with dynamic pricing include increased revenue, an enhanced customer experience thanks to personalised pricing that cater to their individual needs, and improved efficiency and increased responsiveness to the market. At the Technology track, Ravi Kanteti, associate partner, financial services, enterprise technology for Bain & Company, delved into winning business models for wealth management– and in particular, the underserved mass affluent (MA) market. To provide better wealth services to the MA market, banks and financial institutions must first recognize one curious phenomenon about their behavior: that it is composed of paradoxes. “MA segment is relatively risk 24 ASIAN BANKING & FINANCE | Q1 2024

Use cases of generative AI is a key topic in the Technology track of the summit.

One of the commonalities of successful digital products that are profitable is that they focus on segments that are willing to pay for services.

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averse, but [their] purchase behavior indicates risk appetite,” Kanteti said, noting their eagerness to invest in cryptocurrency as an example. They want exposure to higher risk investments in measured proportions but with safe guard rails, he added. “They have limited time available to improve relatively weak financial literacy but they rely on less credible sources for financial information. They do not trust relationship managers but prefer human support at certain points in the customer journey,” Kanteti noted. To reach them, Kanteti said that clients must feel valued with exclusive cards and privileges, but still feel like they are contributing to social change or making an impact. These include offering simpler products with digital-led journeys, and a wealth proposition that offers holistic products and perks. Becoming the bank of choice Back on the Brand and Marketing Track, UOB’s head of consumer finance and analytics, Pek Wee Leng, shared how UOB made itself the bank of choice in ASEAN. Pek highlighted two things: like-minded partnerships and an extensive network.

“We look for like minded partners who are also invested in the same region, with the same common goals,” Pek said, when asked what UOB is looking for when embarking on partnerships. “And then we’re talking about exclusivity. Ideally, we’d like to bring exclusive experience and curated value to our customers. It is also a question of whether it’s the right timing and the right pace, both for the partners and for us to be able to deliver value [to our customers].” TBWA\Singapore senior strategy director Michèle Bouquet-Kumble also graced the event, sharing her insights on how banks can build a successful brand that lasts. Bouquet-Krumble and TBWA championed the importance of bringing disruption. Brands, in particular, must shift their view of advertising from running campaigns to building platforms, she said. Then from there, evolve the brand narrative. To illustrate, Bouquet-Kumble shared TBWA’s work with Standard Chartered Bank and its “Here For Good” brand. First launched in 2010, TBWA and Standard Chartered worked together to relaunch the established brand in 2018, this time reintroducing the core platform idea with real stories where ​Standard


EVENT COVERAGE: ASIAN BANKING & FINANCE SUMMIT Chartered is taking action to live up to their brand promise. Over the following years, the brand was molded to adapt to the times, with universal topics such as gender equality and protecting wildlife. On the tech side, Standard Chartered’s Jim Byrden delivered a speaking session on how to prepare your bank on a rainy day– and in particular, gearing up your bank to withstand cyberattacks. SCB’s managing director of assurance testing for group CISRO advised financial institutions to focus on the mission and business functions. “Which systems need to support critical business functions, and which may be of interest to the adversary?” Burden said, on how to identify where to begin and build up cybersecurity measures. The attitude of change also plays an important role in maintaining cyber resilience. “The business, technologies, processes, and threats are ever evolving. Continue to anticipate, and adapt.” Trend and opportunities The different trends and opportunities currently impacting the banking industry was another key point discussed by speakers. On the Brand and Marketing Track, YCP Solidiance partner and head of M&A Advisory in Southeast Asia, Gary Murakami, spoke on the opportunities for M&A in the buy now, pay later space. Murakami noted that alternative financing space is expected to exhibit the strongest growth of all fintech segments. BNPL occupies over 90% of all transaction values in this space. Despite this, independent BNPL face competition from banks and retailers entering the market, who look to capitalize on consumer adoption, regulatory changes, and eager sellers.​ This presents an attractive opportunity for banks to acquire a BNPL service provider instead of building one from scratch, if they are interested in operating their own. “M&A activity is poised to further accentuate prevailing industry dynamics, driven by major retailers seeking the strategic advantages it offers over organic growth,” Murakami noted. Aurexia Singapore director Sebastian L. Sohn graced the event

to talk about the 2023 bank failures in the West, and how it will affect the banking industry in Asia. Earlier this year, America saw three banks collapse: Signature Bank, Silicon Valley Bank, and First Republic Bank. Europe, meanwhile, was rocked with the shotgun acquisition of Credit Suisse by its Swiss rival UBS, arguably making it the biggest bank “failure” of the year. In his speaking session, Sohn outlined regulators’ response to the crisis, and how this may lead to more regulation to tighten banks’ balance sheets, such as imposing higher minimum assets and a greater emphasis on modernising banks’ systems. In an event that authorities decide to introduce new commonequity based capital composition, they may even opt to remove AT1 products. The latter had led to much controversy in the first half of the year after bondholders found their Credit Suisse AT1 bonds basically useless– a total of $17b of investors’ money, all rendered moot in a blink of an eye. Banks are called to take note of lessons learned during these events, for future strategy and business model decisions​. The failures also highlighted the need for lenders to reduce concentrations, review their liquidity and interest rate risk management​, and adopt better stress testing and recovery planning​, according to Sohn. Inclusion and access Mazars’ Athreya HD, partner for financial services advisory, led a panel session on how fintechs are accelerating financial inclusion and access to banking services. Funding Societies CEO Kelvin Teo; Finaxar co-founder and group CEO Sian W. Tan and Validus co-founder and executive chairman Vikas Nahata joined Athreya on stage to discuss the role of fintechs in disrupting the traditional banking pathways and opening up new ones, breaking down the barriers to entry for the underbanked and underserved. Back at the tech track, David Fergusson, CEO of Atlas Consolidated Pte Ltd., delivered a panel on how open banking will impact the financial players. Fergusson highlighted the billiondollar opportunity present in open

Gary Murakami

banking and embedded finance, calling it “one of the biggest economic opportunities in finance in decades​.” In particular, Fergusson shared the success of Atlas Consolidated’s HugoHub.The “hub” is mainly used by two of its pioneer services– HugoSave and HugoBank– and offers a “modular” wholesale business experience to clients. Closing the brand and marketing track, EY partner and ASEAN sustainable finance lead Aloysius Fua led a panel discussion on how companies and investors can better connect their sustainability-related expectations and goals. Fua was joined by Citibank’s Rapheal Erasmus, MD & AsiaPacific Head of Sustainability and Corporate Transitions; Standard Chartered’s Eugenia Koh, Global Head, Sustainable Finance Consumer, Private and Business Banking; and Melissa Moi, Head of Sustainable Business, Corporate Sustainability Office, UOB.

Alternative financing space is expected to exhibit the strongest growth of all fintech segments.

An old solution given new life Beyond generative AI use cases, artificial intelligence in itself is of much interest to banks– both as a means to drive customer innovation in the form of products offered, and experiences served. In the event’s AI panel, moderator Fridolin Blumer, CEO & founder of XiXun Asia, asked tech leaders from Security Bank, Standard Chartered Bank, Citibank Singapore, and ANEXT Bank about how they are using AI in their operations to enhance offerings: from regulation, to exploring faster settlements, and offering more personalized services.

Ravi Kanteti

Michèle BouquetKumble

Acquiring a BNPL service provider is better than building one from scratch (Photo from Pexels)

ASIAN BANKING & FINANCE | Q1 2024 25


CASE STUDY: OCBC

OCBC unveils blockchain-powered CBDCs at Singapore Fintech Festival OCBC is aiming to commercialise one or two of its blockchain solutions in 2024.

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BANKING TECHNOLOGY

onference-goers who visited OCBC’s booth display during the Singapore Fintech Festival 2023 were in for a treat: they were the first to get a taste of how the Monetary Authority of Singapore (MAS)’ central bank digital currencies (CBDCs) could be used for instantaneous interbank settlement. Visitors were able to avail of 5 Digital Singapore Dollars from OCBC, which they were then able to spend at the UOB booth. The Digital Singapore Dollars were issued by OCBC and UOB and are fungible across each other. Whilst such digital novelties may seem routine to a country where almost 1 in 2 payment transactions are done electronically, the real magic lies behind the scenes: atomic settlement. Institutions, such as OCBC and UOB in this case, will no longer need to wait days for the transaction to be settled in the back end. It can happen instantaneously. Blockchain expertise What enabled OCBC to build up and become a main participant in Singapore’s CBDC ambitions is its expertise in blockchain technology: from a strong in-house team and blockchain platform, to an emphasis on testing and experimentation. Such a setup and culture have enabled the bank to create a range of use cases, such as tokenised assets and blockchain payments, Metaverse, NFTs, and even document version tracking. Ravindra Kumar, Head of Emerging Technology and Ecosystem at OCBC, shared their plans to further scale blockchainpowered solutions in 2024 with at least one or two of the blockchain projects they featured at the event. “By next year, we hope to at least commercialize one or two of the prototypes showcased during Singapore Fintech Festival,” Kumar said. “Some of the potential areas of opportunities for commercialisation include asset tokenisation, crossborder FX payments, Purpose 26 ASIAN BANKING & FINANCE | Q1 2024

Ravindra Kumar, managing director of Group Technology Architecture at OCBC

In the past, settlement can take days and hours behind the scenes, which we don’t realize. Blockchain, if we do it right, it can mean atomic settlement

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Bound Money and more.” Perhaps one of the precursor technologies to build up to OCBC’s role in helping develop Singapore’s upcoming wholesale CBDCs is its exploration of cross-border FX payments. This was not just built on blockchain but solved one of the biggest issues in blockchain technology right now: interoperability. Interoperability Kumar shared the use case developed between OCBC in Singapore and BNY Mellon from the USA. Each financial institution had their own private blockchain, one in Singapore and the other in the USA, which they tested to demonstrate the interoperability of the two blockchains. “We did a trade, an FX payment, where the two blockchains could “talk” to each other and do an exchange of the money in a transparent, immutable manner. This is one of the biggest problems of blockchain: there are various blockchains, and they don’t “talk” to each other, they are not interoperable today. We wanted to test whether we can interoperate,” Kumar shared. To enable this, OCBC built Blockchain capabilities from the ground up. Now, the bank has its own in-house infrastructure that supports interoperability of blockchain.

Instant and in-house More than interoperability, OCBC’s development of blockchain solutions has formed the pillars in current banking technology available that will allow wholesale CBDC to flourish in the future. Chief of this is instant settlement and clearing. “In the past, settlement can take days and hours behind the scenes, which we [retail consumers] don’t realize. Blockchain, if we do it right, it can mean atomic settlement. You don’t have to do clearing and settlement for three days. It’ll be instant,” Kumar said. Beyond instant settlement, OCBC is also making use of its blockchain technology to support its employees. Kumar shared that employees of the bank have a dedicated online app where they can view, share, and sign documents, all while ensuring that they are viewing the latest copy of the said document. “We first notarize documents on the blockchain. After that, what happens is, when I receive the document, I have my staff app. I can scan a QR code, and it will tell me whether I have the latest document. This is something big and efficient, because we have thousands of documents in OCBC,” he explained.


PROJECT INFRASTRUCTURE FINANCE DEAL OF THE YEAR AWARD-VIETNAM

VietinBank takes home Project Infrastructure Finance Deal of the Year Award - Vietnam The accolade is in recognition of VietinBank’s role in financing the $128m Nam Tien Phong industrial zone and port complex, a project anticipated to attract substantial foreign investment. logistics centres as the launching pad to attract more foreign investment from global players with high standards. Furthermore, with the capabilities to provide a full suite of banking services for the whole value chain of enterprises and dedicated language desks to serve clients from various countries, the bank can extend its offerings of one-stop services to all foreign investors to support their establishment of manufacturing centres within the industrial park complex to business growth and expansion in Vietnam market over time.

VietinBank pioneers in financing major infrastructure projects

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eing a favoured investment destination for international players who seek to diversify the supply chain outside China or capture business opportunities in emerging markets, Vietnam has continuously witnessed huge inflows of foreign investment as a cornerstone of the economy’s growth during recent years. Amongst the key sectors of the economy, industrial real estate and logistics have seen impressive growth as being a crucial factor for Vietnam to attract investments from global players by fulfilling their demand for the establishment or expansion of manufacturing facilities. Hence, to support the growth of FDI enterprises and bolster the country’s economy, VietinBank has been pioneering in financing major industrial infrastructure projects as being the leading local bank with a pivotal role in the country’s economy, boasting a cumulative portfolio of $2.2 billion credit facility granted for industrial infrastructure projects up till now. As a testament to its relentless efforts in supporting vital projects aimed towards elevating the country’s infrastructure, the bank was honoured by the Asian Banking & Finance (ABF) in 2023 with the award “Project Infrastructure Finance Deal of the Year Award-Vietnam”, marking its second year of achieving the award and reinforcing its position as a notable lender in the sector.

Specifically, the deal revolves around the industrial zone and port complex “Nam Tien Phong” situated in Quang Yen Coastal Economic Zone with a scale of 487 hectares and a total investment of up to $128 million by DEEP C Industrial Zones - a leading foreign-invested industrial infrastructure developer in Vietnam, in which VietinBank acts as the sole lender for the project’s first phase. The loan disbursement then will be used to finance reasonable expenses related to the project such as land clearance, construction and infrastructure development of the industrial park and port. Commitment to create the ecosystem and provide one-stop services for FDI enterprises operating in Vietnam. Since this is the first-ever complex containing both the industrial park of world standards and an internal port for international sea freight transportation in the area, the project is highly anticipated to draw in huge investment into the economic zone via strengthening the zone linkage with the global trade and offering critical advantages for newly-established foreign-invested entities in the industrial park complex. The deal also demonstrated the bank’s commitment to fostering the development of an ecosystem for FDI enterprises in Vietnam via financing modern industrial parks and

VietinBank has proven itself as an active player in the sustainable finance market in Vietnam and a companion to assist clients along their energy transition journey

Sustainable finance leadership As a key lender for major urban industrial park projects of notable developers which are in the process of applying ESG standards such as the Nam Tien Phong project, VietinBank has proved itself as an active player in the sustainable finance market in Vietnam and a companion to assist the clients along their energy transition journey. Notably, the project developer Deep C Industrial Zones has been stepping up the adoption of ESG practices for their industrial park projects such as renting client roofs for installing solar panels with an aim to achieving 50% of energy consumption from renewable sources by 2030, promoting recycling of water and developing green buildings in line with LEED standards, which is expected to set the new bar for new industrial parks whilst playing a great role in promoting the sustainable development of the region. Besides financing eco-friendly industrial park projects, the bank has also financed over $2 billion for renewable energy and waste treatment projects, whilst continuing to advance support for energy transition projects of its clients operating across various sectors following the signing of the Memorandum of Understanding promoting ESG in Vietnam with the strategic partner MUFG Bank (the world’s seven largest financing institution) at the COP28 conference in December 2023. About VietinBank Vietnam Joint Stock Commercial Bank for Industry and Trade (VietinBank) is amongst the largest banks in Vietnam in terms of scale and network, with total assets reaching US$79 billion as of June 30th 2023, being listed in the Forbes’ Top 2000 World’s Largest Companies for ten consecutive years. ASIAN BANKING ASIAN ASIAN BANKING AND BANKING FINANCE AND & FINANCE FINANCE | DECEMBER || Q1 Q3 2024 2021 2020 27


OPINION

TOUHIDUL ALAM KHAN The resilience and growth of Islamic banking in Bangladesh

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n recent years, Islamic finance has emerged as an influential instrument for funding economic endeavors on a global scale. Bangladesh, in particular, has witnessed significant growth in the Islamic banking sector, which has played a substantial role in sustaining the nation’s economic landscape. These Islamic financial institutions are pivotal in facilitating agricultural financing, thereby enhancing food security, fostering the growth of the financial sector, and promoting broader financial inclusion. This comprehensive review of 2023 highlights the remarkable strides made by Islamic banking in Bangladesh, shedding light on its market presence, impact on employment, and contributions to the nation’s reserves. Evolution of Islamic Banking in Bangladesh Over the span of four decades, Islamic banking in Bangladesh has made remarkable strides, securing a substantial market presence. Shariah-based banking commands significant market shares in various sectors, with a breakdown as follows: 26% in deposits, 26% in imports, 24% in exports, 39% in remittances, 27% in industrial finance, 17% in agricultural investment, and 38% in Cottage, Micro, Small, and Medium Enterprises (CMSME) investment. These impressive market shares underscore the growing preference for Islamic financial products and services in Bangladesh. It reflects the trust placed in the principles of Shariah compliance, which not only align with religious beliefs but also offer financial stability and ethical investment opportunities.

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MD. TOUHIDUL ALAM KHAN Additional Managing Director and Chief Credit Officer The Premier Bank PLC Bangladesh

Contribution to employment Islamic banking has played a pivotal role in creating employment opportunities for approximately 120 million individuals in Bangladesh. This is a significant social impact, as employment generation is vital for the country’s economic development and poverty reduction. The Islamic banking sector has become a significant contributor to job creation, which is a testament to its broader socio-economic significance. Notably, Islami Bank Bangladesh Limited (IBBL) stands out with its remarkable contribution of US$12 billion to the nation’s reserves since its establishment. This demonstrates the financial strength and stability of Islamic banks in the country, which is essential for maintaining economic resilience and growth. Corporate Social Responsibility (CSR) Within the banking sector, Shariah-based banking accounts for a significant 50% share of Corporate Social Responsibility (CSR) initiatives, with Islami Bank

28 ASIAN BANKING & FINANCE | Q1 2024

Bangladesh (IBBL) alone contributing an impressive 29% to this noble cause. This reflects the commitment of Islamic banks to give back to society and support various community and welfare programs. These CSR efforts encompass a wide range of activities, including education, healthcare, poverty alleviation, and environmental conservation. By actively engaging in these initiatives, Islamic banks are not only contributing to the well-being of the community but also fostering a positive image of the industry. Market share growth Presently, Islamic banks command a substantial market share, accounting for 25.81% of total deposits and 29.20% of investments. According to data from the Bangladesh Bank, these figures have shown significant growth since 2017, increasing 2.68% and 5.39% from 23.13% and 23.81%, respectively. This steady growth is a testament to the increasing popularity and acceptance of Islamic banking in Bangladesh. It reflects the confidence that individuals and businesses have in the principles of Shariah-based finance. The growth in deposits and investments also indicates the sector’s resilience and stability in the face of economic challenges. Potential for further expansion The central bank’s report on Shariah-based banks highlights the potential for the broader Islamic financial industry, including the Islamic capital market, Takaful (Islamic insurance), and the microfinance sector, to thrive systematically if supportive policies are adopted and effectively implemented. Bangladesh Bank’s initiatives, such as the Mudarabah Liquidity Support (MLS) program and the Islamic Banks Liquidity Facility (IBLF), are crucial for ensuring the stability and resilience of Islamic banks. These measures address liquidity management and bolster the financial system of Shariah-compliant banking. Government support and policy initiatives In response to the growing public demand for Islamic finance, the Bangladesh government and regulatory authorities have implemented various Islamic monetary policy tools to effectively manage liquidity within the Islamic Banking System. One noteworthy initiative is the ‘Bangladesh Government Islamic Treasury Bill (BGITB)’, which has been introduced to facilitate funding for Islamic finance, with Bangladesh Bank acting as the government’s representative. The absence of dedicated legislation is a gap that needs to be addressed.


ASIAN BANKING & FINANCE | Q1 2024 29


OPINION

ROBIN WONG

How open finance transforms emerging economies like the Philippines

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n the Philippines, the Bangko Sentral ng Pilipinas (BSP), in collaboration with the International Finance Corporation (IFC) and the World Bank (WB), unveiled the Open Finance PH Pilot last June of this year – a monumental milestone in the establishment of an open finance ecosystem within the country. The innovative notion of open finance has the potential to change the financial landscape in countries such as the Philippines. With approximately 70% of Filipinos still unable to access formal financial services, the Open Finance PH Pilot appears to be a ray of hope, a catalyst of change capable of bridging the gap and extending access to financial services to people who have long been unbanked and underserved, while encouraging greater collaboration among financial institutions. Empowering through open finance At its core, open finance represents a significant transformation in how financial services are accessed and supplied. It is a concept that allows users to share their financial data with third-party providers, primarily fintech firms, in order to gain access to a wide range of new financial goods and services. Open finance delivers critical financial services to the unbanked and underserved, such as savings, payments, loans, and investment opportunities. This significant transformation in the financial environment coincides with heightened sector rivalry, driving innovation and hastening the development of superior financial products and services. This competitive surge benefits consumers through improved offerings, cheaper pricing, and higher service quality. Facilitating credit access One of the most appealing characteristics of open finance is its ability to democratize credit. Consumers may now obtain loans with greater ease and at cheaper interest rates than traditional banks, making it a powerful economic growth and stability stimulus. Furthermore, open finance provides users with a comprehensive perspective of their financial landscape by providing a consistent platform for managing assets across several accounts and institutions. This promotes financial knowledge and prudent financial management.

ROBIN WONG Chief Executive Officer Mocasa

Encouraging financial innovation Open finance naturally promotes innovation in financial sector. Fintech firms now have the ability to create

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custom financial products and services that address the specific demands of consumers. This, in turn, leads to job creation and entrepreneurial opportunities, which contribute to economic growth. The role of digital payment companies Digital payment companies are essential to the open financial movement. These companies offer digital wallets or e-wallets, which allows customers to store money, conduct transactions, and access a variety of financial services via their mobile devices. By adhering to open finance principles, digital payment providers provide consumers with a wide range of financial options that outperform traditional banking experiences. For example, our company, Mocasa, the Philippines’ first virtual credit wallet, can make microloans available to customers who might not be able to get a loan from a regular bank owing to a lack of credit history or assets for collateral. Furthermore, in an age when every transaction can be recorded and traced and transparency is essential, access to credit scores is critical for consumers so that they may manage their creditworthiness more skillfully and make educated and informed decisions. As an authorized Accessing Entity (AE) of Credit Information Corporation (CIC), Mocasa users can now gain access to a wide range of financial services, including personalized credit reports, credit scores, and credit monitoring. Mocasa and CIC are set to redefine credit management and payment solutions by combining our strengths and skills, resulting in financial empowerment and inclusivity. In conclusion For growing economies like the Philippines, open finance represents a massive opportunity. It has the potential to provide greater access to financial services for the unbanked and underserved while also driving innovation and competition in the financial sector. Digital payment companies play a crucial role to this as they are the architects of this shift, providing consumers with a broad array of financial products that extend beyond the traditional banking landscape. As emerging economies embrace open finance concepts, they are not just boosting financial inclusion but also igniting economic development and prosperity engines. Empowerment, innovation, and the promise of a more inclusive and successful financial future for all characterize this transformative path.


ASIAN BANKING & FINANCE | Q1 2024 31


OPINION

DANIEL WU & PAT PATEL

Plotting a roadmap to a thriving digital finance ecosystem

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his past November marked the 8th anniversary of the Singapore Fintech Festival (SFF), which has grown more than sixfold since its first year to host 62,000 participants from over 115 countries this year. SFF’s explosive growth reflects not only the breakneck pace of growth in the fintech space, but also the deeper integration of digital financial services (DFS) into the everyday lives of many more regular users. Recent disruptions in DFS systems in Singapore have been brief, but impactful—demonstrating the vital role such systems now play in the daily lives of Singaporeans. With the growth of DFS as a key element of the everyday lives of more users here and across the region, it is vital that the infrastructure supporting these technologies remains robust and resilient while providing strong foundations for innovation. In light of this, three pillars will become increasingly important to the growth of DFS across the Asia-Pacific (APAC) region: Resilient Architecture, Enabling Policy, and Novel Industry Collaborations. These pillars will drive the development and adoption of cutting-edge technologies, fostering evolution while ensuring that new technologies can be rolled out reliably to meet the needs of new users.

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DANIEL WU Head of Financial Services, Public Policy, Asia Pacific Amazon Web Services PAT PATEL Executive Director Elevandi

Catalyzing Resilience for Innovation One mechanism for making DFS more resilient is through robust Know Your Customer (KYC) systems. KYC systems within the financial services sector help institutions remain vigilant to fraud, corruption, and money laundering activities, improving reliability and safeguarding the funds and data of users. With the rise of digital financial services (DFS)enabled mechanisms like peer-to-peer transactions such as Singapore’s PayNow, strong KYC systems instill confidence in the integrity of financial transactions, and promote the adoption of more varied financial products. Currently, financial institutions bear responsibility for KYC verification processes for each new customer. This means users must repeatedly undergo time-consuming identity verification procedures for different financial service providers. While these procedures are vital, they can inadvertently pose hurdles to user engagement. Increasingly, though, new technologies like artificial intelligence and machine learning can generate more comprehensive customer profiles, reducing user friction while improving accuracy and efficiency. Governments are taking notice of these trends. Today, national ID systems using these new technologies greatly strengthen KYC processes across the board and streamline access to DFS. A national ID system provides individuals with unique, government-verified digital identities that can be used to access a wide array of

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services, including financial ones. An example of a National ID system is Singapore’s Singpass program. Developed and deployed as part of Singapore’s National Digital Identity framework, Singpass operates as a service layer application that is usable across different government agencies, allowing software applications across agencies to share a central digital identity gateway, thus reducing costs and complexity for users. Due to the integration of Singpass into the DFS ecosystem, more Singaporeans than ever before have easy and secure access to many financial products and digital services. To date, Singpass is used by 4.5 million users in the city-state—or almost 97% of the eligible population—executing 350 million transactions a year to access more than 2,000 public and private sector services. Similar systems across the region, including India’s Aadhaar program are even more directly integrated into the DFS ecosystems of their countries—with Aadhaar being used by the Indian government to help its massive unbanked population rapidly gain access to financial services. Enabling policies drive technological shifts As DFS adoption grows and systems evolve, enabling policies will become ever more important. Such policies should strike a balance in allowing financial services to embrace technologies they need to grow, while still providing clear guidelines on implementing necessary safeguards. For example, governments may seek to guide the use of cloud services within the financial sector by developing cloud implementation guidelines or outsourcing guidelines. Such guidelines would establish safeguards and procedures to help the financial sector adopt cloud technologies successfully. An example of such a guideline is the “Cloud Implementation Guide 2.0 for the Financial Industry in Singapore”, developed by the Association of Banks in Singapore (ABS), which provides a framework for cloud service provider assessment and provides guidance on entering a cloud outsourcing arrangement. By providing clear directions for banks and cloud service providers to follow, such guidelines empower more banks to innovate using cloud computing, to boost the security and reliability of their DFS systems, while creating better, more tailored, and more reliable financial products for users. This has been what has allowed TNEX, Vietnam’s first digital-native bank, to pursue a cloud-default approach to designing their banking services, allowing them to enrol 250,000 retail customers and 20,000 SMEs in their first year, after a setup period of only nine months.



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