JUNE 2017 ISSUE
THE ASIAN BANKING MONITOR w www.rfigroup.com t twitter.com/RFiMediaGRB
ECONOMIC & REGULATORY
PRIORITY & PRIVATE BANKING
15 Fears of heightened capital controls prompt Yuan outflows
18 Bank Mandiri expects sharp drop in bad loans
25 Disclosure rules on fees for wealth managers in Asia
Welcome to the June 2017 edition of the Asian Banking Monitor – a newsletter designed to give you a quick update on news and trends within the Asian banking market. We cover movements in all areas of the market – economics and regulatory, retail banking, priority and private banking, and technology. This month China made headlines from a regulatory standpoint where increased capital outflows to Hong Kong may bring the financial hub’s foreign exchange currency operators under the spotlight and potentially trigger new rules governing their use. In technology-related developments low-cost carrier Jetstar announced a partnership with DOKU an Indonesian payment platform to facilitate ticket issuance through the DOKU e-wallet. The focus of our insights piece examines the prevailing competitive landscape that exists across the retail banking landscape in Asia. Expectations of consolidation across key markets will likely continue as
banks strengthen balance sheets and protect market share. The role of fintechs will also come under review as potential targets of acquisition by the established lenders in the market. Finally, on the retail banking front Korea’s first and only internet based bank K-Bank made its presence felt by attracting almost a quarter of a million customers under a month. In the priority banking space Singapore’s DBS decided to tap the growing Indonesian wealth market through their service offerings as the country’s tax amnesty revealed new opportunities to service on-shore assets. Kind regards,
Mobasher Zein Kazmi Editor/Research Director – Asia email@example.com D +65 6597 7027 I M +65 9035 6307
CONTENTS JUNE 2017
06 RFi GROUP INSIGHT Banking in Asia: survival of the fittest
09 SPECIAL FEATURE Going beyond omnichannel Unisys Roundtable
ECONOMIC & REGULATORY
Fears of heightened capital controls prompt Yuan outflows
22 TECHNOLOGY Hong Kong fintech company launches robo advisor app
Bank Mandiri expects sharp drop in bad loans
PRIORITY & PRIVATE BANKING Disclosure rules on fees for wealth managers in Asia
RFi GROUP JUNE STA TEN SELECTED STATISTICS FROM DAILY STATS ON RFi GROUP WEBSITE (www.rďŹ group.com)
UK In the UK the average age of a first-time home buyer is
57% of UK consumers
would be very comfortable (8+/10) using a digital-only bank with no branch access
c t w
41% of Canadian
consumers are open to trying biometric payments if made available to them
24% of consumers in
Mexico are planning to take up a credit card in the next 6 months
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47% of urban banked
consumers in India have used biometrics in the course of managing the financial products or making purchases
ATISTICS HONG KONG
64% of urban banked
23% of banked consumers
consumers in China consider the concept of a mobile wallet highly appealing
in Hong-Kong consumers have used live chat services with a virtual assistant
20% of Taiwanese
banking customers find having a stable family life their most important financial goal
21% of Kiwis
would be likely to use biometric payments if they are available
AUSTRALIA Within a typical month in Australia, an average of
35% of credit card
purchases are made online TABM - RFi MEDIA 05
RFi GROUP INSIGHT
BANKING IN ASIA: SURVIVAL OF THE FITTEST WORDS ANDREW KIM, RFi GROUP
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RFi GROUP INSIGHT
MAIN BANK MARKET SHARE OF TOP 4 BANKS Average
Main bank market share of top 4 banks
40% 20% 0% Singapore Indonesia
Source: RFi Group Asia Retail Banking Council 16H2
sia is one of the most competitive regions when it comes to its retail banking industry, with many banks in the region facing declining earnings and net interest margins (NIMs). Though NIMs are traditionally higher than more developed parts of the world, margins are expected to continue to fall due to tight competition, low global rates, asset quality cycles, and other variables across the region. However, it is one of the key pockets of high growth in the world, and banks will need to do what it can to stay in the game. The high barriers to entry to Asia’s banking industry make it tough for new players to gain any traction as operating in Asia comes with registration, incorporation and compliance costs as well as regulatory burdens. When looking at the market share of main bank relationships held by the top banks in each country, it is quite oligopolistic in nature. On average, the top 4 banks account for around 7 in 10 main bank relationships, with Singapore’s banks leading the way with a dominating 94%. Like many of the banking markets in Asia, state ownership of banks helped propel incumbents like DBS, formerly known as The Developmental Bank of Singapore, race ahead to build a market dominant position in the market. Its advantageous position was on full display when it acquired Société Générale’s private banking arm in Singapore back in 2014, and more recently, as it bought Australia and New Zealand
Banking Group (ANZ’s) businesses in Singapore, Hong Kong, China, Taiwan and Indonesia. Not to be outdone, OCBC has also acquired National Australia Bank’s (NAB) retail and wealth businesses in Singapore and Hong Kong.
On average, the top 4 banks account for around 7 in 10 main bank relationships, with Singapore’s banks leading the way with a dominating 94%. ANZ wasn’t the only bank to struggle in Indonesia, where the top 4 banks take up 85% of the main bank relationships. Back in 2013 DBS failed to acquire a majority stake in Bank Danamon as the deal fell into a regulatory black hole with Indonesian officials reluctant to open up to foreign banks, especially as Singapore was not willing to reciprocate. Traditionally foreign banks are not allowed a controlling stake which has seen the likes of Standard Chartered hold onto a 45% stake in Bank Permata. There are a few mergers in the pipeline as China Construction Bank (CCB) has been approved to buy a majority stake in Bank Windu which looks to merge with Bank Anda. We also expect to see the full effects of HSBC’s merger with Bank Ekonomi in 2017.
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RFi GROUP INSIGHT
Hong Kong has also been a hotbed of corporation action as banks hustle to dent the 84% share of main bank relationships held by its Big 4 banks. OCBC got its foot in Hong Kong acquiring Wing Hang Bank in 2014. More recently, Bank of China Hong Kong (BOCHK) completed the sale of its stake in Nanyang Commercial Bank in 2016, and is also looking to dispose of its stake in Chiyu Bank. In the Philippines, East West Banking Corp took over some of Standard Chartered’s local operations in 2016 and is rumoured to be looking to sell a 20% stake to a strategic investor this year. This is off the back of rival group, Security Bank Corp which sold a stake in 2016 to Mitsubishi UFJ Financial Group, Japan’s biggest bank and now allows their respective customers to conduct certain cross-banking transactions without worrying about the remittance costs and tedious transfer process. Malaysia almost saw a blockbuster merger back in 2015 where a deal which proposed that CIMB, RHB Capital and Malaysia Building Society (MBSB) get together to overtake Maybank as the largest bank by assets got scrapped due to unfavourable market conditions. In Korea, HSBC had washed its hands from the retail and wealth management operations a few years ago, as its attempt at organic growth wasn’t as sustainable as Standard Chartered’s acquisition of Cheil Bank, or Citibank’s takeover of KorAm Bank. In 2015, Hana Bank merged with Korea Exchange Bank to become KEB Hana which made it Korea’s largest lender by assets. Thailand has proved to be a difficult retail banking market
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to conquer for Standard Chartered, which plans to transfer its retail banking business to Thailand’s Tisco Financial Group this year while continuing its wholesale businesses. The competitiveness of the market and lack of scale made it difficult for Standard Chartered to achieve the returns it wanted.
Even as Asia proves to be a difficult environment to survive, competition will only heighten given the positive growth forecast compared to other parts of the world. Even as Asia proves to be a difficult environment to survive, competition will only heighten given the positive growth forecast compared to other parts of the world. Untapped spaces in digital commerce and finance have paved the way for new banking licenses to internet only banks in Korea and microfinance companies in India. China’s consumer finance and payments has been dominated by Alibaba and Tencent as mobile payments and wallets looks to displace cash in the region. Though the banks still dominate, it looks like the scene is set for more mergers and acquisitions in the region as banks look for synergy and operational efficiencies. Not only will banks look at financial companies but they will be forced to look at technology companies for innovation as they keep their focus on brand and reputation.
OMNICHANNEL UNISYS ROUNDTABLE WORDS CHRISTINE ST ANNE
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he pace of change in technology continues unabated. Innovations such as artificial intelligence, robotic advisers, and predictive analytics are now nearing mass adoption. At the same time, banks are operating in a competitive, low-interest environment. Against this environment, the focus on cost-to-income ratios and return-on-equity has increased substantially while compliance requirements are increasingly stringent. In Asia, just as Australia, traditional banks are being disrupted by non-bank entrants who cherry-pick high value, specific products and service areas. In addition, customers’ expectations are continuing to evolve, putting them in the driver’s seat when it comes to choosing their banking needs and services. Banks around the world have responded to this challenge by adopting a more piece-meal approach, adding additional complexity to their IT systems. However, RFi Group data suggests that a customer is considered to have chosen a bank as their main financial institution once they have 3.8 products with a particular financial institution and this suggests that the banks need to adopt an omnichannel approach. Other studies have shown that while 96 per cent of banks believe that the way forward is a unified digital ecosystem, only 13 per cent of them see their core systems and other systems as ready to deliver such an ecosystem. As a bank where do you start? How do you know which technologies to bet on? How can you add the new technologies to your existing ecosystem without ripping it up and starting again? These pertinent questions were the basis of a wide-ranging discussion with key bankers in Malaysia. The issues discussed were certainly relevant to banks around the world including Australia. RFi Group’s Gerald Ferguson set the scene by providing an overview on the
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developing interaction between banks and their customers and what they now expect from their banks. Taking a global perspective, the heightened geopolitical risks will also have an impact on the banking and customer relationship. “We’ve seen Brexit, and the election of Trump (which we won’t spend today talking about). While that doesn’t necessarily have a direct impact on somebody banking in Malaysia, it does have is an impact on how they think about their banking relationship,” Ferguson said. According to Ferguson, challenges remain around product differentiation and price. “So understanding me as a customer and then giving me the right kind of channel to bank through, whether that’s a priority channel or a preferred channel or a mass market channel, the way you as a bank interact and the information that you can get out to your customers becomes all the more important,” he said.
For a long time, banks just pushed product. They were like a factory. Ian Selbie, Solutions Director, Global Financial Services Unisys
Having chalked up over 30 years’ experience in Asia including 20 years in banking solutions, Unisys solutions director, global financial services, Ian Selbie delved into his rich history in banking to give a view on just how far banking has evolved – even making a reference to his vintage by acknowledging he knew Ferguson’s father! “For a long time, banks just pushed product. They were like a factory. I’ve heard bankers talk about themselves as a factory.” Selbie said. He acknowledged the role of the bank manager, however, and in his case, Selbie highlighted
examples of how his bank manager would help him plan his finances by suggesting for example, to upgrade his car to save on repairs. However, technology has changed the way banks can assist their customers, in ways that go beyond the advice provided by traditional bank managers.
Customer experience is about taking into consideration all interactions a customer has with their bank - and moulding the banks’ solutions to that insight. Ian Selbie, Solutions Director, Global Financial Services Unisys
“With smart technology it’s not just about selling products but actually finding out what the customer needs by fitting in with the customer’s life events, goals etc. Customer experience is about taking into consideration all interactions a customer has with their bank - and moulding the banks’ solutions to that insight,” Selbie said. Therefore, it is no longer about selling products, rather technology has enabled banks to engage better with their customers by providing solutions such as suggesting a term loan would be better than a cash advance. Selbie was also careful to note that the concept of channels should not be about silos, rather it is about ‘bridging the silos’. “We’re trying to use technology to bridge technology silos, but it’s not just about technology it’s about all the people and end to end processes involved,” Selbie said. Navigating the channels As head of digital innovation and strategy for Maybank, Remy Khoo’s primary task is to consistently grow the bank’s business year-on-year through innovations and improving
the customer experience. He does this through promoting the omnichannel to customers rather than through the traditional channel approach. This gives him an interesting perspective on the silo banking structure versus the channel approach particularly in terms of customer engagement. Echoing Selbie’s views, Khoo said that “essentially it’s all about how the customer engages with us, the bank”. “Back in the day when there used to be no digital channels, you had very good relationship with your branch manager. The branch manager essentially became high-end relationship managers. Now more and more people have smartphones. Particularly in Malaysia there is such a high level of internet and mobile penetration, the time is now ripe for digital channels to become the channel of choice for customers,” Khoo said. “Now it’s easy to access products and services from my smartphone rather than having to walk over to the bank branch, or pick up the phone to call the bank’s call centre,” Khoo said. However, even with his digital hat on, Khoo acknowledges that “digital channels are not a pure replacement for conventional channels”.
Particularly in Malaysia there is such a high level of internet and mobile penetration, the time is now ripe for digital channels to become the channel of choice for customers. Remy Khoo, Head, Digital Innovation & Strategy, Maybank
“I am mostly a strong advocate for having a customer journey that encompasses an omnichannel experience. It’s essentially
up to the customer to how he/she wants to engage with us and we need to give them that option, we need to give them that freedom,” Khoo said. Head of marketing at HSBC, Abdul Sani Abdul Murad is tasked with bringing customers into both the digital and traditional “bricks and mortar” channels. In his view, banks need to have the right balance. Just like Khoo, Murad is a fan of digital options, however he sees the importance of complementary channels. “For us, it’s interesting as our HSBC branches in the Asia Pacific region are quite small, but yet we are generating huge income and revenue. You need to find the right balance depending on the segments that your customers are most comfortable connecting with”. CIMB Malaysia’ head of prime business development, Chayenne Tan oversees a large branch network and as such is in a prime position to leverage from the emerging affluent customer in the region. It’s an advantage she understands but it also comes with challenges. “The channel you most advocate for the bank must be done through the voice of the customer. As much as we may want the omnichannel, the major challenge is customer fulfilment. The fulfilment piece is the touchpoint,” Tan said. For Tan, these channels can also be complementary. “When a customer transacts online, when they go to the branch the bank knows what they have done online and they can recommend the right product or services. It’s good use of a customer’s precious time”. However, at the same time, the challenge is that bank staff need to be proactive. “Technology-wise you may be able to provide that service, but people need to be able use that intel. That’s the challenge of having a large network,” Tan said. Tan’s comments highlighted the issue of selling in branches and for many customers and staff this can be a sensitive theme. According to Selbie, some branch staff and tellers feel pressured to sell and perceive incentives to sell negatively. However, customers don’t need to see
bank selling as a negative if the product is relevant. “If you’re going to encourage people to be sales people then give them something specific that they can sell that is relevant to that particular individual. Don’t just tell them to parrot a script,” Selbie said.
The channel you most advocate for the bank must be done through the voice of the customer. Chayenne Tan, Head of Prime Business Development, CIMB Malaysia
With discussions centred around traditional versus digital channels, the obvious next point of discussion was the emergence of “digital-only providers”. The roundtable participants acknowledged that their customers are comfortable with the concept. However, the big question is whether customers use these providers for payments and savings. As RFi Group’s Ferguson noted, Digibank has been quite successful in India. “In comparison, Ferguson said payment adoption in China is relatively high, most notably because of AliPay. “Chinese consumers don’t see AliPay as a fintech. They are used to it and that’s driven the use of AliPay as people are comfortable with it”. From an Islamic banking perspective, digital also plays a key role in delivering for the customer. CIMB Malaysia head of Islamic Banking Group Syahrul Ishak said it’s not a one size fits all model. “You need to segment the customers and how each segment will interact with your channels. You also need to identify the pain points,” Ishak said. He also believes that digital can “reduce the pain points for the banks as well as the customer but branches remain relevant given that even millennials “still walk into a branch”. For RHB Banking Group head of group
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transformation Elaine Lee Siew Hoon, the bank uses both conventional and new channels. For example the bank does provide its customers with an online account opening option but also has conventional branch service option. Fintechs vs banks Maybank Group’s vice president of digital banking Lionel Ho believes the sector needs to step back and in fact “hold the horses” as there are a few myths that need to be dispelled around offering the digital banking experience. In particular, banks must not be taken in by solutions that are built around hype. “Everything old can sometimes be new again. We need the actual solutions and products not the hype. For example, big data and customer relationship management are both the same thing. The list goes one. Sometimes the customer may not even
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Mobasher Zein Kazmi, Jessica Wee and Elaine Lee Siew Hoon
be ready for new solutions or they simply don’t prefer those new things,” Ho said. Just as important, Ho added is that chief executives should not be reactive to any trend that emerges. “Basically, any time somebody sneezes a trend comes onto the CEO’s agenda. We are then in the danger of developing a system that we already have,” Ho said. This issue of the sustainability of fintechs emerged following Ho’s discussion being captive to emerging banking trends. While many fintechs are successful a few have left the market, a development of particular note in China’s peer-to-peer lending market. So how sustainable are these fintechs and the new banks? Ferguson used an analogy about fintechs and new banks versus traditional banks, adding that the banks were like oil tankers while the newer entrants were
like jet skis. “Traditional banks are slow and take a long time to turnaround. They are very stable and have a lot of people and customers on board. The jet skis are very nimble and they’re jumping across the bows of the tankers. Some of those will crash quite spectacularly and quite quickly, but eventually there will be a small quorum of jet skis who will start heading in one direction and that will allow for tankers to manoeuvre themselves into that direction,” Ferguson said. “To me that’s where a lot of your mindsets sits at the moment in terms of needing to be relevant, having the right product, providing a good digital experience, but not needing to be marketing leading from a digital experience perspective,” Ferguson said. However, being market-leading can
come with risks and sometimes banks need to be prepared to sometime fail in their attempts at innovation, according to Tan. Although it’s not a product she is responsible for, Tan highlighted the example of CIMB Malaysia’s chat banking app. “It was a risky move,” said Tan, furthermore there were some negative reviews on the app. However, after improvements, the app’s functionality improved and the team were even given an award. CIMB Malaysia’s business development head of preferred banking and segments CIMB Malaysia business development head of preferred banking segments Jessica Wee also echoed Tan’s view. “If you don’t innovate, then you will never know. That is why many companies have innovation departments. We don’t have an innovation department but we do have a strong innovation team in our banking business. We are also seeing banks setting up various innovation and fintech teams that are looking at ways to invent products and solutions that customers actually want. We should really be brave and try things out,” Wee said.
If you don’t innovate, then you will never know. Jessica Wee, CIMB Preferred, Business Development Head, CIMB Malaysia
The ability of banks to embrace new technologies also comes down to their approach to revamping their core banking systems. “There are plenty of banks that haven’t changed their core banking systems in 30 years or even longer,” Selbie said. “If I look at internet banks, especially in mobile banking, the banks that I know that are doing well have actually changed their platforms two or three times in ten years, maybe even more. In fact they’re making adjustment every month so their whole approach to the way they’re using that technology is completely different,” Selbie said.
Put simply, banks have to be more agile, according to Selbie. “You have to take a more agile approach and use technology that allows you to refresh your systems. Even if you don’t want to lead on core bank transformation, you still have to be slightly nimble,” Selbie said. Tan acknowledge that view but also noted the big banks face bigger challenges and it’s very hard to be agile. “There are so many moving parts in our tree that often you can’t move everything together at once,” Tan said. Often too banks have to spend a lot of money to address even the simple parts of their technology systems. Selbie likens this conundrum to a “two speed” approach to information technology in banking. “You have to try and leave those legacy systems alone and do the things on the frontend,” Selbie said. Similar to the two speed IT approach are the traditional IT processes, according to Maybank Group’s Ho and “obviously, that has its own roadmaps and own processes”. “However, we have dedicated innovation teams that help us test concepts,” Ho said. With these prototype teams, Selbie asked the panel of bankers about how quickly they take these concepts to be used in the wider banks. “Once you test it in your branches and decide to take it further, do you have a challenge to move it over to the traditional legacy processes and wait a year before it is actually rolled to the whole bank?”, Selbie asked. For Maybank’s Khoo it’s not about trialling something for the sake of it. “When we trial something, it actually involves a lot of users. Whether it’s something worthwhile doing or something that we need in order to improve the customer journey,” he said. In essence, it’s really about the whole experience and not just playing with the technologies. Khoo’s colleague, Ho also acknowledged the importance of having “established partners” in any innovation project. “Relying on purely internal resources is quite limiting. Having a strong partner that can really help us expedite things is important,” Ho said.
Ferguson steered the discussion onto the topical issue of open data, a theme that is growing in importance given the move to PSD2 in Europe and the United Kingdom. Even in Australia, the Federal Government has given the green light for an open banking framework as part of its announcement in the May budget. This initiative will of course pave the way for data-sharing. Key to the success of data sharing and open banking is consumer trust and who owns the data. Ferguson highlighted the important role banks will play in a brave new open data world. “When we asked customers about who owns the data and the concept of sharing data, 60 per cent expected banks to be responsible for ensuring the safety and privacy and security of that data,” Ferguson said. The digital proposition “Even though banks may go into partnerships with fintechs or third-party providers, that trust still falls back to the bank because they’re the people that they know are going to be around,” Ferguson said.
Even though banks may go into partnerships with fintechs or third-party providers, that trust still falls back to the bank because they’re the people that they know are going to be around. Gerald Ferguson, general manager, Asia Pacific, RFi Group
For Ferguson, this could emerge as an issue if banks encourage their customers to go digital and use their ominchannels. The question then becomes, how much of the bank has to be included in the digital proposition and how far down the road in the partnership before they start
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to lose the ability that the customer still trusts them? “I think it’s important when thinking about driving digital and driving channel experience that you don’t want to go too far down the route where you have created a new brand. Maybank is still very much digital driven by Maybank. Ubank in Australia is powered by National Australia Bank. In these examples, the banks still use that trust aspect and expect that partnership aspect to continue,” Ferguson said. He highlighted an example of Bank Mobile in the United States who ensured the trust of the customer throughout the digital interaction with the bank. Bank Mobile was very keen to make sure that customers could open an account within three minutes on their mobile. But the first thing Mobile Bank did when they were designing their app was to make sure that on every page there was a telephone button that customers could press should they want to talk to someone. This gave customers the option to go through to a call centre where the bank could fix whatever went wrong. “This example highlights the importance of giving customers the safety of the brand,” Ferguson said.
Some fintechs are getting a level of trust, but they’re not going to have that breadth and level of faith. Ian Selbie, Solutions Director, Global Financial Services Unisys
Trust is also an advantage banks have compared with the emerging players like the fintechs, a point highlighted by Selbie. “Some fintechs are getting a level of trust, but they’re not going to have that breadth and level of faith,” Selbie said. Another advantage for banks highlighted by Selbie is their ability to provide end-to-end solutions. “One of the things that customers expect of a
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bank is not just that end-to-end process but end-to-end service. AliPay can do my payments but I’m not going to go to AliPay for a mortgage. I will go to the bank for savings account, current account, credit card, mortgage, personal loan, unit trusts and most of the banks that I know of can provide that service,” Selbie said. Here trust again plays a role. “There’s a level of trust in using those services. I trust the banks for one thing and the more I transact with them - as long as they don’t breach that trust - the more I’m going to continue to trust them. That’s something that the traditional banks still have that the fintechs are nowhere near to having,” Selbie said. The panel was also keen to discuss emerging trends and themes outside of Malaysia. For RFi Group’s Ferguson, the maturity of the affluent banking segment in Malaysia still lags behind Singapore and Hong Kong. “Here (in Malaysia) it is a little bit more around the product and the service. Whereas we look at markets like Hong Kong and Singapore where it’s an advanced priority market, so they expect more from their relationship managers. They expect more from the engagement from the bank and what they start to look for is not just the product and the service and giving them a better rate or quote. It’s about recognising a total customer. It’s reward me. I think banks in Singapore and Hong Kong actually struggle to communicate to their customers how much they are actually rewarded already,” Ferguson said. The roundtable also discussed the fact that the affluent customer can also be a business customer or an international banking customer. “Understanding the different facets of an affluent customer and catering to them as a one-stop shop is really, really important and a huge opportunity I think in the ASEAN markets,” Ferguson said. Indeed, the banks present at the table have vast knowledge and experience in understanding their customer and recognising that they are much more
mobile and internationally focused, particularly in Malaysia, Indonesia, Thailand, and Vietnam.
Understanding the different facets of an affluent customer and catering to them as a one-stop shop is really, really important and a huge opportunity in the ASEAN markets. Gerald Ferguson, general manager, Asia Pacific, RFi Group
“There is now a huge number of emerging middle classes that are travelling more and are keen to hold money offshore in safe havens effectively,” Ferguson said. “You are already recognising those customers and providing them with the products and services they need. But the benefit you give them is all your knowledge across all of the banking products and eventually you will become a one-stop solution. That for me is a trend that I would imagine will grow more and more as this market becomes more sophisticated in terms of understanding the customer and what they can get from the bank.” For more information about how Unisys can help your bank with creating and securing an omnichannel experience, please contact Ian Selbie on: firstname.lastname@example.org. This article is also featured in June edition of AB+F (Asia-Pacific Banking and Finance) magazine in Asian Banking section.
ECONOMIC & REGULATORY
Economic & Regulatory
Fears of heightened capital controls prompt Yuan outflows WORDS EUNICE KOH
HOW CONCERNED ARE YOU ABOUT THE CHINESE ECONOMIC OUTLOOK AFFECTING YOU OVER THE NEXT 12 MONTHS? Total market 1 - Not at all concerned
o offset capital outflows partially due to expectations of a weakening Chinese Yuan, the government put in place stringent capital controls which aims to closely monitor the foreign currency transactions and restrict purchases of insurance products in Hong Kong. These measures to retain its currency onshore have sparked fears and uncertainties, prompting quicker offshore transfers of Chinese Yuan as well as boosting illicit financial flows through underground banking and fake trade invoicing. According to RFi Group data, about 46% of Chinese banked consumers were very concerned about the impact of the Chinese economic outlook. Among those who banked offshore, investing or maintaining savings in sound banking environments (e.g. to avoid local currency devaluations and banking instabilities) is one of the top reasons why they hold banking products overseas. While money changers and remittance providers stand to benefit from the surge in offshore Yuan transfers, some are seeking to increase profits from other currencies for fear that the government will enact further capital controls.
2 5 - Very concerned
60% 40% 20% 0%
Source: RFi Group China Retail Banking Council (H2 2016)
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ECONOMIC & REGULATORY
ADB revises 2017 growth forecast for Vietnam WORDS EUNICE KOH The Asian Development Bank (ADB) has recently increased its 2017 growth forecast for Vietnam to 6.5% from 6.3% and expects economic growth to further strengthen to 6.7% in 2018 thanks to rising activity in the manufacturing, construction, trade as well as banking and tourism. The country’s growing population, especially the middle-class also helps to boost the economy through overall consumer spend in the retail sector. According ADB, government reformation in the late 1980 through removing trade barriers and abolishing collective farming has brought a positive impact on growth in agriculture, manufacturing and mining in the past few decades while the recent campaign on tourism has been increasing the number of foreign
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tourist arrival which further boost the country’s overall economy. While the figures have been positive, the concern on stronger overseas competitors and worsening global climate remains. Being a country in which agriculture accounts for one-fifth of Vietnam’s gross domestic product, the sector holds an important role in the economy’s performance as well as employment rate. As of 2005, around 60% of Vietnam population were involved in agriculture, forestry and fishing. The government continues to develop more policies and take actions to address issues in adopting sustainable resources management practices, post-harvest processing as well as developing rural infrastructure to keep its positive outlook.
ECONOMIC & REGULATORY
Philippines shifts towards EMV technology
WHEN CHOOSING TO MAKE PAYMENTS IN STORES, WHAT ARE YOUR TOP CONSIDERATIONS? Top 5
WORDS GRACE CHIA The central bank of the Philippines passed the mandate for banks to migrate from magnetic stripe technology to Europay, Mastercard, and Visa (EMV) technology in August 2013. The migration is estimated to be of 90% completion as of recent, with about 76 million cards awaiting replacement. EMV is a global standard for chip-based debit and credit card payments. As magnetic-stripe cards store static data, fraudsters can easily replicate stolen data on traditional cards. However, unlike magnetic-stripe cards, EMV chips generate a unique transaction code for every transaction, rendering it harder for fraudsters to replicate any sensitive information. EMV chip cards are therefore more secure than magnetic-stripe cards. RFi Group data shows that 34% of retail banking customers in the Philippines regard security as their top consideration when making in-store payments. Overcoming payment security concerns is key in the countryâ€™s shift towards a cashless society.
Speed of transaction being processed by the merchant / retailer while you wait
Source: RFi Group Philippines Retail Banking Council (H2 2016)
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Retail Banking Bank Mandiri expects sharp drop in bad loans WORDS BOON SIONG TAN
tate owned bank, Bank Mandiri is increasing its restructuring and asset sales to reduce bad loans and cut its provisions for bad loans this year. At the end of 2016, 24.6 trillion rupiah is used for these provisions, more than twice the 12 trillion rupiah a year ago. The bank aims to cut its bad loan provisions to approximately 16 to 18 trillion rupiah this year.
At the end of 2016, 24.6 trillion rupiah is used for these provisions... The bank aims to cut its bad loan provisions to approximately 16 to 18 trillion rupiah this year.
MOST IMPORTANT BANKING RELATIONSHIP Top 3 60% 50%
Bank Mandiri is also positive about the market for crude palm oil, a commodity which is used to make soaps and chocolates. While the European Parliament calls for a restriction in the use of the commodity, the bankâ€™s clients are increasingly serving the needs of other markets such as India and Africa and diversifying their exports.
40% 30% 20%
Source: RFi Group Commercial Banking Council (H1 2016)
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Gross non-performing loans, the sum of borrowed money upon which the debtor has not made his scheduled payments for at least 90 days, is expected to fall from 4% in 2016 to 3% of the total loan this year. This will be achieved through better risk management and debt collection system.
Palm has the potential to be part of a large range of retail and consumer businesses and Bank Mandiri plans to step up its lending to the small-scale farmers in this market. According to RFi Group data, Bank Mandiri comes up second as the most important bank to companies in Indonesia whose annual revenue is USD 10 million or above.
Shinhan bank buys ANZ’s retail banking in Vietnam WORDS CHRISTOPHER GOH Australia-based ANZ bank has agreed a deal to sell its retail business in Vietnam to South Korea’s Shinhan Bank Vietnam, with the deal expected to be completed by the end of 2017. This comes as ANZ’s most recent step in its direction of withdrawing from Asia retail banking, as it shifts its focus on institutional banking business in Asia. Shinhan Bank Vietnam is set to acquire approximately 95,000 customers, along with $547 million and $161 million in deposits and lending assets, respectively. The agreement also included ANZ’s eight branches in Vietnam and its retail staff. Both organizations did not disclose the financial terms of the deal, although the Australian bank stated that the sale of the retail business was at a premium to book value, and would not be material to the bank.
Shinhan Bank Vietnam is set to acquire approximately 95,000 customers, along with $547 million and $161 million in deposits and lending assets, respectively.
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DBS replaces physical internet banking tokens WORDS RUSSELL QUAH DBS, Singaporeâ€™s largest bank by assets held in the country will be replacing its old physical tokens with new digital ones, through its Digibank mobile app. Starting in June next year, One-time passwords (OTP) will now be generated through DBSâ€™s Digibank mobile app and the app will be fully upgraded to take over all functions being carried of the existing hardware token. According to the head of Consumer Banking Group Singapore at DBS Bank, Jeremy Soo, the move aims to streamline the banking process for DBS customers while continually driving innovation. Apart from this, replacing the physical token with the digital one could save the bank more than S$12 million in hardware cost. RFi Group data suggests that the percentage of banking customers who use online banking at least once a fortnight are steadily on the rise in Singapore. The step to push digital token will likely increase the level of digital engagement in the country.
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PERCENTAGE OF BANKING CUSTOMERS WHO USE ONLINE BANKING AT LEAST ONCE A FORTNIGHT
60% 40% 20% 0% 16H2
Source: RFi Group Singapore Priority and Retail Banking Council (15H2, 16H1, 16H2)
South Korea launches its first branchless bank WORDS GRACE CHIA South Korea saw its first internet-only bank, K-Bank, being launched in early April. K-Bank operates throughout the day, provides deposit accounts, time deposits and loans with attractive interest rates. K-Bank internet only bank currently has a collaboration with mobile network operator KT Corporation, Woori Bank and 19 other companies. In less than a month since its inception, K-Bank has attracted over 240,000 customers with deposits amounting to nearly 300 billion won.
The Financial Services Commission (FSC) noted that the number of accounts opened with K-Bank has surpassed the total number of non-face-to-face account openings in Korea in the past year, of which this figure stands at 155,000.
South Korea financial regulatory, The Financial Services Commission (FSC) noted that the number of accounts opened with K-Bank has surpassed the total number of non-face-to-face account openings in Korea in the past year, of which this figure stands at 155,000. The FSC has also given its approval for Kakao Bank to begin operations in June. The regulatory body said that it may consider giving out approval for more banking licenses to internet-only banks if the relevant laws are revised.
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Technology Hong Kong fintech company launches robo advisor app WORDS CHRISTOPHER GOH
unfeng Financial Group, a financial service company supported by Alibaba Group has created a mobile investing robo advisor app in Hong Kong, which allow its users to invest in funds with minimal capital. The service app, called Youyu, is dubbed as the second generation of digital advisors and has attracted some big names along with its first batch of products. The big name funds available and included on the app are from AXA Investment Managers Asia Limited, Franklin Templeton (Asia) Limited Pimco Asia Limited, and T.Rowe Price Hong Kong Limited.
Youyu is dubbed as the second generation of digital advisors and has attracted some big names. Youyu said its robo advisor differentiates from others on the market by implementing a bottom-up approach for fund selection, while leveraging on active management capabilities and experience of top-tier fund managers to provide customized asset allocation solutions for investors.
RFi Group data show that in total 45% of investors will seek help from financial advisors and search for additional information from time to time to support their final decision. RFi Group data show that in total 45% of investors will seek help from financial advisors and search for additional information from time to time to support their final decision. The launch of Youyu app will be able to assist the financial advisor in addressing the need on providing an investment advice.
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THE ROLE OF THE FINANCIAL ADVISOR IN INVESTMENT DECISION AMONG INVESTOR IN HONG KONG
I make all the decisions, and do not rely on financial advisors
I make most of the investment decisions, but will seek help from financial advisors from time to time to support my final decision
I rely on my financial advisor on making most, or even all investment decisions
Source: RFi Group Hong Kong Priority and Retail Banking Council (16H2)
Jetstar partners with DOKU WORDS GRACE CHRISTIANTY Jetstar Airlines Group – a regional low cost carrier in Asia just recently announced its partnership with Indonesia’s payment platform DOKU for ticketing purchases. With this partnership, DOKU users can purchase Jetstar’s tickets through DOKU e-wallet or its retail partners such as Alfamart, a popular minimarket chain. Currently, Jetstar tickets can be purchased through credit card and cash payments at the airline’s website and branches. DOKU offers an easy way for consumers to deposit money and make payments for online transactions. DOKU users can apply for free subscription accounts and deposit their money through internet banking, ATM transfer or cash via Alfamart convenience stores.
DOKU’s cooperation with Jetstar Indonesia is expected to help boost the airlines’ revenue growth given DOKU’s wide user base and Indonesia’s booming tourism industry. For offline payments, DOKU security tokens generate a 6-digit passcode for users to enter at the payment terminals while online paymentsusers enter 10-digit passcodes. DOKU has accumulated 1.5 million registered users, according to DOKU’s founder and Chief Operating Officer, Nabilah Alsagoff. DOKU’s cooperation with Jetstar Indonesia is expected to help boost the airlines’ revenue growth given DOKU’s wide user base and Indonesia’s booming tourism industry.
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Amazon India to launch digital wallet WORDS JONATHAN ENG In late March, Amazon India received their Prepaid Payment Instrument (PPI) licence and are looking to develop and launch their digital wallet in India and take on existing payment solution giants Paytm and Freecharge. All that is known for now is that Amazon is looking to address a long-standing issue in the payment solution space of bypassing the two-step authentication process for online payments. According to Sriram Jagannathan, VP of payments at Amazon India, Amazon is looking to provide customers with a convenient and trusted cashless payment experience. With the demonetisation taking effect in November, and existing digital wallet players rolling out updates and new features to take advantage of the cash shortage, Amazon India had time to study the market and understand what the market wants and needs in terms of digital wallet features. According to RFi data collected before the demonetisation announcement, the usage of digital wallets is relatively high and is expected to be higher post-demonetisation. This may be good timing for Amazon India to launch a digital wallet
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WHICH OF THE FOLLOWING PAYMENT METHODS HAVE YOU USED IN THE LAST 12 MONTHS? DIGITAL WALLETS Total market
Source: RFi Group India Priority and Retail Banking Council (H2 2016)
PRIORITY & PRIVATE BANKING
Priority & Private Banking Disclosure rules on fees for wealth managers in Asia WORDS GABRIEL LOW Hong Kong and Singapore are looking at launching mandatory rules for wealth managers to disclose the amount they are paid by funds to sell their products. This move to increase transparency of fees is similar to initiatives put in place by western regulators after the Lehman Brothers crisis back in â€˜08, which are aimed at revealing conflicts of interest. Fee structures between the funds industry and wealth managers could be in for a substantial change, as clients may think more carefully about a fund they are recommended to buy. Andrew Hendry, director at Hong-Kong based Westoun Advisors, mentions that these rules could even push clients to bypass wealth managers and approach fund houses directly.
Fee structures between the funds industry and wealth managers could be in for a substantial change, as clients may think more carefully about a fund they are recommended to buy.
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PRIORITY & PRIVATE BANKING
Right now the onshore platform is not as robust as in some of the international financial cities, but there lies an opportunity for us to grow our platform. Tan Su Shan, Head of consumer banking & wealth management, DBS Bank
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PRIORITY & PRIVATE BANKING
DBS plans to expand in the Indonesian wealth market WORDS GRACE CHIA Southeast Asia’s largest lender, DBS Bank, plans to tap into the wealth business in Indonesia. The recent tax amnesty has disclosed US$ 365 billion of previously unreported assets. Approximately US$ 289 billion of these assets are parked onshore. The government has approved these funds to be invested into assets such as gold, property and infrastructure. Head of DBS’s consumer banking and wealth management, Tan Su Shan, said “The customers that took the tax amnesty and moved their money back, they will be looking for opportunities to invest onshore.” RFi Group data shows that retail banking customers in Indonesia plan to increase their investment over the next 12 months. “Right now the onshore platform is not as robust as in some of the international financial cities, but there lies an opportunity for us to grow our platform,” Ms Tan said. She mentioned that the bank may have plans to offer fixed maturity products that bundle several corporate bonds together into a unit trust. DBS expects the acquisition of Australia & New Zealand Banking Group businesses to increase its wealth and retail customer base from below 100,000 to more than 600,000. The acquisition is expected to be due for completion early next year.
NET CHANGE IN THE AMOUNT INVESTED OVER THE NEXT 12 MONTHS Trended H1 2015
60% 43% 37%
26% 28% 21%
23% 21% 9%
-20% Mass Market
Source : RFi Group Indonesia Retail Banking Council (H2 2016)
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I D E N T I F Y T H E U N TA P P E D P O T E N T I A L A N D C A P T U R E T H E O P P O R T U N I T Y W I T H I N O N E O F T H E FA S T E S T G R O W I N G B A N K I N G S E G M E N TS I N T H E W O R L D . W H I C H M A R K E TS A R E P O I S E D T O C A P T U R E T H E M A J O R I T Y O F T H AT G R O W T H AND HOW WILL THEY DO IT?
G LO B A L I S L A M I C B A N K I N G CO U N C I L
88% of Malays in Malaysia are open to the idea of subscribing to Islamic banking products and services – about 2 in 5 Malays will only choose Islamic banking products and services
More than 1 in 2 of Islamic banking participants in Indonesia
Middle East and becoming a global norm. Whilst consumer appetite is there, global acceptance will fundamentally require increased effort from key industry stakeholders, including regulators and market participants, to standardize best practices. In response to the growing interest in Islamic Banking globally, RFi Group recently launched the Global Islamic Banking Council. The Global Islamic Banking Report a key deliverable of the council looks at the changing attitudes and behaviors of consumers towards Islamic Banking products and features, the competitive landscape in key markets across Asia as well as the opportunities and trends shaping the industry. For further information, or to purchase this report, please contact:
are highly likely to advocate their Islamic banking provider
Ritin Malhotra Business Development Manager – Asia firstname.lastname@example.org +65 6597 0926
About Financial Insights
About RFi Group
Financial Insights is a specialist division of RFi Group, providing timely, detailed, primary research based reports on banking, wealth and payments. Available off-the-shelf Financial Insights reports are a convenient and robust source of knowledge for the financial services industry.
RFi Group is a global intelligence and digital media provider focusing exclusively on financial services. We specialise in data and information gathering, customer based insight generation and business decision support for the world’s leading financial service providers. RFi Group combines global intelligence and local knowledge to provide insightful, valuable and actionable insights across our 44 key global markets.
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