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In an exclusive interview with Asian Banking and Finance, Citi’s head of retail banking for Asia Pacific Gonzalo Luchetti talked about the bank’s digital strategy in the region. With 95% of all transactions already happening outside the branch, Citi’s retail business is being transformed into a model that is simpler, dramatically faster, more scalable, and more digitalfocussed. Read on to find out how the bank is using digital to support its clients.

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Digital transformation is taking over every segment of banking, and Cash Management is no exception. Our channel checks revealed that whilst digital innovations are improving Asian banks’ transactional efficiency and client experience, costs are far from cheap. We talked to bankers in Asia to find out what they are doing to go digital with their Cash Management offerings. In this year’s Banking Technology report, we give you a rundown of the 5 latest tech trends that are transforming the way consumers do banking.

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case study What can we learn from the Krungsri-MUFG partnership?




sp 12

INTERVIEW Citi’s APAC retail banking head talks of the bank’s digital transformation initiatives


FIRST 06 What are Asian banks doing

with blockchain?


16 The top 10 IT priorities

for banks in 2017

18 Cash management in Asia

in these precarious times

08 Reimagining branch banking 10 Banks caught in a social pickle

SECTOR REPORTS undergoes a digital facelift

20 The 5 tech trends that

07 How banks are pampering SMEs

country report Rising risks plague China banks amidst corporate restructuring, slowing economy

EVENT COVERAGE 24 How far has the Philippines gone in its journey towards digitalisation? 26 Why Thai banks must go for aggressive yet focussed strategy towards fintechs

Published Bi-monthly on the Second week of the Month by Charlton Media Group Pte Ltd, 101 Cecil St. #17-09 Tong Eng Building Singapore 069533

are transforming Asian banking

COMMENTARY 32 Blueprints for Japan’s next

generation payment infrastructure

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News from Daily news from Asia most read


Singapore banks’ profits could fall by up to 8% in FY17 Ezra Holdings and two other entities filed for bankruptcy on 18 March. According to media reports, court filings showed that DBS has the largest exposure with claims at US$328m, followed by OCBC at US$280m, and UOB at US$33m.


Asia Pacific banks brace for the IFRS 9 deadline of January 2018 According to Wolters Kluwer, the Basel Committee on Banking Supervision itself is conducting a consultation exercise on reconciling its framework with IFRS 9 in terms of the treatment of provisions.



Banks expect a 50bps decrease in core capital ratios when IFRS 9 takes effect Most Moody’s-rated banks reporting under International Financial Reporting Standards anticipate a decrease of up to 50 basis points in their core capital ratios when the new expected credit loss rules under IFRS 9 come into effect next year.


Loan-to-deposit ratios up for all Malaysian banks but one in 4Q16 Maybank Kim Eng notes that with deposit growth trailing loan growth, the loan/deposit ratios (LDR) rose for all banks but AMMB. The average LDR for banks in their coverage jumped to 93.5% end-Dec 2016.


Vietnamese banks plagued by problem assets According to BMI Research, even though NPLs ratio amongst Vietnamese banks is at 2.6% as of December 9, versus 2.5% in Q316, these official figures gravely understate the amount of problem assets within the banking system.


APAC banks’ IT spending to hit $67.1b in 2017 IT spending by banking and securities firms in the mature APAC region will reach $67.1b in 2017, up 5.4% from 2016, according to Gartner. This forecast provides total enterprise IT spending.

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FIRST domestic inter-bank payments using distributed ledger technology (DLT). There are plans for two spin-off projects and early-stage discussions are underway to use DLT for crossborder payments that settle directly using central bank accounts. There appears to be growing acknowledgement of blockchain technology as a key trend that will shape the banking industry’s future. About 80% of executives at financial institutions surveyed by Bain & Company believe DLT will be transformative and will significantly impact markets. A similar percentage also expect their organisations to begin using DLT before 2020.

Young & Digital

Christian Jerome Dobles, PNB

Philippine banks are now forced to look at more ways to capture and serve millennials, which consist about 60% of the market. Christian Jerome Dobles, SVP branch banking group at Philippine National Bank, talks about what they do at the bank. What can you tell us about the mobile banking scene in the Philippines, based on your experience? We just launched our mobile banking system last year and we’re slowly gaining ground on the mobile market. PNB has been a bit delayed when it comes to mobile banking but we’re sure to catch on. We have about 4 million depositors that we want to serve, especially now that the millennials are already in. When we take a look at our client base, there are less people going to our branches and when they do, it’s not really to transact, withdraw, or deposit. It’s really to ask questions about finance, where to invest, etc. We notice that before millennials open an account, they research first, then they visit the branch. So based on the impression they have of the branch, that’s the time they actually open an account, then after that, they go online. So I think our platform in mobile banking will serve us well. What are you doing to serve the banking needs of millennials? Around 60% of the Philippine market consists of millennials. The average age of our client base is about 30 years old but it’s slowly going down. We used to have older clients when we were a government bank, but we came up with a lot of new programmes to capture the younger market. PNB is actually a sleeping giant and we woke up last year when we turned a hundred. 6 ASIAN BANKING AND FINANCE | JUNE 2017

What’s the deal with blockchain?

What are Asian banks doing with blockchain?


rom automated trade deals in Singapore to faster cross-border remittances in India, the banking applications of blockchain technology are becoming harder to ignore for Asian banks. But analysts cite significant reservations amongst banks, with some limiting their investment until these applications mature or show better scaling potential. In August 2016, Bank of America Merrill Lynch, HSBC, and the Infocomm Development Authority of Singapore jointly developed a prototype solution built on blockchain technology that shows potential to automate trade deals and streamline the manual process of import and export documentation related to Letter of Credit transactions. Meanwhile, last January, Axis Bank tied up with distributed financial technology company Ripple to offer instant cross-border remittances using blockchain technology. Just recently, CNBC reported that a 47-member consortium of Japanese banks also intends to offer cheaper, real-time money transfers and international payments to its customers in Japan using blockchain. The Monetary Authority of Singapore last March announced the successful conclusion of the proof-of-concept project to conduct

Around 49% of organisations have collaborated with other firms, often financial technology startups, to develop DLT projects.

Significant reservations Despite these growing claims about blockchain’s disruptive and revolutionary potential, it should be noted that many executives still question the exact benefits their organisations can get from DLT in the near or medium term, says Thomas Olsen, partner at Bain & Company. “Financial executives interviewed by Bain say they are under pressure to show near-term results. Some firms have embraced the technology, whilst others have opted to do nothing, or very little, given all the uncertainties about DLT,” says Olsen. Amongst the market participants Bain surveyed, 38% said they’ve adopted a wait-andsee approach to the technology. Around 49% of organisations have collaborated with other firms, often financial technology startups, to develop DLT projects, whilst 32% have joined an industry consortium. Roughly one-third of the firms are conducting small, isolated experiments in particular locations or asset classes —an innovation lab approach.

80% of financial market participants say distributed ledger technology will be transformative and expect their firms to adopt it by 2020

Source: Bain Blockchain Survey, 2016 (n=53)

FIRST Corporate customers typically enjoy customised solutions and preferential pricing, which may not be available to the smaller SME customers due to their lower transactional volume and account balances. Banks are empowering SMEs with digital offerings

How banks are pampering SMEs in these precarious times


n the world of banking, big is beautiful as far as clients go, with many large corporations and multinational firms receiving the royal treatment. But small and medium-sized enterprises (SMEs) are starting to receive increasingly attentive service, too, as Asia embraces technology and grapples with a tougher operating environment. “SME banking is an industry in transition. From a market that was once considered challenging and niche to serve, it has now become a strategic target of banks. This follows on from the 2008 financial crisis

where banks shifted their focus away from large corporates, facilitated by the desire to seek high yields given low interest rates,” says Deloitte Consulting in a report.

preferential pricing, which may not be available to the smaller SME customers due to their lower transactional volume and account balances. This form of differentiated pricing often places SMEs at a disadvantage,” says Ng Wee Lee, head of commercial banking, CIMB Bank Singapore. In February, Maybank collaborated with Asian Business Software Solutions (ABSS) to enable Maybank’s SME clients to directly credit salaries to employee bank accounts by using ABSS’ payroll software. Choong Wai Hong, head, community financial services at Maybank Singapore, notes the number of SME customers using the bank’s online payroll services has tripled over the past year. Meanwhile, UOB recently launched UOB Virtual Payment Solutions which enables businesses to pay their vendors and suppliers through a virtual corporate credit card account even if these parties do not accept card payments.

SME banking CIMB recently launched CIMB BusinessGo in Singapore, which provides SMEs with a business current account offering an interest rate of up to 1.88%. It also waives transaction fees on key business transactions like telegraphic transfers and payroll, amongst other features. “Corporate customers typically enjoy customised solutions and

The Chartist: Where are the lending opportunities for Singapore banks? Comparing year-on-year, the largest increase in loan growth came from Australia, UK, USA, etc., which rose 20-40% yoy, according to Maybank Kim Eng. These can be attributed to both Singapore companies and those overseas looking to expand, making investments and acquisitions. “By tapping their franchise in the region, Singapore banks also saw demand in Indonesia, Thailand, and Greater China. Banks have guided for mid-single digit loan growth in FY17,” says Maybank Kim Eng. The firm expects banks to grow by 2-4% in FY17 due to increased competition, especially in wholesale banking and consumer loans.

Loan composition by geography

Source: Companies. for OCBC and UOB, loans by geography are based on where credit risk reside. For DBS, they are classified according to the country of incorporation of the borrower or the issuing bank in the case of bank-backed export financing. DBS discloses by South and SEA region. UOB’s “South and SEA” region refers to Thailand. For 2004, Malaysia, Thailand, Philippines, and Indonesia’s loans in “South and Sea. EA”

YoY % change for loans by geography

Source: Companies. OCBC’s “Others” region include Other Asia Pacific and Rest of the World. DBS discloses by South and SEA region. UOB’s “South and SEA” region refers to Thailand.



Reimagining branch banking


hen Citi first launched its Smart Banking branches in 2009, it did not anticipate that eight years later, nearly 95% of all its transactions would be conducted through non-branch channels. Across the world, brick-and-mortar branches have been speedily evolving and have taken on many faces to accommodate today’s digital natives. Harini Ravilochanan, consulting manager at Cognizant Business Consulting Group, says that branch transformation depends primarily on technology. For instance, he says that hand-held mobile devices can replace traditional teller counters, thereby differentiating bank services and personalising customer experiences at branches. According to the RBR study Teller Automation and Branch Transformation 2017, teller assist units (TAUs) in 26 key economies reached 186,500 in 4Q16 amidst the reduction in physical space and mounting cost pressures. TAUs prove to be helpful in reducing multitasking amongst bank employees so that they can give more focus to their clients. “We do understand though that many clients still want to bank in a branch, but the main role of branches today is to acquire customers, drive brand awareness, and manage high-value interactions for affluent relationships,”

Forecast spending on branch-based technology, 2014-2017

Margarita Lopez, RCBC

Note: Forecast includes spending on hardware, software, services, and internal IT. Branch-based technology includes all platforms to perform sales, servicing,and processing activities Source: IDC Financial Insights, 2014

says Gonzalo Luchetti, head of retail banking for Asia Pacific, Citi. In order to address these, Citi took on the Smart Banking model which offers interactive touch panels, videoconferencing capabilities, and fullservice banking from smartphones and tablets, features which are also offered in a lot of Asian banks. Meanwhile, other banks such as Maybank serve a mass market with self-service kiosks open for extended hours. “Branch services will be led by digital — allowing branch staff and customers to use the same platforms with the same look and feel as the bank’s digital channels. At the same time, the human touch of the branch will prevail, aided by digital capabilities,” says Ravilochanan.

The human touch of the branch will prevail, aided by digital capabilities.

Philippine banks now allowed to do digital KYC amendment to the law that allows information and communication technology to be utilised for face-to-face contact as opposed to the more traditional personal contact that we used to have under the regulation. What do you think will be the challenges of that initiative given that IT infrastructures here in the Philippines are not yet cutting-edge? Mary Joyce Sasan, Unionbank of the Philippines The banks will be ready for that in terms of The Philippines is slowly welcoming digital security, hardware, and software, but the other KYC in the banking industry. Mary Joyce Sasan, side of the coin will be the clients. How ready chief compliance & corporate governance will they be for the utilisation of technology for officer at Unionbank of the Philippines, talks banking transactions? But I am still positive about this latest development. about this development. The Philippines may not have advanced technology available for each Please tell us about the latest development in individual but the population in general is very the Philippine regulatory landscape. receptive to technology. We have a very wide A timely discussion for the Philippine mobile usage penetration and internet usage, so jurisdiction in terms of regulation is a recent at least we’re there already. 8 ASIAN BANKING AND FINANCE | JUNE 2017

Going digital: Beyond first touch

When talking about digital strategies in banking, two of the first words that come to mind are “mobile” and “online,” but Margarita Lopez, head of digital banking group at RCBC, says there’s more to digital banking than just that. How can banks get digital right by going beyond first touch? We all have an idea of the digital strategy that we want to execute but the question is, how do we execute it better so that we give the most back to the consumers and make a more sustainable arrangement with them? This is more than just looking at the surface of things, or what I would call “first touch.” We have to remember that the heart of digital is really the customer, especially here in the Philippines where there’s a lot of opportunity to do financial inclusion and to help consumers using digital finance. It’s also good to talk about what’s happening in the fintech space and what’s happening with our ASEAN neighbors. What do you see in the Philippine market in terms of digital banking and fintech? The Philippine setting is pretty much the same as in other parts of the world, in that we have partnerships with some fintechs and we have certain initiatives around mobile and online banking. However, we’re all beset by regulations, and we are also anticipating how regtech will come into play in the country. Unlike some countries, we don’t have a central credit bureau and a national ID system, so there are a few major things that we need to hurdle for us to make the most of using digital.


Three steps to strategic growth

Find out how financial institutions can effectively identify where the opportunities are and how they can create winning strategies for sustainable growth. means it flows straight to the bottom line with a multiplier effect on profitability. On the other side of the equation, the same process will reveal any areas that may lead to overcharging and help identify risks to customers, so they can be addressed at an early stage. Having previously worked for a bank that underwent such a review and proactively rectified an inadvertent error, I have seen first-hand the impact this can have on customer trust and loyalty.


ll financial institutions are working on the delicate balance between growth, efficiency and improving the customer experience. A comprehensive growth strategy is integral to banking, but developing such a plan can be a significant undertaking – one that takes critical resources away from day-to-day operations. What is the best way for financial institutions to identify their greatest areas of opportunity and create a strategy to manage success and achieve sustainable growth? At Fiserv, we consult daily with financial institutions on these very challenges, taking a three-step approach that addresses shortterm issues and helps set up our clients for future growth and profitability. So what does that entail? Step 1 – Fix Leakage and Solidify Customer Experience The first thing we do when we work with any financial institution is to complete a thorough review of how all existing fees and charges are being collected. Banks are complex organisations with multiple systems, processes and products. With that complexity comes a likelihood that something will not work quite as it should. From the bank perspective, even if 99 percent of all revenue due is being collected, one percent is still missing. Once these errors are found, they can usually be fixed very quickly – sometimes in a matter of days and at little or no cost. Collecting extra revenue without added cost

difficult for banks to offer cost effectively, so consumers and businesses have often relied on other sources of funding. Digital technology combined with creative product design, creates a great opportunity for banks to extend their reach, grow their customer base, and deliver financial services that meet the needs of people’s lives.

Step 2 – Optimise Existing Products and Services Next we look at optimising existing products and processes to improve efficiency. Fiserv works with the financial institution to identify small changes that can have a disproportionate effect on customer experience or profitability. This crosses all business lines, such as credit cards, current or transactional accounts, business banking, vehicle finance, personal lending, and mortgages. For example, a financial institution may find that something as simple as a tweak to a loan repayment schedule can provide customers with extra breathing space when they need it most, and also improve the ROI of that loan. Seemingly minor changes to product configurations and parameter settings can, if well targeted, have a material impact on existing revenue streams and customer experience.

The Long and the Short of It Through steps one and two, it’s all about making the small changes that can make a big impact, whilst ensuring that future initiatives build on a solid core. In step three, we’re looking much more ambitiously at the things that can really help a financial institution evolve the relationships with their customers, and stand out from the competition. At Fiserv, we’ve helped some of the world’s top banks address short-term profitability and lead innovation within their respective markets. Solutions are tailored to enhance competitive advantage, and our clients say that our methodologies continually enhance their internal best practices. The greatest testimony to our success is that our clients partner with us year after year to ensure they consistently meet their growth targets and accomplish their business goals. By Jon Causier, Head of Consulting – Asia Pacific and Africa, Financial Performance Services, Fiserv

Step 3 – Rethink Product for Future Growth Having optimised the current portfolio, let’s think about the future. It’s not enough to just distribute existing products to the same customers through new channels. To drive growth, those products need to be built differently and distributed to groups of customers previously unreached or underserved by banks. Digital technologies create multiple possibilities, but to realise the full potential banks need to think differently, putting customer need rather than any existing bank product at the centre. Micro credit is a great example. Short-term, small-value lending has traditionally been

About the Author Jon Causier has nearly 20 years of experience in financial services both as a practitioner within a major UK bank and as the leader of an international consulting team providing advice to some of the world’s leading financial institutions. At Fiserv, Causier leads the Financial Performance Services consulting team in the Asia Pacific Region. He held a number of roles within the NatWest/RBS Group, most recently as head of strategy for transactional accounts. He earned a Master of Arts degree in social and political science from Cambridge University and a Master of Business Administration with distinction from London Business School.

“At Fiserv, we’ve helped some of the world’s top banks address short-term profitability and lead innovation within their respective markets.” ASIAN BANKING AND FINANCE | JUNE 2017 9


Banks caught in a social pickle


f incumbent Asian banks should be wary of fintech firms, it is not because of the disruption they can cause. Rather, fintech firms can steal the entire customer relationship from banks, and basically profit from the hard work that banks put in to keep clients engaged. “Not a lot of fintechs want to disrupt banking actually. What they want to do is disintermediate customer relationship,” says James Lloyd, Asia-Pacific fintech leader at EY. “This is because most of the profit accrues to the people who own the customer relationship, not to the people who manufacture the product.”

Despite this threat, banks are still teaming up with popular messaging apps and other payment providers to leverage on the latter’s strong digital presence. Citi, for example, has plugged into WeChat and Alipay in China, allowing clients to receive alerts, make inquiries, and even repay their Citi credit cards using their Alipay account, given that 95% of the bank’s transactions in the country happen outside the branch.

Banks and social media Hua Zhang, analyst with Celent’s Asian financial services practice, says banks may not have much of a choice but to dive into A worrisome trend social media due to the breadth of benefits He reckons the trend of banks increasing that these digital spaces offer. their presence in social media and He adds that for traditional banks messaging platforms like WeChat to leverage social networks to develop is worrisome. Banks run the risk of banking services, simply opening a eventually conditioning their clients to Facebook account is far from being depend on the fintech platform rather enough. Generally, banks may follow than the bank itself. three steps to establish social banking: “All the banks have integrated with First is customer acquisition, which is to WeChat specifically to enable people to construct a platform in social media and check balances and so on through the leverage user traffic in social networks messaging app. At a certain point, the to reduce costs and acquire users. The customer relationship then becomes with second one is customer segmentation, the intermediary, not with the bank,” says which is to segment customers into Lloyd. “Financial institutions will integrate closely defined groups and provide into messaging platforms and social but professional online and offline services then they lose their customer relationship.” to them. These services, says Zhang,

Banks’ social media presence: Boon or bane?

are generally not financial services, but rather integrated services such as overseas services, automotive services, and so forth. Lastly, customer conversion, which entails directing the users to become customers of the bank with a demand for financial products. “Social networks enable banks to come into closer contact with customers and carry out effective customer segmentation, thus allowing them to provide better consumer finance, payment, and other services,” notes Zhang.

How are Philippine banks working with financial technology firms?

Mark Bantigue, Security Bank

The Philippines is becoming an exciting market for fintechs as regulators begin to loosen up and more banks collaborate with fintech startups. Mark Bantigue, head of e-commerce at Security Bank, shares his views. What makes the Philippines an exciting market for fintechs? The regulatory framework is starting to 10 ASIAN BANKING AND FINANCE | JUNE 2017

loosen up. It’s actually better than some other countries in the region. The Bangko Sentral ng Pilipinas (BSP) is starting to loosen up its grip and will allow for more fintech innovation to happen in the banking sector. There are so many fintech innovations happening in the world today — there’s the African model, the Indian model, and, of course, the Western model — but a very small percentage of it is actually applicable to the Philippine scenario. I think it’s interesting to talk about fintech as it applies to the market.

capitalist or accelerator but we are engaging them especially in their seed stage whenever they want to be at the startup conventions that are happening all over Metro Manila, and we take an advisory role with them right now. That’s our relationship with fintech entities but with fintech technologies, of course, we are talking to various vendors both local and international and seeing which of their plethora of products we can actually execute within the next 1-2 years.

What are the other developments around fintech in the Philippines? Just recently, a fintech startup in the Philippines has gone from zero pesos to Please tell us about how Security Bank is one billion in loan portfolio in a span of working with fintechs. 18 months. As of March, deputy director We are helping them accelerate and we are Plabasan of the BSP also confirmed that talking to a lot of fintech startups, helping within one to two months, video onboarding them get their feet off the ground so that in KYC will start to take effect. And also, by the time we see their market viability, within the next six months, cloud core we have already established a relationship with them. It’s not yet at the role of a venture banking will start to be in play.


Delivering the best digital experience in Asia

With mobile banking users worldwide set to double to 1.8b by 2019, how can Asian banks develop a seamless mobile and online banking experience to consumers?


nternet users in Asia Pacific now account for 50.2 percent of the world’s population (compared to 49.8 percent for the rest of the world). Smartphone users in Asia Pacific are estimated at 1,139.8 million in 2016 and poised to reach 1,483.4 million in 2019. With pervasive access to a digital device, the drive toward digital services has changed how we live and work – and how we bank. Banks are increasingly leveraging technology to make processes more efficient, increase customer engagement, and improve customer service. Many banks in Asia Pacific have progressed from simply offering realtime digital access to financial information, to providing secure and user-friendly applications that enable users to make financial transactions, anytime and anywhere, without having to visit physical banks or automated teller machines (ATMs). And this trend is accelerating. KPMG estimates that the number of mobile banking users worldwide will double to 1.8 billion by 2019 – with Asia as the main driver of this trend. Panin Bank’s MobilePanin One of the region’s early digital banking adopters is Panin Bank in Indonesia, one of the largest and most influential banks in the country. In mid-2016, it upgraded its mobile banking platform to Mobiliti™ from Fiserv, enabling it to launch MobilePanin, which has become the most comprehensive, reliable, and secure mobile banking and internet banking service available to consumers in Indonesia. MobilePanin provides customers not only access to key banking information and functions, but also connects them seamlessly to InternetPanin, the bank’s online banking service. This enables the delivery of comprehensive digital banking capabilities on-the-go, including bills payments, checking of account balances, real-time money transfer, account balance and limit transaction alerts, foreign exchange and interest rate updates, purchase of top-up mobile vouchers, and more. There has been an increasing demand for MobilePanin, driven by the large population of smartphone users in Indonesia, a highly dispersed geography, and inconvenience of local transportation. The mobile app has enabled customers, especially those from more remote parts of the country, to not

waste time and resources unnecessarily by travelling to where physical banks or ATMs are located. As for the bank, Panin has seen an average of 18 to 25 percent increase of users since the mobile app was launched. As of February 2017 – just nine months following its launch – the bank registered 70,000 MobilePanin users. The volume of transactions has also increased by an average of 20 percent per month, with conversion rates from branch to mobile averaging an increase of 15 percent per month. Bangkok Bank’s Bualuang mBanking Another early adopter of digital banking in developing Asia is Bangkok Bank Public Company Limited (BBL), one of Thailand’s largest financial institutions with a global customer base of approximately 17 million accounts. To meet the growing demands for ‘everyday, everywhere’ banking by its increasingly mobile and internet-savvy customers, BBL has been continually adding new functionality to its mobile banking application, Bualuang mBanking. The bank’s latest deployment of Mobiliti Edge™ from Fiserv has enabled BBL to offer enhanced capabilities for Bualuang mBanking by providing a person to person (P2P) payment functionality. BBL’s customers can check account balances, manage payments and transfer money to anyone – whether bank or non-bank customers – when and

where they desire. This has become a key milestone for BBL, making it a major differentiator in the Thai market. The enhanced Bualuang mBanking has resulted in increased customer engagement and customer satisfaction, along with a decrease in BBL’s cost of serving customers. As of October 2016, BBL had registered a 40 percent growth in transactions, a 60 percent rise in the number of registered users, a 20 percent increase in average financial transaction usage per user per month, and a 300 percent growth in average payment transaction volume per month. These are just some of the business benefits generated by BBL’s enhanced Bualuang mBanking solution. The bank expects more benefits to come as the bank continues to transform and revolutionise digital banking offerings to meet the fastchanging demands of increasingly mobile customers. Regardless of where banks are in their current digital transformation, banks can focus on developing relevant capabilities that would add value to their product and service offerings. Designing mobile and online banking experiences for customers that fit seamlessly into their everyday lives is key to remaining relevant in today’s competitive banking environment. By Marc Mathenz, senior vice president and managing director, Asia Pacific, Fiserv

Banks are increasingly leveraging technology to make processes more efficient, increase customer engagement, and improve customer service.

Marc Mathenz, senior vice president and managing director, Asia Pacific, Fiserv ASIAN BANKING AND FINANCE | JUNE 2017 11

Citi has embraced digital not only to transform our propositions, but also with regards to how we operate — digitally transforming our core business, accelerating growth and innovation and redefining the DNA of our organisation.

Gonzalo Luchetti Head of Retail Banking for Asia Pacific Citi 12 ASIAN BANKING AND FINANCE | JUNE 2017


Citi’s APAC retail banking head talks of the bank’s digital transformation initiatives Gonzalo Luchetti reveals more than half of their consumer bank clients use digital channels.


onzalo Luchetti was appointed head of retail banking for Asia Pacific in January 2015. He joined the bank in 2006 and held positions in various units such as Citi’s private bank, international personal bank, and wealth management & insurance. Luchetti has been leading the bank in its journey to transform its retail business to a simpler, faster, and more scalable model targetted at emerging affluent and above clients. In an exclusive interview with Asian Banking and Finance, Luchetti talks about the bank’s digital strategies and transformation initiatives in response to the market environment to grow revenues. Asia Pacific is at the heart of Citi’s global retail banking business with 12 out of 19 markets globally. What is your strategy for future growth in this important region? Asia presents compelling economic drivers and demographics — it has the fastest growing regional GDP and financial assets worldwide and accounts for 60% of the world’s population, including a massive and growing emerging affluent population that adapts quickly to new technology, in particular mobile. 2016 was an important year in Citi’s history in Asia, with a deliberate shift in strategy in response to the market environment to grow revenues. We reallocated resources to invest and build out our wealth management (which already manages US$210b in AUMs) and digital capabilities to capture new growth opportunities. Our retail business is being transformed to a model that is simpler, dramatically faster, more scalable, sharply focussed on emerging affluent and above clients, and far more digital-focussed with the goal to accelerate growth. That’s critical because our Asian consumer business, as you said, is key to our strategy — 12 reside in Asia and Asia also manages five markets in EMEA including the UK, the UAE, Bahrain, Poland, and Russia. This strategy is already showing good results. Revenues for the fourth quarter for the consumer franchise were up 4% with EBIT up 22% year-on-year, which are the results of our strategic decision to invest resources into digital and our wealth management business. How are you using digital across your retail bank to support your clients’ changing preferences? Our global consumer banking business in Asia draws some 20 million visits to our online properties every month, and 90-95% of all transactions already happen outside a branch. Citi has embraced digital not only to transform our propositions, but also with regard to how we operate — digitally transforming our core business, accelerating growth and innovation and redefining the DNA of our organisation. In that regard, we are significantly shortening our time-to-market to bring solutions to our clients faster by

utilising agile methodologies for design, development, and deployment. In 2016, on average, we announced a new digital innovation or partnership fortnightly. Today, more than half of our consumer bank clients use digital channels, with mobile being the fastest growing channel with 35% growth year-on-year. We deepened our connections with clients via social media with launches on Facebook, Line, and WeChat in seven markets, and the Citi Asia social media community has grown from 3 million in 2015 to over 10 million in 2016. Since the launch of Citi’s API Developer Portal in December last year, more than 1,000 companies have registered with us and expressed their interest to collaborate. At the beginning of 2016, we launched the newly refreshed Citi Mobile App featuring easy-to-use functionality and interface such as Snapshot and Touch ID which has seen over 2 million downloads to-date. We also launched Voice Biometrics across the region which has since received more than 700,000 sign-ups from customers with over 1 million clients consenting. We also deepened our digital wallet offering with CitiPay, in response to the explosive growth in mobile adoption by our customers. Citi’s proprietary mobile wallet numbers in Asia account for 300% growth last year. We have also announced strategic partnerships in leading digital ecosystems in China, Thailand, and Singapore with Alipay, WeChat, and Line. We also formed credit card digital partnerships with the likes of Amazon, Airbnb, Grab, Uber, Lazada, and AirAsia in various countries across Asia. Citi is one of Asia’s largest wealth managers in the emerging and mass affluent sector. What are you doing to grow further in this space? Citi Priority, the emerging affluent value proposition, is now live in all our key markets with a new digital welcome experience and a range of preferred benefits and We deepened personalised services. our Citigold was re-launched in five markets, with the connections remaining markets following this year. This included new with clients tools such as Total Wealth Advisor which uses sophisticated via social models for goal-based financial planning utilising Citi’s media with global expertise in private banking and institutional launches on Facebook, Line, markets. Furthermore, we introduced the Citigold Diversification Index, an exclusive internally designed and WeChat framework to help clients assess, optimise, and protect their in seven investments. Since its initial launch, we have completed markets, and more than 39,000 portfolio reviews. the Citi Asia At the same time, for our Citigold Private Client social media community has proposition, we launched Portfolio 360º in five markets, enhanced our product suite with the launches of Portfolio grown from Finance, Liquid Alternatives, and HNW Insurance. We also 3 million in 2015 to over 10 had a 48% increase in wealth management centres with million in 2016. new launches such as in Korea with the Banpo Hub. ASIAN BANKING AND FINANCE | JUNE 2017 13

Country report: CHINA

ecimen p s

NPL ratios have been rising since 2012

Rising risks plague China banks amidst corporate restructuring, slowing economy Companies have consistently defaulted on their loans, thereby resulting in the steady rise of NPLs.


hen Yu’eBao, China’s largest online money market platform, faced increasing liquidity risks, it was able to leverage its large database and increase its assets under management to its second highest level since the fund’s launch. Tightening liquidity conditions have been pushing China’s top executives to come up with increasingly creative solutions to avert China’s growing financial instability, paving the way for the rise of the shadow banking sector. The mainland’s economic slowdown in 2016 revealed a financial system in dire need of fundamental reforms as well as urgent reevaluation due to the country’s growing global influence. Over the last few years, China’s economy continued to balloon at breakneck speed. The world watched in awe as the country rose to superpower status, attracting top talent from all


China’s economy remains under structural downside pressure, and the government’s efforts to cut high levels of debt will definitely take a while to bear fruit.

over the world and lifting millions of its citizens from poverty. For a while, analysts believed that last year’s slowdown was just temporary, forecasting that 2017 would see a much anticipated rebound. However, recent analyses and data prove that China’s financial system is much more complex than most would care to assume. Mainland banks, especially the smaller ones, are presently scampering to survive the loss in profitability and the increasing risks associated with corporate restructuring and a slowing economy. Across the country, companies have consistently defaulted on their loans and are expected to continue to do so, thereby resulting in the steady rise of non-performing loans (NPLs). Asset quality has also exhibited further decline in light of banks’ significant exposure to wealth management products (WMPs). “The banks’ operating environment

will become more challenging in the coming 12-18 months, reflecting slower economic growth, an increase in corporate sector restructuring, and rising concerns over elevated asset prices in some areas,” according to Moody’s Investors Service. China’s economy remains under structural downside pressure, and the government’s efforts to cut high levels of debt will definitely take a while to bear fruit. The mainland’s NPL ratio in the finance industry has been rising since 2012, and with the current slowdown in economic growth, both loan demand and quality might weaken. The Bank of China (BOC) has the most assets overseas and is extremely exposed to the interest rate changes in the United States. According to Patricia Cheng, analyst at CLSA, how BOC and the other banks react to the changing competitive landscape will affect net interest income growth. The bank’s efforts in pushing for

Country report: CHINA more fee business will also affect the results. Cheng says that the need to strengthen provision is a burden on the bottom line. Afraid of one’s shadow China’s shadow banking assets have doubled in size over the last five years, according to Yulia Wan, a assistant vice president and analyst at Moody’s. The Chinese government imposed regulatory measures on core shadow banking activity in 2014, but 2016 saw a modest growth driven by trust loans and robust entrusted loans. Moody’s says that the uptick in core shadow banking is indicative of tighter financing conditions elsewhere, considering that due to more restrictions, there has been less access to the domestic bond market. The People’s Bank of China (PBOC) and the China Banking Regulatory Commission (CBRC) may be able to curb the rapid growth of WMPs through the inclusion of banks’ offbalance sheet WMP business into the PBOC’s Macro Prudential Assessment (MPA) framework, says Wan. “The inclusion of WMPs into the loan-to-deposit ratio (LDR) would immediately bring the average ‘adjusted’ loan to deposit ratio well above the regulatory limit of 75% to around 85%. Therefore, WMPs lead to higher credit and contagion risk through overlending beyond regulatory limit to overcapacity sector, of which the loans are transferred into investment book and circulate around the financial sector,” says Alicia Garcia Herrero, chief economist, Asia Pacific, Natixis. Furthermore, there are also indications that shadow banks are increasingly exposed to the property sector. Q316 saw a net increase of trust assets allocated to the real estate sector in absolute terms, more than double the aggregate increase in the first two quarters. In fact, a Moody’s report shows that mortgage loans have continued to contribute a rising share of headline bank lending to the non-financial sector in Q416. Meanwhile, corporate lending is growing at a more modest pace due to the decline in short-term loans. The 2017 outlook is quite bleak for mortgage lending growth due to the impact of tightening measures on

the property market. Cheng notes that the NPL ratio was 1.74% at the end of 2016, ending a worsening trend since 3Q12. Herrero adds that asset quality seems to have improved, however the reason is not a rebound in corporate repayment ability, but the massive debt-to-equity swaps. Herrero notes that RMB200b (US$29b) worth of debt has been swapped into equity in Q416, equivalent to 5.8% of special mention loans. “Divergent path amongst Chinese banks are important and JoinedStock Commercial Banks (JSCB) remain as a key concern. The NPL ratio of JSCBs continues to increase, with falling NPL provision coverage ratio and capital adequacy ratio, whilst smaller banks have shown improvement. Together with the increase in SHIBOR and their high reliance on overnight funding, the liquidity situation could only worsen,” says Herrero. Liquidity crunch Tighter liquidity conditions could be up ahead, as implied by several market indicators such as interbank and Certificate of Deposit (CD) rates as well as the spread between WMP yields and one-year deposit rates, says Wan. Despite this trend, shadow bank borrowers are expected to be relatively inelastic to higher interest rates due to continuing financing needs in sectors such as property and overcapacity industries. In the event of tightening liquidity conditions across the system, small and medium-sized banks have the biggest exposure to liquidity shocks. This is due to their high and growing reliance on wholesale funding which includes aggressive issuance of interbank CDs. Medium and small banks are known to be closely intertwined with China’s highly active shadow banking sector. These banks continue to invest in shadow banking products such as WMPs and the trust and asset management schemes of non-bank financial institutions. “Looking ahead, we expect a combination of tighter liquidity conditions and stricter regulatory scrutiny on banks’ off-balance-sheet activities will curb banks’ incentives

to engage in regulatory arbitrage and gradually dampen the previously fast-growing components of shadow banking such as WMPs,” adds Wan.

Chua Han Teng

Patricia Cheng

Alicia Garcia Herrero

Most vulnerable to shocks Chua Han Teng, senior analyst at BMI Research, says that jointlyowned Chinese banks are especially vulnerable to liquidity and asset shocks due to their significant exposure to WMPs. Chua adds that the present sell-off in the bond market will possibly result in a liquidity crunch together with investment losses, considering that WMP funds are largely invested in bonds and money market instruments. However, Wan believes that broad liquidity conditions will remain satisfactory as a result of slowing loan growth, the central bank’s overall supportive monetary policy, and the system’s large deposit base. There is limited room for further policy easing against the backdrop of deleveraging which contains risks from capital outflows, increasing property prices, and the incremental rise of the inflation rate. “We do not expect a rebound of the Chinese banking sector in 2017, neither do we expect any big crisis. The operating environment for banks would remain challenging, especially with weak macro environment and more regulatory requirements. The scale and speed of debt-to-equity swaps and local government debt swaps will be key determinants to existing loans. Going forward, we expect deterioration in asset quality underneath the headline numbers to continue due to slower GDP growth and the still weak global demand,” says Herrero.

Debt to equity swap (RMB bn)

Sources: Natixis, Company Data NB Based on swap announced date ASIAN BANKING AND FINANCE | JUNE 2017 15

Vendor View: TOP 10 IT Priorities

Biswajit Jha

Tim Liu

David Allott

David W. Jones

Jun Shi


Anna Gong

Oliver Prevrhal

Mike Saxton

Sanjay Rohatgi

Erich Gerber

Benjamin Mah

The top 10 IT priorities for banks in 2017 Find out where APAC banks will spend their $67.1b budget for information technology this year.


hen banks draw up their battle plans for market domination in 2017, a significant portion of their war budget will likely be allotted to information technology (IT), which can help them attract new customers through predictive analytics, protect current ones through enhanced enterprise security, or improve operations through cloud adoption. IT spending by banking and securities firms in the mature Asia Pacific region (Australia, Japan, New Zealand, Singapore, and South Korea) is estimated to reach $67.1b in 2017, according to Gartner. We talked to some industry experts and came up with a list of the top 10 priority areas for banks. 1. Digitalisation As more Asian customers use multiple devices and channels for their banking transactions, there is an imperative to pour in a lot of resources to improve every aspect of the customer’s digital experience. 16 ASIAN BANKING AND FINANCE | JUNE 2017

“With disruption becoming the new ‘norm’, digitalisation will be the only way for the banking industry to move forward in 2017,” says Mike Saxton, senior vice president, Software AG Asia Pacific & Japan. “Banks will strive to completely digitalise their business models, transforming themselves into a software company that provides banking solutions.” 2. Data analytics In recent years tapping into customer data and insight has become more critical in how banks plan to win in the market, and 2017 will not do much to change that. Banks and financial institutions have plenty of information and data available, and many of them will be eager to harness the full potential of insights that lie in that treasure trove of information, says Erich Gerber, general manager, Asia Pacific and Japan at TIBCO Software. “Leveraging the knowledge of the customer and the market using visual analytics and streaming analytics

Investment in network automation — mainly through analytics and machine learning — should also become a priority for banks wanting to free up resources to innovate.

techniques not only gives their customers options to make their own financial decisions, but allows improvements in multichannel delivery and exploring the use of open application programme interface.” 3. Network automation Investment in network automation — mainly through analytics and machine learning — should also become a priority for banks wanting to free up resources to innovate, says Jun Shi, vice president, sales engineering & chief technology officer (APAC) at Juniper Networks. Bank networks can become overloaded with massive amounts of data. Automation can alleviate this stress, enabling networks to become “self-driving networks” that can make better decisions even as data loads increase. “The ‘self-driving network’ can anticipate where potential issues are and apply the corrective actions, which is crucial in fast-paced banking environments,” says Shi.

Vendor View: TOP 10 IT Priorities 4. Artificial Intelligence Artificial Intelligence (AI) will be prioritised by banks this year, says Anna Gong, CEO of Perx, since it will allow them to parse big data and then create a hyper-targetted customer experience. “Banks will be investing heavily in AI-powered systems as they try to make the most out of their customer data from multiple channels,” she says. “By leveraging machine learning capabilities of AI to engage consumers more strategically, banks will be facing some exciting times in the customer experience space as business efficiency will now become more dependent on consumers’ behaviour and patterns than ever before.” 5. Data centre transformation Data centres have become the backbone of banking systems, and there will be a heightened need to make them more efficient as more customers demand quicker and smoother transactions across myriad devices, says David Allott, director of cyber defense, APAC at Intel Security. “A core piece of driving efficiencies for the data centre has been server virtualisation, which helps to reduce total cost of ownership whilst establishing a foundation for agility and automation of the underlying computing infrastructure,” he explains. 6. Enterprise security With the rising incidence of cyber security attacks in Asia, banks have started to beef up their protection for clients in usual touchpoints like ATMs. But with 82% of cyber attacks happening via web applications, a portion of which comes from the client-side user interface or web APIs, then it falls on banks to increase overall enterprise security without sacrificing convenience or ease of use. “These attacks will become even more significant as the financial industry increasingly opens up, allowing more and more parties to play a role in the ecosystem,” says David W. Jones, senior director - global business development at Irdeto. “Winning the customer of the future requires banks to create a seamless yet secure customer journey,

The next area of investment is how to digitise the credit rating and risk categorisation of asset products. This helps financial institutions manage the asset quality and move the bank to a more digital product.

and finding the right balance between user convenience and security is key for this to happen.” As cybercriminals become more sophisticated with their techniques, there is also an increasing need for IT experts to expand their skillsets to match criminal capabilities. Oliver Prevrhal, managing director for Retarus Asia, says the number of viruses detected each month in 2016 amounted to 3.5 times the number of viruses observed over the whole of 2015, calling for more robust monitoring systems that protect banks from potentially crippling attacks. “Whilst there is no foolproof protection from virus attacks, especially after malware has found its way into the enterprise network, the damage can be mitigated through the use of virus protection features in combination with reliable malware detection solutions and efficient IT forensics,” says Prevrhal. 7. Protecting specialty environments like IoT Banks will also start to prepare to safeguard emerging specialty environments like the Internet of Things (IoT). Verizon forecasts that the number of business-to-business IoT connections will increase 28% annually from 2011 to 2020 as more “things” connect directly to one another without human input. “Whilst it is true that the adoption of IoT in enterprises hasn’t been as quick as in the consumer market, IoT is growing rapidly, with the potential to radically change almost every business process,” says Allott. 8. Employee cyber security training Whilst topnotch security systems can protect banks from unauthorised infiltration, they may sometimes be only as good as the humans handling those systems. “Security technology may be able to secure our networks and endpoints, but none of these are effective against human errors,” says Sanjay Rohatgi, senior vice president, Symantec Asia Pacific & Japan. “Cyber criminals are aware of these and seek to exploit what they perceive to be the weakest link in the chain — humans. By investing in education, employees can learn how to recognise symptoms, and diagnose ‘digital

diseases’ to protect their databases more effectively,” adds Rohatgi. 9. Cloud adoption Last year several banks employed software-as-a-service tools, but 2017 will see more banks investing in public clouds, with a focus on leveraging infrastructure as a service, to enhance business agility and efficiency, says Tim Liu, chief technology officer at Hillstone Networks. “As robust security solutions start mushrooming in the market, banks have also moved past their fear about on-premise implementations in the cloud, and leveraging the cloud for new digital services to stay competitive against the more agile fintech firms,” he adds. The rise of fintech competitors will force banks to carve out even higher operational efficiency through cloud systems, says Benjamin Mah, CEO & co-founder of V-Key. “To enable operational cost reductions, greater business flexibility, and the ability to choose whether to partner with or simply keep up with innovations coming from fintech ‘cloud natives’, banks must explore migration of certain middle and back end systems to the cloud,” he explains. 10. Regulatory compliance Finally, IT spending will increasingly support regulatory compliance in the face of mounting regulations, with heavy penalties imposed for failing to meet these stricter guidelines. “The next area of investment is how to digitise the credit rating and risk categorisation of asset products. This helps financial institutions manage the asset quality and move the bank to a more digital product. In addition, this helps with the implementation of Basel III compliance,” says Biswajit Jha, vice president and managing director, ASEAN at Diebold Nixdorf. “The regulatory deluge continues,” says Abou-Haidar, managing director, APAC at Misys. “This gives rise to the regulatory technology revolution in which we are seeing more and more firms specifically coming to market with the aim of raising compliance and using tech as an enabler. For banks, the investment opportunities lie in technology which helps with compliance,” he adds. ASIAN BANKING AND FINANCE | JUNE 2017 17

SECTOR REPORT 1: Cash Management

Banks must work towards offering a fully digital experience

Cash management in Asia undergoes a digital facelift

Digital innovations are improving Asian banks’ transactional efficiency and client experience, but costs are far from cheap.


hree years ago, DBS committed to invest S$200m (US$143m) for digital banking initiatives across Asia, and it has spent the money well to enhance its cash management services. The bank has launched an account-opening online service so clients do not have to visit physical branches, and it has been mining customer insights through data analytics. Soon, DBS also plans to tap into the power of blockchain technology for cash management like what it has done for trade finance. Other Asian banks are following suit, spending notable resources on digital innovations such as mobile banking upgrades and application programme interfaces (API) that make client transactions cheaper. For DBS, the digital renovations it has been initiating across its cash management business is paying handsome dividends. Sohfern Boey, managing director and head of 18 ASIAN BANKING AND FINANCE | JUNE 2017

Sohfern Boey

Di Challenor

global transaction services of DBS Bank (Hong Kong), says its DBS Business Class programme — which provides online resources to small and medium-sized enterprises (SMEs) and recommends related services based on their specific needs — has helped generate new business opportunities. For the bank, digital innovation is the key that unlocks the door to the customer’s deepest desires. “Automation not only increases efficiency, but is also the enabler for digital innovation, so you cannot talk about one without mentioning the other,” says Boey. “Banks are generally constrained by a lot of proprietary or legacy systems which make it difficult to unlock the full potential offered by digital innovations. Banks should therefore set a clear vision on their digital innovation with the ultimate goal of offering a fully digital customer experience,” she adds.

Banking executives reckon one of the strongest cases for implementing digital innovations is that they use the latest technology to significantly increase process efficiency, especially in Asia where many firms continue to rely on manual processes. “There are numerous manual processes that are made efficient due to technology, thereby improving the back-office operation and deliverable time,” says Andreas Kurniawan, division head, retail business development at OCBC NISP. “Mobile banking, as an example, can be used for transactions practically anywhere at any time, whereas branchless banking can decrease the utilisation of resources.” New systems, new standards Even the laborious procurement process can be improved through digital innovation, as seen in Bank OCBC NISP’s plan to develop an E-Catalog in collaboration with an e-commerce company in Indonesia. Kurniawan reckons the E-Catalog’s utility is extensive, not only facilitating internal procurement processes but also expediting customer delivery of rewards. “It does not only give our customers a wide range of reward

SECTOR REPORT 1: Cash Management options, it also streamlines our back-office operations, and improves delivery time to customers. Thus, leading to a superior customer experience and improving our efficiency,” says Kurniawan. Automation is also transforming the operations of Westpac. The bank created the Quick Super gateway and clearing house, a service currently used by more than 150,000 employers, which enabled the bank to process more than 70 million transactions in their last financial year. In 2017, the target is even higher at 90 million transactions. “This innovation has been widely adopted by the majority of industry funds using it to support the daily stream of contributions from hundreds of thousands of employers across Australia,” says Di Challenor, general manager, global transactional solutions and client experience at Westpac. “It was developed based on our understanding of customer and industry problems as well as policy requirements and devising a smarter way to do things.” Enhancing cross-border payments For SWIFT, the drive for digital innovation catapulted the financial cooperative to adopt a new standard called SWIFT gpi that quickens cross-border payments. SWIFT gpi was launched in December 2015 with the support of innovative tools like a payments tracker, a service-level agreement observer, and a directory. Response was enthusiastic with more than 90 banks currently signed up, representing more than 75% of SWIFT’s cross-border payments traffic. “Together with the largest transaction banks in the world, our aim was to enhance the cross-border payments experience of corporate treasurers by providing faster, more transparent, and traceable crossborder payments,” says Stella Lim, head of corporate sales, Asia Pacific at SWIFT. “The initiative has seen tremendous industry support,” she adds. “Banks have found that with SWIFT gpi, they are able to provide their corporate clients a new world of experience in cash management because corporates will have access to same-day use of funds, gain transparency of fees,

experience end-to-end payment tracking, and receive unaltered remittance information.” API and blockchain The boon of digital innovation is slanted heavily towards efficiency gains, but industry insiders argue that these easily translate to higher customer satisfaction. By developing a smarter API, banks can provide delightfully faster and more secure service, although regulatory constraints can still limit the transactions made available in such an API. “API has been highlighted to create value for customers and benefit the surrounding ecosystem. It is rather more likely to drive an immediate and tangible revolution in banking,” says Silawat Santivisat, executive vice president at Kasikornbank. The bank has shown growing interest in API technologies, especially in how they can connect with innovative firms outside the organisation and deliver attractive services to banking clients. But Santivisat reckons the API in banking still needs to resolve a lot of technical and regulatory hiccups like making sure legacy systems can be adjusted to enable an open API framework and obtaining informed consent amongst bank account holders to complete certain transactions, respectively. “Speed and certainty are critical in payments, with technology, including real-time information and reconciliation and the use of APIs, being adopted to further facilitate data integration,” says Raof Latiff, regional head of product management, global liquidity and cash management, Asia at HSBC. “Digital innovation solutions have helped banks improve the client experience in banking and their need to seamlessly incorporate this high level of service as they expand globally.” Another exciting frontier for digital innovation is blockchain technology. Banks like DBS as well as CIMB are beginning to explore the potential of blockchain, particularly distributed ledger technology (DTL), to raise the value of cash management services. “Distributed ledger technology, in particular, brings a variety of benefits

Stella Lim

Silawat Santivisat

Raof Latiff

Vijay Manoharan

to the cash management sector,” says Latiff. “These can include an enhanced customer level value and experience, re-engineered processes, and a closer ecosystem that brings overall value to the system and the market.” He warns though that banks that go at it alone may fail miserably; instead, they must collaborate with technology companies to build an ecosystem designed to benefit all stakeholders. “Blockchain offers immense possibility and can be implemented in a range of banking services, not necessarily just cash management,” says Vijay Manoharan, senior managing director & regional head, digital banking & decision management at CIMB. Incumbent banks might be tempted to view fintech companies as nothing more than dangerous rivals, but teaming up with them can produce more favourable results than facing them head on. “Collaboration is the best way forward,” says Manoharan. “By working with fintechs or ‘disrupters’, we believe that there are key learnings that both sides can learn from each other.” “We have seen many of our peers as well as central banks taking on such collaborative partnerships. The idea is to, for example, combine the costeffective nimbleness of fintech with customer base of mainstream banks,” adds Manoharan. CIMB recently established CIMB Fintech to take advantage of fintech partnerships, including efforts to scale up the applications of blockchain in its cash management business.

Digital is more convenient, but more expensive too ASIAN BANKING AND FINANCE | JUNE 2017 19

SECTOR REPORT 2: Banking Technology

Banks explore the potential of blockchain

The 5 tech trends that are transforming Asian banking See which handful of technologies are powering the latest wave of innovative banking products and service enhancements in Asia.


sian banks seem to be caught in a digital bind these days: They need to keep up with the techy Joneses — from tightening their cyber security to automating their old systems — whilst steering clear of hyped trends that will end up being trashed the following year. Banks must choose to invest in technological trends that are not only game-changers, but will also remain relevant long enough to provide a substantial return on investment. In 2017, these five technologies made it to the list of banking must-haves to boost performance and client experience: Soft tokens, biometrics, blockchain, chatbots, and contactless payments. 1. Soft tokens In the face of rising cyber attacks against banks in Asia, cyber security has become of paramount importance. Banks are enhancing


Voice and facial recognition is increasingly becoming part of a bank’s line of defense against customer data thieves.

the protection of their systems and customers through soft tokens. Unlike a hard token, which needs to be physically carried around by the client for them to receive their one-time authentication password, a soft token is linked to a client’s device. “Many of our corporate customers are already using this,” says Nimish Panchmatia, managing director and head of technology & operations, Hong Kong & Mainland China at DBS Bank (Hong Kong). In 2015, UOB also used tokenised security — one of the other emerging technology trends in banking — to launch mobile contactless payments in Singapore, the first country in Asia Pacific to receive such a service. Tokenisation works by encrypting a customer’s card payment data on the mobile device, says Aaron Chiew, executive director, retail digital bank, mobile and digital at UOB, which enables higher protection for

sensitive card information. OCBC NISP, for its part, is developing soft token technology for mobile banking. Andreas Kurniawan, division head, retail business development at OCBC NISP, says the bank is leveraging on this digital innovation to enhance both security and customer experience. 2. Biometrics Also in cybers ecurity, Panchmatia reveals that another exciting technology making waves is biometrics. In particular, voice and facial recognition is increasingly becoming part of a bank’s line of defense against customer data thieves. Biometrics is also an appealing service to individuals that find it hard to remember alphanumerical passwords. “Digital know your customer (KYC) is the future, particularly as biometric technologies mature and become more mainstream,” says Panchmatia. “With the use of multiple biometrics, such as fingerprint and voice or voice and face authentication, that link with the government ID database and enhance the customer experience, security, as well as efficiency and cost — it is difficult to see any significant cons.”

SECTOR REPORT 2: Banking Technology

Contactless payments are also gaining traction

DBS clients in India are beginning to experience the power of biometrics firsthand. The bank has begun offering the service across the country and it is linked to Aadhaar, an Indian government initiative on biometric identification cards. OCBC NISP is similarly developing face recognition for its mobile banking business to reduce the complexity of remembering security passwords whilst bolstering customer security. Stella Lim, head of corporate sales, Asia Pacific at SWIFT, reckons cyber security technology is becoming vital to banking operations due to the growth threat of attacks. Banks are also starting to band together to create solutions to a “pressing” threat that, if taken on alone, they may not be able to solve. “Recent instances of payment fraud in our customers’ local environments demonstrate the necessity for industry-wide collaboration to fight against these threats,” says Lim. To this end, SWIFT launched the Customer Security Programme, which aims to improve information sharing amongst member banks, nurture best practices for fraud protection, and enhance industry support for partners in the banking ecosystem. 3. Blockchain As banks pursue deeper relationships with their customers, they also want to collect more information and insights that will guide which products banks recommend, how to improve their service, and check whether a customer poses a security risk. This is where digital KYC comes in, and the emerging technology of blockchain promises to make client data collection and processing more

efficient than ever. “KYC is a foundation of every customer relationship, even if the same profile checks and due diligence have been done by other banks, dozens of times before. Digital KYC is looking at ways to overcome this repetition using the secure, transparent capabilities of blockchain technology,” says Di Challenor, general manager, global transactional solutions and client experience at Westpac. “The premise here is to do KYC once and centralise the process as an industry utility.” But Challenor warns that despite blockchain technology’s promising potential, there are still a few issues surrounding its use that must be resolved in the coming years. For example, the legal structures needed to centralise KYC using blockchain raise a lot of questions. “Who is liable if the KYC is incorrect? Is it the custodian of funds, or the bank that originally did the KYC? If this is not clear and consistent across the jurisdictions the bank operates in, it will result in an unacceptable level of risk and is unlikely to replace today’s repetitive but well-defined processes,” says Challenor. 4. Chatbots Automation has swept through the banking industry in recent years, convincing firms to embrace digitalisation and reap the efficiency gains it brings. A bold step in this direction is the use of banking chatbots, which leverages on artificial intelligence (AI) in the hopes of automating responses to client queries online. “The presence of chatbots would be able to ease banking customers

Andreas Kurniawan

Nimish Panchmatia

Aaron Chiew

Stella Lim

Di Challenor

Vijay Manoharan

in solving common and simple questions through online chat, whilst branch customer service as well as call centre departments can further focus towards answering more complex questions,” says Kurniawan. DBS’ Panchmatia adds that many organisations are trying out different variations of chatbots, such as customer service bots and robo advisors. DBS has launched a live chatbot in India as part of its digibank offering, as well as one in Singapore for its POSB franchise, whilst a pilot programme in Hong Kong uses Cantonese on Facebook messenger rather than a standalone app. CIMB has also joined the chatbot bandwagon with the launch of CIMB EVA, a chatbot application that allows customers to view their current and savings account balances, pay bills, and reload their prepaid phones. The chatbot also comes with a messenger chat feature that provides alerts on account activities, as well as the latest offers from CIMB. Vijay Manoharan, senior managing director & regional head, digital banking & decision management at CIMB, reckons chatbots represent just a fraction of the exciting applications that AI can unlock in the banking world. “We expect innovations in AI and cognitive computing to mature as a platform to make, for example, sophisticated financial advisory accessible to all.” 5. Contactless payments Finally, contactless payments are forging ahead in Asia due to the rise in mobile phone usage. UOB has been pushing for mobile contactless transactions using credit cards, and it has also launched the first Near Field Communication-enabled contactless automated teller machines in Singapore where customers can withdraw cash with a tap of their smartphones. “Today, the mobile phone has become an indispensable lifestyle device. Many of us would notice immediately if we left our homes without our phones. As such, one of UOB’s key areas of focus has been how we can harness contactless technologies so that our customers can bank and pay on their phones,” says Chiew. ASIAN BANKING AND FINANCE | JUNE 2017 21

Case study: Krungsri-MUFG

Krungsri’s commanding facade in Bangkok, Thailand

What can we learn from the Krungsri-MUFG partnership? Krungsri’s integration with the Mitsubishi UFJ Financial Group has boosted the Thai bank’s local strength and regional reach.


hen Bank of Ayudhya (Krungsri) began its integration with the Japanese firm Mitsubishi UFJ Financial Group (MUFG) four years ago, it planted the seeds of transformation that have now grown and borne fruits of fast growth. The partnership has nurtured Krungsri’s assets to reach THB1.88t (US$54.2b) in 2016 from THB1.2t (US$34.6b) in 2014, catapulted the bank’s net profit to a new record last year, and enabled landmark transactions for leading Thai corporates. Krungsri has been leveraging on the global expertise of MUFG, Japan’s largest financial group, to help build up its client base in Thailand and establish a foothold in other Southeast Asian countries. The bank’s impressive leaps in assets, profit, and regional presence can be attributed to the strategic partnership with Bank of Tokyo-Mitsubishi UFJ (BTMU), 22 ASIAN BANKING AND FINANCE | JUNE 2017

The partnership has nurtured Krungsri’s assets to reach THB1.88t (US$54.2b) in 2016 from THB1.2t (US$34.6b) in 2014 and catapulted the bank’s net profit to a new record last year.

a member of MUFG, says Noriaki Goto, president and CEO of Bank of Ayudhya (Krungsri). “Having BTMU as a key strategic shareholder gave us an unrivalled strength to provide total financial services to a wide range of customer groups,” he says. “The growth was phenomenal considering the challenging economic environment in Thailand, sluggish domestic consumption, and the uncertainty of global markets.” Thailand’s rising star Through the MUFG and BTMU integration, Krungsri gained a competitive advantage against rivals, becoming Thailand’s rising star in the banking sector. The bank combined its local network and newly unlocked full-scale global connection and product capabilities to improve its service to customer segments. For Japanese corporates and multinational companies,

Krungsri developed a stronger suite of solutions, especially for their supply chain requirements. Krungsri has become the largest provider of loans to Japanese corporates in Thailand, with more than 2,600 Japanese corporate customers in Thailand and more than 700,000 employees transferred from the integrated BTMU Bangkok branch. “The successful completion of the integration between Krungsri and BTMU Bangkok Branch has given us a unique strength to deliver financial solutions that can differentiate Krungsri from our peers,” says Goto. “Krungsri is empowered to better respond to the financial needs of our large corporate clients with their cross-border trade and investment activities.” Last year, Krungsri strengthened its cross-border transaction banking and foreign exchange business services for Japanese MNCs that are looking to establish international headquarters and international trading centres in Thailand. Two of the major highlights for Krungsri’s cross-border business in 2016 was Krungsri and BTMU providing financing services for one of Thailand’s largest cement companies pushing for expansion in

Case study: Krungsri-MUFG Asia, and supporting one of Thailand’s largest retail groups in their overseas forays in Southeast Asia. In March 2017, the Krungsri and BTMU synergy powered the largest transaction in history by Siam City Cement Pcl. (SCCC), which was also the largest cement acquisition outside of Thailand by a Thai corporate. Krungsri and BTMU joined forces to provide financial solutions and services to SCCC and its subsidiary, Siam City Concrete Company Limited (SCCO), in bidding and acquiring Holcim assets in Sri Lanka and Vietnam. The acquisition is part of SCCC’s strategic plan to diversify its business and become a leading regional player. Goal-setting Goto believes Krungsri is now in a great position to rise in the ranks of Thai commercial banks as it leverages on its local expertise and MUFG’s global strength. This is why, in 2017, Krungsri has set its sights to become a top-tier commercial bank with a loan growth target of 5% and a deposit growth target of 12.6%. Commercial banking has become a key driver for Krungsri’s asset growth since 2015, says Pornsanong Tuchinda, head of commercial banking at Krungsri, with services now spanning lending, investment banking, business matching, as well as debt and capital market advisory to Thai corporations, international companies, and small and mediumsized enterprises (SMEs). Thai corporate loans accounted for 45% of portfolio in 2016, and growing 11% and outperforming the market despite economic headwinds and tougher competition. The large corporate segment accounted for 30% of total portfolio, whilst the SMEs segment was at 15%. Meanwhile, deposits from commercial banking clients increased by 9.8%. Goto explains that everything is going according to the Mid Term Business Plan (MTBP) for 2015-2017 that the bank launched more than two years ago, following its MUFG and BTMU integration. The bank implemented initiatives to support this MTBP, including supply chain financing, cross-border financing, business matching, and payroll

account acquisition. These enabled the bank to sprint ahead in three key areas: Asset growth, performance, and regional expansion. Krungsri’s integration efforts have led to strong asset growth. Its market share of auto hire purchase rose to 24% in 2016 from 17% in 2014. Mortgage loans also experienced robust growth with THB60b (US$1.7b) in new booking, up from THB50b (US$1.4b) in 2015 and THB36b (US$1.04b) in 2014. The Thai bank also managed to deliver a solid performance despite the challenges of a slowing domestic economy and global uncertainties. “The ability to deliver a strong performance largely attributed to strengthened operating platform and capability, together with the synergies achieved with MUFG and BTMU, which led to our enhanced non-interest income generation and increased efficiency,” says Goto. Krungsri made significant strides as well across the Southeast Asian region. In 2014, it established a consumer and auto hire purchase joint venture and branch enhancement in Laos. The following year, in April 2015, it opened its representative office in Yangon to support corporate and SME clients. Then in September 2016, it acquired Hattha Kaksekar Limited, the fourth largest microfinance institution in Cambodia, which Goto views as “another step forward” in the bank’s mission to capture growth opportunities in the region, especially in its strong areas of retail banking and microfinance. ASEAN: A digital powerhouse Krungsri has an ambitious goal to transform into one of the most preferred banks in the ASEAN region, as well as a digitally powered institution equipped with the latest innovations in financial technology. “We aim to become a top tier bank in every customer segment and strengthen our position as a major ASEAN financial powerhouse,” says Goto. “The synergy between Krungsri’s local Thai expertise and MUFG’s global capability and networks has propelled Krungsri to strengthen the relationship with existing customers and expand new

Noriaki Goto President and CEO Bank of Ayudhya (Krungsri)

Thai corporate loans accounted for 45% of portfolio in 2016, and growing 11% and outperforming the market despite economic headwinds and tougher competition.

customer base.” The bank is putting focus in growing its presence in the relatively underserved ASEAN subgroup of Cambodia, Laos, Myanmar, and Vietnam. Using its strong MUFG group partnerships, Krungsri has been supporting CLMV offshore investment. Krungsri has led Thai firms to join the July MUFG Business Matching Fair in Hanoi, collaborating with MUFG members including BTMU and Vietnam’s VietinBank. In the most recent business matching fair, around 100 companies participated, with more than 200 matches arranged in a single day. For many Thai firms, this was their first opportunity to participate in business matching in Vietnam. “This year, we will enhance collaboration and maximise our current footprint in the region, whilst we continue to explore opportunities in Vietnam, where we can work closely with BTMU branches In Ho Chi Minh City and Hanoi,” says Goto. Aside from ramping up its ASEAN business presence, Krungsri will also double down on its digital banking investments and initiatives. Goto reveals that the bank has developed several digital platforms for customers, as well as a venture capital called Krungsri Finnovate to oversee investments in startups and financial technology operations with an initial investment of US$30m. ASIAN BANKING AND FINANCE | JUNE 2017 23

retail banking forum: MANILA

LIEW NAM SOON, EY: “Around 15% of global consumers see non-banks as their primary financial services provider. It is a clear trend because customer expectations are changing.“

MARGARITA LOPEZ, RCBC: “It’s not just a question of fewer branches or more apps. It’s an ecosystem that needs to be put in place inside and outside the banks.”

MARK BANTIGUE, Security Bank: “Do not brand your online banking platform as ‘mobile banking apps.’ Brand them as productivity tools so you can engage more customers.”

How far has the Philippines gone in its journey towards digitalisation?

Find out what bankers have to say about fintech disruption, online banking, and digital KYC.


hilst banks remain the primary financial services provider for most consumers, they are becoming less relevant for managing finances. More consumers are now turning to non-bank players (fintechs, payment companies, e-commerce firms, etc.) for their various needs. Speaking at the Manila leg of the Asian Banking and Finance Retail Banking Forum 2017 held on February 15, Liew Nam Soon, managing partner, financial services, ASEAN at Ernst & Young, said around 15% of global consumers see non-banks as their primary financial services provider. “It is a clear trend because customer expectations are changing. They expect to be able to interact more intuitively and in a quicker, more personalised manner that is not provided by traditional players. Banks are investing a lot of money in the digital space but the question is: Is it enough and is it hitting a sweet spot 24 ASIAN BANKING AND FINANCE | JUNE 2017

The fintech market in the Philippines would be worth US$5.5b by year end, growing at a CAGR (20172021) of 19% to US$11b by 2021.

for the customers?” he added. But whilst customers want to transact digitally, there is a perceived lack of such capabilities in traditional banks. Liew noted that slowly but surely, incumbents are falling behind digitally. Addressing the bankers present at the Forum, Liew said, “Your competition is not just your peer banks. Your competition is fintech players which are clearly disrupting the space.” Digital banking and fintechs In response to the fintech disruption, most retail banks are reacting with a “kitchen sink” strategy. According to Liew, banks are considering a host of digital activities to win back customers such as comprehensive mobile banking, wallet offerings, social innovation, branch technology investments, and many others. “Some of the most successful financial institutions focus on one to three of these propositions, tie it very tightly

to the customer segments they want to serve, whether wealth or SME, and align the entire organisation towards that strategy,” said Liew. “You can’t just create artificial innovation. It has to come from the ground up,” he added. He noted that the fintech market in the Philippines would be worth US$5.5b by year-end, growing at a CAGR (2017-2021) of 19% to US$11b by 2021. Liew suggested that teaming up with the tech providers could not only prevent banks from being completely disintermediated but also allow them to provide a better service to their clients. Margarita Lopez, head of digital banking group at RCBC, discussed how banks can get digital right by going beyond first touch. “To get to the heart of digital is to get to the ‘why’ to remain useful, relevant and connected to our customers because it will help us discover, beyond mobile products, what transformation

retail banking forum: MANILA requires. It’s not just a question of fewer branches or more apps. It’s the financial products that need to be rebooted. It’s an ecosystem that needs to be put in place inside and outside the banks.” Meanwhile, Mark Bantigue, head of e-commerce at Security Bank, said whilst he acknowledges that physical branches will continue to be relevant in the Philippines, banks also have to up their game in terms of servicing consumers online. “Branches will not become irrelevant. The Philippines is a cash-heavy country. It will continue to be,” he said, adding that it costs almost US$200m per year to maintain a physical branch in the Philippines. Bantigue noted that Filipinos spend around 3.8 hours per day (26.7 per week) connected to the internet. This means there is huge potential for banks to connect with their customers via this channel. “Do not brand your online banking platform as ‘mobile banking apps.’ Brand them as productivity tools so you can engage more customers,” he added. Some still stick to physical branches But whilst much has been said about the need for banks to embrace digital and mobile banking, some Filipino consumers, especially those in the countryside, are still very much reliant on physical branch banking. Eric Valenzuela, Jr., vice president of Country Builders Bank, said that, as a rural bank, they are not pursuing any mobile-related initiatives. “For our provincial branches, our customer base still prefers having the physical interaction. We have established branches in municipalities where there were no commercial banks initially. And now that commercial banks have penetrated those municipalities, people still remember what bank was there first. So there is that kind of brand recognition,” he said, adding that internet connectivity and low smartphone penetration are also some of the reasons behind their clients’ dependence on branch banking. “I’m a firm believer that you have to merge the digital and physical strategy. If you would like to manage everything, don’t settle with just digital,” added Expedito Garcia Jr., SVP, head of transaction banking

and customer engagement at the Philippine Bank of Communications. How about digital KYC? EY’s Liew also sat on a panel with Mary Joyce Sasan, chief compliance officer of Unionbank; Christian Lauron, lead partner for financial services at EY; Rajiv Madane, director, products & strategy at Fiserv; and Burak Alper, senior consultant, Experian Global Consultancy Practice to discuss banks’ dilemma of balancing regulatory controls with operational efficiency and good customer experience when it comes to implementing KYC and AML processes. In January 2017, the Philippine Anti-Money Laundering Council and the country’s regulator, Bangko Sentral ng Pilipinas, have allowed banks to use information and communication technology to complete their KYC processes. “The innovation of the regulatory framework now gives us more opportunities and challenges to plan how we onboard our clients,” said Sasan. Given the uneven playing field for banks and fintechs, Sasan noted that regulators are aware that fintechs are here to stay and that they pose challenges to banks. “The regulators recognised that they also have to speed up updating the regulatory framework in order for banks to compete with fintechs,” she added. According to Lauron, banks are collecting data points at the back end to comply with regulatory changes. “But if you have a situation where channels are very different, you have to disrupt the process before you apply compliance filters,” he said. “You’re dealing with polarising sentiments: On the customer front, you have concerns about incorrect rejection. On the compliance side, you have concerns of incorrect acceptance. Managing this will require efficient techniques and preemptive analytics and modelling.” Meanwhile, Alper from Experian noted that whilst the recent regulatory development is very much welcome, segmentation is important. “The question for banks is, ‘which segments are you going to do e-KYC

The regulators recognised that they also have to speed up updating the regulatory framework in order for banks to compete with fintechs.

for? What are the risk profiles of these segments? How are you going to use the technology? How is this going to impact your strategy?’ You are opening up yourself to risks if you do not do your KYC properly. The key is streamlining the process,” he added. Innovations in banking Madane also discussed the different innovations such as voice banking services. “We want to make banking so convenient you just talk,” he said. He also talked about how banks can make the user experience at the branch easier with palm authentication, instead of having to go through a manual process. Madane added that one trend emerging in Asia is the rise of the digical model, which is the coexistence of digital and physical strategies. “A lot of banks have the physical branch and a lot of banks are trying to move into the digital space, but digical is where the market in Asia is heading. We are having a lot of conversations with banks to look at the digical model,” he added. Meanwhile, Sujatha Venkatramanan, APAC head of consulting, global consulting practice at Experian, shared some examples of what digital banks are doing across the globe. “Digital banking has been in place for a little over two decades now so it’s not entirely new. And in these two decades, the myriad of organisations working in this space have evolved in different directions. So when you say digital banking, it doesn’t quite mean the same things to everybody. One thing that these players have in common is they are looking at providing a seamless and consistent customer experience across channels,” she added.

From left to right: Charlton, Lauron, Sasan, Madane, Alper, Liew ASIAN BANKING AND FINANCE | JUNE 2017 25

retail banking forum: BANGKOK

Rin Watakanont, Siam Commercial Bank: “We would have data leaks here in Thailand, and malware is also quickpreying. We need both preventive control and detective control.”

VARUN MITTAL, EY: “Consumer perception of traditional banks is waning. They are increasingly open to digital transactions. This generation wants to order everything online.“

TANA POTHIKAMJORN, Siam Commercial Bank: “Banks are being disrupted from all ends. So banks must build new capabilities to stay relevant digitally.”

Why Thai banks must go for aggressive yet focussed strategy against fintechs

It’s the only way for Thai banks to keep up with the rapid changes brought about by the digital age.


anks are being urged to seriously tackle and embrace emerging industry trends and technological advances, including but not limited to digitalisation and streamlining, in order to remain robust, reliable, and competitive in the years ahead. “Everyone talks about fintech and digital developments in retail banking,” said Varun Mittal, associate director, ASEAN fintech and payment lead at Ernst & Young. Mittal was one of the panelists at the Bangkok leg of the 2017 Asian Banking & Finance Retail Banking Forum held last March 15. According to Mittal, the traditional portrait of banks — that of being conservative, brick-and-mortar structures with very rigid processes — is slowly becoming a thing of the past, and this is something that banks must be willing to embrace. “Consumer perception of traditional banks is waning. They are increasingly open to digital transactions. This generation 26 ASIAN BANKING AND FINANCE | JUNE 2017

Digital innovations have the highest transaction within retail payments and investments.

wants to order everything online — and, somehow, this includes banking,” he added. Fintech on the rise Banks, however, find themselves caught off-guard and scrambling to adapt, initial studies indicate. It turns out that banks’ wholesale approach to digitalisation may be hurting the industry more than it is helping. “Most banks are reacting with a ‘kitchen sink’ strategy,” explained Mittal. “If you look at banks, they all have similar products. All those different kinds of accounts, but [they’re] all the same. So if you make a list of financial services possible, all of the other banks have them. You want to be everything for everyone — and this is a challenge,” said Mittal. The challenge to go digital presents itself in a very conspicuous time as fintech activities — including all challenges and opportunities — are on the rise and increasingly making

headlines. “Digital innovations have the highest transaction within retail payments and investments,” said Mittal citing other fintech offerings in money transfers and payments, savings, and investments, and even in borrowing and lending. In Thailand, fintechs have been described as “nascent,” and are slowly making their presence felt. As a concrete example of these vast changes, Mittal quickly polled the forum audience and revealed that nearly all those present had used Line, a popular instant communication app, compared to using the traditional SMS to send messages — revealing that technology had really evolved as far as communications is concerned. “Five years ago, there wouldn’t be any Line users,” said Mittal. In the meantime, how are banks expected to stay competitive and level up in the age of fintechs? Mittal advised banks to implement an aggressive yet focussed strategy

retail banking forum: BANGKOK in order to keep up with fintechs. “Banks need bold strategies to compete in today’s ‘new normal’,” he added. Posing as threats to banks, however, are large organisations that are already well-entrenched in their respective industries but are trying to sell financial services to their existing customers. According to Mittal, these may include, but are not limited to, tech giants both from West and East, telecommunication operators, and ondemand providers. Mittal cited three specific techrelated trends that will make innovation possible for banks: RPA (robotic process automation) for greater accuracy, risk reduction, productivity, and cost efficiencies; robo-advisory, a game-changer for wealth management; and blockchain. RPA guarantees a quick return for banks, thus ensuring its effectivity. “In four to six months, you can see all the investments coming back already. Customers also get everything much faster,” he said. Robo-advisory, meanwhile, is capable of achieving scale and the specialisations needed to address various target segments, he added. The challenge of ATM fraud Risks, however, remain in the area of ATMs, which continue to remain vulnerable in the face of cyber attacks. In Thailand alone, there have been 21 ATMs compromised last year, with approximately US$350,000 in cash being siphoned. “We would have data leaks here in Thailand, and malware is also quick-preying. Once the system is infected, it is easy for a machine to dispense money illegally. If you look at the principle of control, we need both preventive control and detective control,” said Rin Watakanont, manager for analytics development at Siam Commercial Bank. Robert Chan, principal consultant at Fiserv, agreed, but is more optimistic when it comes to solutions. “Nowadays, you can use multiple engines that can look into all of a bank’s transactions, including ATM transactions. This can be done using new technology,” he said. For Watakanont, however, the solution may be more fundamental than novel: “If the banks just keep with the fundamental things when it comes to

security and look at the awareness of employees and customers, then they will be able to cope with what will happen in the future,” she said. Meanwhile, another important consideration banks have to look into is the strength and quality of its human resources, which, as it turns out, plays a crucial role in achieving digitalisation. “Banks are being disrupted from all ends. So banks must build new capabilities to stay relevant digitally,” noted Tana Pothikamjorn, head of digital banking at Siam Commercial Bank. Pothikamjorn cited two basic strategic directions to achieve this: disrupt the market or digitise the bank. Agility: A team effort Digitalisation, Pothikamjorn argued, is the way to go but requires several significant changes. A digital-led bank is an end-to-end transformation from front to back. Digitalisation, he added, requires two specific actions: doing things right (“agility”) and doing the right things (“customer centricity”). “It is imperative to refocus ourselves on creating the core capabilities that will allow the organisation to both be agile and customer-centric,” he said. According to Pothikamjorn, a bank must be able to adopt some tools that replace traditional documentation, as “document-based development is time-consuming.” This involves harnessing the abilities of a “squad” — or a small startup empowered end-to-end from inception delivery. It would also be helpful to identify a user-story, or functional requirements broken down into simpler stories for more effective use, and a Kanban board, which is a visual-based tool that makes work tracking and planning more effective. Meanwhile, organisations must also be prepared to adopt the basic, which include “sprint planning” or ensuring a product owner understands a functionality’s every required effort, and keeping everyone on the same page at all times (“standup”). Further, as customers’ needs evolve, constant user testing will allow the team to remain in the loop, whist showcasing these tasks will keep everyone updated and interested in

Digitalisation requires two specific actions: doing things right (“agility”) and doing the right things (“customer centricity”).

the ongoing processes. Key attributes also of the digitalisation effort, according to Pothikamjorn, involve pairing or “being able to reduce key-man risk and enable cross-team collaboration” and group therapy, or “maintaining trust and comradery”. Teamwork, he said, allows an organisation to directly pursue the answers to the question “Are we an effective team?” In achieving the goal of digitalisation, the evolving environment has also challenged the way solutions are realised. According to Pothikamjorn, business paradigms have shifted toward adopting an agile mindset. Small fish, big fish “In today’s tech world, the small fish eats the big fish. The theory is pretty straightforward: it’s not a battle or a competition of force anymore in today’s competitive market. It’s kind of a rally now, where you have to change directions all the time,” Pothikamjorn declared. “Who can change directions the best is the one that wins. It’s all about trying out different ways of working,” he added, citing Siam Commercial Bank’s experience in digitalisation. “The biggest resistance was actually not from the senior management, but from the people, as we were changing the way they are used to working. We needed to educate them along the way,” he shared. Thinking long-term is also key, added Mittal. “A Scotch tape solution will not solve challenges. How do we generate the talent and prepare the teams inside the bank? It has to be at least a one or three-year-horizon business case. And then you can make it,” he said.

Tana Pothikamjorn, Varun Mittal, and Tim Charlton during the panel discussion ASIAN BANKING AND FINANCE | JUNE 2017 27

ANALYSIS: investment banking legal entity structure and transfer pricing. They will need to make capital allocation decisions and associated footprint decisions regarding products, clients, geographies, and counterparties that fit into that new structure. But having a robust decision-making framework and obtaining relevant data to inform strategic decisions will be challenging whilst markets remain unsettled.

Banks must focus on five goals

The future investment bank

Find out what leaders must do to radically transform their business models.


e believe there is a bright future for the capital markets industry. The long-term market fundamentals are positive, even if the recent financial performance of many global investment banks is disappointing. Whilst aggregate revenues for the largest investment banks in FY15 were in line with pre-crisis revenues a decade earlier, some businesses seem to be in terminal decline. Moreover, operating costs and capital requirements have significantly increased. This means long-term success will demand that banks fundamentally reshape their business. Ever since the global financial crisis, the viability of the investment banking business model has been under scrutiny and banks have been struggling to redefine their roles. They’ve been faced with a litany of challenges: sluggish economic growth, low interest rates, scandals, fines, legal settlements, demands for greater tax transparency, and new regulations. Additionally, they have had to contend with the rise of upstart competitors 28 ASIAN BANKING AND FINANCE | JUNE 2017

Even in an age of slow growth, businesses continue to need help raising capital, managing risk, and facilitating trade.

that are unburdened by large overheads and legacy IT systems and can take advantage of regulatory arbitrage. Banks have retrenched and restructured in what has so far been a mostly unsuccessful effort to recapture the double-digit returns on equity of a decade ago. The task is unfinished. However, the world still needs a wide array of investment banking services. Even in an age of slow growth, businesses continue to need help raising capital, managing risk, and facilitating trade. We believe the winners in this environment will be firms that restructure successfully, develop a sharp focus on the things they do best and embrace innovation. Investment banking leaders should be bold and innovative in developing a new vision and strategic direction for their organisations. Then the leaders must radically transform their business models to align with the new vision. We believe banks should concentrate on five goals: 1) Reshape the business Banks will need to restructure operations to be more mindful of

2) Grow the business. To regain profitable growth, investment banks should clearly define their risk appetite, the clients they want to serve, the products they want to offer and how they want to distribute those products, as well as the geographic footprint of the organisation. In addition, they should harness the power of analytics to better serve the clients they already have. 3) Optimise the business New operating models should be developed that take advantage of technology, partnerships, and industry utilities to improve service and reduce cost. In addition, banks will need to optimise their balance sheet in the face of multiple market and regulatory constraints. 4) Protect the business: In the wake of the London Interbank Offered Rate (Libor) and foreign exchange scandals, banks must rebuild trust. The right organisational culture will be a key differentiator for leading investment banks. In addition, given the ongoing threat of cybercrime, banks must take steps to ensure that their systems are secure, that they use technology where possible to maximise the coverage of internal protections, and that their people are adequately trained and supervised. 5) Control the business Compliance and risk management must be a priority; in addition to using technology and training, management tone, transparency, and the importance of controlsbased reporting should be promoted. By Ernst & Young


Demand for faster payments on the rise

Financial institutions, government organisations, and providers like Fiserv find ways to set up innovative solutions for faster payment infrastructures.


n our personal and professional activities, we want speed, ease and convenience in all that we do. Our expectations are accelerating in most areas of our lives. The rapid advancement of digital tools like mobile phones, tablets, and wearable devices bring new and innovative experiences to how we interact with the world. Financial services are no exception. People and businesses want their money to move at the speed of thought - when and where they need it. Fueled by 24/7 digital capabilities, the demand for faster payments continues to accelerate. Global payment infrastructures are moving toward faster payments and real-time settlement. To facilitate this faster payment infrastructure, financial institutions, government organisations, and technology providers like Fiserv are creating industry-wide “rails” that allow for financial institutions to set up innovative solutions for customers. For example, the National Payments Platform (NPP) is currently under development in Australia with Fiserv building the addressing services. This will provide the capability to transact a payment within only a few seconds. The impact of this will bring a great deal of benefit to consumers and businesses. Small and medium enterprises (SMEs) will be able to receive payments from their customers and in turn, immediately pay their employees for their daily work. This is an enormous difference from the present reality of small businesses often working in arrears as they wait to collect and process payments for services. With a faster payment system in place, businesses can attract a greater pool of daily or casual workers and more effectively serve their customers. Other front-end innovations will continue to develop as the faster payment rails are created. Payments are no longer a distinct step in the purchase process when instant payments happen as people think of them. If you search for an item on your mobile and want to buy it, you can often do so immediately. GPS and location-based services can enable push and pull offers with predetermined “buy” settings, including electronic coupons that can be purchased or redeemed in real time. In the UK, mobile apps such as Zapp and PayM are using the faster payment rails to allow users to pay for a plethora of goods and services. Financial

Robert Liong, vice president and managing director, Australia, New Zealand & Pacific Islands, Fiserv

institutions should be doing the same. Security Considerations Moving money quickly is one thing; moving it safely is another. As financial institutions continue to meet the demand for anywhere, anytime services, those in risk and fraud management specialist will need to provide security that matches the speed of those transactions. People and businesses want mobility, convenience and speed without the interference caused by out-of-date fraud protection systems raising red flags when none are necessary. Fraud detection tools that set arbitrary barriers, such as transactions above a certain amount, can often lead to false positives. The security should enhance, rather than hinder, the customer experience - such as ANZ’s recently announced Voice Biometrics step-up authentication feature - and in the near future, will be coupled with machine learning systems ensuring the heuristics always remain a step ahead. Hybrid analytics help financial institutions achieve that balance. It’s a sophisticated technique that leverages a broader set of data from a consortium of institutions to analyse

transactions in real time. The process identifies the nuances of behaviors that indicate fraud. And it does so in an operationally efficient way. Hybrid analytics establishes a layered series of checks and balances across a transaction’s lifecycle to help ensure what’s happening with a payment is consistent with previous outcomes. Strong protection often depends on monitoring the entire flow and ecosystem, as it may not be enough to target only one point of the transaction at a time. Time is of the essence and the most precious commodity. As life’s demands continue to accumulate, our devices become smarter, our interactions become richer, and our expectations become greater, this realisation becomes more self-evident. The winners of tomorrow will ensure that everything they design and create – including financial payments – will have this truth embedded into the very fabric of that new app, that new service and most importantly, within their own mindsets so that they can execute at the speed of life. By Robert Liong, vice president and managing director, Australia, New Zealand & Pacific Islands, Fiserv

“Global payment infrastructures are moving toward faster payments and real-time settlement.” ASIAN BANKING AND FINANCE | JUNE 2017 29

ANALYSIS: china banks internationalisation of RMB.

ICBC is one of the largest banks in China

Seeing China’s banking sector through the eyes of bankers The banks’ profit growth continues to slow as pressures persist from rising NPL ratios, narrowing NIM, and declining return on investment portfolios.


he world economy has been turbulent since the beginning of 2016, with weak recovery momentum in developed economies and slower growth in emerging economies. This situation is further clouded by the result of “Brexit”. All of above uncertainties contributed to a complicated external environment for China’s economy, which is already facing growth and structural challenges. With the economic rebalancing and interest rate liberalisation gathering pace, Chinese banks are facing a series of pressures, such as slowing profit growth, narrowing net interest margin (NIM), and increasing non-performing loans (NPLs) balances and ratios. New growth engines are in urgent need. Revising growth forecasts China reported stable Gross Domestic Product (GDP) growth of 6.7% in the first three quarters of 2016. Yet most bankers revised 30 ASIAN BANKING AND FINANCE | JUNE 2017

The major challenges for China’s economy as highlighted by bankers are “growth slowdown” (60.7%) and “structural imbalance” (58.6%).

their growth forecasts downwards compared to one year ago, with 78.7% of bankers believing the country’s GDP growth will stay at a range of 6-7% over the next three years (as opposed to the result that 85.1% of bankers expected the growth to hit 6.5% to 7.5% in 2015). The major challenges for China’s economy as highlighted by bankers are “growth slowdown” (60.7%) and “structural imbalance” (58.6%). Over half (54.5%) of bankers argue that the biggest setback arising from economic slowdown for the banking sector is “much greater risk exposure”. Turning to the effect of Macroprudential Assessment (MPA) introduced by the People’s Bank of China (PBoC, or the central bank), 68.6% of bankers think that capital would be the main constraint and capital-intensive businesses would come under greater strain. On RMB’s inclusion into the Special Drawing Rights (SDR) basket, 75.8% of bankers believe it will accelerate the

Supply-side reform As China’s economy enters a “new normal” stage, the “supplyside reform” remains high on policymakers’ agenda. Around 80% of bankers agree that supply-side reform targetting at upgrading and transformation of manufacturing sector, and exploration of new markets offers the greatest opportunity for Chinese banks. Nevertheless, the central government’s policies on cutting excess capacity, destocking, de-leveraging, lowering corporate sector’s borrowing costs, and improving infrastructure and removing institutional barriers also bring many challenges, such as “lower profit margins” (64.3%), “slower growth” (52.8%), “deteriorating credit asset quality” (52.8%), and “more difficult to dispose NPLs” (46.1%). When it comes to the top priority in response to the “supply-side reform” from banks’ side, over 70% (71.6%) of bankers believe that they should refrain from lending to companies in overcapacity industries, to so-called “zombie companies”, and to companies in other inefficient sectors. Whilst as much as 85.4% of bankers think banks should adjust loan portfolios proactively, another 79.7% are in favour of more credit support to emerging industries. Debt-for-equity swaps Another important initiative launched by the central government in 2016 is “debt-forequity swaps” in attempt to reduce credit risk and leverage ratio of corporate sector, which is also part of the “supply-side reform” agenda. In the survey, 64.9% of bankers believe that such swap helps to ease debt burden for businesses and may lower overall credit risk and even systematic risk. However, this is just one side of the argument, as 47.2% of bankers stress that “debt-for-equity swaps” would only defer the risks from breaking out rather than mitigating them. An excerpt from PwC’s Chinese Bankers Survey 2016

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AWA R D S D I N N E R 1 3 /J U LY/ 2 0 1 7 S H A N G R I - L A H OT E L SINGAPORE




Blueprints for Japan’s next generation payment infrastructure


his post examines initiatives to accelerate the development of Japan’s payment infrastructure through the lens of the Zengin System—the heart of this infrastructure. Global financial institution fintech trends can be summarised in three points: Capital investment, which is about striking a balance between business-strategy-related investment and capital investment (financial investment); Accelerators, or ecosystem initiatives and mentorships that forge mutually complementary relationships; and Innovation labs such as blockchain, cybersecurity, cyberattacks, and artificial intelligence. Building on the above, there are five central themes that will significantly affect the future of financial services: RegTech (harnessing technology for use by regulators or for complying with regulations); real-time transactions (pushing low-latency environments in post-transaction environments); distributed systems (blockchain technology effectively distributing data to participants, offering new and more transparent approaches); cognitive systems (machine learning is a critical component when it comes to using, analysing, and acquiring knowledge about all manner of structured and unstructured data); and cybersecurity (as these areas continue to evolve, increasingly strong security and cyberattack prevention will be essential to maintaining trust). Feature requirements and architecture The next-generation system architecture follows in the footsteps of the 6th generation system which started operating in November 2011. In 2018, the new system (XML-based) will enter into service, expected to phase out the fixed-length electronic message format by 2020. The new system looks to build upon the existing role of being a platform for fund transmission and payments between banks by engineering a new system that fully incorporates all business transaction EDI for orders placed and received between companies, linking this to payments with an eye to expanding the existing business transaction EDI features by having the system function as a platform for incubating new commercial services. In short, the financial industry is looking to leverage its strategic position, and bring itself closer to the corporate and industrial sectors while trying to build a common platform that enables new transaction banking. Anticipated benefits The financial sector expects a number of benefits to ensue. By establishing a shared infrastructure, it expects to see greater efficiency, to yield benefits from AI-enabled big-data analysis, and the empowerment of individual banks to implement a broad new array of features. In turn, linking payment and business transaction information to both heighten efficiency and enable advancements in payment operations will offer benefits for industry and individual companies. These include significantly reducing office tasks and the hassle related to matching and clearing accounts receivable and


EIICHIRO YANAGAWA Senior Analyst Celent

accounts payable information with funds sent and received. This will further enable companies to more easily conduct quantitative analysis of their operations to leverage EDI information to pioneer new business opportunities. Conceptual path forward This vision of the future will be influenced by the rising tides of fintech and digitalisation. Moving forward, businesses that hinge on recording financial information (the payment services execution in the payments value chain framework) will begin to spill over into the customer relationship intermediation business (payment instrument provision and post-transaction activities and services), which has until now been a peripheral area; these developments are offering a new challenge for players to more clearly carve out their own positions in a positive-feedback cycle within the industry. We believe that the following factors will be fundamentally important: Striving to expand services both in the context of the existing domestic infrastructure and salient demand for reliable advancements in payment infrastructure coupled with adoption of effective technologies (XML electronic messages). Even in the context of overseas business, in which SWIFT is at the heart of foreign remittance, global transaction banking, and trade finance advancements, these efforts should prove extremely effective and generate solid, progressive results. Understanding the benefits of shifting from the current centralised architecture (Zengin System and BOJ-NET) to technology architectures that are finding traction globally such as distributed block-chain-like approaches or shared technologies. Expectations that, in tandem with striving for a fundamental solution for matching and clearing accounts payable and receivable with funds sent and received, companies will also harness EDI information to quantitatively analyse their own operations and use this to establish new infrastructures that pave the way to pioneer new business opportunities.


Retail Banking Forum

MNL | BKK |JKT | SG | KL | HK Asian Banking & Finance is proud event to welcome you to the for the banking and finance industry. The Retail Banking Forum is happening from February to July 2017. The trailblazing event will gather over 200 banking and finance leaders across Southeast Asia to discuss pertinent issues and what’s hot in the industry. The event will take place in Manila on February 15, Bangkok on March 15, Jakarta on April 5, Singapore on April 26, Kuala Lumpur on May 16, and Hongkong on July 26.

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For speaking opportunities: If you are interested in participating either as a delegate or panelist, do contact our event organiser Nikki at

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Asian Banking & Finance (April - June 2017)  
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