INDONESIA’S DIGITAL POTENTIAL DISPLAY TO SEPTEMBER 30, 2017
EXCLUSIVE INTERVIEW WITH OCBC NISP’S RETAIL BUSINESS DIRECTOR THOMAS LOW
WHICH BANKS ARE WORKING WITH FINTECHS? DO PHYSICAL BRANCHES STILL MATTER? CYBER THREATS TO WATCH OUT FOR CASE STUDY: UNIONBANK’S EON DEBIT CARD CHATBOTS TAKE OVER BANKING
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This issue of the Asian Banking and Finance features an exclusive interview with OCBC NISP’s retail business director Thomas Low. He reveals that in Indonesia, an estimated 110 million bankable unbanked citizens allow digitalisation to offer opportunities to access banking services and products. Find out how Low aims to achieve 20% to 30% growth with the bank’s new digital capabilities.
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We also caught up with National Australia Bank’s head of trade & working capital Mark Borton, who talks about how banks can truly be effective in trade compliance, and why when things go wrong and a bank is fined, the cause of the problem is often generalised as “trade.”
This year’s sector report on Retail Banking explores how Asian banks strike a balance between digital and physical. The bankers believe it would be foolish to part with the old entirely – be it the old way of banking through physical branches, or the older customers that not only patronise such touchpoints but also continue to bring in a huge stream of high-value transactions.
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For Cards & Payments, we talked to several Asian banks to find out how they are working with fintech firms in order to bring a better user experience in the payments space. Lastly, catch up on what you missed in the 2017 Retail Banking Forums held in Kuala Lumpur, Jakarta, and Singapore in the post-event coverages included in this issue. Enjoy!
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ASIAN BANKING AND FINANCE | September 2017 1
INTERVIEW NABâ€™s Mark Borton talks about trade finance compliance: How can a bank be effective?
INTERVIEW OCBC NISP targets 20% to 30% growth with more digital and branchless capabilities
FIRST 06 Banks struggle to make digital sustainable
07 Cyber threats to watch out for 08 Video ATMs to kill the teller star 10 Meet the bots: Chatbots take over the financial services industry
SECTOR REPORTS 18 Why physical branches still matter amidst digitalisation
20 Mobile payments boom as banks, fintechs collaborate
CASE STUDY 22 UnionBank pioneers selfie banking in the Philippines
Published quarterly on the second week of the month by Charlton Media Group Pte Ltd 101 Cecil St. #17-09 Tong Eng Building 2 ASIAN BANKING AND FINANCE | september 2017 Singapore 069533
Country report Itâ€™s boom time for Indonesian banks as economic growth remains promising
EVENT COVERAGE 24 How Indonesian banks are playing catch-up as fintech firms gain traction 26 Singapore banks urged to make physical branches as convenient as digital 28 Malaysian banks weather waning customer loyalty as fintech booms
For the latest banking news from Asia visit the website
News from asianbankingandfinance.net Daily news from Asia most read
How Singapore banks fare in terms of asset quality and PPoP
Malaysian banks’ gross impaired loans Asian banks to ride on the 6% ratio see sizeable increase economic growth in the next 5 years
According to UOB Kayhian, NPL formation at DBS surged from 49bp in 2015 to 120bp in 2016 due to deterioration in asset quality from the oil & gas (O&G) sector. OCBC recognised NPLs from the O&G sector early since 3Q15.
Aggregate gross impaired loans ratio for banks under Maybank Kim Eng’s coverage rose from 1.97% in 4Q16 to 2.01% in 1Q17. Banks that witnessed a sizeable qoq increase in gross impaired loans ratio were: Maybank, AMMB, and Affin.
LENDING & CREDIT
Japanese megabanks’ shift towards subordinated loans is a good move Moody’s Japan K.K. says that the change in the lending practices of Japanese megabanks towards providing subordinated loans for large corporations instead of senior loans is credit positive.
4 ASIAN BANKING AND FINANCE | september 2017
Singapore banks’ profits to increase moderately over the next 12months Singapore banks’ profits will increase moderately over the next 12-18 months, according to Moody’s Investors Service, against the backdrop of higher interest rates, rebounding loan growth, etc.
According to Ravi Menon of the MAS, the region is expected to continue registering relatively high growth rates in the medium term – about 6% on average over the next 5 years, compared to the global average of 3.7%.
LENDING & CREDIT
Hong Kong banks’ capital to be hit by tighter property regulations The Hong Kong Monetary Authority has further tightened regulations on mortgages and bank lending to property developers that in turn extend mortgages outside the supervisory framework.
FIRST customer loyalty
Local banks in Malaysia are overtaking the foreign banks on the Net Promoter Score (NPS), an index measuring the likelihood of a customer to recommend a company to a friend or colleague. Charles Lambert, partner at Bain & Company, reveals the reasons behind this trend and more: Maybank came in as number one in terms of NPS. How long did this take and what caused this? Indeed in other markets foreign banks tend to be market leaders in loyalty, but Malaysia is an exception. Maybank has overtaken foreign banks over the last two years by not only increasing its score but sustaining its performance from a loyalty standpoint. A few things Maybank has done really well in the last few years is introducing really interesting digital tools that not only help customers embrace the digital technology, but also enable them to become omnichannel customers. What else does Bain’s survey on loyalty show? One of the other key insights that emerged from the survey is what we call the ‘hidden defection.’ The behaviour of some of the customers that are quite loyal to their primary banks have been changing and they are shifting to buy products from another bank. It’s not only the use of other banks for simple products, but what’s worrying for some of the banks is those product purchases have been weighted towards the higher margin products. That is something a lot of banks, not only in Malaysia, but across Asia should be worried about. What are some examples of those? Are we talking of wealth management or more like mortgages and loans? We’ve seen from our survey that customers tend to use their primary banks heavily for deposit products. But for credit and loans, a lot of customers have started using a secondary bank. 6 ASIAN BANKING AND FINANCE | september 2017
How can banks maximise the commercial value of going digital?
Banks struggle to make digital sustainable
he exponential rise of companies like Airbnb, Spotify, Netflix, Uber, and Alibaba serves as a testament to the great potential of getting digital right, but we have yet to see a success story this great in the banking sector. Even with serious investments in digital since 2011, analysts at AT Kearney say return on equity for major retail banks have stagnated at a single-digit figure. Turning the focus on digital into commercial value seems to elude even the greatest of organisations. Banks have been struggling with the rise of fintech, ever-changing consumer demands, and tougher regulatory requirements. “The opportunities from more than 4,500 fintech companies are reinforced by venture capital investments in financial services that have driven their growth— rising from $4.1b in 2012 to an unprecedented $27b by 2016. New technologies combined with greater adoption of smartphones, growth of banking by millennials, and lost trust in big banks in the wake of the global financial crisis have all boosted
Banks that can embed digital into their core corporate strategies could achieve a double-digit revenue uplift, 20-30% cost reduction, and a double-digit ROE in mature markets.
the demand for new solutions and alternative ways of banking. In addition, consumers have become less loyal, and the market has become more competitive,” says Andrew Steward, partner at AT Kearney. Whilst competition is not a new concept for banks, KPMG analysts say the type and volume of new entrants have evolved since 2015. “The first wave of entrants included largely unknown companies offering expanded connectivity and customer insights through new technologies, data and advanced analytics. Future waves included larger, more established but non-traditional banking competitors such as PayPal, Walmart and investment banks. The landscape is further evolving to include platform providers such as Amazon, mobile payment services such as Venmo, and e-commerce companies such as Alibaba.” Winners and losers Stewart notes that to be truly digital, banks must see digital not simply as a tool but as a way of operating. “Banks that can embed digital into their core corporate strategies could achieve a double-digit revenue uplift, 20-30% cost reduction, and a double-digit ROE in mature markets.” Meanwhile, KPMG says winners will be characterised as those with a clear strategic vision, an appetite for customer analytics and technologies, and a stomach for volatile innovation returns. “Winners will recognise and actively manage the material impact digital will have on its people and culture. Winners will embrace digital not simply as a disrupter, but as an agent for change and an opportunity to better serve their clients and segments,” say KPMG analysts.
Success factors leading to disruptive change
Source: KPMG International
FIRST In 2012, cyberattacks were not considered a top 10 global risk, but over the next decade it will become the 6th most likely global risk.
Axis Bank was one of the banks hit by a security breach in India
Cyber threats to watch out for
he year 2016 was brutal for Asian banks as many fell prey to cyberattacks, including high-profile cases that resulted in 3.2m compromised debit cards in India and $2m stolen through compromised ATMs in Taiwan. Cybersecurity experts warn that the next decade will see a further spike in data breaches so banks will need to shore up their defenses to plug existing weaknesses in ATMs and emerging vulnerabilities in corporate e-mails. Wolfram Hedrich, executive director of the Asia Pacific
Risk Center, estimates that by 2019 the global cost of data breaches will reach an estimated $2.1t. In 2012, cyberattacks were not considered a top 10 global risk, but over the next decade it will become the 6th most likely global risk revealing the growing intensity and frequency of these assaults, especially in Asia and the Pacific. “The need to combat cyber threat has never been more urgent in the Asia Pacific region,” says Hedrich, pointing to the recent $81m theft from the Bangladesh central bank
after hackers broke into an official’s computer and transferred the funds to the Philippines. Malware attacks Kaspersky Lab cautions banks that whilst ATM malware programmes will continue to be a headache, the next wave of cyberattacks will focus on targetting corporate users through their work e-mails. Banking malware attacks against corporate users comprised 17% of all targetted victims in 2016, with the overall number of detected attacks rising by 4%. In response, banks should protect staff with critical access and ensure they do not fall prey to phishing. “Employees are the gateway for criminals to gain access to bank systems, which means staff need to exercise the same caution with their work emails as with their own details in their personal lives,” advises Kaspersky Lab.
The distribution of phishing attacks against Mac users in 2016
Source: Kaspersky Lab
The Chartist: Singapore banks’ customer spreads ‘stubbornly subdued’ Lending spreads for Singapore banks have been stubbornly subdued throughout this credit cycle, causing some analysts to raise their concerns. According to Maybank Kim Eng, Singapore banks’ customer spreads were 1.952.14% at 1Q17 against 2.38-3.04% at 1Q10 in the aftermath of the global financial crisis. “Whilst we have recently started to see a slight improvement in customer spreads for UOB, we believe Singapore banks still lack the ability to price up their lending yields due to lending to high quality credit and competitive pressures,” says Ng Li Hiang, analyst at Maybank Kim Eng. Lending yields may be under pressure from competition/high quality credit but Singapore banks have the ability to manage their liability costs to at least maintain or modestly improve NIMs, notes Ng.
Customer yields vs customer cost of funds
Sources: Bloomberg, Companies
Customer spreads have fallen
Sources: Bloomberg, Companies
ASIAN BANKING AND FINANCE | September 2017 7
FIRST Disintermediating client relationships
James Lloyd, Asia Pacific fintech leader at EY, talks about how fintechs disintermediate customer relationships and how chatbots and AI could potentially become threats for banks. What are your thoughts on how fintechs will further disrupt the banking sector in Asia? I personally believe that not a lot of fintechs want to actually disrupt banking. What they want to do is to disintermediate customer relationships. Ultimately, not a lot of people want to build a new bank because of the regulatory and capital constraints. I think what a lot of people want to do is leave the heavy lifting to traditional banks – crossborder payments, infrastructure, etc. – and then build a layer on top for payments or lending. And then try and service the customer that way because most of the profit accrues to the people who own the customer relationship, not to the people who manufacture the product. So I still think that disruption as a theme is probably a little overplayed. What’s going to be disrupted is the profit margin of banks. If you’re a big bank in any of these markets, your biggest concern isn’t necessarily what early stage startups are doing. But in reality, the big threats will come from big technology players who can potentially acquire that customer relationship and service that customer. What is the future of chatbots? I’m of the view that in a couple of years, no one will be going to a banking app. We’re all communicating through WhatsApp, WeChat, or Facebook Messenger, and so banks will integrate into these platforms. In China, all the banks have integrated with WeChat. At a certain point, the customer relationship then becomes with the intermediary not with the bank. Voice, chatbots, AI – all of this is going to be very interesting but actually it’s a real threat to the incumbents as well. 8 ASIAN BANKING AND FINANCE | september 2017
Video ATMs to kill the teller star
f Singaporeans were wondering whether the new DBS/POSB video teller machines (VTMs) in Rivervale Plaza and Tampines Hub were an eyecatching but fleeting fad, they might be in for a pleasant surprise. More Asian banks should roll out their own VTMs, according to industry observers, as they strive to serve more customers without having to set up expensive branches. DBS/POSB launched the first VTMs in Singapore last April across nine locations. Customers can step into a VTM to apply for and get debit cards, do balance enquiries, as well as obtain internet banking tokens on the spot. They have the option to receive virtual teller assistance via live-video streaming.
More banks will roll out VTMs such as this one from DBS
“Video banking will play an important role in the bank branch of the future especially in reducing labour costs, improving branch profitability, and maintaining stronger customer relationships,” says Daniel Dawson, an analyst at RBR, adding that banks are turning to terminals offering remote video transactions as part of their branch transformation strategies. Video banking will empower small branches to offer transactions which Video Video banking in Asia were previously only possible in a more banking will Jeremy Soo, managing director and traditional branch environment with empower head of consumer banking group at multiple tellers. small DBS Bank, says that aside from the Meanwhile, larger branches branches convenience of virtual assistance, will benefit from migrating many to offer their new VTMs provide convenience transactions from the teller to terminals transactions through round-the-clock branch — as seen in the intelligent Teller which were banking services. Customer service Machines or iTMs deployed by China’s previously officers are available as an option only possible Bank of Communications. via live-video daily from 8:30AM to “Customers see branches as an in a more midnight. important part of their banking traditional Similarly, Standard Chartered has also branch relationship, and video banking helps rolled out video banking initiatives in environment banks offer existing, and in some cases, Asian markets since last year, and most with multiple new services more cost-effectively,” recently expanding to Kenya and UAE. tellers. reckons Dawson.
APAC banks to spend as much as $67.1b on IT in 2017 IT spending of banks in Australia, Japan, New Zealand, Singapore, and South Korea is expected to reach $67.1b in 2017, an increase of 5.4% from 2016, according to Gartner, Inc. In US dollar terms, Japan is the largest market, but New Zealand will have the highest growth rate in 2017 at 6.4%, followed by Japan at 5.6%. Gartner says the software segment will grow the fastest at 8.5% in 2017, as firms in the banking and securities industry invest more in applications, infrastructure and vertical-specific software. Applications is growing the fastest in this category contributing 12.4% growth in 2017. “The banking and securities industry is focused on investing in advanced data and analytics,” says Moutusi Sau, principal research analyst at Gartner. This forecast provides total enterprise IT spending, including internal spending and multiple lines of detail around spending on data centre systems, devices, software, IT services and telecom services.
Growth in IT Spending, mature APAC region
Banking & securities IT spending, mature APAC region
THOUGHT LEADERSHIP ARTICLE
Current trends: Risk and fraud
Can financial institutions move money across borders whilst ensuring security?
Andrew Davies, VP, Global Market Strategy, Financial Crime Risk Management, Fiserv
oney is flowing faster than ever before. Global payment infrastructures are adopting faster payments and real-time settlement. High speed transactions make it more convenient for consumers to move their money anywhere in the world. However, the ability to move money swiftly across borders is one thing; moving it securely is another. As financial institutions (FIs) continue to meet customer demands for anytime, anywhere services, the current emphasis is the FIs ability to provide the right security and know-your-customer (KYC) risk scoring aligned with the speed of transactions. Consumers and businesses want faster settlement systems, multichannel options, and easier access to payment initiation. But as settlement risk goes down, fraud risk goes up. The threat of greater fraud looms because with real-time settlement, there’s less chance to recover a fraudulent payment. Once the money has gone into the marketinfrastructure and potentially moved among multiple parties quickly, recovery becomes extremely difficult. With these technological trends, the industry should also be prepared to deal
with the following factors, which will have wide-ranging implications: Firstly, customers demand more from their financial services. Consumers want immediate access to payments, but also want peace of mind on security along with speed. According to Expectations & Experiences quarterly consumer trends research from Fiserv in the U.S., 68 percent of respondents have needed immediate access to money from a check. Whilst, 81 percent ranked security over convenience in payment methods. This underscores that speed and security should go hand-in-hand, and are crucial from a financial management standpoint. Likewise in Asia, a study by McKinsey & Company, titled “Digital Banking in Asia: What do customers really want?” indicated that the top requirements of digital-savvy bank customers, including quality of basic services, the strength of the financial products, brand reputation, and the quality of customer service and experience. The findings also pointed out that simplicity and security are critical requirements in the overall digital banking experience. Other important factors Fintech companies will continue to disrupt the industry with innovative technology. As fintech companies flourish and offer innovative services, FIs must assess the impact these technologies have on their payments business. Those alternatives may come with a higher risk, which could then lead to reduced trust from consumers in the whole process. Some Fintech companies will have to play catch-up to reach the level of security required for managing payments. Lastly, financial criminals will become more sophisticated. As more payment channels are used, malicious software that monitors initiations or transactions could become a greater threat. Once criminals get hold of the money, they often funnel it through legitimate assets, making it harder to identify the original theft. FIs must strike the right balance between keeping customers safe from criminal threats and providing a positive experience. Whilst they need to safeguard
against fraud, they also need to avoid negative customer service, such as a card being blocked, or people not being able to access their money. This new environment demands greater efficiency and stronger management of false positives – errors in the evaluation process in which a condition tested for is mistakenly found to have been detected – so that the customer receives a great experience. People and businesses also demand mobility, convenience, and speed without fraud prevention raising red flags when not necessary. Fraud detection tools that set arbitrary barriers, such as flagging transactions when they are above a certain amount, can often lead to false positives. The security put in place by FIs should improve, rather than hinder, the customer experience. Hybrid analytics For FIs to achieve the right balance, they may want to consider using hybrid analytics. This is a sophisticated technique that leverages a broader set of data from outside sources to analyse transactions in real time. The process identifies the nuances of behaviours that indicate fraud in an operationally efficient way. By using hybrid analytics, a series of layered checks and balances can be established across a transaction‘s lifecycle to help ensure that when a payment is going through, it should be consistent with previous outcomes and isn’t out of the ordinary. Solid fraud protection requires monitoring of the entire flow of the transaction, rather than targeting one specific point. Hybrid analytics can provide that holistic view. As consumer demands for faster payments continues and new payment technologies become available, FIs need to meet these needs whilst protecting themselves and their customers’ money. Whilst slow payments can be frustrating, having payments going into criminal accounts is worse. Striking the right balance means customers can bank how they want, safe in the knowledge their money is secure. By Andrew Davies, VP, Global Market Strategy, Financial Crime Risk Management, Fiserv
“As settlement risk goes down, fraud risk goes up.” ASIAN BANKING AND FINANCE | September 2017 9
Meet the bots: Chatbots take over the financial services industry
he next time you are looking to talk with a banker about a home loan you may just end up being redirected to an online chatbot instead. OCBC has launched two bots; Emma who does home loans and Buddy who is an internal HR chatbot. Your correspondent tried Emma and whilst she could answer simple questions like “can i get a home loan,” when questions got a bit more complex one was directed to contact a mortgage specialist. Perhaps the best way to describe OCBC’s chatbot is as an interactive FAQ, which saves the reader time to read through a whole list of questions. Nevertheless, simple as it may be, the use of chatbots to save bankers and clients time in answering repetitive questions is in its infancy and will only grow. Since OCBC launched Emma in early January, Emma has responded to over 39,000 queries from 5,400 chat sessions with 11% converting to $30m in loans. Emma was developed by the home loans team and startup CogniCor, one of the firms under OCBC Bank’s FinTech accelerator programme. DBS’s chatbot efforts are through POSB Bank’s dVA (digital Virtual Assistant) which is only on its Facebook Page. Customers can enquire about the bank’s products
and services like locating nearby ATMs or knowing the opening hours of a certain branch just by sending quick message using the Facebook Messenger app. POSB’s dVA took developers 11,000 hours to train. DBS Bank head of consumer banking group Jeremy Soo said this is especially useful given that the bank is already serving close to 5m consumers who demand seamless customer experience across platforms. “We know that our customers are spending time conversing on their favourite mobile messaging apps, and we are immersing ourselves in the customer journey by making it easier and more convenient for them to engage us. Customers can also soon look forward to conducting their banking transactions via this service,” he said. The future of chatbots Whilst OCBC does not yet have a chatbot that can answer general banking inquiries like DBS, it has instead developed Singapore’s first HR Mobile App for its employees. The app includes an AI-powered chatbot named Buddy that is integrated with the Bank’s human resources information system. OCBC Bank senior vice president for
Emma has responded to over 39,000 queries
group operations and technology Praveen Raina said Buddy can be asked range of HR-related questions including mandatory leave requirements or status of expense claim. “The HR app which ‘Buddy’ is a part of, was launched on 23 May 2017 for Singapore employees. It actually came about from internal feedback; our colleagues shared that they wanted to be able to access HR information and perform HR-related matters without having to contact the HR team or be seated at their desks,” he explained. Technology firm Juniper Network reckons that chatbots will be responsible for cost savings of over $8b per annum by 2022 globally, up from $20m this year. By 2022, banking and healthcare services utilising bots can expect average time savings of just over 4 minutes per enquiry, which equates to average cost savings in the range of $0.50$0.70 per interaction.
Scale360 deploys teller-less branches in Vietnam When UK-based fintech startup Scale360 set up a development centre in the heart of Thailand, it wanted to expand its reach in order to provide more customers with omni-channel solutions and innovative products in banking technology. Over the past year Scale360 has scaled up its staff to over 125 people as it partners with more banks, including Vietnam’s TPBank which launched a dozen digital branches branded as LiveBanks in the first quarter of 2017. Customers could step into a LiveBank and tap on a machine to complete a transaction whilst an agent guides them through video instructions sent from a contact centre miles away. “The feedback was positive, leading to an extension of the programme, with plans to open up to 50 digital branches by the end of the year,” says Neville Molyneux, managing director at Scale360. “The digital branch can be deployed in locations that offer convenient access, from deployment in existing branches to shopping malls, airports and high streets 10 ASIAN BANKING AND FINANCE | september 2017
and more. As less real estate is required, it opens many more opportunities for banks to establish a branch where they may not have done so before,” he adds. Accessibility and affordability TPBank and other Asian banks have discovered that digital branches offer the best of both worlds: Customers, especially in hard-to-reach areas, get access to a robust suite of traditional branch banking services whilst their retail operations slash costs by replacing expensive brick-and-mortar physical branches with digital branch machines. “From our understanding a traditional branch set-up in Thailand would cost around US$1m. In the UK this could be between £3-5m. Scale360 Digital Branch list price will start at US$200,000, but final costs would depend on configuration and location. TPBank in Vietnam currently place their version in an existing shop or build a new unit. We have also developed a standalone ‘pod’ which could be deployed independently,” says Molyneux.
TPBank installed Scale360’s Digital Branch
Scale360’s standalone pod
THOUGHT LEADERSHIP ARTICLE
What you need to deliver consumers an awesome Internet of Things experience What must the financial services industry do to benefit from the opportunities offered by IoT?
he Internet of Things (IoT) is an evergrowing network of devices that can collect and exchange data. With the number of connected devices expected to outnumber humans on the planet by four to one by 20251, it is inevitable that new forms of interaction will become part of daily life Yet, the IoT is much more than connected cars and smart appliances. It offers an opportunity for financial institutions to serve their customers in new ways and deliver seamless 24/7 banking experiences – from payments, to financial management, to customer service. The financial services industry can benefit from the increased opportunities for customer engagement offered by the IoT. But first, they need to evaluate which connected devices are right for the delivery of financial information and capabilities, and ensure the security of interactions from these devices. Providing the right customer experience As with any new service offering, it is crucial to understand what capabilities are practical and how they can be delivered most effectively. As new connected devices emerge, financial organisations need to evaluate how customers interact with them, and if they are suitable for conducting financial tasks. For example, when driving in their connected cars, customers may
want to check their balances and initiate bill payments. At home, they may want Amazon Alexa to provide reminders to help them stay within a budget or remind them to save for a major purchase. The end-user must be at the heart of any new service experience that financial institutions develop for IoT. With today’s information overload, irrelevant information will at best be ignored and at worst prompt customers to look elsewhere. For financial institutions looking to add value to their services by extending existing capabilities to various devices in the IoT, the approach is the same as when evaluating which functionality to offer on a smartphone or a desktop. Start with these questions: What types of capabilities are practical for this device, and how will consumers want to access services from it? Multiple-layered security, shared standards Security must also evolve in line with the IoT. The balancing act between customer convenience and security will continue to shift as consumers demand new ways to interact with their money. However, a multilayered approach to security will continue to be vital. Nowhere is this more crucial than in payments. For example, if a customer wants to check his bank balance and pay a bill from his connected car, he could do so by
“A multi-channel, multi-device approach and thinking in terms of layered security are important considerations.”
Scott Hess, Vice President of User Experience, Consulting and Innovation, Fiserv
accessing his online banking account, which already has multiple layers of security in place, via the car. But what about payments that are initiated from a connected device outside of an existing payment application such as online banking? If your refrigerator recognises that you are out of milk and automatically orders more, that payment also must be secured. In cases such as these, the security of the payment cannot reside exclusively with the device itself – there must be additional security layers residing elsewhere, such as in the cloud. Initiatives like the PSD2 in Europe and the Open Banking initiative in the UK, will likely accelerate banks’ ability to deliver banking services to the IoT. That, plus the projected explosion of connected devices should propel players across the IoT ecosystem to come together to create robust security standards. And they can take a leaf from the books of the automotive sector, which has been an early-mover in implementing standards-based security for embedded devices. A multi-channel, multi-device approach and thinking in terms of layered security are important considerations for financial services in this new world. The IoT is one more way to integrate financial services into everyday life By testing technology and gauging consumer demand through research and focus groups, financial institutions and their technology providers can provide customers with relevant content through the right device, whilst ensuring customers are able to access information securely to provide an all-round positive consumer experience. It is essential they keep the experience secure, contextual and as relevant to the consumer as possible. Understanding what each customer needs, how they want information delivered, and how to do so securely are the first steps in providing customers with the best possible experience, one that fits seamlessly into their everyday life. By Scott Hess, Vice President of User Experience, Consulting and Innovation, Fiserv Source: Marina Research, August 2016
ASIAN BANKING AND FINANCE | September 2017 11
Digitalisation should extend its reach beyond major city centres in Indonesia and into the provincial neighbourhood, where the majority of unbanked and underbanked consumers reside.
Thomas Low Retail Business Director OCBC NISP 12 ASIAN BANKING AND FINANCE | september 2017
OCBC NISP targets 20-30% growth with more digital and branchless capabilities Retail business director Thomas Low says they are migrating the functions of a physical branch to digital.
homas Low is the director of OCBC NISP’s retail business since 2013. He joined the bank in 2010 and previously worked as its national emerging business head before taking on his current role. Low also worked in OCBC Bank as VP business head of emerging business (2004-2010). In this exclusive interview with Asian Banking and Finance, Low gives us his take on the latest trends in Indonesia’s retail banking industry. He also shares the impact of digitalisation on the sector, and the strategies they implement to respond to the changing market landscape.
What is your digital strategy around wealth management for this year? This digital strategy is being driven in part by changes amongst Wealth Management customers’ behaviours and lifestyle. More customers are active users of social media and view it as an important channel to communicate. Customers’ preferences for how they handle investment decisions are also changing. They are increasingly willing to make some investment decisions themselves and even to share ideas online through social media platforms. We have to continue providing our customers with a comprehensive set of services that best cater their needs in this digitally-driven and fast-paced world. Wealth Management customers are seeking greater transparency from their financial institutions, particularly about regulatory requirements and compliance. They want the full range of seamless support in multiple channels. In 2017, we are providing our customers the ability to do seamless transactions within multiple touch points. They are able to choose between face-to-face meetings but also convenient, hassle-free online solutions that feature better account and transaction information on various devices. For example, One Wealth Application allows them to access real-time market situation and, at the same time, provide online transaction capabilities and comprehensive view of their assets. We aim to grow 20-30% with all these new capabilities.
How has the push for digitalisation affected the retail banking industry in Indonesia? Digital transformation is having a great impact on every aspect of the way we live and work. Big data, social media, and developments in mobile technology have already hugely altered the landscape of the banking industry, especially retail banking. In many ways, retail banking in Indonesia has already become a digital business, stimulated by the rapid spread of broadband access and affordable smart mobile devices. As the economy continues to prosper, Indonesia’s promising projected growth is anticipated to further boost the development of digital banking. Many Indonesian banks have focussed their digital investments on enabling customers to access information on bank websites or to do simple transactions through online or mobile channels, thereby moving customers away from branch transactions. Additionally, banking regulatory bodies in Indonesia Indonesia, i.e., Bank Indonesia and Otoritas Jasa Keuangan-Financial Service Authority, are in the are in the midst of establishing a financial ecosystem that is cashless and interconnected. Therefore, we need to maintain high flexibility and develop faster ability to execute these changes to remain relevant. How unique is Indonesia as a market in terms of digital banking and how ready is the market to adopt digital? For Indonesia, digitalisation is the next big thing. The prospective entry of millions of unbanked and underbanked consumers into the financial system is the result of the increasing prevalence of mobile devices. Additionally, digitalisation should extend its reach beyond major city centres in Indonesia and into the provincial neighbourhood, where the majority of unbanked and underbanked consumers reside. In Indonesia, an estimated 110 million bankable unbanked citizens allow digitalisation to offer opportunities to access banking services and products. With the increasing mobile phone usage, internet penetration in Indonesia is expected to grow rapidly and reach 100 million users quickly. These developments will present enormous prospects for those who can harness the right solutions to serve them.
In Indonesia, an estimated 110 million bankable unbanked citizens allow digitalisation to offer opportunities to access banking services and products.
How are you using digital to cater to your customers’ evolving needs? We are continually upgrading our products and services towards a more branchless, convenience-on-the-move way of banking by migrating the functions of a physical branch into a more digital one. Not only is this beneficial to our customers who need banking services on the go, but it is also an efficient way to reduce the bank’s operational costs. One example is by providing them the ability to open a time-deposit account online through our Internet Banking, without them having to visit an actual branch. This way, customers’ wealth management can be done on the fly. Another example would be on the recently released feature which is the cardless withdrawal that allows our customers to withdraw cash from our ATMs without the need to use their debit/ATM cards, thereby easing them to withdraw cash in case they have forgotten to bring their card or for third party cash withdrawal, such as by their children, drivers, house assistants, etc. More examples would include our white-labelling collaboration with other banks and telcos, our virtual debit card capability, our online rewards redemption feature, and our continuous improvements in OCBC NISP Internet Banking, Mobile Banking, and SMS Banking, designs, and features to keep up and stay ahead with the current trend in the market. ASIAN BANKING AND FINANCE | September 2017 13
In all cases, itâ€™s important that the bank understands not only their home country regulatorâ€™s requirements but also those of the countries in which it operates as there can be quite significant differences.
Mark Borton Head of Trade and Working Capital National Australia Bank 14 ASIAN BANKING AND FINANCE | september 2017
NAB’s Mark Borton talks about trade finance compliance: How can a bank be effective? When things go wrong and a bank is fined, the cause of the problem is often generalised as “trade.”
ark Borton is a career banker with over 25 years of experience in the trade finance and cash management space, covering roles at all levels across sales, product management, operations, channel management, and customer services with a number of blue-chip banks. He has been with the National Australia Bank (NAB) seven years during the time which he ran he ran Trade Product Management for Australia before transferring to Singapore to establish an overall product management function for the bank in Asia. Borton now runs a combined team of product management and trade sales professionals dedicated to supporting their customers. In an exclusive interview with Asian Banking and Finance, Borton shares his thoughts on how best Asian banks can manage all the requirements around compliance.
with around money laundering and sanctions, for example, and then build on this core framework to take account of the more stringent geographies. That way, you ensure everybody follows the minimum standards and also capture the country nuances. With the increasing levels of requirements, how does technology play a part in compliance monitoring? Ideally, best practice would be to have all aspects fully automated, which may happen over time. But for most banks, it’s currently a journey that will take them from a current semi-automated environment to a more fullyautomated, integrated environment. Most, if not all, aspects of sanctions monitoring should be automated today as there are plenty of good solutions on the market for this. Where there is possibly a divergence would be around some of the aspects that not all regulators call for, such as price monitoring for under/over-invoicing as well as vessel tracking and the levels of tracking required, and this is where technology is needed to play more of a part. There are certainly automated solutions available although recognising the complexity, these solutions may not yet be the perfect fit. Also, depending on the application of a risk-based approach, banks may be faced with decisions on when is the right time to move from a manual approach to a fully automated one.
There has been a lot of discussion recently around sanctions, trade-based money laundering, countering terrorist financing, and the increasing complexities involved with the same. Is there more focus on trade finance versus, for example, payments when it comes to monitoring compliance and, if so, why? Speaking personally, I don’t think that there is intentionally more focus per se. However, it is true that when things do go wrong and a bank is fined, the cause of the problem is often referred to generally as “trade”. Also, I think that trade finance gets more scrutiny because there is more visibility around the details of the transaction. For example, with a typical payment transaction, you will be provided with only very basic details from a customer relating to it such as name and address of the beneficiary, amount, possibly a very high level description of what the transaction relates to that may be as basic as an invoice number. However, for a typical trade finance transaction, not only will you have these but also copies of documents such as the invoice and bill of lading that provide more information regarding parties to the transaction, fuller goods descriptions, and ports of loading and unloading — all of which the bank would be expected to check for compliance against sanctions lists and the like. How do banks with international footprints manage the requirements around compliance? In all cases, it’s important that the bank understands not only their home country regulator’s requirements but also those of the countries in which it operates as there can be quite significant differences. We can certainly learn from the different regulatory bodies and potentially be ahead of what may happen in other jurisdictions going forward but it’s advisable for an organisation to be as consistent as possible across all the jurisdictions. So, one approach is to form a framework that sets out the minimum standards for trade finance teams to comply
How effective can a hybrid of automated and manual be? Very effective, but it’s important to conduct that risk assessment to identify the non-negotiable aspects of a trade finance compliance plan that really needs to be automated, which aspects can and need to be automated over time, and which aspects can be approached on a manual basis for the foreseeable future. Getting that assessment and risk-based approach right is crucial especially when focusing on the higher risk elements that may be manual. Ultimately, technology should help innovate new and more effective ways of managing the compliance burden but, of course, it will never replace the need for intuitive reasoning required to also assess.
Trade finance gets more scrutiny because there is more visibility around the details of the transaction.
Do you think it would be useful for banks to obtain more regular information from them of the results relating specifically to trade finance around the effect their efforts are having in combatting AML/CTF/sanctions/ financial crimes? Certainly! There is information around covering the payment-related aspects and what’s being seen in that space. However, the information on trade finance specifically appears to remain limited. Sharing of successes achieved in combatting these issues together with live case studies demonstrating the use of best practices that others can follow would undoubtedly be beneficial. ASIAN BANKING AND FINANCE | September 2017 15
Country report: INDONESIA
Indonesian banks like Mandiri take advantage of the country’s robust economic growth
It’s boom time for Indonesian banks as economic growth remains promising Despite stable market conditions, the country’s economy is not quite out of the woods.
etter days seem to be up ahead for Indonesian bankers as analysts observe improvements in asset quality, profitability, and loan growth compared to negative trends that beset executives in 2016. However, banks should not be so quick to rejoice and should be wary of increasing pressure on margins, talent shortage, and Fed rate hikes, not to mention the sector’s large stock of restructured loans. Growth seems to be the main trend for Indonesia’s economy at the present, as it clocked in a 5.3% GDP growth this year, up from last year’s 5.0% as a result of increased public investment and monetary easing in previous years. According to Raphael Mok, Asia analyst, BMI Research, the headline growth figure was also underpinned by strong export growth, lifted by higher commodity prices, a pickup in growth momentum in its major trading 16 ASIAN BANKING AND FINANCE | september 2017
partners, and an easing of the mineral export ban earlier this year. “Indonesian bankers clearly feel they are in the most attractive market in Southeast Asia. After all, margins are not only good in comparison, they are excellent. The survey highlights that more immediate prospects for loan growth and economic growth are not the main drivers for that attraction, but, rather, the longer-term upside potential of a large market with low penetration. But in the meantime, high margins make for attractive, profitable banking,” says Jusuf Wibisana, partner at PwC Indonesia. However, analysts point out that there are risks lurking around the system, possibly adding pressure on the performance of banks in the coming months. The stability of the rupiah hangs in the balance, as the Federal Reserve continues its tightening cycle with two more
expected rate hikes this year. Gary Hanniffy, director, financial institutions at Fitch Ratings, says that a weaker rupiah would make it more difficult for domestic borrowers to service foreign currency denominated debt, which accounts for around 15% of bank loans. Meanwhile, the main domestic risk is the banks’ large stock of restructured loans, the slippage of which could put additional pressure on non-performing loans (NPL) Indonesia’s banking penetration is low by comparison
Source: BMI, National Sources
Country report: INDONESIA ratios. In the midst of improving conditions which are still coupled with uncertainty, Indonesian banks can hold on to strong capitalisation as their primary buffer to safeguard financial growth. “Capital buffers across Indonesian banks are among the highest in the region, and this will likely safeguard financial stability in the unlikely event of an economic downturn or external shock. Whilst the high capital adequacy ratio is partially buffed up by the government’s move to lower the risk allocation for SME loans under its insured-credit program, the overall capital buffer is still much higher than the regulatory requirement of 10% under the Basel III standards,” says Mok. Better profitability Despite declining over the last three years, profitability among Indonesian banks remains a bright spot in the region and maintains a high position thanks to strong pre-provision operating profitability as a result of the banks’ high NIMs. According to Hanniffy, the top four banks are expected to continue to perform better than the medium-sized banks in this regard, given the bigger banks’ stronger deposit and lending franchises which suggest a greater loss-absorption capability. Hanniffy adds that the lower Viability Ratings (VRs) of the medium-sized banks incorporate their moderate credit-cost tolerance and lower profitability. Banks in Indonesia are also enjoying rather healthy net interest margins (NIM) compared to their ASEAN and global counterparts. Trinh Nguyen, senior economist for emerging Asia, Natixis, says that based on commercial bank data, NIM actually improved to 5.4 in recent months. Although slightly down from 2016, this is still rather high and has definitely helped banks in terms of profitability. Nguyen believes that Indonesian banks’ healthy NIM will continue to support banks going forward. Asset quality is also experiencing better days as corporate earning improve and loan growth picks up amidst bullish consumer sentiment.
Mok says that asset quality is expected to stabilise over the coming months as the operating environment improves. He says that this should have a positive effect on banks’ earnings and the accumulation of capital as lower provisions are required to be set aside. PwC’s Indonesia Banking Survey 2017 shows that banks remain cautious in the presence of good news as two-thirds of bankers felt that their bank has a clear risk management strategy to guard against cyclical challenges and possibilities of economic shock. The survey reveals that a higher proportion of respondents from local banks felt that their risk management strategy is either in progress or unclear. “The survey result indicates a solid foundation for risk management in the industry, but also a clear indication that there is much further room to strengthen and develop risk management, from strategy to implementation. Considering the dynamic risk environment, it is essential that banks have clear risk strategies that are understood and implemented throughout the organisation,” Wibisana says. Moving forward Further, Mok says that credit growth will accelerate for the time being, as economic recovery and Bank Indonesia’s accommodative monetary policy will drive an increase in credit uptake over the coming quarters. Analysts at BMI Research note that the central bank will remain accommodative for as long as possible, and is also planning to lower the Primary Compulsory Minimum Reserves in rupiah to 5.0% from 6.5% currently, effective 1 July 2017. Mok adds that the consumer confidence index hit a multi-year high of 121.50 in March 2017, and we expect bullish sentiment to drive overall loan growth to 10.0% in 2017, up from 8.8% in 2016. Many analysts believe that most of the present risks and challenges to the stability of Indonesia’s banking sector are short-term in nature. According to Nguyen, one of the issues constraining Indonesian banks is sluggish loan demand. She says
that although lending growth has rebounded, it is still rather low due to both weak demand from corporates and risk-averse lending decisions by commercial banks. Wibisana adds that whilst the current level of loan growth is excellent compared to other markets around the world, the numbers are clearly lower than they have been in any of PwC’s previous banking surveys. He says that 44% of respondents expect loan growth of less than 10% in 2017, compared to 2015 and 2014 surveys which clocked in 12% and 2%, respectively. Meanwhile, analysts at BMI Research believe that the outlook for the Indonesian banking sector remains constructive given the country’s strong economic and loan growth outlook, the upside potential of a large market with low penetration, and strong capital buffers which suggest little risks to financial stability over the medium-term. The appointment of Wimboh Santoso as chairman of the Financial Services Authority, or OJK, also presents its own opportunities. “Santoso is coming from Bank Indonesia and the IMF. He is likely a technocrat that will try to improve efficiency. Already, there are reports that he will lower fee collection from financial institutions and also will seek to lower costs through cutting unnecessary business travels and meetings. Given that he has a BI background, the hope is that he will leave BI to regulate the price of money rather than intervene in how banks price risk and money. He will likely focus regulating the risks of the financial system as well as using technology to educate, survey, and reduce backlog to financial red tape,” says Nguyen.
Net interest margin
Source: Natixis, Company Data
ASIAN BANKING AND FINANCE | September 2017 17
SECTOR REPORT 1: Retail Banking
ICBC (Asia), a subsidiary of ICBC, transforms banking centres into financial department stores
Why physical branches still matter amidst digitalisation ICBC (Asia), OCBC NISP, Danamon, and other Asian banks reveal how they navigate the digital world whilst ensuring branches remain competitive.
ather than ditch physical branches and neglect older customers that refuse to bank through a mobile app or a website account, Hong Kong bank ICBC (Asia), a subsidiary of Chinese bank ICBC, is transforming their personal banking centres into so-called financial department stores. These refurbished physical branches boast of spiffy digital-powered features that make transactions smoother, as well as an expanded list of services for the type of well-heeled customers who continue to walk through the doors. “Personal banking centres can serve as a ‘financial department store’ which displays and offers a wide range of financial solutions, and with the professional knowledge and impeccable service delivered through high-calibre 18 ASIAN BANKING AND FINANCE | september 2017
relationship managers, customers with all-rounded financial and wealth management needs would be our target,” says Flora Leung, head of personal banking of ICBC (Asia). “Whilst we are stepping up efforts to enhance our digital banking channels to offer more products and services that enable customers to do banking transactions whilst on the go, we also redesign our physical network and set up new personal banking centres with modern decor, more comfortable and digitalised features to entice customers to visit and explore a brand-new retail branch experience,” she adds. Many Asian banks have taken on a similar digital compromise: investing heavily in digitisation initiatives to keep in step with younger customers who have little qualms doing their transactions
on a device, whilst seamlessly integrating digitisation features in physical branches for the added convenience of older customers. “By looking at our current customer composition, there are as many Baby Boomer customers as there are millennial customers,” says Andreas Kurniawan, retail business development head at OCBC NISP. “Therefore, as tempting as it may seem to keep up with the time and go fully digital, that will not be a wise move as it will only cater our younger customer group, whilst indirectly neglecting our older customer group who basically makes up our affluent customer base.” He says the OCBC NISP digitisation strategy is focused on migrating the functions of a physical branch into a digital one, whilst at the same time maintaining the existence of several key physical branches. This strategy enables the bank to cater to its current affluent customers and attract tech-savvy emerging affluents who will eventually become the affluent customers as they grow older. Older affluent customers – the
SECTOR REPORT 1: Retail Banking type of customer that is more likely to avail of more complex investment products – find comfort in physical branches where they can ask questions from a human banker they can trust, says Djamin Nainggolan, consumer lending head at Danamon. “There are customers who need face-to-face interaction to obtain explanations for products, especially for complex products such as investment products. They are more comfortable with interaction in a physical branch rather through digital services. As such, banks need to assess the needs and demands of their customer base before deciding on the right mix between digital and physical models,” he says. Valuable but not static Even in digital-loving Singapore, swathes of customers are still trooping to physical branches, leading Maybank Singapore to keep some of their branches open even during Sundays. “There are certain peak periods in a year where customers visit our branches, for example to exchange new notes for red packets during the Lunar New Year. In addition, customers sometimes require more detailed explanation for certain transactions, such as high value loans or investments,” says Choong Wai Hong, head, community financial services at Maybank Singapore. “We continue to cater to the needs of our customers by ensuring our branches are conveniently located in the business district and suburban estates, and we also offer Sunday banking at selected branches,” he adds. Choong says physical branches, whilst remaining valuable, will not remain static. Banks can take advantage of technology to raise service quality at branches by reducing mundane tasks like filling out multiple forms with repetitive fields, and speeding up transactions by pre-filled online requests that are then completed offline at an appointed date in branches. Retail banking in Asia will
remain a mix of digital and physical models at least until countries ease up on regulation and customer preference for cash, says Dr Sudsanguan Chusacultanachai, executive vice president at Bangkok Bank. “One of the key barriers in digitising retail banking is the customer preference for using cash. In Thailand, consumers are not aware of the ‘cost of cash,’ as cash transactions are free, and it is very convenient to get it as ATMs can be found on almost every busy corner,” she explains. “Historically, the other key barrier is regulatory, such as the lack of legal acceptance of electronic signatures, e-documents, and e-KYC,” although Chusacultanachai notes that the Thai government and Bank of Thailand have recently started to consider the legal framework and the infrastructure required to drive the digital economy and move towards a cashless society. The branch of the future In imagining the branch of the future decades from now, Asian bankers see an evolution towards smaller, more automated branches – or even merged with merchant stores. “The branch of the future is possibly a fraction of what it currently is, both in terms of physical space as well as manpower size,” says Choong. “The reduction is not just in response to the trend towards more digitisation, but also a function of increasing land and labour costs.” Liew Nam Soon, managing partner for financial services ASEAN at EY, says that in many ASEAN countries there is a large unbanked population that are not reached by mobile phone signals and broadband access. It will be hard to serve these customers by asking them to either access digital channels or by the bank setting up expensive physical branches in remote areas – the optimal solution will likely be an innovative third option. “Banks in such cases would still need to rely on physical presence, though it might not necessarily mean a full-fledge brick
and mortar branch setup and can come in the form of merchants, agents, or retail stores,” says Liew. “They need to think out of the box and collaborate with other players to serve such customers.” Djamin Nainggolan
Choong Wai Hong
Liew Nam Soon
The rise of AI Some Asian bankers even foresee the eventual extinction of physical branches when retail banking fully unlocks the potential of artificial intelligence (AI) and augmented reality. Royce Teo, managing director and head of consumer banking group and wealth management, Hong Kong at DBS Bank (Hong Kong), reckons that in the next several years, digital channels and platforms powered by AI and other cutting-edge technologies will start to allow simpler banking services and products to be unloaded from retail bankers. This digital shift brings a lot of profitable advantages for retail banks: staff will be freed up to focus on more complex tasks such as financial planning reducing manpower costs and increasing productivity, whilst customers should receive faster customer service and higher staff satisfaction. “Retail banking products are typically plain vanilla with features that could already be mechanised by today’s rule-based systems. Even the rubrics of investment portfolio management could be mechanised. With AI that incorporates machine learning, the parts of retail banking that formerly require human adjudication will also be replaced by machine. It is my belief that retail banking, especially with the advent of AI and augmented reality, will ultimately be entirely digital,” says Teo.
Maybank keeps some branches open on Sundays
ASIAN BANKING AND FINANCE | September 2017 19
SECTOR REPORT 2: Cards & Payments
DBS built a 16,000 sq ft innovation space to attract fintech startups
Mobile payments boom as banks, fintechs collaborate
Find out how DBS, Maybank, OCBC, and Bangkok Bank partner with fintechs to bring a better user experience in the payments space.
hen DBS unveiled a sprawling 16,000 sq ft innovation space in Singapore called DBS Asia X (DAX) in late 2016, it wanted to attract fintechs to build their bases in it through a strategy that is increasingly in vogue in Asia: nurturing close-knit collaborations with startups and birth innovations that would elevate the bank’s lucrative cards and payments business. DAX was replete with all the facilities and trappings that a fintech startup would need such as project pods, co-working spaces, an auditorium and even a café. Aside from DAX, DBS has built other smaller collaboration spaces such as a dedicated 5,000 sq ft co-working space in Wan Chai in Hong Kong. Ken Chew, managing director of consumer finance, consumer banking group 20 ASIAN BANKING AND FINANCE | september 2017
Liew Nam Soon
Choong Wai Hong
and wealth management at DBS Bank (Hong Kong) Limited, says the space has been pivotal in the bank’s efforts to partner with startups from the DBS Accelerator Programme, which was launched in 2015 to support startup businesses and entrepreneurs looking to bring in breakthrough innovations in the world of finance. The startups that step into the accelerator programme are housed in a productive work environment, receiving a stream of managerial and advisory support from DBS executives. “Leading banks have established their own fintech or innovation labs to provide platforms to work with fintech players through accelerator or incubation programmes,” says Liew Nam Soon, managing partner for financial services ASEAN at EY. He notes that DBS has been
actively engaging in the fintech ecosystem with programmes and the DBS HotSpot, a pioneering pre-accelerator programme in Singapore, has attracted more than 40 startups. Citi has also created a new unit called Citi FinTech, which is at the forefront of forging collaborations with fintech startups. The unit holds a Citi Mobile Challenge, a hackathon series that searches for the best ideas in the world that can be incorporated in Citi mobile banking apps. “I think such initiatives give the banks more control and oversight on how the innovation is built, how it may be monetised as well as how the innovation is integrated into their businesses, processes and systems,” says Liew. When fintech players arrived on the scene, banks felt an initial shock of competition as their lines of businesses were threatened by technologically savvy rivals. But many banks seem to have adopted a more collaborative stance with fintechs, not only with startups but also with big players as well, in the field of mobile wallets and
SECTOR REPORT 2: Cards & Payments contactless payments. Chew says in the past years DBS has worked with Apple, Google, and Samsung to launch various mobile wallets. It has also teamed up with Tencent on WeChat Pay. “We believe the new economy is one that’s collaborative,” says Chew. “By working with fintechs we are able to bring down the cost of technology, create a symbiotic partnership and bring a better user experience to the consumers.” More collaborations Maybank, for its part, launched the Maybank Samsung Pay wallet facility in Singapore last August on the back of a very high mobile penetration rate across the island, as well as the growing support for and usage of cashless payments by both shoppers and merchants to complete transactions, says Choong Wai Hong, head, community financial services at Maybank Singapore. “Payment modes have been evolving rapidly over the years, more so in recent times as digital technology has become increasingly widespread. Maybank’s venture into the new payment mode was essentially based on a number of important trends that were gathering strong momentum,” he says. “Mobile is core to the Singapore customer’s lifestyle,” says Desmond Tan, head of group lifestyle financing at OCBC Bank, on why mobile wallets have become a major trend in Singapore. “For certain segments, like our FRANK by OCBC customers that are extremely mobile-savvy and are open to trying out new technologies, new payment form factors are of significant appeal.” He says that with more than half of Singaporeans owning a credit or debit card with contactless payment capabilities, it was logical to start extending this convenience to their phones. “The advantages of going cashless are vast. The convenience of a digital wallet removes the need to bring along multiple cards, cash or even a physical wallet. A mobile device
can become the single point of usage when it comes to making payments. Still, customer adoption is a key factor in its success and in moving the needle on cashless payments,” says Tan. Pranav Seth, head of e-business, business transformation and fintech and innovation group at OCBC Bank, says the popularity of mobile wallets shows that a broader banking movement towards continued simplification, as seen in the proliferation of simple click-to-chat interfaces, frictionless biometric authentication of transactions and hyper-customised products and services. He expects many new entrants in the payments space, but even if this exerts some pressure on margins, the key to success will be to become the most innovative and efficient payments provider for customers, part of which will hinge on cementing collaborations with fintech startups. “We continue to explore partnerships with startups that work jointly with us to help us achieve our objective of providing solutions that customers need and want,” says Seth. Seeds take root in Southeast Asia Beyond Singapore and Hong Kong, fintech collaborations in mobile wallets and other services is also taking root in Southeast Asia. Last year, Indonesian bank Danamon formed a partnership with Investree, a fintech company that provides peer-to-peer lending via Internet and mobile devices. “Collaboration with fintech companies enable banks to enter into new types of markets,” says Djamin Nainggolan, consumer lending head at Danamon. “Banks have the experience in managing credit risk and have a bargaining power in collaborating with fintech companies.” Bangkok Bank has likewise partnered with fintech mobile wallets, although it still continues to enhance banking products that provide as similar proposition, says Dr Sudsanguan Chusacultanachai, executive
vice president at Bangkok Bank, presumably as an alternative to customers who do not want to shift to using mobile wallets. These enhancements to traditional products include offering virtual cards that can be stored and used via mobile devices, and adding mobile payment functionalities – such as via QR code – to account base products. Asian banks are jumping into the mobile wallet bandwagon not only because of the spike in technological innovations such as contactless payment technology brought on by fintech players, but also because of changing consumer habits. Other initiatives In June, Maybank also launched Maybank Sandbox, a regional fintech sandbox for ASEAN. Choong says the sandbox is the first of its kind in Asia and will leverage on the bank’s position as one of the first banks to collaborate with fintechs through Maybank Fintech and hackathons. “It will provide opportunities for startups and innovators to develop and test new ideas. It provides all the essential components for free, to fast-track the growth of fintech developers across the region,” he says. In Indonesia, the seeds of fintech partnerships in the field of mobile payment and electronic money are already taking root, with OCBC NISP revealing plans to collaborate with key financial players with capabilities and infrastructure in those two areas to push out “an electronic money in the form of a prepaid card,” says Andreas Kurniawan, retail business development head at OCBC NISP. “By collaborating with fintech and other financial players instead of in-house development, we could cut back on development costs. OCBC NISP views fintech companies as opportunities as opposed to threats. By collaborating, we can leverage fintech companies’ simplicity, scalability, and innovativeness in improving our customer propositions,” adds Kurniawan. ASIAN BANKING AND FINANCE | September 2017 21
Case study: UnionBank ‘s Eon Debit Card Selfie banking was one of the ways UnionBank rebooted its EON Prepaid Account to shield banking clients from cyberattacks. “EON uses state-of-the-art face recognition technology. It is the same technology being used by the US and other countries for border control, immigration, and securing critical infrastructure,” says Baltao.
Clients can purchase an EON Starter Kit at any 7-Eleven store
UnionBank pioneers selfie banking in the Philippines The bank relaunched the EON Prepaid Account with a timely feature.
hen UnionBank thought of a strategy to double the sign-ups for its EON Prepaid Account debit card in the Philippines — notably the social media capital of the world — it leveraged the irresistible urge of people to take selfies. UnionBank went to work, harnessing the latest in biometrics technology, to come up with a selfie banking feature that enables clients to take pictures of themselves with their smartphones to log in securely to their online accounts. The bank then re-launched the EON Prepaid Account, an electronic money account, with this new feature at the forefront along with other snazzy upgrades. The gambit has paid off for the bank, the seventh biggest in the country: Selfie banking has been doubling client sign-ups for UnionBank’s EON Prepaid Account Visa debit card since its re-launch in March. Not only has the feature generated a buzz amongst debit card users, but it has also thrilled existing users by making account management more convenient and adding another security layer. Biometric facial authentication, 22 ASIAN BANKING AND FINANCE | september 2017
EON uses stateof-the-art face recognition technology. It is the same technology being used by the US and other countries for border control, immigration, and securing critical infrastructure.
the security technology on which selfie banking runs, has been praised by security experts in providing stronger protection in age of rising cyberattacks. “With selfie banking, customers can log in to their account by doing what they’ve always loved to do — posing in front of a smartphone and taking a selfie,” says Paolo Eugenio J. Baltao, senior vice president, EON banking group at Union Bank of the Philippines. “By adding face recognition, EON attains the gold standard in security — something you know, something you have, and something you are — a multi-factor authentication process to protect customers from the escalating threats to cybersecurity.” The Ericsson Mobility Report says there were 40 million smartphone users in the Philippines in 2016. This will more than double to 90 million by 2021, as smartphones become more affordable and mobile telecommunications technology further evolve. This bodes well for mobile banking in the Philippines and UnionBank’s prospects of drawing in more EON Prepaid Account users.
Stronger security The bank designed the selfie banking feature to help safeguard client personal information and financial transactions. Clients can now choose the type of log in feature that they want, Facial Recognition or Selfie, Touch ID, or Usernname and Password with OTP. Aside from thwarting attackers that attempt to break into the account, this biometricbased authentication process spares the client from a tedious password recovery ordeal. “To respond to hacks, banks require customers to use more complex and cumbersome passwords — longer, changing more frequently, and therefore, more likely to be forgotten. EON spares its customers from all the hassle because with EON, your face is your password,” says Baltao. To prevent fraud in emergency situations, such as when the card is lost, EON Prepaid Account users can lock their card or change their PIN with the EON app. When precious minutes can give attackers a bigger window of opportunity to hack into an account, clients can be more at ease knowing that they can perform these security actions without having to look for an ATM. Asian banks have been ramping up their cybersecurity technology due to the rise in cyberattacks, including payment fraud and identity theft. Banks are even working together to establish solutions that will help the industry cope with the problem. For its part, UnionBank sought the assistance of the country’s central bank Bangko Sentral ng Pilipinas to create a more secure and streamlined EON Prepaid Account experience. By enforcing stronger security
Case study: UnionBank’s Eon Debit Card convenience store chain with over 500 branches nationwide. A starter kit can also be ordered through the popular online marketplace Lazada. The starter kit’s wide accessibility brings as much convenience to new clients that want to open their first EON Prepaid Account as it does to old clients that have lost their cards and want to obtain replacements. “No need to go to the branch. No forms. No time wasted. The customer just needs to download the EON app on Google Play or App Store and in a few steps, he will be using his EON Prepaid Account to manage his money like a whiz,” says Baltao. “Lost card? It shouldn’t be so troublesome. If the customer needs another one, he can just buy a new starter kit and link the new EON card to his account. Nobody has time for a long UnionBank enabled multiplatform access replacement process.” Once activated, the new EON measures, UnionBank was the first Prepaid Account enables clients to universal bank in the Philippines transfer funds from PayPal to their to receive certification for the EON Prepaid Account, or cash in Payment Card Industry Data at convenience stores like 7-Eleven. Security Standard. This standard was UnionBank also made sure that founded by leading global credit card clients had multiplatform access, companies such as American Express, allowing them to quickly pay bills Discover Financial Services, JCB and complete other transactions on International, MasterCard Worldwide their preferred devices. “Customers and Visa Inc. to assesses compliance can check their balance, move money, with requirements to reduce the risk pay bills, and buy stuff on whatever of data breaches and other card issues. device on-hand. Or even all of them: Kaspersky ranks the Philippines smartphones, tablets, desktops, or as 33rd out of 233 countries that laptops,” says Baltao. are most prone to cyberattacks, In the Philippines, Wi-Fi access and around one in six users in the remains sporadic, which would have Philippines report their devices were constricted access to EON Prepaid infected with a malicious software with the intent to steal customer financial data. Greater convenience Originally designed for easier online shopping which began booming in the 2000s, the EON Prepaid Account has been recently upgraded with features that bring greater transacting convenience to digital citizens — or what UnionBank calls “Digital MEs.” To facilitate a fast account opening process, UnionBank enabled clients to purchase an EON Starter Kit at any branch of 7-Eleven, a leading convenience store chain in the Philippines with more than 1,700 branches nationwide as of 2016. It is also available in MiniStop, another
Selfie banking has been doubling client sign-ups for UnionBank’s EON Prepaid Account Visa debit card since the re-launch in March.
Account. UnionBank solved this by allowing free access to the EON app using mobile data on any network, except when on roaming. Other features Baltao remembers the initial concept for EON as a no-fuss deposit account that required no minimum balance and waived unnecessary fees and penalties. The new EON Prepaid Account continues to provide these perks, but it has evolved to support digital MEs as the bank listened to their requests and observed their activities. Because of these security and convenience upgrades, the bank reports increased usage of EON Prepaid Account for online and in-app purchases, and it won’t be long before customers again pave the way for another evolution. “People needed an account to be able to shop online so we launched EON which didn’t require customers to maintain a minimum balance. But since then, our customers discovered a bunch of ways to use their EON in their digital life,” says Baltao. “These guys were on the frontline of discovering new ways to earn and spend when they linked their EON Prepaid Account to PayPal. They’ve had the cashless experience when they used EON to pay at stores, and they were among the first to explore what technology made possible beyond traditional banking.”
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The EON Starter Kit
ASIAN BANKING AND FINANCE | September 2017 23
retail banking forum: JAKARTA
ANDREAS KURNIAWAN, OCBC NISP: “In the journey towards digital, we had to overcome stiff competition from other retail consumer banks, strict regulatory constraints, and limited resources.”
IWAN MARGONO, Bain & Company: “Hidden defection means the consumer will chase a new competing bank. Banks need to quickly address drivers of detraction since switching costs may exacerbate hidden defection.”
How Indonesian banks are playing catch-up as fintech firms gain traction Indonesia has been witnessing a vibrant fintech marketplace with more brands rising in popularity.
ar from the novelty it has been a few years back, fintech is fast becoming a familiar facet of the banking industry. Experts at the Jakarta leg of the Asian Banking & Finance Retail Banking Forum 2017 held last April 5 at the Ritz-Carlton Mega Kuningan agreed that fintech is definitely opening new possibilities and opportunities for banks and consumers alike. For one, the digital transformation age has eliminated several barriers for fintech firms. “Consumers’ perception of traditional banks is waning. They are now increasingly open to digital financial transactions,” said Liew Nam Soon, managing partner, financial services ASEAN at Ernst & Young. The rise of fintech companies in the region, especially Indonesia, has been described as an industry disruption. “Fintech activities are increasingly making headlines. Slowly but surely, incumbents are falling 24 ASIAN BANKING AND FINANCE | september 2017
Beyond the national level, the appeal of fintech has already firmly established itself on the grassroots level.
behind digitally,” Liew noted. For a time, this trend has been limited and only observed at a regional level, but this has been slowly shifting in favour of local developments. According to Iwan Margono, principal at top management consulting firm Bain & Company, local banks are beginning to play catch-up with their foreign peers. “Local banks in Southeast Asia have closed the gaps with foreign banks. Local banks have invested in digital heavily,” Margono says. In Singapore, for instance, the NPS gap between leading foreign versus leading local banks has been whittled down to a lean -8.93%. In the Asia Pacific region, the practice of disintermediation — or the decrease in the use of intermediaries between producers and consumers, for example, by direct investments in the securities market rather than through a bank — is most evident in China, where it has
reshaped the economic powerhouse’s financial services industry with transaction values worth $18.6b by year end. Indonesia in play Recently, Indonesia has been witnessing a vibrant fintech marketplace, and the rise of several brands is proof of such improvement. Prime examples of prominent fintech firms include Pinjam, an online pawnshop platform established in 2014 “that provides financial services by developing a digital platform to assist customers in addressing their fast funding needs,” and GO-PAY (formerly GO-JEK Wallet), a virtual wallet that can be used to virtually pay for various transactions. Beyond the national level, the appeal of fintech has already firmly established itself on the grassroots level. According to Liew, digital innovation has gained the most
retail banking forum: JAKARTA traction amongst retail payments and investments. This makes customer service extremely important as far as rival traditional banking channels are concerned. Banks respond to fintech’s rise The rise of fintech firms, however, indicates that the banking landscape is constantly being shaped by the forces of competition. The challenge is for banks to remain competitive and exploit recent innovations to gain and keep new customers. Banks simply have to keep up. OCBC NISP, for instance, has embarked on a challenging journey in its very own digital transformation. Andreas Kurniawan, retail business development head at OCBC NISP, shared that the Indonesian banking giant, in the development of its digital self-service offering and in its shift to developing being a retail consumer bank from an SME bank, overcame several challenges. Some of these hurdles included stiff competition from other retail consumer banks, strict regulatory constraints, and limited resources. Some banks have also taken the initiative in embracing key innovations that may benefit customers overall. Rajiv Madane, director of products and strategy at Fiserv, also shared how they created innovative credit and debit cards as well as payment solutions for banks and financial institutions. These useful innovations include Verifast Palm Authentication, an award-winning, multi-platform bank biometric authentication system described by Madane as possessing “superior
security and accuracy,” as part of a next-generation customer experience journey in payments. “Customers control cards, and eliminate card fraud,” Madane explained, noting that 83% of Verifast customers “value the security and convenience,” whilst 97% “will use it moving forward.” Aside from these, how then can banks be more competitive in the face of fintech firms? “Banks need bold strategies to compete in today’s new normal environment,” said Liew. Liew has observed that most retail banks have responded to the rise of fintech companies with a “kitchen sink” approach — adopting a process that is generally imprecise and unfocused. “In response, most retail banks are reacting with a ‘kitchen sink’ strategy, and success has been partly dampened by the entry of fintechs,” Liew said, proving that when it comes to dealing and competing with fintech firms, banks are never guaranteed outright success. “There are no silver bullets, but it pays to invest in customer service,” he advised banks. Customer loyalty As a consequence, an emerging issue that banks and fintech firms are finding more relevant and too important to ignore is customer loyalty. These days, customer loyalty has evolved as customers have chosen to embrace certain basic needs, he said. “Loyalty has shifted in banking in recent years, from friendly customer service to other attributes, especially simplicity and convenience,” said Margono.
Panelists at the Jakarta leg of the Retail Banking Forum 2017
Digital channels and mobile/ tablets are taking over other channels, but this does not mean branches are going down or dying.
Unknown to them, banks may already be suffering so-called “hidden defection.” “Hidden defection means that your consumer will chase a new competing bank,” Margono noted. This happens to be more prevalent amongst developing countries where “loyalty is not strong.” If gone unchecked, hidden defection can pose a risk to banks. “Hidden defection represents a significant missed opportunity for banks,” Margono noted, pointing to current industry data that indicates a hidden defection rate of 40% — a figure described as “alarming”. “Banks need to quickly address drivers of detraction since switching costs may exacerbate hidden defection,” Margono added. “The one that goes out the door are high-net worth customers,” he said. One approach banks can consider is adopting an optimisation or rationalisation of branch networks, ensuring that best-performing branches are capable of adopting new innovations, he added. Fending off defectors In addition to hidden defection, banks seeking to go digital also face underlying threats from enterprises whose functions replicate those of fintech firms, Liew added. “The reality is that the biggest threat [to fintech firms] are x-sellers for financial services: Western tech giants, Eastern tech giants, telecom operators, and on-demand providers,” Liew explained. Meanwhile, despite the rising popularity of the fintech industry, traditional channels will continue to exert considerable influence on banking transactions. “Omnichannel delivery remains critical,” Margono noted, referring to the typical brickand-mortar banking structures in the status quo. “Digital channels and mobile/tablets are taking over other channels, but this does not mean branches are going down or dying. Omnichannels are still critical,” he explained. Fintech companies are here to stay and will continue to shape the future of the region’s banking industry, but in some ways, one can expect more orthodox banking channels to remain a familiar sight.
retail banking forum: SINGAPORE
VARUN MITTAL, EY: “The six main areas that are part of this revolution include robotic process automation, robo advisors, artificial intelligence, chatbots, application programming interfaces, and blockchains.”
AVISHEK NANDY, Bain & Company: “The complexity that has been created by digital is changing the rules of the game. Banks must take a considered approach to branch and channel optimisation.”
RAJIV MADANE, Fiserv: “If someone has lost their card or someone has suffered fraud and they are losing money, you cannot have a robot talking to you. You need more empathy there.”
Singapore banks urged to make physical branches as convenient as digital Ensuring customer loyalty and improving cybersecurity are also amongst the top priorities.
igital is here — keep up or close shop. That was the overarching theme across the Singapore leg of the Asian Banking & Finance Retail Banking Forum 2017. Held at The Pan Pacific Singapore, the forum highlighted the challenges faced by traditional banks in the face of inevitable digitalisation, as well as best practices to follow as Singaporean financial institutions transition their services into cyberspace. The adoption of digital, nonbank services such as fintech isn’t only appealing to an ever mobile and connected population. It’s also particularly disruptive for financial institutions, especially for a country that is highly banked such as Singapore. Varun Mittal, ASEAN fintech leader from Ernst & Young Solutions LLP, explained the situation as “both an opportunity and a threat. It’s an opportunity in that new
26 ASIAN BANKING AND FINANCE | september 2017
The six main areas we see that are part of this revolution include robotic process automation, robo advisors, artificial intelligence, chatbots, application programming interfaces, and blockchains.
services can be provided; a threat because it’s an attractive pie for a lot of the fintech to come and get their share.” How should banks fight back? Mittal suggests that financial institutions should market themselves as the be all and end all of a customer’s financial needs. “The new world model is ‘I’m everything to you for your money. I have all the financial service needs in your life’,” said Mittal. Services such as mobile payments, remittances, and fundraising are just some of the possible areas where banks can extend their offerings. However, adding services is just one part of the equation. The digital transformation and the automation of traditional financial products require integrating best-in-class technologies. Clients are demanding more convenient and efficient
solutions, and a solid digital backbone is required to deliver their needs. “The six main areas we see that are part of this revolution include robotic process automation, robo advisors, artificial intelligence, chatbots, application programming interfaces, and blockchains,” Mittal enumerated. Rajiv Madane, director of products and strategy at Fiserv, also emphasised the customer’s need for seamless banking interactions in the digital space. “The easier you make it for the customer, the more technology you have to put behind the scenes as to make it very user-friendly.” Even though techsavvy services should be developed, Madane also pointed out the need to make branch transactions equally convenient. “There are still lots of customers who visit the branch. We want to make that journey easy as well.” It’s this “digical” — portmanteau of digital and physical — model
retail banking forum: SINGAPORE that he believes will be the norm in Singapore. With the coexistence of these two worlds, banks can make sure that they have all bases covered, with segments serving traditional clients, mobile millennial, and everyone in between. Mittal shares the same sentiment, saying that due to the different nature of customers and customer requirements, all the digical avenues have to be covered lest you lose a client. “It has to be a case by case basis,” he said. He further explained that the needs of your regular and top clients are different, and the human factor is something that can’t be replaced by ones and zeroes. “If someone has lost their card or someone has suffered fraud and they are losing money, you cannot have a robot talking to you. You need more empathy there,” Mittal added. Another growth driver Customer loyalty is also called into question given how easy it is to switch service providers in the digital space. “Customer loyalty is one of the fundamental drivers of profitable growth,” said Avishek Nandy, principal at Bain and Company. “The complexity that has been created by digital is changing the rules of the game. Banks must take a considered approach to branch and channel optimisation.” Ideally, banks would want most, if not all, of their clients to have a net promoter score (NPS) of at least nine as they are most likely to patronise a business. Not only are they unlikely to take their money elsewhere, they’re also key drivers of brand, customer service, and customer experience promotion. It’s particularly important to create a loyalty-producing service ecosystem as Nandy explained that “one in three retail customers are likely to switch. And if we don’t address the hidden defects and issues, it’s going to be a challenge for banks.” Like Madane and Mittal, Nandy reiterated the need for banks to foster their digital and physical presence. “If you just look at customers who are interacting primarily through digital only versus those interacting across different channels, people in the latter group tend to have higher NPS. It’s not
just digital that can drive customer advocacy. You need to think how you are offering the digital and physical together because that will make the difference.” The ‘digical’ strategy Though the market in Singapore is seemingly dictating a blend of digital and physical services from financial institutions, neighbouring emerging markets are keen on leapfrogging the infrastructure divide straight into digital. Madane notes that in his talks with financial institutions in such countries, “They are trying to have as many app-based services for their customers — accounts, products, and services — and not invest too much in opening new branches. They will have branches, yes, but they’re saying our priority is digital first.” Like transitioning from physical to digital, those jumping straight into the latter will bear the burden of eKYC. After all, identity theft and phishing will further grow rampant in such an environment. Ultimately though, the task of laying the foundation for a fully digital and secure identification system falls on the government. Again, Singapore will be leading the way in this department. The Monetary Authority of Singapore is set to adopt an eKYC system where customer information such as data and biometrics are stored on a centralised, governmentsponsored server. All banks have to do then is to cross-check customer credentials with the aforementioned server to either automatically verify or manually check the customer’s identity. Through the clamour of the digital race, banks should keep in mind that all these shouldn’t be done in careless haste. “In that environment, you’ve got a lot of risk and exposure related to man in the middle hacks, compromised digital channels, and breaches,” reminded Bradley Prentice, APAC director of business development, payments, and banking of Irdeto. He warned that even though problems may not stem directly from banks, vulnerabilities in their partner organisations will likewise open them up to threats. Another key factor that banks
There’s a big disconnect between people from the top of the organisation who believe that they are fully deploying a cybersecurity strategy and the folks at the frontline who are actually deploying it.
should focus on is the alignments, or rather the misalignments, between their cybersecurity plans and their actual cybersecurity implementation. Cybersecurity strategy David Allott, APAC cyberdefense director of McAfee, revealed that “there’s a big disconnect between people from the top of the organisation who believe that they are fully deploying a cybersecurity strategy and the folks at the frontline who are actually deploying it.” Thankfully, banks are seeing the holes in their shields and are set to invest over $19m in security — a figure that has been steadily increasing throughout the years. Prentice is optimistic that as long as banks have a robust digital road map, they can better direct their funds towards addressing weaknesses. But threats from the outside are one thing; internal deficits are equally, if not more, devastating. San Zaw, head of solution consulting in Asia of TIBCO Software, said, “I think the biggest challenge in the area of security investment is internal threats because they understand all the nuanced rules and guidelines.” Joseph Gan, co-founder and COO of V-Key, meanwhile noted that internal problems can be addressed with simple checks and balances. He said, “There’s an increasing awareness, especially in Singapore.” He continues that “second factor identification for internal-product access management is just one of the few ways to limit fraud from within the organisation.” “The attacks are getting more sophisticated. As banks, we need to make sure that we stay one step ahead of the game,” concluded Stanley Phua, APAC regional sales director for CyberInt.
Cybersecurity panelists in Singapore
ASIAN BANKING AND FINANCE | September 2017 27
retail banking forum: KUALA LUMPUR
LIEW NAM SOON, EY: “Banks have begun looking at increasing digital transformation needs in capital allocation planning for the next two to three years, and 85% of those that EY surveyed have established a digital transformation function with executive positions such as chief of fintech and chief of innovation.”
CHARLES LAMBERT, Bain & Company: “Malaysia’s increasing dependence on digital channels reduces attachment to traditional ways of banking. As traditional banks embrace digital channels, branch closures reduce NPS of omnichannel and branch-only customers whose needs are no longer met.”
Malaysian banks weather waning customer loyalty as fintech booms Banks are struggling as non-banks are enjoying increased customer attention and retention.
ransaction values rose a staggering 21% in Malaysia’s startup ecosystem over the past year, indicating relentless support for further innovation and acceleration of the fintech market. As money pours into the fintech space in the country, Malaysian banks are increasingly being threatened to widen their ecosystems and cross-sell more products as fast as the likes of Ping An. With the rise in diversified and exciting products from fintech startups, clients are slowly easing out their traditionally preferred banks in favour of these non-traditional providers. The number and extent of transactions with a non-bank have simultaneously increased with the volume of digital disruptions happening within a country, and Malaysia is no exception to the increasing numbers of fintech clients, especially in Kuala Lumpur. 28 ASIAN BANKING AND FINANCE | september 2017
Banks have begun looking at increasing digital transformation needs in capital allocation planning for the next two to three years.
Banks have begun looking at increasing digital transformation needs in capital allocation planning for the next two to three years, according to Liew Nam Soon, managing partner, financial services ASEAN at Ernst & Young, and 85% of those that EY surveyed have established a digital transformation function with executive positions such as chief of fintech, chief of data, and chief of innovation. During the Kuala Lumpur leg of the Asian Banking and Finance Retail Banking Forum 2017, Liew emphasised that banks need bold strategies to compete in today’s new normal environment, where the digital ecosystem continues to emerge and where financial institutions maximise innovations around robotic process automation, robo-advisory, artificial intelligence, chat bots, application program interface (API), and blockchain, among others.
As traditional banks and startups overtake each other in the race to producing the newest digital product, customers have loosened up and become more flexible in the way they do banking. Clients these days swarm to where the latest digital trend is, and when their preferred bank is not ready to provide them what’s hot in the market, they can easily transact with another bank or another provider. “What we see in Malaysia, a lot of your customers are actually buying products from other banks, 50% of products purchases comes from another bank. Around >50% of purchases go to competing banks weighted towards higher margin products and share of digital channels. Banks need to quickly address drivers of detraction since falling switching costs may exacerbate hidden defection,” said Charles Lambert, partner, Bain & Company.
retail banking forum: KUALA LUMPUR
Baraja, Lambert, Liew, and Charlton discuss digitalisation in Malaysian banking
According to Lambert, these customers are very easy to identify. Customers with multiple products and those who have been with the bank for a long time but have a low net promoter score (NPS) over the years are the ones who tend to shop around. Lambert added that two in five retail bank customers would switch if the process were easier, which is a very big possibility in the future. “Malaysia’s increasing dependence on digital channels reduces attachment to traditional ways of banking. As traditional banks embrace digital channels, branch closures reduce NPS of omnichannel and branch-only customers whose needs are no longer met. The effects of these forces on defections may be amplified by possible changes to regulation as the financial regulators in Malaysia review financial regulations to adapt to fintech development,” Lambert added. Loyalty blues Despite challenges on the digital side and increasing interactions with fintechs, Malaysian clients have started to prefer local banks over foreign ones. When Bain & Company surveyed Malaysian banks three years ago, the top bank which had the highest customer loyalty score was a foreign bank. Over the last few years and as local banks tried to enhance presence and innovation, Malaysia’s banking industry saw a rise in the net promoter score (NPS) among local banks. Fast forward to 2017, the NPS leader is now a Malaysian bank. Meanwhile, Liew said banks and
non-banks alike will always have problems with loyalty in this day and age. According to him, enforced loyalty will probably do the trick by increasing customer interactions and creating a unique ecosystem which customers will find indispensable in their daily activities. The fast moving consumer goods experience shows that more firms can create more reasons for customer interaction and, thereby, create loyalty. “If you only interact with a customer once a month, how loyal can that customer be? If you can catch a customer to do a number of things with you across a number of products, that’s a way to make loyalty go up. We all know a lot of money goes into loyalty programmes and not all of them yield the expected return,” Liew added. Making mobile work As fintechs continue to take hold of the financial industry, banks have deemed it strategic to partner instead of compete. Several Malaysian banks are now employing the services of startups and fintech companies, with the aim of bringing banking expertise and fintech innovation together. Helmi Hasan Baraja, a consumer apps expert and mobile development architect, said that the number of mobile phone internet users in Malaysia will go up to 21 million in 2020, hence, banks should focus on developing their apps as a tool to keep their customers. “Back in the day, we focussed on the website, the retail banking platform. Now we switched to the mobile banking platform so if we
Enforced loyalty will probably do the trick by increasing customer interactions and creating a unique ecosystem which customers will find indispensable in their daily activities.
look into the mobile platform, the traditional way is the top-down — we design for the desktop, then we design for the laptop and, lastly, mobile. The drawback of this approach is we focus more on the desktop. More people look into smaller screens now. We need a bottom-up approach,” added Baraja. Developers call this the Mobile First design, where banks start small and scale up. Instead of putting everything on the screen, developers focus on the design and the speed of the app, two characteristics that users nowadays focus on. Baraja said most banks in Malaysia need to upgrade, as they usually have a desktop website which is not perfect for mobile navigation. On-the-go customers who do not like the mobile app or the mobile website of a company tend to switch to other banks who can cater to their needs. A survey by Apigee shows that 44% of users delete a mobile app immediately if it did not perform as expected. Baraja said that these lost transactions over mobile apps not only result in lost revenue for banks, but have a detrimental impact on customer loyalty and brand reputation. Ultimately, it is a lose-lose situation. “In the end, there is no secret recipe on how to go about driving more loyalty in your customer base. And it’s a combination of things. It’s driving excellent customer experience, it’s making it easy for customers, and it’s making them embrace the digital revolution, going mobile fast, pushing the channel, and executing well through mobile and online channel, teaching them support. It’s good to have the tools, but it’s also good to have the banking processes follow suit,” Lambert added.
Helmi Hasan Baraja talks about the importance of mobile
ASIAN BANKING AND FINANCE | September 2017 29
Singapore Business Review Regulatory Technology Case Study of the Year
in partnership with
SentroWeb-DJ was created to meet new regulations
Ingenique’s cutting-edge screening solution turns due diligence into a breeze
SentroWeb-DJ, which is now used by more than 200 companies, simplifies compliance by bringing a powerful search engine to Dow Jones’ comprehensive database.
hen Singapore rolled out tighter cross-border anti-money laundering guidelines, accounting firms like Prudential Corporate Services and Ardent braced for steeper compliance costs coupled with a substantial increase in their workloads. Stricter regulatory requirements meant longer hours conducting due diligence on clients, a laborious process that sometimes involved manual searches on several sanctions lists and blacklists. “We explored ways in which we can comply with the guidelines and integrate them into our client acceptance procedures so that due diligence checks on all new and existing clients and their principals will be enhanced,” shares Terence Ng, managing partner of Ardent. In their search for a solution to simplify due diligence checks, Terence chanced upon Ingenique Solutions’ trailblazing SentroWeb-DJ system at an accountancy industry event. Consolidated information at a click SentroWeb-DJ is a customer due diligence screening software for Anti-Money Laundering/Countering the Financing of Terrorism (AML/CFT). The software is a consolidated database of persons and entities known to be involved in global terrorist activities, fugitives wanted by international law enforcement agencies, and politically exposed persons (PEPs). “In the recent years, Singapore regulators like Monetary Authority of Singapore (MAS), Accounting & Corporate Regulatory Authority (ACRA), Ministry of Law, and Commissioner of Charities have put in place robust AML/ CFT frameworks for various industries to comply with,” 30 ASIAN BANKING AND FINANCE | september 2017
We are now able to conduct our due diligence checks with a click.
says Jeffrey Chin, director of Ingenique Solutions. “Most of our clients are new to this framework and have a difficult time trying to meet such requirements and also justify an increase in compliance costs. We saw this problem and developed our solution to cater to this compliance need in the most efficient and cost-effective way,” he notes. Ingenique Solutions was founded in 2014 by Jeffrey, who has vast experience in the banking and finance, risk management, and information technology industries. “With the release of new AML/CFT requirements from the regulatory authorities, we saw a great need and opportunity in the area of customer due diligence screening. We put our expertise together to create a useful product to meet the new regulations,” he says. The company’s efforts quickly paid off. SentroWeb-DJ’s simplicity and relative affordability soon caught the eye of firms like Ardent and Prudential Corporate Services. “We now have worldwide information on individuals and corporations at our fingertips and this helps us to determine our risk-rating of the client, even prior to offering our services to the client. We have the confidence of being fully compliant with ACRA’s due diligence requirements due to this service,” notes Priya Ramanujam, managing director of Prudential Corporate Services. She is particularly impressed by SentroWeb-DJ’s ready worldwide database, which captures many persons with political interests and other relevant connections highlighting money laundering and terrorism financing activities. “SentroWeb-DJ has simplified the process of identifying our clients and their activities and connections worldwide.
Singapore Business Review Regulatory technology case study of the year Previously we had to Google for such information which was very time-consuming leading to exhaustive searches which may not even be relevant. This has helped us to save the valuable commodity of time,” adds Priya. Terence of Ardent is similarly pleased with Ingenique Solutions’ capabilities. A key strength of SentroWeb-DJ, he says, is its audit trail function which allows users to track historical searches that were performed as part of the compliance process. “We also appreciate the ongoing monitoring function that provides automatic notifications if our clients subsequently become politically exposed or designated as special interest,” notes Terence. “SentroWebDJ has provided an efficient and effective alternative to our AML/CFT screening needs. From having to perform searches on several lists manually in the past, we are now able to conduct our due diligence checks with a click.”
Ingenique Solutions partnered with Dow Jones to provide a powerful search engine. (From left: Martin Lim, CTO of Ingenique Solutions; Jeffrey Chin, director of Ingenique Solutions; Sachin B. Singh of Dow Jones Risk & Compliance, APAC)
Powered by Dow Jones Instead of searching limited number of open source data, or searching aimlessly on the Internet, SentroWeb-DJ has partnered with Dow Jones to provide a powerful search engine to match names against Dow Jones’ database of more than 2 million profiles of terrorists, criminals, and politically exposed persons. The comprehensive Dow Jones Risk & Compliance AML database is known for its global coverage and is trusted by regulatory authorities and major banks and financial institutions around the world. “The key reason why customers like Prudential Corporate Services and Ardent choose us is productivity. With SentroWeb-DJ, and its reputable AML data source, our customers can cut the time spent on customer screening significantly,” explains Jeffrey. The Dow Jones database not only provides clear categorisation of risk data sets; it also has a comprehensive coverage of secondarylevel identifiers like date of birth and photographs which also help clients meet their regulatory requirements and reduce false positives. “Proper integration of risk data
Jeffrey Chin, director of Ingenique Solutions
Helping clients cope with changes
ngenique Solutions is committed to helping its clients make sense of tighter regulatory frameworks. “The biggest challenge we face is to educate our clients and potential clients on the importance and impact of the new regulatory requirements. We spent a great
sets with the screening engine is key. The Sentroweb-DJ platform is fully integrated with Dow Jones data which delivers highly valuable efficiencies to our clients’ screening operations,” notes Sachin B. Singh of Dow Jones, Risk & Compliance, Asia Pacific. “As the leading provider of business news and information, we collect information on individuals and entities around the world and consolidate this into structured profiles. We adhere to exceptionally high editorial standards and make a significant investment in our world-class data global research team and technology to deliver complete and accurate coverage. This highly structured information is integrated with the SentroWebDJ platform to help clients screen their relationships to blacklisted or politically exposed clients,” adds Sachin. “Dow Jones’ role is crucial to Ingenique Solutions’ success because they too saw the potential in the markets we are covering and lent their utmost support to us even when we were starting up,” says Jeffrey. “With their relentless support we are able to add reputation and quality to our solution.” amount of time highlighting to our clients specific and important requirements in the new AML/CFT framework and telling them how our solution will help them meet those requirements,” says Jeffrey. The company also provides training to its clients’ staff on how to use the SentroWeb-DJ software effectively and integrate with individual company policies, procedures, and controls. “SentroWeb-DJ offers regular updates on the searches conducted to indicate if any changes have been highlighted in the profile of the individuals we have previously searched. The Dow Jones database is also very comprehensive and extensive and its wide reach lets us more confidently determine the background of our client for our risk-rating purposes,” says Priya. Terence adds, “[We are] pleased with their search capability on Dow Jones database and other similar blacklists. We look forward to the continuous inclusion of more databases in SentroWeb to make it more robust.” After its success with SentroWeb-DJ, Jeffrey shares that the company is looking to broaden its product range. “We are not done yet,” he says. “We are venturing into new industries and sectors of the economy which we do not have a significant presence like the money changers, remittance agents, pawn brokers, charities, and others. We are also doing research and development in new features and data analytics.” ASIAN BANKING AND FINANCE | September 2017 31
analysis: supply chain funding Outside of shifting supplier payment terms, macro-economic and volatile geo-political issues are most important to CFOs. In the year ahead, 27% of enterprises interviewed cited “more off balance sheet financing of all kinds” as their biggest funding initiative, more than doubling other initiatives such as “refinancing their supply funding/changing financiers” and “reducing days outstanding across the chain(s)”.
Top enterprises to deal with nonbank and international financiers
Domestic banks in peril as firms turn to nonbank lenders The bank relaunched the EON Prepaid Account with a timely feature.
omestic banks are in the firing line as the world’s largest companies seek to streamline their global supply chain funding, an exclusive report from market analysts, East & Partners has found. According to 736 corporate treasurers and chief financial officers (CFOs) from the top 100 revenue ranked businesses across eight geographies (Australia, Canada, China, Germany, Hong Kong, Singapore, United Kingdom, and USA), they plan to reduce their total number of supply chain funding providers in the next 12 months, with non-bank and international financiers positioned to benefit over domestic banks. Currently, Corporates engage with an average of 14 banks along their entire supply chain. However, these large enterprises report that figure will reduce, with Canada (6.9 percent) and UK (5.2 percent) forecasting the biggest reduction. The report, titled “Funding a Globalised Supply Chain”, found Corporates expect to scale back engagement with local banks by 6.5%, while international banks and non-bank financiers are set 32 ASIAN BANKING AND FINANCE | september 2017
to increase their relationships by 11.1% and 25% respectively, albeit from a low base. Regionally, Chinese Corporates have signalled the strongest shift towards international banks, with an increase of more than one third expected, nearly double their closest peers in Australia. According to the research, suppliers to the world’s largest enterprises have vastly different experiences in settling invoices. East has found that globally, supplier payment terms for these large corporates average around 63 days. German enterprises are the best performing (49 days), while those in China take the longest to pay their suppliers, stretching out to a maximum of 110 days. Despite the obvious trend towards lengthening of payment terms by large enterprises around the world, they report that their suppliers are beginning to fight back. Globally, more than one in two large enterprises say suppliers are tightening payments terms. Most affected by shortening supplier payment terms are those in Australia and China, where around two thirds say their suppliers are seeking quicker payment terms.
Tougher conditions Head of Markets Analysis at East & Partners Australia, Martin Smith said: “East’s report has found that large Australian enterprises are reporting tougher conditions, both for funding and supplier payment terms in comparison to their global peers. That landscape will only get more difficult should trade barriers, stricter payment terms domestic and other regulations stemming from protectionist sentiment come to fruition. Banks, especially domestic lenders need to re-evaluate their core supply chain financing offerings and ensure they are meeting the shift in business demands. Otherwise, they will lose market share to international providers with wider reach, or niche non-bank financiers that provide better technology platforms that incorporate more easily with existing systems.” Paul Dowling, Principal Analyst at East & Partners, added: “With intra-regional and international trade a cornerstone of growth for the Asia region, supply chain funding is a key financing aspect for top enterprises. The report clearly highlights that dealing with China remains a difficult proposition, both for suppliers requiring payment, and corporates seeking funding along their supply chain in that market. Chinese banks need to be aware of clients switching to global competitors as the market opens up. With Chinese corporates indicating that they will increase engagement with international banks by a third, domestic banks will feel the impact.” From East & Partners
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