Issue No. 91 DISPLAY TO 30 JUNE 2018
FINTECH IS NOT A THREAT EXCLUSIVE INTERVIEW WITH AMOL GUPTE, ASEAN HEAD & CITI COUNTRY OFFICER, SINGAPORE
Asian Banking & Finance
SIRI, WHAT’S MY BALANCE? AGGREGATOR RISK IN OPEN BANKING WILL APAC BANKS BE DIGITAL LEADERS BY 2020? CASE STUDY: OCBC’S FACIAL RECOGNITION IN PRIORITY BANKING BOOM OF THE SMART BRANCH
Nitin Chugh HDFC Bank p.12
Masaaki Suzuki Krungsri JPC/MNC p.14
Zuzar Tinwalla Standard Chartered India p.16
FROM THE EDITOR Publisher & EDITOR-IN-CHIEF production editor GRAPHIC ARTIST
This issue features an exclusive interview with Amol Gupte, ASEAN head and Citi country officer of Singapore. He revealed the bank’s position for growth in terms of digitalisation and how it works with fintech to offer innovative solutions. Find out more about what he has to say on being a step ahead of trends and rising amidst disruption.
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HDFC Bank’s Nitin Chugh also talked about retaining customer centricity during digital transformation, whilst Standard Chartered India’s Zuzar Tinwalla tackled AI and robotics in Indian banking. Krungsri JPC/MNC Bank’s Masaaki Suzuki also told us how business matching deals help in the bank’s growth. ADMINISTRATION Advertising Editorial
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For our sector reports, we talked to several Asian banks and consulting firms alike to know the latest trends in banking technology and cash management. Asian banking is now developing improved digital services such as smart branches to adapt to evolving customer behaviour. Meanwhile, client roles continue to broaden in cash management, resulting to the rise of integrated platforms. We also have an in-depth coverage on the Retail Banking Forum 2018 in Manila where Philippine banks were asked the question: Do banks need to be an IT company with a banking franchise? Our country report zooms in on China and how regulations are slowing the expansion of banks. We also bring you stories on several trends in the banking industry today such as digital ecosystems, conversational banking, and open banking. Enjoy the issue!
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MICA (P) 249/07/2011 No. 67
ASIAN BANKING AND FINANCE | JUne 2018 1
10 INTERVIEWS fintech is not a threat
Country report tighter rules targeting shadow banking put brakes on china banksâ€™ expansion
EVENT COVERAGE: RBF 2018 A new perspective: Do banks need to be an IT company with a banking franchise?
06 Are ecosystems the key to boost
22 Asian banks deploy smarter
30 Time to face the future:
The regulatory outlook for Asia-Pacific banks
branches and digital tools
07 WIll APAC banks lead in digital?
24 Evolving client roles push for
08 Aggregator threat closes in
32 Global asset managers in China:
intergrated banking platforms
on open banking
Opportunities arising from
26 OCBC Bank changes the face
of priority banking
28 Transact with BOCHK ATMs
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Asian banks fall behind Western Foreign banks beat Singapore banks in ASEAN banks lead digital charge on counterparts in digital transformation resolving customer woes real-time payments Asian banks are eating the dust of their European counterparts as they lag in embracing digital transformation models to prepare for rising mobile and online adoption of banking services, according to a report from Juniper Research. The report noted that only DBS Bank had the digital model that can stand amongst European and American banks, citing the extent and maturity of the bankâ€™s digital portfolios.
Foreign banks are outperforming their local counterparts in Singapore in addressing customer service inquiries of banking customers, according to a survey by Genesys. Local Singapore banks should therefore ramp up their customer service amidst growing levels of unsatisfaction from Singaporeans as nearly half (40%) of them have expressed willingness to cancel banking services due to poor customer engagement.
Six in 10 (64%) financial institutions in the ASEAN region expect heightened investment in developing and modernising payment infrastructures in the next 18 to 24 months to cater to a growing online banking userbase, according to a report from ACI Worldwide. Despite the commitment to digital transformation, countries differ in terms of investment plans and maturity of digital models with Singapore banks leading the pack.
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Co-published corporate profile
Sharing screens and access rights management Imagine a telecoms operator with an internal infrastructure of 1000 hosts to which external subcontractors must have remote access via SSH and RDP. What can he do to deal with that?
n the global village, the access to a company’s internal resources, and the authorization management that follows, become problematic when the resources must be available to subcontractors and suppliers, often operating from across the world. One can cope with that – but not without a tool. Within large companies, suppliers will often be located on the other side of the world, thus working in completely different time zones. How to provide them with comfortable work conditions while supervising their activity during a given session? Mind you, there are 300 parallel sessions at the same time; no one is able to monitor that… This is where access rights management comes into picture. Simply put, the rights are a set of policies – do’s and don’ts if you will – related to accessing specific resources, where a resource is understood as a directory, file, disk or the entire workstation. The structure of the said access rights very much resembles the internal structure of any given corporation. The hierarchy is dominated by a trusted “superior authority”, and the propagation of additional rights is most often carried out using the application mechanism. The applications are dealt with by a dedicated unit or group of privileged users with wider access rights. The entire application flow is recorded and stored for future audits. Apart from structuring access rights itself, it is also very important to monitor the access granted, e. g. by recording session progress or monitoring the status of a shared object. Analytical tools used here often allow for graphical data presentation, so that all kinds of incidents are easier to capture by administrators. Statistics published last year in a report show how difficult it is to manage access rights these days. Namely: • 80% of all security breaches relate to privileged accounts • It takes more than a week to detect 82% of the breaches Today, the remote workplace model, which entails the need to share internal resources, is becoming increasingly popular. A natural consequence of this approach is the growing importance of
Privileged Access Management systems (PAMs). According to the said report, 60% of security experts believe that PAMs are indispensable to maintain regulatory compliance. This is linked to the General Data Protection Regulation (GDPR) which regards the protection of individuals related to data processing as a fundamental right. It can already be demonstrated today that the only effective way to ensure this protection is through efficient management of access rights combined with cryptographic mechanisms providing confidentiality and integrity. Data presented by Thycotic, a provider of PAM solutions, calls for an urgent action with GDPR around the corner and the necessity to tighten data access that the regulation carries with it. According to Thycotic: • 66% of organizations still manage access rights manually • 20% of organizations have never changed their default passwords to privileged accounts • 30% of organizations allow free access to accounts and passwords • 40% of organizations use the same access data for regular and privileged accounts Given the regulatory framework (GDPR) and the ever-increasing volume of data being processed, it must be said the time is
now to change the way of managing access rights, for the one that will effectively help prevent unauthorized access to critical resources and mitigate consequences of such access should it ever happen. Paweł Bułat, Project Manager at Comarch Paweł is an expert with strong experience in the cyber security domain. For over a decade he has been gaining experience in security solutions for online banking, based on strong cryptography. He has developed security extensions for web browsers and coordinated works over ECC Hardware Token (software and hardware layer). Currently he is a member of SecureAccess team where he works on the PAM family system for monitoring protocols such as SSH, RDP (also for VDI solutions).
Comarch Financial Services is a provider of state-of-the-art IT solutions for banks, insurance companies, brokerage houses, asset management companies, as well as investment and pension funds. The systems and applications offered by us for the financial market are characterized by high quality, excellent performance and great flexibility. Our wide product portfolio allows for the precise selection of software that meets clients’ expectations, preferences and capabilities. Send us an email at firstname.lastname@example.org.
“The rights are a set of policies related to accessing resources.”
60% of security experts believe that Privileged Access Management systems are indispensable to maintain regulatory compliance* *According to report prepared by the Solutions Review magazine, 2017
PAMs are becoming more important in the remote workplace model
ASIAN BANKING AND FINANCE | JUne 2018 5
FIRST westpac technology
Tim Whiteley, general manager of application development at Westpac tells Asian Banking and Finance how the bank is taking advantage of AI technology and machine learning and how it is currently executing trials. What is the status of Westpac’s digital initiatives? We have several innovation trials underway with AI, including some simple offerings to customers, such as our Westpac Live Alexa service, plus we are partnering with several fintechs including Data Republic and Hyper Anna to trial ways to deliver improved experiences for our customers. We are analysing financial markets product performance data to provide valuable insights to our Institutional Banking and Business Bank customers. We are also currently implementing our next generation AI chatbot in the call centre (based upon IBM Watson APIs) to drive a faster and better customer experience for resolving or clarifying customer needs. Providing great experiences for our customers requires us to continually innovate, and evolve our systems architecture. More and more, our digital channels are powered by data and analytics, with our transactional systems providing the processing in the background. This allows us to innovate and deliver faster, without always being constrained by the need to change our legacy systems. How does using machine learning affect Westpac’s internal and external operations? Machine learning can revolutionise the way our customers interact with us and enable a greater customer experience. We’re working on how we use machine learning to help improve the quality of the data analytics and leverage data better for customer outcomes through creating contextualised customer experiences. We have a dedicated transformation programme focused specifically upon data where data held both within the bank and externally can be governed and used appropriately. 6 ASIAN BANKING AND FINANCE | June 2018
Do banks need to build digital ecosystems?
Are ecosystems the key to boost bank returns?
uilding an entire services ecosystem can be a daunting challenge for banks due to its costs and complexity, but it can be their best chance to boost their return on equity (ROE). Some banks such as DBS Bank are opting to join existing ecosystems instead, but that comes with the risk of losing control and dominance if ecosystem owners roll out their own digital financial services plays. Still, analysts argue that adopting the ecosystem play has become a must for survival. “For the past several years, banking returns have been stuck between 8% and 10%,” said Miklós Dietz, senior partner at McKinsey & Company. “Absent any mitigating actions, we estimate that the ongoing digitisation of the industry could cost banks more than four percentage points of ROE by 2025—an unsustainable loss that will drop returns well below even the cheapest cost of capital.” “The best option for many banks to lift returns to something like the go-go years of the early 2000s—to say nothing of the tremendous margins that digital firms now command—
We estimate that the ongoing digitisation of the industry could cost banks more than four percentage points of ROE by 2025.
will be to embrace the ecosystem environment,” he added. Dietz reckoned that in a basic ecosystem play, banks acquire platform power that helps them retain core customers and improve crossselling. Banks will be much more conspicuous to digitally-minded customers and will be able to offer products better suited to their needs. “If you look at where the threats and opportunities will be, it’s absolutely in the world of ecosystems,” said Mohit Mehrotra, partner and co-leader at Monitor Deloitte. “That leaves banks with two strategic choices: Do I build my own ecosystems or do I participate in ecosystems?” Mehrotra added that some Russian and Chinese banks are already building their own digital ecosystems, whilst some banks in India and Indonesia opted to integrate in them. DBS Bank, for instance, has been creating ecosystem partnerships and now has a massive banking API developer platform. These collaborations include DBS digibank in India that has acquired 1.6 million customers since its launch in 2017. Based on McKinsey research, Dietz also said that improvements from an ecosystem strategy can add close to two percentage points to ROE, with further ROE increases in the offing as networks of ecosystem partners and access to more data lower costs of customer acquisition, possibly to as little as 1% of historical costs. He warned that, over time, digitalisation will sharply reduce banking revenue pools as digital attackers gun after incumbent banks’ higher-margin businesses, which produce 47% of revenues, 65% of profits, and an ROE of 20%.
Projected return on equity for average bank, %
Source: S&P Global Market Intelligence; Global Banking Pools and Panorama McKinsey
FIRST Three out of five banks in Asia-Pacific are planning or working towards digital maturity in the next two years.
APAC banks aim to be digital leaders by 2020
Will APAC banks lead in digital?
ith digitalisation being the recurring trend for banks in the Asia-Pacific region, more than half of them are expecting to become digitally mature by 2020, according an EY report, as a way to get ahead of the curve. Strengthened partnerships with fintechs and the incorporation of technology in all manners of business operations will be indicative of this trend. “Asia-Pacific has a much higher penetration of digital and mobile technology adoption than many other regions,” said Jan Bellens, EY
global banking and capital markets deputy sector leader. “Mainland China, for example, has the highest rate of fintech adoption in the world and many of the big cities there are effectively operating as cashless environments.” Three out of five banks in AsiaPacific are planning or working towards digital maturity in the next two years, at par with the 62% global average. In Malaysia, for instance, 66% of banks, most of which are investing in new technologies, aims to become digital leaders by 2020.
Partner and Malaysia financial services banking & capital markets advisory leader, EY Advisory Services Sdn Bhd, Shankar Kanabiran said, “All of them are focused on investing in technology in the coming three years in line with their growth strategies and in order to generate cost savings and operating efficiencies. Over 50% of the banks in Malaysia are also likely to set up partnerships or joint ventures in core markets this year.” Some of the efforts that AsiaPacific banks are taking towards digital maturity include technological investments and strengthened partnerships with technology-focused groups and institutions. According to data from EY, Hong Kong, Australia, and Singapore are already focusing on developing partnerships with fintechs and investing in technology, with 82% listing these as their top business priorities for 2018.
The banking industry strives for digital maturity
Source: Global banking outlook survey 2018, EY
THE CHARTIST: THAILAND’S SOARING MOBILE AND INTERNET BANKING TRANSACTIONS In 2017, Kasikornbank recorded 3 billion digital transactions, 10 times bigger than the 300 million transactions in 2014. Other banks in Thailand have followed suit, with Bank of Ayudhya and Siam Commercial Bank planning to invest $639.8m and $1.2b respectively to develop tech infrastructure and enhance their digital banking capability. Moody’s reported that the volume of digital transactions in Thailand continues to expand at a rapid pace, from just 10% of overall banking transactions in 2011 to more than 75% today. In fact, mobile and internet banking accounted for $748.5b for the first 9 months of 2017, a 22% compounded increase since 2010. This shift to online transactions can help banks rationalise branch networks, extracting operational cost efficiencies, Moody’s noted.
Thailand’s number of commercial bank branches is declining, improving costto-income ratios
Source: Bank of Thailand
Thailand’s internet and mobile banking transaction volume is increasing rapidly
Source: Bank of Thailand
ASIAN BANKING AND FINANCE | JUne 2018 7
FIRST SUNDAY BANKING
Maybank Singapore’s head of community financial services Alvin Lee talks about the bank’s efforts in making branch banking quicker and easier for customers. What does offering Sunday banking services in more branches mean to the bank? We understand that working adults have tight schedules on weekdays and most banks are closed on weekday nights, leaving them with little option other than weekends to do their banking. With this in mind, Maybank sees the need to increase the number of branches offering Sunday Banking services. Our branches are located in lifestyle malls and near transport nodes, so customers and their families can come to a branch whilst they go about their weekend activities. Maybank’s Sunday Banking was first rolled out in January 2016 and is targeted at not just the working adults, but young parents and millennials. All four Sunday Banking branches are strategically located across Singapore, enabling us to serve residents and business owners in these neighbourhoods. How are you planning to innovate your branches according to your customers’ evolving needs? We are constantly reviewing and innovating our branches to suit our customers’ needs and banking habits. For example, we aim to serve our customers within 10 minutes. To achieve this, we have centralised some processing functions as well as enhanced our back-end procedures and technologies to shorten transaction time. We also understand that our younger customers prefer self-service on Internet Banking websites and mobile apps, or they simply reach out to the bank’s contact centre for phone banking services. We are therefore increasing these touchpoints both in our new branches as well as through digital channels to enrich customers’ banking experience.
8 ASIAN BANKING AND FINANCE | June 2018
Aggregator threat closes in on open banking
hen incumbents assess the risk that comes with the increasing inclination of regulators to require open application programming interfaces (APIs), the potential of aggregators to whisk away clients ranks high as an emerging threat. In Japan, for example, new rules have been directing banks such as Mizuho Bank to use open APIs, which means having to disclose more information than ever before, providing customers with greater insights into their banks’ performance compared with other providers. Aggregators stand to benefit from this shift, offering customers the chance to seek out their ideal financial products and the convenience to switch to other platforms, said Stanford Swinton, partner at Bain & Company. “With open APIs, many of the long-standing barriers to switching providers will dissipate,” said Swinton. “Big banks face the prospect that many of their customers may seek out the convenience of digital aggregators, taking their accounts, and the profit pools they represent, with them. They have a reason to be concerned.” With the high stakes at hand and the looming regulatory pressure to embrace aggregation, incumbents are starting
Percentage of customers willing to share personal data for better account offer
Source: Bain & Company, Salesforce and MaritzCX Open Banking Survey of UK customers, 2017 |n=>4,000)
to explore partnering with third-party digital platforms to achieve their digital goals, said Nilesh Vaidya, executive vice president at Capgemini. “With regulators across the globe pushing for API adoption, banks will eventually be forced to share data with collaborators.” For instance, Mizuho Bank customers may be a potential target for aggregators when the bank shifted to API banking in June 2017. Instead of competing, however, the bank said that it “continues to collaborate with business partners to create and provide innovative, secured services for customers.” Despite this, Vaidya reckoned that 63% of the financial services industry is a customers laggard in API adoption, adding that are willing banks outside Europe need to be more to share proactive in API implantation rather financial than waiting for regulatory compliance information to become mandatory. He said some with a European banks are implementing APIs competing bank, fintech, to bolster “collaborative innovation” or aggregator as seen in Citibank, Fidor, and BBVA developing an API marketplace to for a better house new concepts in online banking. offer.
Rise of conversational banking: Siri, what’s my balance? product watch
Banking has become a lot more convenient with the launch of OCBC Bank’s artificial intelligencepowered (AI) conversational banking, being the first bank in Singapore to enable its customers to do their daily banking transactions using just their voices. The technology is currently anchored on Siri, Apple’s omnipresent virtual assistant. Clients with the latest version of the OCBC Making a payment via Siri Mobile Banking App can now perform banking transactions with simple questions like: “Hey Siri, what’s my balance?” or “How much money do I have in my bank account?” or “What is my credit card spend?” Clients can also use the latest version of the OCBC Pay Anyone app to transfer funds through conversations with Siri. To add to the security features of the technology, all transactions would have authentication requirements through fingerprint or OCBC’s voice-powered banking facial recognition (for iPhone X users) methods.
Thought leadership article
SmartStream: Bringing efficiency and next-level technology to financial regulatory compliance Banks seek to answer the question, “How do you achieve operational efficiency in a leaner model?”
hen scanning the trends driving regulatory compliance of banks operating in multiple jurisdictions, including in Asia, the increasingly diminishing divide between organisational silos can be seen as a defining one. “Banks are trying to break down barriers of the siloed parts of the organisation. Whereas before they may have been siloed in wealth or transaction banking or financial markets, we’ve seen financial institutions put horizontal structures in place to help address bankwide issues,” such as regulatory compliance, said Mark Taylor, regional director, Asia Pacific at SmartStream Technologies. “Take MiFID II; it mandates, single-sided pre-trade and post-trade reporting. You cannot sufficiently meet that mandate without quality reference data supporting the reporting function. You need accurate instrument, liquidity, counterparty, transaction and eligibility data to fulfill your reporting obligations,” Taylor added. “Factors like these mean the growing incidence and responsibilities of the CDO, or chief data officer in banks are no coincidence. The chief risk officer is not just looking at specific operational lines, it is bank-wide.” Taylor reckoned financial institutions have formed a horizontal line that go across its vertical reporting lines, and these programmes cost “significant” dollars per annum. These developments, he said, have boosted demand for SmartStream services as firms seek to increase their operational efficiency amid the tighter and diversified regulatory regimes globally. Taylor added, “Due to the significant increase in demand from existing and new customers, the Asia Pacific region has grown in the last 12 months with a number of new headcount especially in project delivery, to accommodate that demand growth”. Regulatory demands The ramping up of regulations in various parts of the world, from MiFID II in Europe to local conventions in APAC (including Australia, Hong Kong, and Singapore), and the need to properly interpret them in various jurisdictions, has made achieving regulatory compliance complex—as well as essential. The prospect of fines
and reputational risk for failing to meet regulations and their deadlines is real and recent headlines highlight the “massive” impact these can have on banks and financial institutions. Again, MiFID II is an obvious example of huge change and time-frame challenges that large financial institutions had to comply with —and are continuing to deal with 3 months on. Citing as an example the shortened time frame that large financial institutions had to comply with MiFID II requirements, Taylor said most responded by putting in place systems to meet the onrush of regulatory demands, almost at any cost. Now these same financial institutions are focusing on achieving operational efficiency in the next five years. “How do you do that in a leaner, more efficient model?” is a question that banks are looking to answer, said Taylor. Banks are grappling with improving operational efficiency in their regulatory compliance, which Taylor said SmartStream is addressing through strategies such as intra-day liquidity monitoring that allow financial institutions to track their liquidity within seconds. Specifically for MiFID II, the firm provides reference data to facilitate financial reporting for pre- and post-trade; reconciliation that enables financial institutions to monitor under- or over-reporting; and a fees and expense
management services portfolio that identifies fees for decoupling commissions. Taylor said the reason leading financial institutions, including eight of the top 10 asset managers and eight of the top 10 custodians in the world, have partnered with SmartStream is its dedication to deep customer engagement and satisfaction as opposed to a transaction-focused relationship. “Customer satisfaction is one of the primary key focuses of any engagement we have with financial institutions. Customer satisfaction means that you understand their requirements and what they need to achieve, you actually deliver against those requirements in a timely and efficient manner, and within budget,” said Taylor.
About SmartStream SmartStream provides Transaction Lifecycle Management (TLM®) solutions and Managed Services to dramatically transform the middle and back-office operations of financial institutions. Over 1,500 clients, including more than 70 of the World’s top 100 banks, 8 of the top 10 asset managers, and 8 of the top 10 custodians rely on SmartStream’s solutions. For more information about SmartStream visit: www.smartstream-stp.com.
“We’ve seen financial institutions put horizontal structures in place to help address bank-wide issues.”
Mark Taylor, regional director, Asia Pacific, SmartStream Technologies
ASIAN BANKING AND FINANCE | JUne 2018 9
Many of the innovations today are powered by new digital technologies, and Citi has a legacy of innovation.
Amol Gupte ASEAN Head & Citi Country Officer, Singapore 10 ASIAN BANKING AND FINANCE | June 2018
Amol Gupte reveals how Citi takes the fintech revolution as a positive disruption The bank facilitates co-creation with fintechs which helped bag six consecutive quarters of revenue growth.
mol Gupte is the ASEAN head and Citi country officer, Singapore since 2016. In this exclusive interview with Asian Banking and Finance, he talks about the current status of the bank and what lies ahead. Where is Citi today since the crisis of 2008? Citi in 2018 is very different from Citi a decade ago. We have crossed an inflection point and are simpler and safer as an organisation, and have a strong business model that positions us well for growth. In Asia, Citi delivered six consecutive quarters of revenue growth for our consumer banking business, and we expect this positive momentum to continue across the franchise. Since the 2008 financial crisis, we have been rebuilding our credibility and relationships with regulators. At the same time, we have invested in controls to improve processes across risk, compliance and audit, and have taken extensive steps to educate our workforce on ethics and execution. Getting this right is a key priority for Citi as our license to run and grow our business hinges on us adhering to the highest possible standards and ensuring our unwavering commitment to systemic responsibility. Besides being in good stead from a regulatory, capital, and liquidity standpoint, we are uniquely positioned to support the growth aspirations of our corporate and institutional clients to scale beyond boundaries through our unique global footprint. On the consumer banking front, Citi’s operating model enables us to build capabilities and leverage our scale at a global level to serve our clients seamlessly through the use of technology to deliver a remarkable client experience. Today, Citi is a focussed, mission-driven firm, driven to being the best for our clients and I am confident that we are well-poised to capture the opportunities ahead. What changes have taken place in Citi in terms of digitalisation and how do you view new fintech players? I see digitalisation and innovation as two sides of the same coin. Many of the innovations today are powered by new digital technologies and Citi has a legacy of innovation: we have been leveraging innovation to enable progress for the communities and clients that we serve throughout our 200-year history. When it comes to innovation, we pride ourselves on being a step ahead of trends. For example, seven years ago in 2011, we introduced the innovation lab concept to the banking industry in Singapore and rolled out two Innovation Labs in Singapore. Today, just about every bank has a similar lab to incubate and accelerate ideas from concept to execution. In 2014, we rolled out Citi Mobile Challenge, a global initiative where we invited developers to build solutions that are capable of running on Citi’s digital platforms globally. Subsequently in 2015, we rolled out a Citi fintech
We are building an environment where Citibankers are encouraged to be open and curious to explore and experiment.
unit to explore disruptive business models and capabilities as well as partnerships with developers. In 2017, we collaborated with public and private sector allies to launch the Citi Tech for Integrity Challenge (T4I) in an effort to encourage technology innovators from around the world to create solutions to promote integrity, accountability and transparency in the public sector. Much has been said in recent years about fintech players posing a serious threat to banks. At Citi, we hold a different perspective. We see the fintech revolution as a positive disruption as it helps us to reimagine our business to serve our clients better. In 2016, we launched our Global API Developer Hub to connect with developers and enable them to build innovative client solutions faster than ever before. It marked the evolution of Citi’s technology to open architecture, facilitating co-creation with fintech companies and consumer brands for the benefit of our clients. Most recently, Singapore was the first market for Citi globally to launch Citi Bot on Facebook Messenger. Citi’s Chatbot is designed to engage customers in real-time. Citi Bot is an example of a product that has been created with inputs from our staff and clients. It reinforces Citi’s open architecture approach to integrate ourselves into key ecosystems of our clients to engage them where they are most digitally active. On the corporate and institutional front, CitiDirect BE is the foundation of our digital client strategy. We continue to add new features to this single global platform that provides our clients with access to global payments and receivables, liquidity management services, trade and FX solutions across online, mobile, and tablet. Through this platform, a corporate treasurer or CFO is able to manage their business and daily treasury needs anytime, anywhere with the same level of security and efficiency regardless of device. Another example is Citi Velocity, our analytics and trading platform, which provides our clients with access to Citi’s research including proprietary analytics and product specific models, as well as trading capabilities for foreign exchange, interest rate, commodity and futures products. Technology “hardware” aside, mindsets, organizational structures and operating models also need to change to be a true digital bank. We are building an environment where Citibankers are encouraged to be open and curious to explore and experiment. Throughout Citi’s 200-year history, our continued existence was only possible because we rose up to the occasion every time the global tectonic plates shifted. Today, the revolution is in the area of fintech which provides a huge opportunity for us. Tomorrow, it could be something else. Each time the tectonic plates shifted beneath us, we reinvented ourselves and emerged stronger to ensure we remain relevant to our clients. ASIAN BANKING AND FINANCE | JUne 2018 11
We want to be the first port of call for banking anywhere and for any need, powered by the most robust technology backbone.
Nitin Chugh Country Head, Digital Banking, HDFC Bank 12 ASIAN BANKING AND FINANCE | June 2018
How is HDFC Bank’s Nitin Chugh retaining customer centricity in digitalisation? He talks about creating a better banking ecosystem whilst providing customers convenient experiences.
pearheading the digital transformation of HDFC Bank Ltd India, Nitin Chugh is currently the bank’s country head of digital banking. He heads the Digital Innovation Unit of the bank and is responsible for its inbound and outbound contact centres. In this exclusive interview with Asian Banking and Finance, Nitin discusses new ideas, technologies, and solutions whilst still maintaining the bank’s core value of customer centricity.
make banking seamless for the customer. We have also launched seminal projects using AI/ chatbots to improve the level of customer support being offered by the bank. We are now successfully engaging more than 200,000 customers every month on their queries via our EVA Smart Assistant. The centralised cognitive services platform is also being used for robotic process automation of various back-end operations. The overall impact of these projects will result in a dramatic improvement of customer experience and satisfaction, reducing turnaround time, and improving bottom line.
What is the status of HDFC Bank’s digital transformation? What are your goals and how is the transformation carried out? HDFC Bank has taken on the process of digital transformation fairly early. Whilst we have always been pioneers in our digital offerings, we have undertaken a structured digital transformation journey three years back. Within a span of a few years, we have been able to hit some exciting milestones that ride on the very cutting edge of technology. The emphasis on digital banking is keeping customers at the centre. Our digital banking journey now involves moving from providing convenience to an experience to our customers. Along with digital innovations being a key focus of every business, we have a 30+ member dedicated digital transformation team. In three years, this team has evaluated more than 300+ innovation ideas, with 140+ ideas of various scale getting business approvals. The team has been able to establish a robust process for innovation management that is now allowing us to scale up innovation and digital projects across the organisation. Our goal is to double the digital projects being undertaken by the digital transformation team as well as the business as a whole in the short to medium term. A large part of this is also being driven by our ecosystem approach, which focuses on a closer partnership with startups, academic institutions, as well as government and regulatory bodies. How have customers’ experiences and banking operations changed since HDFC Bank started its digital transformation? First core value of HDFC Bank is customer centricity and so our digital innovations are customer focussed. Some of the major initiatives in this area have been focussed around straight through processing (like our Digital Acquisition Platform and 10 Second Loan offerings). We have also devoted our efforts to revamp and refresh marquee digital channels, including internet banking and mobile banking that are being built from the ground up using the scientific principles of user experience and customer journeys. We have also launched digital product innovations like Missed Called Commerce, HDFC Bank on Chat (Social Media based ecommerce), and UPI/Aadhaar-based payments to
What are the recent trends and challenges in the Indian digital banking sector? Some of the areas that we have been closely working on include the following: mobile first/mobile only workflows; user experience & design thinking-based product design; rethinking banking from a digital-only perspective to reach out to newer segments and geographies; dynamic/ adaptive security to protect our customers in an everdigitalising world; working closer with the government and regulators to build solutions around the India Stack; using AI/machine learning to improve the bottom line of the organisation; and deploying practical blockchain-based solutions that improve transaction experience for our customers and dramatically improve customer security, yet reduce operating costs for the bank. In my mind, the core objective is a continued effort to understand our customers and designing products with security and regulations in place. The old rules of product design have to be replaced by new approaches. An increased focus has to be put on ensuring that consumer data is kept safer, and we are in a position to help customers and regulators create a better, more conducive digital banking ecosystem.
First core value of HDFC Bank is customer centricity and so our digital innovations are customer focussed.
How do you see the future of HDFC Bank when it comes to digitalisation? We see HDFC Bank consolidating its digital leadership in the future. With digital experiments happening across various emerging technologies like biometrics, IOT, AR/ VR, etc., there are many exciting solutions in the pipeline for our consumers. HDFC Bank is also operationalising the fruits of its collaborations with startups, academic institutions, and government agencies. All of these will have far reaching, positive impact across our customer base, geographies, and across the socioeconomic pyramid. We want to be the first port of call for banking anywhere and for any need, powered by the most robust technology backbone. Understanding the complexities of branches allowed us to put the right mechanisms in place to aid awareness, trial, activation, and digital portfolio growth. ASIAN BANKING AND FINANCE | JUne 2018 13
We are able to provide Japanese clients with unique end-toend financial solutions which other mega Japanese banks in Thailand could not provide locally.
Masaaki Suzuki Head, Krungsri JPC/MNC Banking 14 ASIAN BANKING AND FINANCE | June 2018
Masaaki Suzuki on how business matching buoys Krungsri JPC/MNC Banking’s growth The bank uses the synergy of MUFG’s global and Krungsri’s local capabilities to serve corporate clients.
asaaki Suzuki has been the head of Bank of Ayudhya (Krungsri) Japanese Corporation and Multinational Corporations (JPC/MNC) Banking since its establishment in 2015, when Krungsri integrated with Bank of Tokyo-Mitsubishi UFJ Ltd, Bangkok branch. Asian Banking and Finance caught up with Masaaki to talk about the bank’s plans in reinforcing its products and services, developing new collaborations, and getting through the challenges of catering to Japanese corporate clients in Thailand.
provide full banking services to JPC/MNC clients. Through collaboration with Krungsri’s retail banking, we are now providing services to over 90,000 payroll accounts for employees of major Japanese and multinational corporates and also offering other retail/consumer products and services to these customers such as credit card and mortgage loan. In addition, we also utilise the strength of Krungsri’s auto-finance business to enhance our support to customers in automotive manufacturing business throughout their business chain, from suppliers to dealers, and end users.
How has the establishment of JPC/MNC benefitted Krungsri’s corporate clients? Being a member of Mitsubishi UFJ Financial Group (MUFG), Japan’s largest and one of the world’s top five financial groups, Krungsri is in a unique position to leverage synergy with MUFG’s global capability and Krungsri’s local and regional function to support our corporate clients. In addition, JPC/MNC banking has a large pool of Japanese corporate customers with nearly 75% of market penetration. Through collaboration with other segments in Krungsri, we are generating various business opportunities for clients through business matchings. In 2017, we brought together Japanese and Thai corporates and completed nearly 600 business matching deals for almost 350 participating companies from Thailand, Japan, and the CLMV countries.
What is your major point of difference to other corporate banks in Thailand? We are the one and only global bank with local capability in Thailand. With full local banking services and products of Krungsri, we are able to provide Japanese clients with unique end-to-end financial solutions which other mega Japanese banks in Thailand could not provide locally. Moreover, supported by superior global network and expertise of MUFG, together with a close relationship between the parent companies and MUFG group, Krungsri has a competitive edge over other Thai banks. One of our big achievements through the collaboration was that we provided the first ever and the biggest Asset Backed Securitisation program for a Japanese leasing company worth $513m in 2016.
What challenges have you encountered in catering to your Japanese corporate clients in Thailand? Upon integration with Krungsri, we were able to provide full banking products and services to JPC/MNC corporate clients. Besides retail products such as payroll and corporate credit cards, many new business potentials are generated through collaboration with Thai corporates. It was our challenge to exercise JPC/MNC relationship and drive our Japanese clients’ business to be recognised broader amongst Thai corporates, and ultimately bring about a win-win accomplishment for both. Our successful arrangement of various Japanese-Thai jointed projects and the growing number of participants attending business matching fair, the biggest business matching event of MUFG held every year in Bangkok, reassure that we are on the right path and we would work harder to further enhance our capability to support Japanese corporate clients’ business in Thailand. What are the products and services that you are able to offer your client base, but you were not offering before? Utilising local banking capability of Krungsri, we have broadened our products and services, enabling us to
Through collaboartion with other segments in Krungsri, we are generating business opportunities for clients through business matchings.
What can clients look forward to in the coming years? Any specific plans and collaborations? Our bank is full steam ahead to upgrade our products and services to another level. Krungsri and MUFG recently signed a memorandum of understanding with the Board of Investment (BOI) of Thailand to promote overseas investment and boost up growth of Thai operators wishing to invest abroad and Japanese companies planning to invest in Thailand. In addition, Krungsri is committed to reinforce our support to Japanese business in EEC area. We set up “EEC Area Promoters” to particularly strengthen the business promotion structure at the EEC area in Chachoengsao, Chonburi, and Rayong. This function will be responsible for being a regional axis across the division to facilitate customers in the industrial estates. Not only business in Thailand, we also seek to strengthen our CLMV business promotion to support our clients’ regional business expansion through Krungsri and MUFG Network. Driving by our aspiration to enhance our number one position in Japanese corporate market and be the most preferred bank for MNC’s customers, we would continuously improve customer experiences and develop the best financial solution for our clients through maximising Krungsri and MUFG capability. ASIAN BANKING AND FINANCE | JUne 2018 15
In an already hyperconnected world, intelligent automation, in combination with other technologies, will bring structural changes in the industry.
Zuzar Tinwalla CIO, Head of Technology and Operations, Standard Chartered India 16 ASIAN BANKING AND FINANCE | June 2018
Standard Chartered Bankâ€™s Zuzar Tinwalla talks about the efficiencies of AI & robotics He also discussed some of the recent technological innovations launched by Standard Chartered India.
uzar Tinwalla is the chief information officer and head of technology and operations at Standard Chartered Bank India. He has 30 years of broad and prolific experience in the banking industry and currently manages, directs, over 1,500 employees across India. In this exclusive interview with Asian Banking and Finance, Tinwalla discusses the challenges he faces as SCB Indiaâ€™s CIO, his goals for the bank, as well as his views on the use of AI and robotics in India.
but as an evolving paradigm that will have distinct stages of maturation spanning from transactional to transformational and disruptive. Embracing RPA as a disruptive force and not just as an enabler will separate the winners from the losers. The future of banking lies in how we specialise and position ourselves to reap the maximum benefit from this opportunity. Robotic automation has the potential to bring in disruptive transformation, not only in our operating model, but also in the way financial institutions integrate and deliver value to key stakeholders across the ecosystem. In an already hyperconnected world, intelligent automation, in combination with other technologies such as IoT, blockchain, machine learning, and analytics on-demand, will bring structural changes in the industry.
What are some of the biggest challenges you face as the CIO and technology & operations head at SCB India? Managing technology has never been more challenging than it is today with shifting sands in the technology landscape, business pounding down to deploy new technologies pronto, cost squeezes, the ever present integration challenges of systems, processes and applications, and lurking security hazards. The pace of consumerisation of technology has changed user expectations and enterprise technology is expected to be as agile as consumer technology. One of the biggest challenges is to deliver quick turnaround and innovative solutions which are scaleable as well as cost effective. At the same time, we also have to ensure that our legacy systems are maintained with equal rigour so that the day to day operations are not impacted. Another top challenge as a CIO is handling the deluge of information sweeping across the enterprise with customers, suppliers, dealers, and regulatory authorities exchanging increasing amounts of information with each other on a daily basis. Cybersecurity is another burning issue. Cyber criminals are becoming increasingly sophisticated and collaborative, increasing enterprise risk manifold. The risks today are not only limited to the enterprise perimetre, but to partner infrastructure too. What are some specific developments lately around AI/ RPA in banking in India? What is your outlook for these technologies moving forward? Robotics, enabled by artificial intelligence and machine learning, is proving to be a game changer that can bring unique operational efficiencies to the financial services industry. In India, the application of robotics in financial services is gathering pace but most banks are still in the early stages of adoption and much of the technologyâ€™s potential remains untapped. Financial institutions are increasing their budgets for robotic automation, with a focus on managing regulatory pressures, risk and fraud, aggressive competition, and innovation. Intelligent robotic process automation (RPA) in the banking sector needs to be seen not just as a one-time phenomenon that will increase productivity and efficiency by driving down costs and increasing profitability,
Embracing RPA as a disruptive force and not just as an enabler will separate the winners from the losers.
What are the recent technological innovations launched by Standard Chartered India? Few of the recent technological innovations launched by Standard Chartered India are Early Warning Risk Identification System and Local Regulatory Reporting Automation. In the present scenario, an inability to distinguish between borrowers in default due to business externalities and potential willful defaulters is a serious concern for financial services providers. Data which could decipher borrower intent is voluminous, scattered, and often ambiguous. Additionally, the information is not useful unless it enables foresighted decisions. To overcome these issues, we created an Early Warning Risk Identification solution using big data, analytics, and algorithms to scan structured and unstructured data from internal and external sources to help identify early risk. The approach has helped us in acquiring crucial information & deep insights to enable oversight on both Capital Expenditure and Operational Expenditure of borrowers. We have also created an India data lake by leveraging our Enterprise Data Management Platform (EDMp) to host and provide data required for critical regulatory reporting. The data lake would also serve as a deep analytics tool for the business. The EDMp system comprises of more than one platform and the technology, and will continue to evolve as new use cases and technologies emerge. Our innovation provides an enterprise standard data model containing external interfaces to the architecture allowing it to be extended to integrate with existing or new elements of the overall enterprise architecture of the organisation. The overall EDMp (with attached components) delivers integrity from source to target, with auditable processes delivering assured business information. The initiative creates a 360-degree view of the client, provides compliance benefits for reduction of operational risk whilst reducing manual data manipulation. ASIAN BANKING AND FINANCE | JUne 2018 17
Country report: CHINA
The People’s Bank of China is up to a grand cleanup
Tighter rules targeting shadow banking put brakes on China banks’ expansion The country’s slowing economy is about to squeeze banks’ profits and drive even greater costs.
ainland China’s debt has ballooned to almost thrice the size of its economy, sending policymakers in a frenzied rush to rein in systemic risks in the country’s financial system. Analysts predict that this will slow down mainland asset growth to 7% in 2018, compared to 8.4% in the previous year, with joint-stock as well as city and rural institutions taking direct hits. Smaller banks will be restrained from accessing cheaper funding, thereby reducing their ability to undertake risky investments considered as shadow loans. Regulators have been adamant in proposing various risk-mitigating measures, including a cap on bank shareholdings and limits on the issuance of negotiable certificates of deposit (NCD) in the area of shadow banking. Chua Han Teng, head of Asia Country Risk, BMI Research, said that the increased oversight on
18 ASIAN BANKING AND FINANCE | June 2018
the opaque shadow banking sector is the first of many trends characteristic of an ongoing moderation in China. Teng said that despite slowing economic growth, Chinese banks are stepping up to better manage their loan books and credit risks, even as they benefit from the government’s debt-to-equity swap programme. This means that the non-performing loans (NPL) ratio of the Chinese commercial banking system will most likely remain stable in 2018. Regulatory ruckus The beginning of 2018 has seen increased announcements from the China Banking Regulatory Commission (CBRC) regarding new measures targeting shadow banking. Alicia Garcia Herrero, chief economist for Asia-Pacific at Natixis, said that measures range from further imposing a liquidity mismatch ratio to putting a lid on the issuance
Although the expansion in total assets has now slowed down, this is likely to create pressure on banks to restructure their funding sources.
of NCDs, which are short-term uncollateralised papers. She noted the new restriction on the issuance quota will put brakes on additional expansion beyond the interbank liabilities requirement in the Macro Prudential Assessment (MPA). A fall in key capital ratios is evidence that Chinese banks are not generating organic capital, with deterioration in both liquidity and profitability putting further pressure on solvency. Garcia Herrero said that pressure has also been stemming from Basel III capital surcharge requirements and that demand will not stop there, but increase as the CBRC imposes Total Loss Absorbing Capacity (TLAC) requirements. “Although the expansion in total assets has now slowed down, this is likely to create pressure on banks to restructure their funding sources in terms of maturity and instruments. This will have higher impacts on
Country report: China small and medium-sized banks, which tend to have a less stable deposit base and higher reliance on short-term instruments. With tightened monetary condition and increasing counterparty risk, the trend of climbing funding costs is unlikely to be reverted,” Garcia Herrero added. The People’s Bank of China (PBoC) also recently published new rules encouraging creative design on capital replenishment bonds. Garcia Herrero said that additional clauses are allowed based on various solvency ratios, as potential losses can be absorbed through equity swaps. She added that this will pave the way for solvency and TLAC requirements in the future, in contrast to convertible bonds, which focus on share prices. In fact, Chinese banks have started to find ways to raise capital in the bond market, especially through the issuance of Tier 2 bonds and convertible bonds. “In the past few years, the majority of the attention has been placed on the asset quality of Chinese banks. The non-performing loan ratio has been surging until recently. In fact, a more stable macroeconomic environment and higher producer prices have helped some of the zombie firms to improve their conditions. Together with the grand cleanup through debt-to-equity swaps, asset quality in 2018 seems to be lesser of a problem through sharing the financial risks with the rest of the economy,” Garcia Herrero said. BMI Research reported that asset quality has been improving amidst a rise in corporate profitability and economic activity. Furthermore, the establishment of the Financial Stability and Development Committee and the implementation of the debt-to-equity swap have resulted in improvements to the country’s macro-prudential framework. As a result, Chinese banks are expected to manage their NPLs well in the coming year. Practical matters Over the years, Chinese consumers and clients have become increasingly connected to their banks through digital platforms, thereby resulting in the exponential growth of China’s online lenders. Nicolas Zhu, senior analyst, Moody’s Investors’ Service,
said that the PBoC has licensed Baihang Credit Bureau Co., as a credit information business through which banks and structured finance sponsors can improve the quality of their consumer loan portfolio with more refined underwriting, structuring, and monitoring. “Baihang will complement the government’s existing consumer credit database of banking transactions by using big data digital technology to process behaviour data of activities such as mobile phone usage, travel and location reference, and shopping events. The complementary value of the non-bank behaviour data will allow banks to make more informed loan decisions for consumers that lack a credit history, such as the 171.9 million migrant rural workers in China,” Zhu said. Furthermore, Zhu suggested cross-referencing various sources of information to improve traditional credit scoring based on static demographic and banking information. According to him, this would enable early detection of overleveraged consumers across bank and non-bank borrowing, thus deterring unscrupulous or overextended borrowers. According to him, this would also help address the risk of China’s rapidly rising household leverage since 2015. As tech companies continue to pose a serious threat to the traditional banking industry, Sangiita Yoong, analyst, East and Partners, said that Chinese banks have started direct banking services and improved mobile banking to combine wealth management, consumption, and entertainment. This is in response to companies such as Yuebao that have increased the bargaining power of investors and banks to pay a higher cost for the same funding at a wholesale price, even though most of the funding could be eventually channeled back to banks. Finally, Yoong said that Chinese banks, despite being competitive on the price front, have very poor levels of customer service. Customers of Chinese banks have complained about slower response times, lower quality trade documents, and poor
processing accuracy, amongst others. She said that there is a lack of trade account officers who fully understand the needs of their clients and, at the same time, possess in-depth business and industry knowledge. Chua Han Teng
Alicia Garcia Herrero
Belt and Road business Yoong said that the Belt and Road Initiative could deepen the cooperation of Chinese banks with regional banks, as they follow their clients abroad, acquire assets, set up new branches, and even enter new lines of business. Yoong added that an obvious area of positioning opportunity is to offer advisory services in relation to BRIrelated investments, projects, and solutions, alongside updates on BRI development. “Our recent projection suggests that the bulk of finance business is expected to flow to Chinese state-owned commercial banks supported by domestic agencies and governmental ministries,” Yoong said. “The banks’ success in reaping the full benefits of BRI will hinge on how they navigate issues relating to tax, credit analysis, financial planning, and particularly compliance as it concerns infrastructure projects such as rails and oil pipelines that may flow through sanctioned regions.” Garcia Herrero added that the massive BRI initiative could in fact provide more lending opportunities for banks, as overseas loans have already made up more than 7% of total loans. She said that the share is even higher for state-owned commercial banks, whose shares exceed 11%. She cautioned that this comes with risks, as the majority of BRI-related investments are in relatively less developed and riskier economies in the region.
China’s consumer-finance asset-backed securities is a growing share of total ABS issuance
Sources: Wind Information Technology Co., Ltd. and Moody’s Investor Service
ASIAN BANKING AND FINANCE | JUne 2018 19
retail banking forum: Manila
Philippine bankers gathered to learn more about improving digitalisation and emerging technologies
A new perspective: Do banks need to be an IT company with a banking franchise? Evolving developments in the financial sector are forcing Philippine banks to rethink their digital strategies.
ith the emergence of shifts in technology and customer behaviour, Philippine banks are being backed against the wall of transforming into a business that can effectively serve going forward. This is one of the pressing issues discussed in the Manila leg of the 2018 Asian Banking and Finance Retail Banking Forum held in Makati in February. Mohit Mehrotra, partner and coleader at Monitor Deloitte, noted that businesses today are shifting from a command and control environment to a world of connected capabilities or ecosystems. With this, he said that it is important to be aware of the big shifts in the ASEAN region that have deep implications in financial institutions. Amongst these shifts are youth unemployment, growing migration, a time-constrained workforce, and the matter of old versus new generations 20 ASIAN BANKING AND FINANCE | June 2018
Banks need to change the ‘old organisation’ to be agile, and achieve the platformification of banking.
of business leaders. These make businesses ask the questions: What do I do with people without jobs? How do I build my propositions to cater to my customers? How do I get my client’s attention? Mehrotra also emphasised the rise of Chinese technology giants that are building on sharing economy with their bold moves. Big tech companies are rapidly gaining traction, from BAT (Baidu, Alibaba, and Tencent) to TMD (Toutiao, Meituan-Dianping, and Didi Chuxing). Further, changes such as rising income inequality, disruption in legacy sectors, the influence of social media, and the rise of small businesses, are providing deep implications on how banks can thrive in this evolving world. The need to step up Edwin Bautista, president and CEO at UnionBank of the Philippines, concurred that banks should digitalise
their ecosystems solutions or they will perish. “Market developments are forcing banks to hire technology to remain relevant to the customers,” said Bautista. Banks need to change the “old organisation” to be agile, and achieve the platformification of banking, according to Bautista. He mentioned that when the first digital developments emerged 5 years ago, banks thought that at least they are the leaders in payments. Yet, now with new companies taking the top spots in the payments sector such as BAT and TMD, banks are now the ones that need to step up. To Bautista, stepping up means going through digital transformation that require individualised intervention. He said that banks should be “an IT company with a banking franchise” to be able to keep up with rising digital challenges. UnionBank is currently partnering
retail banking forum: Manila Digital is already a fiber that defines banks’ business models and approach to collaboration to remain relevant.
A threat that banks are facing today
with fintechs to do this. Now, they have more than 250 APIs in their sandbox, employ robotics and AI, use blockchain for their B2B payments, and is working on an advanced funds transfer system. Chun Man Hui, regional principal solutions architect at Software AG Asia, affirmed that APIs are the key enablers in opening and sharing the proprietary differentiations in banking. He said that banks should build new business models because everything will be connected and shared in 5 years. “API is your gatekeeper to the outside world,” Man Hui added. With this, he encouraged banks to get partners so that they can learn how to monetise their data. Challenges in the process Whilst Jose Martin Velasquez, first vice president general services division head at Philippine Savings Bank, agreed that digital transformation and virtual banking is the way to go for Philippine banks, he pointed out that a massive part of the Philippine market who use analog phones and the country’s poor internet connection limit the opportunities for banks to provide comfortable, quick, and easy digital banking services. Despite these challenges, however, digitalisation is a must for Philippine banks. Margarita Lopez, first senior vice president, head of digital banking and operations group at Rizal Commercial Banking Corporation, said that digital is “no longer a channel or function.” Lopez noted that digital is already a fibre that defines banks’
business models and approach to collaborations to remain relevant. RCBC’s current efforts, such as partnering with IBM for blockchain for their cross-border transactions and learning how to use digitised currency, are aligned with this ideal. When it comes to managing risks in implementing new digital initiatives, Sophie Ladores, chief risk officer at Land Bank of the Philippines, said that banks must undergo the same stringent process, which needs rigorous monitoring and assessing internally. For rural bankers on the other hand, digitalisation has a different scenario. Alex Buenaventura, president and CEO at Land Bank of the Philippines, revealed that rural banks cannot do away with brick and mortar branches. This is why they are putting efforts on inclusive banking for overseas Filipinos through rolling out agent banking in more than a thousand municipalities in the country. He said that the next challenge for the bank is to go digital with overseas Filipino banking. Data and Chatbots For Abigail Marie Casanova, FVP and head of Security Bank’s consumer business and operation group, the question for banks today is not “should we digitalise?” anymore, but “how do we digitalise and what would be the end results?” She added that feedback and results come in quick with digital, so banks can immediately know what works. Banks should have a mindset of continuous improvement and pursuit of innovation, she said.
Recently, big banks are also spending more money on data analytics. Casanova said that this is because banks want to have access to data to know how customers perform with other banks and their overall behaviour in terms of spending. Charmaine Valmonte, head of IT risk management & resiliency unit at UnionBank, agreed that when banks engage with their customers through a touchpoint, they look at their behaviour through an application. With that, Valmonte said that banks can understand their customers’ experience to build a personalised one, keeping and mining them as a result. Anneliese Schulz, VP at Software AG Asia, added that it is also about getting access to the right data and correlating meaningful data. The importance of new digital technology, using data, and being connected was also reiterated by Sambit Pattanayak, VP for client services at APT Mastercard, especially when a bank is still in its testing mode for its digital transformation. He said that there needs to be a scientific method applied for the test and learn process of data, with speed in analysis of the results deeming truly helpful. In the Philippine setting, Casanova noted that customers will still find a way to talk to a person with their banking concerns, saying that there is just a timing issue in the deployment of chatbots. Valmonte concurred that there will be those who will prefer to talk to chatbots and those who will not, with the different segments of society in the country, saying that call centres in banks will not entirely disappear, but be empowered through retraining. Meanwhile, Schulz agreed and believes that it is going to be a hybrid world, with the coexistence of both chatbots and call centres.
How are Philippine banks keeping up with digitalisation?
ASIAN BANKING AND FINANCE | JUne 2018 21
SECTOR REPORT 1: Banking Technology
Citi Bot answers customers’ queries anytime anywhere
Asian banks deploy smart branches and digital tools 41% of customers now prefer to interact with their banks online.
hen a customer steps into a concept branch by an Asian bank, it is hard not to linger. From UnionBank’s The Ark branch in the Philippines where customers can lounge and connect to WiFi to UOB’s fresh bank layout in Singapore where carved-out spaces enable clients to seek financial advice in private, Asian banks are evolving their branches to suit the shifting digital inclinations of its customers. They do it by using technology to revamp transactions in their branches, whilst bolstering thier online and internet banking platforms. “Given that the popularity of branches as a distribution channel of choice is declining, their footprint is also shrinking in parts of Asia Pacific, as selected outlets get shuttered,” said Jan Bellens, EY’s Asia-Pacific and emerging markets banking and capital markets leader. Bellens cited the EY Global 22 ASIAN BANKING AND FINANCE | June 2018
Consumer Banking Survey which showed, on average, that 41% want to interact with their banks online and 33% via mobile channels in the next 12 months, with Chinese customers’ digital preferences rising to as high as 50%. “The branches that remain will need to be redesigned–either as flagship branches where customers can access specialists to help with complex transactions, or smaller satellite outlets with minimal staff.” Redesigned bank branch features will include interactive touch panels, digital queuing, virtual assistants with artificial intelligence, videoconference lounges, and merchandising displays designed to entice customers to linger. Smaller branches, meanwhile, could function as automated self-service kiosks, providing routine transactions for simpler products. In January, UOB piloted a new branch concept in Singapore focused
on the millennial crowd, said Susan Hwee, head of group technology and operations at UOB. Given this more digital-savvy customer base and data that showed they prefer to bank through digital channels or selfservice machines, the new branch layout did away with traditional teller counters and instead created private spaces for customers who go to the branch mainly for financial advice. It also set up five self-service machines in the branch lobby that are accessible any time of the day for more common transactions. Meanwhile, UnionBank of the Philippines launched The Ark, the country’s first fully digital bank branch where customers log on to the internet or have coffee, shifting the role of branches from transactional spaces to “interactional” spaces, said a UnionBank spokesperson. “The bank branch is not going away but its role and purpose will shift from a space to simply process transactions to a venue for advisory conversations, digital channel onboarding, self-service banking, and interactive experiences,” added the spokesperson. In The Ark branch, 30 transactions
SECTOR REPORT 1: Banking Technology were digitised and offered to customers, including product applications for credit cards and loans. The effort reduced transaction processing time, especially in account opening, from an average of 1 hour to around 15 minutes. In Singapore, smart branches are further gaining traction. “Bank branches have become less about transactions and more about a positive customer experience as well as more engaging self-service. This is why we are gradually introducing more interactive digital experiences and self-service automated technologies at our branches such as touch-enabled ATM kiosks and iPads,” said Susan Kwek, head of operations and technology at Citi Singapore, which was the first bank in the country to introduce a smart banking branch as early as 2010. But Kwek noted that due to digitisation, more transactions take place outside the branch. This prompted the bank to introduce Citi Bot on Facebook Messenger, which allows customers to conveniently receive answers on queries on their phones or computers. Sales and customer service boost Other banks are also leveraging on technology to bolster their sales and customer service teams. RHB developed a quality sales force tool called iSmart, a tablet-enabled web tool, which helps match customer requirements with the bank’s products, said Jeffrey Ng, head of group business and transaction banking, commercial banking at RHB Banking Group. Ng said iSmart is the first of its kind in Malaysia, and has cut down processing time since it advises customers on the documents needed and simulates products to show customers how these work on the spot. A month after iSmart’s launch, the preliminary result in January 2018 saw sales productivity rise by 9.3% compared to a year ago. Bank of China Hong Kong (BOCHK) also plans to launch a chatbot service in several channels including online banking, mobile banking, and the bank’s WeChat official account this year. “Through
natural language processing, customer inquiries can be analysed effectively, thus providing standard and quality responses and improving the efficiency of customer service,” said Michael Wang, deputy general manager of e-finance centre of BOCHK, adding that the best thing about the chatbot is how it uses machine-learning-based technology to further ramp up its response speed and accuracy. Meanwhile, Citi draws some 20 million visits to its online consumer banking properties every month, and between 90% and 95% of the bank’s transactions already happen outside a branch, said James Griffith, director, head of international media relations at Citi Asia Pacific. Griffith said that in 2018, Citi will be focused on using its own big data to create more personalised client experiences. It also launched a Citi branded interactive experience within a social platform on WeChat in China and Line in Thailand to stay on top of the banking technology curve. “Whilst there are many unknowns, one thing is sure: the pace of technological change shows no sign of slowing,” he added. Risk and reward Technology can be enabling, but it can also be a source of risk for banks, since it infiltrates more areas and potentially exposes the enterprise’s valuable financial and customer information to cyberattacks. “AsiaPacific banks need to focus on mitigating emerging technology risk in a digital world,” said Bellens. With global regulations focusing on risk and compliance strengthening in recent years, the expected standards for Asian banks have risen as well. Banks are especially pressured to bolster data and cybersecurity to meet regulatory and compliance requirements, which will continue to be concerns in 2018, said Wang Chaoming, deputy chief executive and chief information officer at ICBC (Asia). Big data, artificial intelligence, and advanced analytics tools are important in reducing behavior risk and enhancing network monitoring, thereby preventing financial crimes,
he said, adding that “regulatory and compliance are the foundations of banks’ operation, and technological innovation is the driving force behind the development of banks.”
Is fintech still a threat? Recently, many banks are coping with technological innovations by either cooperating with their supposed fintech rivals or accelerating their own innovation drives to keep up. In Thailand, regulation has recently focused on financial institutions and banks only, which meant there was room for non-banks to offer financial services beyond what banks could offer—basically faster, cheaper, and more suitable to customer needs, said Silawat Santivisat, executive vice president, corporate and SME products division at Kasikornbank. “The strategy is to bring those nonbanks in to co-work and co-develop to derive the most optical solution for customer,” Santivisat added. “Whilst we have seen a shift towards a more collaborative approach with fintech companies and banks partnering together to leverage each other’s strengths, banks should be a little more worried about their future positioning,” said Sangiita Yoong, analyst at East & Partners. Yoong said more than threequarters of global businesses see fintech taking market share from incumbent suppliers over the next five years. “The main reason behind this is that Asian corporates have already experienced the positive effects of fintech. They find that fintech are making it easier to run their businesses, and banks are somewhat lacking in their ability to keep up,” added Yoong. But Dennis Khoo, head of regional digital banking and strategic initiatives at UOB, downplayed the threat as he said a technology company cannot change its business model suddenly to that of a big bank’s without first having all elements of risk management and regulatory compliance in place. “What is important is for banks to focus on the customer experience and use technology cleverly,” Khoo added. “The risk is that banks don’t do this well enough and others do.” ASIAN BANKING AND FINANCE | JUne 2018 23
SECTOR REPORT 2: Cash Management
Cash management is expected to be the most influential business in transaction banking in 2018
Evolving client roles push for integrated banking platforms Banks are rolling out digital cash management tools to adapt to changes.
sian banks are now required to think beyond the traditional job tasks of treasurers and the market scope of sector-focused companies when it comes to their clients’ cash management needs. Banking executives and industry consultants recognise the rapidly expanding requirements of their client base and are responding with more integrated platforms and solutions. Developing integrated propositions has become one of the key investment priorities for banks, said Jason Ekberg, partner, head of corporate institutional banking at Oliver Wyman. “So I would be able to log into my portal, I want to look at my cash position, my credit position, my FX position, and I want to be able to use this dashboard as a single portal to help manage my business, with cash management at the center of it,” he added.
24 ASIAN BANKING AND FINANCE | June 2018
Ekberg also noted how banks are building online architecture platforms such as DBS Treasury Prism, an online treasury and cash management simulation tool for chief financial officers and corporate treasures to test out various bank and corporate solutions at no cost. “Anybody can use it and play with it. You would optimise your liquidity and use it to optimise your treasury setup,” said Ekberg. “And DBS is doing that because they want to start to position themselves as the leader in the industry.” Meanwhile, Westpac plans to implement a flexible cash management platform that will be integrated to the bank ecosystem and enable them to create new offerings without the need for custom build, said Di Challenor, general manager, global transaction services at Westpac. A key feature in this platform will be a single visualisation
tool that provides the user a view of all account balances across many different departments. “Beyond just being a visual dashboard, the end goal of the platform is for aggregated account balances to be pooled so they can be treated as a whole rather than a series of disconnected accounts,” explained Challenor. NDB said introducing fullfledged cash management systems with automated collections, supply chain management, and liquidity management gives the bank a competitive advantage. “This way the customer gets one platform for all their needs,” said an NDB spokesperson, adding that another benefit of this approach is that it reduces the need for customisation, which can be costly. Bank Mandiri has started offering Mandiri Cash Management, a cashless service for any transaction related with the administration’s official budget of the local government. “One of the features provided to support APBD management is the multifaceted financial dashboard that empowers each local government office to control earnings and expenses,” said
SECTOR REPORT 2: Cash Management Adinata Widia, senior vice president of transaction banking wholesale product group at Bank Mandiri. “The service helps local governments to streamline their reconciliation process for collection and improve their liquidity risk management.” At Bank SinoPac, integration nearly halved client processing time as the bank combined both offline machine and online solutions, such as virtual account and e-banking collection report management, said Irene Huang, head of cash management department, electronic banking division at Bank SinoPac. Huang reckoned that the onlineoffline integration project reduces manual process cost and turnaround time and is part of the bank’s new cash management perspective to provide “more secure, efficient, and straight-through solutions.” New roles and needs The push towards integrated solutions comes as the role of treasurers is evolving from basic cash management to strategic mobilisation of liquidity and working capital, and amidst a fragmented cash management landscape in Asia that has led to more centralisation of treasury functions in the region, said Suman Chaki, APAC head of corporate cash management sales at Deutsche Bank. “Treasurers are now looking to optimise account structures and consolidate payments within their centralised treasury functions, decreasing finance costs through reduced fees. Treasurers are also looking to obtain greater visibility and better control of FX and hedging activities,” added Chaki. Chaki said cash management is a key strategic growth business for Deutsche Bank in APAC, citing “significant” uptake in electronic transactions, especially in the area of instant payments. The bank increased the functionality of its FX4Cash platform in 2017 to cover over 140 payment currencies. UOB, meanwhile, has been moving towards improving its suite of global liquidity management solutions to become more “modular and configurable” in response
to shifting client needs, allowing them to customise products to suit their sector and business size, said Linus Ng, head of cash product management, group transaction banking, UOB. “With the continued development of the digital economy and as more of our clients expand their operations across borders, we are seeing an increasing demand for financial solutions that are seamless, scalable, intuitive, and fast.” Some banks are tackling the challenge of customised demands from clients with a firm focus on spotting customer needs. “We are now looking to create the system and model that can respond to primary needs and accommodate extended changes. Need identification is the core success of the model,” said Silawat Santivisat, executive vice president, corporate and SME products division at Kasikornbank. “The product manager is required to design with flexibility, extensibility, and in-depth understanding of the customer’s need in each industry.” API, blockchain, and beyond Asian banks that want to differentiate themselves in the market can tap into their technology capabilities and relationship insights to build digital ecosystems that aggregate multiple offerings, such as cash and liquidity management, cybersecurity, and fraud risk, said Ernest Saudjana, partner & managing director at BCG Jakarta, citing API as an area of opportunity. He noted, “It is important for Asian banks to pay attention to the quality of platform and invest into API to make it easier to integrate with corporate system.” Citi Singapore said it will spend 2018 improving E2E API connectivity to enhance client experience and to provide the agility clients are looking for, said Nishami Dharmaratne, head of product management, treasury and trade solutions at Citi Singapore. “API is taking the digital experience to the next level with tremendous potential benefits built on dynamically exchanged workflow data based on events, patterns and time.” Dharmaratne said the push for greater client connectivity comes at
a critical time, as cash management will be the most influential business in transaction banking in 2018. “This is the space that is being constantly targeted by banks for natural competition reasons, and non-banks or fintech for the obvious opportunities that it presents.” UnionBank of the Philippines, meanwhile, attributes the versatility in its cash management to its API portal, on which it built a number of payment products such as bill payments and fund transfers. The strategy has resulted in faster and less expensive implementation. “Corporates and fintechs are able to connect to us and avail of services on our developer portal. It allows a standard way of connecting to us— customised according to their needs which can be used over and over again by other corporates,” said the bank’s spokesperson. Aside from APIs, artificial intelligence and blockchain are two of the major technologies that will reshape the world, and these are what ICBC (Asia) will try to explore in the next few years, said Wang Zhi Yong, the bank’s head of product development and management department. The bank has been building close relationships with leading technology companies to raise each other’s competitiveness. “Even though the penetration is not very high at the moment yet, there is no doubt that blockchain will have an impact and bring new challenge on cash management in the long run,” Wang said. The digitalisation of the financial supply chain and emerging technologies—from AI and machine learning to distributed ledger technology—are propeling banks to create entirely new, integrated corporate banking platforms, said Jan Bellens, Asia-Pacific and global emerging markets banking and capital markets leader at EY. Bellens cited as an example the domestic real-time payment systems that are being developed in Asia-Pacific countries such as Hong Kong and Australia. “Banks need to consider opening up their API access to business accounts and transaction banking services,” he noted. ASIAN BANKING AND FINANCE | JUne 2018 25
Case Study: OCBC bANK
OCBC’s facial recognition system triggers as the customer sets foot in the bank
OCBC Bank changes the face of priority banking Rolling out a facial recognition system in its Premier Banking business, the bank aims to personalise and elevate customer banking experience.
n December 2017, OCBC Bank achieved a milestone and made a mark on the whole Singapore banking industry when it became the first bank in the city-state to employ a facial recognition system to improve the overall banking experience of its customers. With the implementation and successful trial of this newest innovation, OCBC Bank is definitely changing the “face” of how banking is done in Singapore. At the turn of the decade, personal technologies like mobile phones were integrated with sophisticated security and identification innovations such as fingerprint scanners and, recently, facial recognition systems which are a high-tech form of biometrics using a person’s unique facial features. This growing technological trend is something that OCBC Bank had wanted to capture and leverage not just to be ahead of the competitive digital curve, but also to be able to provide a more intuitive, holistic, and elevated banking experience for its loyal and premium customers. Pranav Seth, head of e-business, business transformation, and fintech and innovation group at OCBC Bank, explained that at the heart
26 ASIAN BANKING AND FINANCE | June 2018
The facial recognition system offers an unobtrusive way for the bank to identify premier customers.
of the initiative is the insistence and determination to provide its customers the best service and experience that they deserve. “OCBC is committed to service quality, and implementing facial recognition to elevate the customer experience is one of the many steps that we are doing in the digital economy. As a progressive organisation, we continuously look for innovative technologies to fit our business proposition.” Seth said. “OCBC has been a pioneer in implementing biometrics to create easy and seamless access to banking services for its customers across all channels. We introduced biometrics to access our mobile banking apps—OCBC OneTouch, OCBC OneLook—and have also introduced voice biometrics at our Contact Centre.” Elevating customer experience Seth continued, “The major difference in this implementation at the Holland Village branch is that it is specifically for face-toface interactions, and specifically targeted at premier customers.” For the bank, the thinking behind the implementation of the facial
recognition system is simple: provide OCBC Bank’s premier customers with the most personalised and intuitive banking experience they can have—and that should start the moment they set foot in the bank. “The facial recognition system can identify OCBC Premier Banking customers in real-time as they approach the lounge within the branch, with no need for them to stop and look at the camera,” explained Seth. “This offers an unobtrusive way for the bank to identify them.” Previously, customers had to produce their identification document with every visit to the OCBC Bank Premier Centre for verification. This posed as an opportunity that OCBC Bank realised can be improved by letting their customers feel differentiated and recognised through a sophisticated piece of technology like the facial recognition system. The bank also records the customers’ visit details, which will help understand their behaviour patterns and improve the services offered. NEC, OCBC Bank’s technology solutions partner noted in its press release after the successful roll out of the system, that the system also allows greater data gathering and processing for OCBC Bank. They were able to record the purpose of a customer’s visit, gather feedback to help improve services, and understand customer behaviour patterns, such as the frequency of their visits. Seth said that since the launch of the system at the end of 2017, their customers are starting to embrace the technology. “It has been very well received by our customers. The uptake has been growing steadily and customers have been impressed by the personalised hospitality they receive, enabled by fast and accurate information,” he added. Leveraging technology The facial recognition system was not just a testament to OCBC’s progressive nature and innovative drive, but also a sign of willingness from the financial institution to embrace and leverage technology.
Case Study: OCBC BANK
Pranav Seth, head of e-business, business transformation, and fintech and innovation group, OCBC Bank
NEC said that facial recognition is already being implemented in a wide range of industries and given the technology’s widespread usage and acceptance in security systems, it will continue to provide a positive change in sectors like banking. Seth said that the conceptualisation process to roll out the technology wasn’t exactly straightforward since the technology needed to blend and integrate well with human interaction—which necessitated some training on the part of the bank’s staff. “We conducted a proof-of-concept in our offices with staff to understand the intricacies of facial recognition technology in early 2017 and did a market study on how it was applied in other use cases. We then conceptualised and implemented the solution to enable our staff to greet and offer our Premier customers positive service delight.” OCBC Bank utilises NeoFace, NEC’s artificial intelligence (AI) engine for face recognition. According to NEC, NeoFace is currently recognised as the fastest and most accurate facial recognition algorithm in the world by the National Institute of Standards and Technology in the United States, leading in both accuracy and speed. Some of the applications that
NEC’s NeoFace will be able to provide—which OCBC Bank can take advantage of across its operations—include access control and attendance tracking for staff and visitors; workstation or console login for more secured access; customer authentications for transactions as a second factor on different channels of financial institutions; seamless online transaction experience for payment authentication; security purposes (both national and commercial) including monitoring individuals on watch lists or tracking people who loiter on various premises; fraud prevention; and tailored advertising signage and marketing material using facial recognition to understand the age and gender of patrons. NEC’s Neoface engine is currently implemented in over 40 countries worldwide by a wide range of public and private organisations.
The data is captured and stored in accordance to the bank’s security policies, including system encryption, physical access controls, and system hardening.
A step forward Given the overall acceptance and positive feedback that OCBC Bank received during the trial phase of its facial recognition system, Seth believes that things are looking bright for the system to be a fullpledged innovation in the bank. He said, “We are currently piloting this facial recognition technology and service at our Holland Village branch, and if successful, we will explore extending this to other branches and leveraging the
technology for other services.” However, Seth admitted that some challenges remain in the full implementation of the facial recognition system in the bank’s day-to-day operations. Some of these challenges include the installation of the system itself as well as the logistics, given that this is a fairly new technology in the banking industry. “The main advantage of facial recognition being contactless and frictionless was that it was the most intuitive form of biometrics and it was important to keep it that way for customers,” he explained. “In order to ensure proper camera capture in a typical visit to the branch and seamless experience for our customers, we had to make changes to some design elements of the branch to house the cameras in secure, yet intuitive positions and ensure lighting was optimal.” On another hand, some may still ask if there could be any security and privacy issues with the system that the customers should be wary of, given that this involves their biometrics. Seth said that customers’ data is safe and secure since the data is captured and stored in accordance to OCBC Bank’s security policies, including system encryption, physical access controls, and system hardening, amongst other measures. “We treat customers’ data with the strictest confidentiality and we do not share data with any third parties,” Seth reassured.
The system promptly identifies the customer and reveals secure data
ASIAN BANKING AND FINANCE | JUne 2018 27
Case Study: Bank of China (Hong Kong) Limited
Around 160 BOCHK ATMs use finger vein authentication
Transact with BOCHK ATMs using finger authentication Bank of China (Hong Kong) Limited’s finger vein authentication offers an answer to the rising security threats looming over Asian retail banking.
hen Bank of China (Hong Kong) Limited (BOCHK) first introduced finger vein authentication to some of the front desks of its branches in late 2016 and, eventually, to two automated teller machines (ATM) in July 2017, the goal was to provide its growing customers more secure ways to access their accounts and perform their banking transactions. The innovative offering—where customers use their unique finger vein patterns via an infrared scanner to authenticate their credentials and transactions—was gradually extended to all BOCHK’s branches and around 160 of its ATMs in December 2017, making the city’s second largest commercial bank in terms of assets and customer deposits the first financial institution to use the technology in Hong Kong. “Finger vein authentication service is a fintech application which benefits both staff and customers,” said Michael Wang, deputy general manager of E-Finance Centre at BOCHK. “It is definitely an innovative banking service, increasing staff satisfaction and reducing their workload as it 28 ASIAN BANKING AND FINANCE | June 2018
The new innovation is introduced to provide BOCHK’s customers an added security option for convenience and peace of mind.
transfers the identity verification work from staff to system to avoid fraud. It can also reduce transaction time for each customer and eliminate the reset password service for forgetful customers so that staff can focus more time on providing high quality service.” Demand for better, more modern, and more sophisticated security measures and protocols for the banking industry have been increasing the past few years given the rising incidents and occurrence of fraud, money laundering, and illicit financing in the Asia-Pacific region. This heightened concern for better banking security is what makes BOCHK’s innovative technology all the more significant and timely, not only for its customers but also for its overall strategy and operations moving forward. BOCHK’s efforts to introduce innovative technologies like the finger vein authentication system come after the Hong Kong Monetary Authority (HKMA) expressed support and commitment to promote point-of-sales fingerprint identification and other financial technology in the city’s banking
industry in October 2017. The finger vein authentication system adds to BOCHK’s growing lineup and portfolio of innovative technologies and services for its patrons and increasing customers, under its Smart Branch program. Some of the new e-services and facilities BOCHK offers, apart from finger vein authentication, include “RoBoc” or the Smart Robot which interacts with clients in Cantonese, Mandarin, and English to guide them and answer queries; counter appointment service, where customers can get an e-ticket instantly via the bank’s mobile application; BOCHK iService, which offers a round-the-clock video banking service that enables customers to conduct real-time banking transactions; and e-zone, which informs customers of the latest service offerings of BOCHK. How it works Whilst Wang pointed out that the finger authentication method is being rolled out in all BOCHK’s branches and ATM networks, the move is not to replace the more traditional forms of banking security measures including using a six-digit pin. The new innovation is introduced to provide their customers an added security option for convenience and peace of mind. But how does finger vein authentication work and how can the bank’s customers avail the service? Wang said the process is as easy as going to any BOCHK branch for a one-off “finger vein authentication” registration, where the customer’s finger vein data is recorded which will then be encrypted before saving into the bank’s central database for maximum protection of personal information. After the process is complete, a customer can then proceed to around 160 ATMs of the bank or any BOCHK branch and finish their banking transactions using just the tip of their fingers. “With ATM transactions, for example, when customers put their finger on the finger vein reader, the infrared LED will emit dispersed light through the finger to extract vein pattern to the CMOS sensor,”
Case Study: Bank of China (Hong Kong) Limited
Michael Wang, deputy general manager of E-Finance Centre, Bank of China (Hong Kong) Limited
Wang explained. “The system will match customers’ vein pattern with database record to verify their identity. Once the verification process is completed, customers can then conduct designated transactions.” The technology serves as a secure identity verification method as each individual has a unique and non-repetitive vein pattern that does not change after adulthood. It also incorporates near-infrared LED, making banking transactions for customers more convenient than signature verification. Finger vein advantages Wang noted that apart from saving precious transaction time for customers, especially for those who easily forget their passwords, pins, and signatures, the finger vein authentication system also offers higher security and convenience to customers particularly the elderly whose signatures tend to change over time. It avoids forgery as well. “The system is much harder to cheat because it can only authenticate the finger of a living person, eliminating the risk that fraudsters will use substitutes or copies to break into a bank account,” he noted. “In addition, finger vein can eliminate the possibility of
counterfeit signature to preventing fraud and financial crime.” Incorporating innovative technology is nothing new in the banking and financial industry, especially in Hong Kong and the rest of the Asia-Pacific region. Financial institutions both in the territory and elsewhere have also been employing technology, including the common fingerprint scanning systems, iris scans, voice activated banking, and even artificial intelligence. But for Wang, at least for now, finger vein scanning reigns supreme in the tested and proven securityrelated technologies in the banking industry. He emphasised that finger veins cannot be duplicated, pushing the success rate much higher. It is also tough to forge, as the vein patterns are not easily altered by sweat, stains, or peeling of skin on fingers—something that may affect the traditional fingerprint method. Currently, the bank is planning to extend the feature to all of its over 400 ATMs in Hong Kong to serve all of its customers. Given the bank’s commitment to technological innovation for customer service and the government’s strong support, particularly the HKMA, for these institutions, the banking industry in the city looks set for a more modern and convenient future. “BOCHK works keenly with innovative institutions and the HKMA to explore new fintech which can be applied to the banking
Apart from saving precious transaction time for customers, the system also solidifies BOCHK’s commitment to increased security across its operations.
industry,” Wang said. “We always aim to develop new services and products to enhance customer experience and improve staff satisfaction. Exploring the use of biometric authentication in different channels meets our objectives in the aspect of fintech application.” “BOCHK places great attention on innovations of technologies. The bank invested heavily in the procurement of finger vein authentication equipment, ensuring that security measures of our services are maximised to the highest level in the industry,” Wang concluded, adding that BOCHK will continue to apply new biometrics technology, including voice recognition technology in their call centre services. “In the future, the bank will keep fostering the growth of fintech development in mobile banking, applying digitalisation on both online and offline channels.” Currently, applicable transactions for finger vein authentication systems at BOCHK branches include cash withdrawal, transfer, currency exchange, bills payment, and password resets. Meanwhile, at the bank’s ATM outlets, the technology allows customers to do all transactions that they can do at branches plus account balance inquiry; bank statement or cheque book application, overseas ATM daily withdrawal limit and activation period setting; MPF balance inquiry; and BOC Express Cash loan top up.
Each individual has a unique vein pattern that does not change after adulthood
ASIAN BANKING AND FINANCE | JUne 2018 29
Time to face the future: The regulatory outlook for Asia-Pacific banks
s we move into 2018, Asia-Pacific banks are facing a range of challenges — from implementing Basel III reforms and keeping pace with technology advancements, to responding to the disruption and opportunities posed by new, non-traditional market entrants. Pressure is also coming from investors, who are demanding that banks improve returns on capital in an environment where economic growth continues to be modest and competition fierce. Banks should not expect respite from regulation At a global level, policy makers have effectively drawn a line under dealing with the problems of the past. Overall, the post-crisis reforms have made banks less likely to fail, as well as easier to resolve if they do reach the point of non-viability. The reforms have forced — and will continue to force — banks to increase capital, augment liquidity, improve governance, sharpen controls and alter their structure. Banks are now more resilient and the financial system as a whole is more robust. If the same problems were to arise again, banks would be better prepared to deal with them. But this doesn’t mean banks can expect to see a period of regulatory respite. The Basel Committee’s finalization of the Basel III regulations in December 2017 provides banks with a greater degree of certainty around the future of capital and liquidity requirements. However, it also marks the beginning of a period of increased fragmentation as supervisors around the world start to implement their own specific versions of the reforms, with each jurisdiction adapting the Basel agreements to reflect its own preferences and practices. Banks continue to have a full regulatory agenda, as they work toward meeting the rapidly approaching implementation deadlines for rules adopted some years ago, whilst also contending with the possibility that both investors and supervisors may front-run the deadlines for implementing others, such as Basel III. In Asia-Pacific, regulators are having to balance specific domestic
Banks are moving in a fast pace and so are new challenges
30 ASIAN BANKING AND FINANCE | June 2018
Gary Mellody Asia-Pacific Financial Services Risk Advisory Leader, EY
economic factors against global regulatory alignment. The prospect of disruption to global trade on the trade-exposed markets of AsiaPacific, along with the potential implications for regional markets as a result of the expected unwind of the unprecedented quantitative easing of the past decade, are likely to result in conservative regulatory settings. New entrants and technologies creating new challenges Both globally and across the Asia-Pacific region, banks are trying to keep up with and best respond to the challenges and opportunities posed by disruptors to traditional banking models. Even greater pressure in this space is likely to come as regulators reset rules in response to new technologies. New market entrants, open banking and even the potential introduction of a central bank digital currency, are all on the radar. Governments are now actively promoting the entry of technologybased firms and fintechs to introduce more innovation and competition into the banking industry. The regulatory “sandboxes” set up in Australia, Hong Kong, Kuala Lumpur and Singapore are a prime example of this type of activity. Asia-Pacific banks are actively looking for opportunities to partner with non-traditional providers, like fintechs, to increase their technology capabilities and deliver new or better services to their customers, or achieve more cost-effective regulatory compliance in areas such as financial crime and antimoney laundering (AML). Don’t let a good recovery go to waste Whilst the immediate outlook for banks as we move into 2018 is favorable, these conditions are unlikely to last and, at some point, the economic cycle will turn down again. The recent announcements from the US on potential trade sanctions, equity market volatility and rising interest rate environment highlight the risks to be navigated. In this environment, investors and regulators alike are asking whether banks have business models that are strong enough — both in concept and execution — to survive not only a possible downturn, but the disruption that will ripple across the industry as new technology takes hold. In light of this increased scrutiny, Asia-Pacific banks need to review their business strategies and models to ensure they will hold up under the new market conditions and that their investor returns will rise over time. For those banks that decide to stay and play, the current environment presents a window of opportunity. But it will require the implementation of strong programs and robust strategies across five key areas: good governance; a culture of compliance; data management; data analytics and technology adoption. To be successful, banks will have to anticipate and meet rapidly evolving customer needs, whilst also generating the level of returns that satisfy investor expectations.
Co-published corporate profile
The evolving digitalisation of wealth management With the constantly changing technology and client behaviour, the WM sector must digitally keep up.
he last few years have proved that the global wealth management industry weathered the global financial crisis relatively well, demonstrating to markets, regulators, and clients that it has the skill, resilience, and innovation not just to survive turmoil, but to build from it. The Challenges Wealth managers are well aware of the demands of their operating environment. The pace at which interlinked forces are converging on the sector adds to the urgency to find effective, affordable, and flexible solutions. Yet too often, organisations are locked into outdated structures and practices, delaying the adoption of changes required to deliver sustainable success, whilst the cost of doing so rises. We argue that forward-thinking organisations need to understand the potential of digitalisation and use it to enhance customer loyalty and future-proof their business. Start with the Client Wealth managers often profess that everything they do is driven by their clients. But they too frequently retain service structures and business models which have stagnated while the needs and preferences of their target customers have changed. Most managers will testify that the source of wealth has broadened considerably in the last two decades, from inherited fortunes to self-made money, from the West to the East, and from the maturing Generation X to the younger Generation Y. Wealth management implies real-time, global reach and multiple channel service delivery. Todayâ€™s wealthy are international and highly mobile, with diverse and complex relationship networks. However, evolving interactive technology empowers them to monitor or directly manage their multi-asset investment portfolios in any location and at any time. Despite changes in some organisations, too often advice is dispensed from a formal office, obliging the client to travel to meet their relationship manager. Reporting is static and mechanistic, and perhaps outdated before it is even received. Undoubtedly, some clients will always prefer traditional channels, and firms will
have to make a judgement as to how they can continue to support them. A prestigious corporate address and a dedicated client relationship manager may remain a revered tradition, but todayâ€™s sophisticated client demands a richer overall experience. The future of wealth management belongs to a complementary but more responsive business model. Digitalisation Far beyond automated straight through processing, which is a reactive post-order response, digitalisation aims to interact with the client where and how they prefer, with a full suite of personalised, real-time data, information, and analytics. It describes a way of doing business rather than a product or a delivery channel, and it acknowledges the changed reality of the wealth sector where target clients tap a range of information sources to compare goods, services, and prices, but feel no particular loyalty to any one provider. Digitalisation delivers a richer client experience, connecting and supporting the user, by video, tweet, or text. Face-to-face engagement, so important to Generation X, is far less critical to Generation Y used to Facebook, LinkedIn, or WhatsApp. Intelligent mobile technologies offer great potential to leverage client relationships and streamline the overall business, yet takeup among wealth managers has been slow. Viral connectivity challenges established structures where control, sentiment and information are all traditionally centralised. In contrast, technology providers are delivering powerful but dispersed and collaborative interfaces through an expanding range of mobile applications. Disruptive challengers The pace of digitalisation and connectivity is increasing exponentially, opening up unprecedented reach to potential clients, wherever they are, and across time zones. The usual barriers of cost and time to build client networks are falling. New players are leveraging technology to reduce costs and deliver client-focused service on highly scalable, flexible platforms. Meanwhile,
Nicholas Hacking, Director of Sales, ERI BANKING SOFTWARE
the social, peer-recommended element of digital technologies addresses many of the trust issues traditional finance channels still battle with. Challengers to financial service providers may not even be from the finance sector. They may be industry-agnostic aggregators, who can offer increased transparency to consumers, innovators who meet client needs in new ways or dis-intermediators who target specific groups with enhanced interaction.
CONTACT Company name: ERI Banking Software Pte Ltd Phone number: +65 6622 5959 or +65 8718 8618 Email: email@example.com Website: www.olympicbankingsystem.com
â€œDigitalisation delivers a richer client experience, connecting and supporting the user. ASIAN BANKING AND FINANCE | JUne 2018 31
Global asset managers in China: Opportunities arising from structural reform
his is now an inflection point for foreign asset managers as China vows to allow foreign players to take controlling stakes and operate domestically in the private securities fund management (PFM) and even mutual fund management markets. In particular, global asset managers can capture the opportunities stemming from the structural reform of the market, where regulators are promoting capital markets and professional asset management in order to replace the legacy “shadow banking” market. The past: “Quasi” asset managers Historically, China’s asset management industry is dominated by “quasi” asset managers, including bank wealth management products (WMPs) and trust companies, whose nature is fundamentally different from asset managers under the global definitions. “Quasi” asset managers account for RMB 74 TN ($11.4t) of AUM, representing 61% of total AUM in China’s asset management industry. The future: “Traditional” asset managers Driven by the agenda of the 19th Party Congress meeting, we expect capital markets to grow fast in order to facilitate the deleveraging of the banking sector, and more importantly, to displace of the shadow banking market, which poses considerable systemic risks. We expect capital market development, coupled with recent asset management regulations which tackle the abovementioned issues, to fundamentally change the competitive landscape, with AUM shifting towards “traditional” asset managers such as mutual funds and private funds. Under such direction, the existing bank WMPs will face significant challenges to sustain. Bank WMP AUM has experienced the first-ever drop from RMB ~28TN ($4.4t) during 2017 H1. We expect more outflow of AUM from bank WMPs as banks consider alternative approaches: 1) to migrate funding back to deposit; 2) to convert bank WMPs into NAV-based products; 3) to distribute products from traditional asset managers. This represents unprecedented structural opportunities for traditional asset managers. On one hand, traditional managers can develop and offer alternative products for banks to distribute to their customers; on the other hand, asset managers can work collaboratively with banks that lack investment capability to run NAV-based products (most likely mid-to-small sized banks) by providing them investment advisory services on their managed portfolio and/or directly managing part of the outsourced portfolio for the banks. “Many roads to China” Global asset managers are now presented with multiple potential routes to enter China—onshore private funds: set up investment management wholly-foreign owned enterprise (IM WFOE) and 32 ASIAN BANKING AND FINANCE | June 2018
Ray Chou Financial Services Partner Oliver Wyman Greater China
Total AUM of Chinese asset management industry 2007 to 2022, $t
Sources: AMAC, CIRC, CSRC, CTA, CBRC, WIND, Oliver Wyman analysis
apply for qualification to operate private securities fund management (PFM) business; or onshore public funds: participate in joint venture of mutual fund management companies (FMC). Note that foreign ownership limit is now lifted to 51% and will end after 3 years. Whilst the above routes are not mutually exclusive and global players can attempt to increase their China presences through all of them, the opportunity to set up IM WFOE and run private securities fund business has emerged as one the most tangible routes for global players to enter and operate domestically under full control in China now. At time of writing, 11 global asset managers have already received the PFM qualification, with several players having already issued their first product. To successfully establish their presence in the private securities market, global asset managers must identify their target proposition in China, then consider how best to leverage their global capabilities to achieve that, and identify where building of local capabilities and partnerships are needed to better fulfil the target proposition. Some asset managers have essentially leveraged on the proven track record of their QFII A share funds to launch their first products, whilst others focus on their global strengths in CTA and quantitative strategies. This can help global players quickly establish brand and scale, and meet the stringent requirements on issuing the first product within 6 months of PFM registration. Nevertheless, global asset managers should note that there may be challenges in replicating offshore/global strategies directly to China. For example, the universe of fixed income instruments traded offshore is very different from those traded onshore, which will require fairly different credit analysis expertise. Given China’s unique nature, global managers wanting to be successful in China will unavoidably have to adapt and be openminded to “execute strategy in uncertainty”. This means they should act fast to seize tangible entry opportunities made available, and then leverage early entry to build up capability readiness, in order to become “relevant contenders” for future larger opportunities.
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