Asian Banking & Finance (April - June 2023)

Issue No. 110 DISPLAY TO 30 JUNE 2023

WOMEN IN BANKING

OVERCOMING BIASES TO SUCCEED IN THE BANKING INDUSTRY

Asian Banking & Finance

DID DIGITAL BANKS FAIL TO DISRUPT WHY ROLE MODELS MATTER TO WOMEN IN BANKING WEALTHTECHS WIN BY MANAGING WEALTH AND NOT THE WEALTHY BANKS OFFER FLEXIWORK, MENTOR PROGRAMMES TO UPLIFT WOMEN’S CAREERS

FROM THE EDITOR

F

ully digital banks were expected to revolutionise the banking industry and threaten the “old” incumbents. Yet, in the decade since its massive boom, particularly at the onset of the pandemic, these virtual banks, neo banks, and challenger banks, amongst a plethora of other titles, may not have lived up to the hype.

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Meanwhile, the current state of wealth management services has one fatal operating flaw – managing the wealthy, not their wealth. Whilst the mass affluent market has the capacity to save money, it does not meet all the criteria to qualify for traditional wealth management services, and therefore wealth managers often have eyes on servicing high net worth and ultra-high net worth clientele.

Women’s representation in banks has come a long way, but much work still needs to be done. Unspoken expectations and unconscious biases often weigh down on women building up a career for themselves. UOB’s Head of Group Personal Financial Services Jacquelyn Tan, shares her insights on how these stereotypes can impact women’s careers in the banking and finance industry. DBS Hong Kong’s Head of Digital & Innovation, Lareina Wang, also discusses why having women in senior leadership positions is important to foster more women to enter the industry. Read the full interviews on pages 14 and 18.

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MICA (P) 249/07/2011 No. 67

ASIAN BANKING & FINANCE | Q2 2023 1

CONTENTS

22

SECTOR REPORT WEALTHTECHS SUCCEED BY MANAGING WEALTH AND NOT THE WEALTHY

FIRST 06 Why digital mortgages will overhaul traditional banking models

BRANCH WATCH 11 RHB refreshes Cecil Branch, channels old-time Singapore sophistication

14

INTERVIEW OVERCOMING BIASES TO SUCCEED IN THE BANKING INDUSTRY

18

INTERVIEW DBS’ LAREINA WANG ON WHY ROLE MODELS MATTER TO WOMEN IN BANKING

MARKET REPORT 28 Banks’ fee income plummets as loan demand dwindles

07 Banks urged to integrate ESG data into IT

08 ESG-focused fintechs will be key to global net-zero transformation

09 Fintechs scale back and fold as

ANALYSIS

COMMENTARY

20 Banks offer flexiwork, mentor

programmes to uplift women’s careers

funding channels dissipate

30 The rapid evolution of digital banking 32 How embedded finance democratises financial services for SMEs in APAC

FINANCIAL INSIGHT VOX POP 10 How China’s new asset risk classification will affect banks

Published quarterly by Charlton Media Group Pte Ltd 101 Cecil St. #17-09 Tong Eng Building 2 ASIAN BANKING & FINANCE AND FINANCE | Q2 | MARCH 2023 2019 Singapore 069533

21 Banks still lag behind net zero energy goals

26 Did digital banks fail to disrupt

For the latest banking news from Asia visit the website

www.asianbankingandfinance.net

WINNER OF Mobile Banking & Payment Initiative of the Year

Sathapana Mobile

ASIAN BANKING & FINANCE | Q2 2023 3

News from asianbankingandfinance.net Daily news from Asia

CARDS & PAYMENTS

BRANCH BANKING

BANKING TECHNOLOGY

How GCash cornered the Philippines’ ‘sachet’ economy

Citi entices HK’s ultra-wealthy with Global Wealth Centre

Why a hybrid platform is the answer to banks’ digital advisory woes

Most people would not remember the long string of numbers that makes up their bank accounts but many will always remember their mobile numbers. This was the idea that latched on to Globe’s decision makers when they created GCash, an SMSbased domestic remittance service.

Citi is ramping up its global wealth strategy with the launch of its very first Global Wealth Centre in Hong Kong: a curated space aimed at serving the bank’s affluent and ultra-high net worth clientele in Asia. The space is for the exclusive use of Citigold Private Client and Citi Private Bank customers.

Too much of anything is the beginning of a mess, interior designer Dorothy Draper once said, and it’s a reality that financial institutions may want to take heed when it comes to creating new banking experiences.

Customers seek confidence and clarity from financial advisers.

CARDS & PAYMENTS

RETAIL BANKING

FINTECH

DBS Hong Kong offers two-in-one instant loan and credit card combo

Why the universal banking model is no longer sustainable

Fintech funding slows as COVIDdriven digital hype fades

Citizens strapped for cash but unwilling to undertake the lengthy loan process or turned off by highinterest rates offered by non-bank lenders now have a new path to get their much-needed moolah. DBS HK has recently unveiled its first fully digitalised Card Loans experience.

In the past, the universal banking model had ensured that traditional banks retain their dominance in the banking sector. However, changing customer attitudes and the crumbling entry barriers for new players has vastly transformed modern-day banking.

Fintech funding hit a record number of volumes in 2021, with 5,684 fintech deals for a whopping US$210b in total investments garnered during the year–the second-highest annual total ever. Yet come a year later and the global fintech investment market is in a downward trend.

4 ASIAN BANKING AND & FINANCE FINANCE | Q2 | Q3 2023 2021

PVCOMBANK MASTERCARD CREDIT CARD Right choice inspires LOVE

ASIAN BANKING & FINANCE | Q2 2023 5

FIRST and ancillary services such as credit cards, savings products and insurance. At the heart of the old model is the bank branch and the sales people within it.

But with the advent of digital mortgages, both the branch and the branch-based sales people will not have much of a role to play, S&P said. “That means there will be fewer opportunities to cross-sell and up-sell clients. Easier application processes will also mean easier switching for existing borrowers, further loosening the bonds created by mortgage products.”

Digitisation of the lending process will unpick mortgage lending’s central role in retail banking

Why digital mortgages will overhaul traditional banking models LENDING & CREDIT

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Initial advantage On the upside, banks should initially retain an advantage in the new digital marketplace.

“The financing of a property purchase is the single most important financial commitment in most peoples’ lives and many borrowers will continue to prefer to deal with trusted, and established financial brands,” S&P said.

That advantage isn’t by much, however.

For example, in the US, Rocket Mortgage has quickly grown to account for the majority of new mortgage origination.

This meant that a capable platform and competitive pricing are more than a match for an established brand, S&P said.

Traditional banks also have some inherent disadvantages, as they may find it challenging to recalibrate operations to digital platforms from branches. Doing so could be expensive as it requires upfront investment in technology and the dismantling of legacy operations, as well as time consuming.

As a first step on that journey, established banks have often unveiled digital mortgage platforms that operate under the same brand, and alongside their branch-based businesses. Banks, however, are unlikely to be able to sustain the extra costs in the longer term.

S&P also noted that many services are still quasi-automated, where banks offer customers an online application process that leads to contact with a bank representative, and often a branch visit.

Leading-edge banks offer automatic document processing aligned with data gathering from tax authorities, credit registries, and other third-party sources.

Basic mortgage products will evolve to become more automated, more flexible, and increasingly portable. That could ultimately mean that the adoption of fully digitalized mortgages will barely be noticed, S&P said.

igital mortgages are expected to displace today’s traditional mortgages, and this phenomenon will both be an opportunity and a threat to traditional banks. Which side of the ledger banks will find themselves in will depend on how they transition away from their branch-based operations, S&P Global Ratings said in a report.

“By the time today’s traditional mortgages are repaid, the process that created them will almost certainly no longer exist,” S&P said in the report “Future Of Banking: Digital Mortgages Are Game Changers.”

“In their place will be digital services and digital mortgages, which S&P expects will reshape house lending and retail banking to the benefit of borrowers,” it added.

the digital platforms and products they offer.

“Digital mortgages will be more homogenous, easier to apply for, easier to switch between, and quicker to secure.

They will also smooth the way to greater competition and thus introduce uncertainty to banking sector revenue, margins, and spending, which could ultimately weigh on issuers’ creditworthiness,” the report said.

Digitisation of the lending process will unpick mortgage lending’s central role in retail banking and, in turn, the banks’ traditional operating model, it added.

The traditional model used home loans both to attract customers and tie them into a relationship with the bank, from which they could be plied with banking

Two key factors How banks tap into this would depend on two things: how they transition away from branch-based operations, and the quality of

By the time today’s traditional mortgages are repaid, the process that created them will almost certainly no longer exist

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FIRST

Moving toward this goal will require significant changes to the IT infrastructure

Banks urged to integrate ESG data into IT

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BANKING TECHNOLOGY

anks are called to integrate ESGrelated data into their IT systems and processes in order to keep pace with regulator changes and consumer needs, McKinsey said in a report.

“Banks must adapt their IT systems to systematically collect, aggregate, and report on a broad range of ESG data. However, many financial institutions still do not have a comprehensive approach to integrating ESG data into their existing risk reporting,” said report authors Henning Soller, Daniel Heller, Andreas Reiter, and Sebastian Schöbl in “ESG data governance: A growing imperative for banks.”

Moving toward this goal will require significant changes to the IT infrastructure, Soller and his co-authors noted. New applications include financed emissions models, climate risk models, ESG

scorecards, climate stress tests, and climateadjusted ratings.

“ESG data must be woven into existing processes, such as credit approvals and decision making. And banks will need to adjust their data architecture, define a data collection strategy, and reorganise their data governance model to successfully manage and report ESG data,” the McKinsey analysts said.

Three pitfalls McKinsey laid out three issues that banks face when adapting ESG into their IT systems: functional silos, process traps, and technical debt. Present functional silos in banks lead to disjointed processes and a fragmented data architecture that does not allow for synergies across ESG use cases, McKinsey noted.

“Effective ESG data governance thus requires a coordinated and centralised

approach across multiple stakeholders.

This can take place only within a culture of open communication, cross-functional collaboration, and close alignment of the business and IT functions,” the report said.

McKinsey further noted that in redesigning processes to incorporate ESG data governance, banking IT leaders must balance between two extremes—and avoid two common traps.

“On one side, a narrow focus on simplicity and standardisation often leads to a failure to make the necessary adjustments to align with existing business and IT processes. On the other side, anchoring too much on legacy processes can create unnecessary complexity and hamstring the ESG data governance model,” the analysts warned.

McKinsey further advises the banks to apply a use-case driven approach to introduce new ESG capabilities in the right sequence, at the right time.

“The design of ESG technical solutions involves constant trade-offs between shortterm needs and the long-term vision. Trying to solve everything at once—or devise the best possible solution—can extend development time, increase the pressure to implement short-term tactical solutions, and lead to lasting technical debt,” the analysts added.

Leaders can identify and prioritise specific ESG use cases, create clearly defined stage gates, and collect metrics to track success during interim phases. Potential use cases include customer data collection, risk scoring to credit monitoring and reporting.

SEA banks well-placed to ride fintech’s digital disruption FINTECH

I

ncumbent banks in Southeast Asia are well-placed to ride along the fintech disruptors in the digital finance space, according to an analyst.

Banks have established strong digital presences thanks to successfully transitioning customers to using digital channels, ratings agency Moody’s noted.

“Customer transactions at the region’s leading banks are now largely processed through internet and mobile channels,” it said in a report.

For example, Indonesia’s PT Bank Central Asia Tbk and Thailand’s Kasikornbank both reported that 90% of their transaction volumes were done digitally.

The expected moderation of fintech growth will also play to incumbent banks’ advantage when it comes to maintaining and growing their digital presence.

Although many fintechs have built up huge customer bases, their service offerings are largely limited to digital payments.

Expansion into other financial services remains modest. Many fintechs also remain at loss-making, and tight funding conditions will curb their near-term growth, Moody’s said.

These developments are forcing tech firms to implement cost-cutting measures and delay initial public offerings, which in turn will curb their expansion. For instance, Moody’s noted that Grab Holdings has reportedly been reducing incentives for its drivers and implemented salary freezes and budget cuts.

Local regulations also curb the formation of closed loop ecosystems.

“Regulators encourage financial innovation and do not intend to shield banks from new entrants. At the same time, they seek to prevent the new entrants from using their captive customer bases to develop closed loop ecosystems,” the report said.

The emergence of national retail payment systems further tilts the competitive landscape in favor of incumbents.

Regulators encourage financial innovation

ASIAN BANKING & FINANCE | Q2 2023 7

FIRST ASIAN BANKS’ CROSSBORDER DOMINANCE IS SHRINKING

CARDS & PAYMENTS

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anks are losing their market share in the cross-border payments space. Non-bank market share has risen to 12% in 2021 and will rise to 17% in 2024, according to data from McKinsey & Company. This may not seem much for now, but it illustrates how financial technology (fintech) may just overtake traditional lenders in this space.

“Disruption in the Asian cross-border payments market is most powerfully illustrated by the emergence of numerous fintechs, which are bringing together capabilities across payments and transaction banking—including FX currency, trade, and treasury services. Many have also added value through services focused on FX risk management, cloud-native technology platforms, and API integration,” McKinsey noted in its report “How Asian banks can regain the cross-border payments crown.”

Core strengths In Asia, banks are expected to see the most reduction in market share in the small and medium enterprises (SME) space and the customer-to-customer (C2C) space.

On the upside, banks’ still retain core strengths that will be key to them maintaining their dominance for years to come, McKinsey said.

“Banks’ core strengths, including extensive branch and correspondent banking networks, support relationships and servicing in key flow corridors. And their large consumer and SME customer bases position banks to launch new services,” the report said.

Asian banks also have a cost advantage in interbank markets, as well as extensive risk and compliance infrastructures, implying a lower marginal cost of risk. The possible emergence of CBDCs and interoperability of payment systems may also offer potential avenues for exploration, the consulting firm added.

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The yearly amount needed is equal to half of annual global corporate profits

ESG-focused fintechs will be key to global net-zero transformation

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FINTECH

inancial technology (fintech) companies play a key role in achieving the US$275t capital spending needed to achieve net zero by 2050, or US$9.2t needed per year between 2026 to 2050.

This is according to a study jointly launched by the Monetary Authority of Singapore, MAS-established non-profit organisation Elevandi, and management consulting firm McKinsey & Company.

The yearly amount needed is equal to half of annual global corporate profits. All these need to be directed towards sustainable transformation in order for the net zero transition to succeed, the study found.

In 2021, funding to fintechs for good financing–fintechs that embed an ESG agenda into their core product portfolio, operations and mission–reached about US$2.1b, according to the report.

Over 50% of the funding reportedly went toward sustainable everyday banking, whilst funding to servicse offering ESG intelligence and analytics in carbon tracking showed the greatest growth since 2017, more than doubling on average each year.

“The fintech industry has the ability, and the opportunity, to rise to the occasion and contribute towards

Joydeep Sengupta

Jonathan Larsen

The fintech industry has the ability and the opportunity to rise to the occasion

ESG, not only by addressing its gaps and problems but also by helping to lead the way,” said Joydeep Sengupta, senior partner, McKinsey & Company, commenting on the report.

Amongst things that fintechs can do around sustainability are providing personal carbon accounts and green rating services, as well as impact fundraising; ESG intelligence and analytics; impact investing and retiring; carbon offset tracking; and green, accessible funding, the report said.

As an example, Chinese insurance and financial services giant Ping An offers its 110 million credit and debit card holders the option to create personal carbon accounts.

The account allows them to track their own carbon footprint based on purchasing patterns, according Jonathan Larsen, chief innovation officer at Ping An, speaking during the Singapore Fintech Festival 2022.

Rating services provide another promising avenue, Larsen said.

“This whole space of climate change ratings creates profitable opportunities for service providers that are able to gather the right data, provide the right structure, and create the right alignment with government, with supranationals,” he added.

FIRST

Fintech momentum has slowed along with funding challenges

Fintechs scale back and fold as funding channels dissipate

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FINTECH

inancial technology (fintech) companies are facing a funding shortage that has forced many to scale back or fold operations, as venture capital and private equity firms turn more selective on their funding.

Fintechs’ “build now, profit later” business models will no longer fly in the current world of high-interest rates and lower growth potential, which has made venture capital firms and private equity firms more selective where to funnel their money, according to Moody’s Investors Service.

“Fintech momentum has slowed along with funding challenges and banks have upped their game in response to the fintech threat. They have enhanced their digital offerings and expanded their capabilities organically, through partnerships or acquisitions. Moreover, they have access to stable deposit funding given their well-established brands and customer relationships,” said Stephen Tu, a Moody’s vice president and senior credit officer.

The lack of capital has weakened fintechs, and in some cases caused their demise,

Moody’s noted. The ones most susceptible are those who were not profitable and who relied on existing banking architecture rather than offering a novel technology or product.

Incumbents have meanwhile closed the tech gap through strategic investments to enhance digital offerings.

Fintechs also still struggle with regulation in some markets, and it remains a costly barrier of entry for fintechs seeking a foothold in financial services.

“In several developed economies, the climate for fintechs has become less favorable: regulators in Australia, for example, aim to tighten rules for BNPL, and in 2021 added requirements to the country’s licensing framework for new depository institutions,” Moody’s wrote.

But whilst a large number of nascent fintechs with weaker business models will disappear, a handful will survive and prove truly disruptive over time, according to Tu. Longer term, technology’s capacity to lower costs, increase efficiency and broaden inclusion in financial services remains.

“In particular, fintechs that are part of larger conglomerates or serve a niche segment, such as Australia’s Judo Bank, Brazil’s Nubank and Korea’s KakaoBank, are performing surprisingly well,” Tu said.

ASIAN BANKING & FINANCE | Q2 2023 9

VOX POP

How China’s new asset risk classification will affect banks CHINA

Elaine Xu and Vivian Xue Directors, Financial Institutions, Fitch Ratings China’s new asset risk classification will strengthen banks’ reporting standards and gradually reduce inconsistency in their financial asset classification, says Fitch Ratings.

Successful implementation will reduce management discretion over the recognition of asset impairments, and if executed consistently, would improve the banking sector’s overall reporting practices and transparency. These are potentially positive for our assessment of Chinese banks’ operating environment (BBB-/stable) and their asset quality. However, the rules do not eliminate the potential for regulatory intervention or forbearance over asset classification, and the extent of the disclosure may also impact the effectiveness of the new rules.

Ming Tan CFA, S&P Global Ratings China’s risk classification of problem assets will get stricter under the new rules. This will minimize opportunities for regulatory arbitrage. The new measures could improve asset quality indicators for banks by making them more reflective of macroeconomic trends and corporate health. This could reduce the somewhat counter-intuitive phenomenon of asset quality improving through periods of economic stress. The measures could lead to tighter recognition of restructured loans by addressing some questionable practices, given the vagueness of current rules. Nonetheless, restructured loans can now be classified as special mention loans, which are more relaxed than matured banking systems that typically classify such exposures as non-performing loans (NPL).

Moody’s Investors Service The detailed directions on risk classification will gradually close the gap between impaired loans and non-performing loans and improve the transparency and disclosure of banks’ asset quality. As a result, we expect some mid-sized banks and small regional banks to report higher NPL ratios, whilst large banks will be less affected as they already follow stringent risk classification standards.

The measures also improve banks’ risk classification by focusing on the debt-servicing capability of borrowers instead of on a single loan. They stipulate that if 10% of a non-retail borrower’s debts from a bank are classified as non-performing, all of its debts from the bank should be classified as such. Additionally, if 20% of a non-retail borrower’s debts from all commercial banks are overdue for more than 90 days, banks should classify all of its debts as non-performing.

PRODUCT WATCH

StanChart, Allinpay enables PayNow QR in Hong Kong

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tandard Chartered Bank and financial technology service provider Allinpay have teamed up to enable Allinpay’s Hong Kong merchants to accept PayNow instant payments in Singapore dollars, allowing the currency to be used to pay in Allinpay’s over 30,000 acceptance points in Hong Kong.

The SGD-HKD exchange rate is fetched in real-time and displayed at the pointof-sale device upon checkout. Funds will be deducted from the user’s SGD bank account in Singapore immediately to complete the transaction.

“We are confident that this partnership will offer a real-time and seamless digital payment experience through Allinpay’s integrated platform to truly meet our customers’ needs for better cross-border payments, cost savings and mobile lifestyle,” said Tay Tiong Hean, general manager of

10 ASIAN BANKING & FINANCE | Q2 2023

Allinpay Merchants Services (Singapore).

The solution gives merchants in Hong Kong another avenue to generate incremental revenues from Singapore travellers as normal travels resume following the easing of COVID-related restrictions in the city.

Singapore travellers can now make cashless purchases at participating merchants in Hong Kong, and have the visibility of the exact amount paid in SGD whilst enjoying savings in FX conversion and administration fees.

“With capabilities to access over 20 instant payments infrastructures globally, we look forward to extending this solution to more markets in the future, enabling our fintech partners to deliver a fast and frictionless experience to their merchants and boost the tourism economy,” Ankur Kanwar, head of cash products, Singapore and ASEAN, Standard Chartered Bank commented.

SG travellers can now make cashless purchases in HK (Photo from AllinPay.sg)

BRANCH WATCH: RHB

RHB refreshes Cecil Branch, channels oldtime Singapore sophistication The design integrates a facade of a historical shophouse with a modern twist.

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eranakan shophouse meets modern Moroccan-esque aesthetic in RHB Singapore’s newly-unveiled Premier Centre and Cecil Branch.

Located at the RHB Bank building, the branch features a dedicated centre for the bank’s local and regional priority banking clients, including a business banking centre where clients can access teams of industry specialists and relationship managers.

“The RHB Bank Building is located at the fringe of the Telok Ayer Conservation Area so we have chosen a modern conservation shophouse theme for the Cecil branch.

The design integrates the arched windows and façade of Singapore’s historical shophouses in a contemporary style to create a boutique hotel vibe,” said Coreen Kwan, head of Retail Banking at RHB Singapore.

“We serve a mix of professionals, executives and business clients who work or run businesses in the Raffles Place area, as well as clients island-wide given its central location,” Kwan added. The renovation is part of the bank’s wider strategic transformation of its retail banking business that kicked off in 2020, which included refreshing its branch network, revamping its business operating model, and digitalisation.

Coreen Kwan

The branch network refresh aims to relocate branches away from past areas of commercial activity to current regional hubs and business centres to serve the bank’s existing client base as well as reach out to new clients within the vicinity. Each branch has unique themes and concepts that reference the surroundings of each branch location to help establish a personal connection with its clients, RHB said.

“We believe that it is not just about enabling account opening and transactional features via the digital platform, but also the conversation and the relationship that ensues,” Kwan said.

She added that the modern banking experience goes beyond simple transactions, queries and payments being enabled online 24/7. “There is still a need for a more personal touch where higher value-added transactions and discussions are needed to better understand and fulfil clients’ requirements. Our channel strategy is built on a complement of digital banking channels, an accessible call centre and a few well-located and well-designed branches serving Singapore’s key regional centres,” Kwan said.

ASIAN BANKING & FINANCE | Q2 2023 11

BNI prioritises business transformation to boost national economic contribution The bank aims to maintain credit growth and expand to blue-chip customers.

Silvano Rumantir, Director of Wholesale & International Banking

P

T Bank Negara Indonesia (Persero) Tbk, or BNI, strengthens its position to augment its contribution to the national economy through a series of transformation and business expansion activities.

BNI is committed to maintaining a credit growth level of around 7%-10% by the end of 2022, with the corporate banking segment as one of its growth engines.

Director of Corporate & International Banking BNI Silvano Rumantir said BNI observes how corporations have become more adaptive and resilient, thereby becoming the catalyst of economic recovery. BNI primarily targets top customers in each corporate sector and their value chain and business partners.

BNI also focuses on expanding to blue-chip customers by deploying its strategic policies articulated in the Bank’s Business Plan (RBB) whilst observing prudent risk management.

“The business growth of corporate customers creates significant multiplier effects to the economy in the long run and can create a sustainable business portfolio for the Bank,” said Silvano.

On the back of those strategies, in the first half of 2022, BNI reported Rp311.2 trillion of outstanding corporate credit, or up 8.28% yearon-year, which was mainly driven by the growth in the blue-chip corporate segment.

The same strategies earned BNI three awards from the Asian Banking and Finance (ABF). In 2022, BNI was recognised as the Indonesia Domestic Project Finance Bank of The Year as well as Debt Deal of The Year and Project Infrastructure Finance Deal of The Year.

12 ASIAN BANKINGAND & FINANCE 2023 ASIAN BANKING FINANCE| Q2 | DECEMBER Q3 2021 2019

According to Silvano, the momentum of channelling corporate credit in BNI will continue in the second half of the year.

He is confident that the Bank can unlock many more opportunities, especially in the corporate segment.

“The domestic consumption growth, which is fairly strong, will compel companies in different sectors to expand their businesses.

This is aligned with the Purchasing Managers’ Index (PMI) that stays above 50, which indicates that companies, in general, are in the expansion phase,” Silvano explained.

Strategic Expansion Plans With respect to tactical portfolio allocation, BNI considers the FMCG (Fast Moving Consumer Goods), telco, and health as the sectors with substantial growth potential despite their defensive risk approach.

“At the same time, we need to stay alert to the global economic development in which impacts are starting to reach Indonesia, especially in terms of currency volatility and imported inflation that we have started to see in fuel products,” he continued.

Silvano also pointed out the increasingly

We are certainly going to consistently strengthen our network. With the capacity that we have today, we expect we can better address the more complex needs of our corporate customers

PT Bank Negara Indonesia (Persero) Tbk

Indonesia Domestic Project Finance Bank of the Year Debt Deal of the Year - Indonesia Project Infrastructure Finance Deal of the Year - Indonesia

complex business needs of corporate customers that have gone global. BNI is aware that it needs to offer beyond plain vanilla solutions, design more sophisticated solutions, and step up its Investment Banking capability.

Building a Strong Global Network Today, BNI has succeeded in completing the operational preparation of BNI Sekuritas in Singapore. The Bank is also attracting global talents specialising in syndication and investment businesses in its overseas branch offices. The comprehensive solutions that evidence BNI’s transformation have placed the Bank as a superior player across products such as payment and collection, supply chain financing, trade finance, bank guarantee, and remittance.

These products are available on the Bank’s digital platform, BNIDirect, for corporate customers and their value chain to create better economies of scale.

“Our international business expansion is one area that we are going to continuously explore

in order to optimise our global network and to establish an ecosystem in the global market for our corporate customers and their value chains, which we expect will generate more revenues for BNI,” Silvano said.

According to Silvano, BNI has the DNA of corporate banking that actively supports the expansion of its corporate customers to Go Global. To date, BNI’s overseas branch network comprises Singapore, Hong Kong, Tokyo, Seoul, London, New York, Osaka, and Amsterdam.

“We are certainly going to consistently strengthen our network. With the capacity that we have today, we expect we can better address the more complex needs of our corporate customers,” he said.

Moreover, BNI’s global network offers tangible strategic values, s uch as access to funding from efficient global capital markets and competitive financing facilities in foreign currencies to support the international expansion of Indonesian companies as well as the business operations of Indonesia-related companies abroad through end-to-end

solutions. “BNI’s products are diverse and can be tailored to a customer’s needs so that the customer can gain the economies of scale that benefit its business,” Silvano said.

To enable its customers to Go Global, BNI supports the customers’ marketing and business development activities in the international market by facilitating foreign direct investment (FDI) of multinational companies in Indonesia. Often, BNI involves global networks to participate in business matching activities between local customers with potential overseas buyers or suppliers.

“Ultimately, we expect these strategies to generate stronger revenues. We also envision that our position, as a leading national bank with a global capacity, will be further cemented in the next five to ten years as we develop a solid international client base,” Silvano concluded.

Menara BNI

ASIAN BANKING ASIAN ASIAN BANKING AND BANKING FINANCE AND & FINANCE FINANCE | DECEMBER || Q2 Q3 2023 2021 2020 13

INTERVIEW

Overcoming biases to succeed in the banking industry

Tan shares how she strikes the balance between leading 7,000 people and her personal life.

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SINGAPORE

nspoken expectations and unconscious biases often weigh down on women building up a career for themselves, noted UOB’s Jacquelyn Tan. “I have witnessed how unconscious bias such as societal and cultural stereotypes can impact someone’s career, especially for women in the finance industry. During the early days of my career, there were only a handful of women in leadership and senior management roles in the industry,” Tan, who is UOB’s Head of Group Personal Financial Services, recounted to Asian Banking & Finance.

“Thankfully, this has since changed in the banking industry. But there is still an unspoken expectation of the multifaceted role of women in Singapore, to juggle our careers whilst ensuring our responsibility to our families are fulfilled.” Tan added that it is important to acknowledge these challenges that women continue to face so that leaders could create a work culture that supports all employees fairly in their personal and professional lives.

Being a woman in the banking industry If anyone would know the struggles of a woman juggling both career success and her personal life, it would be Tan. At work, she is head of over 2,000 people in Singapore and 7,000 staff in total across the region. She leads the bank’s consumer banking business and is responsible for serving the financial and lifestyle needs of UOB’s clients across the wealth continuum spanning from Personal Banking to Wealth and Privilege Banking—and delivering tailored and progressive solutions to meet consumer’s savings, spending, borrowing, investing, protection and legacy planning needs.

Before that, Tan spent over 20 years in the banking business, serving in roles across treasury, consumer finance, wealth management, payments, and marketing to build up her career. “I’ve always had an interest in finance and am comfortable dealing with numbers, so joining the banking industry was a natural progression from my studies.”

Outside of the office, Tan sees her family as her life, calling her family her critical support system, but never fails to make space for “me-time” “They are my first priority, and I am a firm believer that when your family and home are taken care of, you can truly be your best at work,” Tan said, sharing that she makes sure she never misses the important moments, such as her daughter’s recitals, swimming competitions, first days at school, and birthdays.

“It’s important to build our own support systems and ecosystems, and I’m thankful that my team also recognises my personal priorities and gives me the space to put them first,” Tan said.

14 ASIAN BANKING & FINANCE | Q2 2023

People are the reason for any success (Photo: Jacquelyn Tan, Head of Group Personal Financial Services, UOB)

The key to growth in our industry is to bring diverse perspectives and experiences to the table

You lead a team of over 7,000 people across the region.

How does one manage such a large number of people and maintain unity and camaraderie within your team?

I would say that genuine and authentic leadership is important. People are the reason for any success, and so I place a great emphasis and investment in our people and culture. The key to growth in our industry where change is a constant is to bring diverse perspectives and experiences to the table. I make a conscious effort to have a good mix of genders, experiences, and backgrounds, on any project, where I can draw out each member’s views and inspire confidence in them. Some may be too afraid to speak up, and this often comes from unconscious biases, where some tend to underrepresent themselves. For these colleagues, I spend more time mentoring and coaching them, catering to their needs that may be unspoken.

I also do regular talks with UOB employees, and these are additional platforms for me to share my personal story with fellow colleagues, and to use my own journey to provide inspiration for women who are just starting out in this industry, or who have been with the bank for the long haul.

To drive leadership, especially in consumer banking, where women represent a growing economic power, it is important that we get diverse consumer insights. In designing our CVP, we adopt the customer-centricity

goals—achieving key personal and business milestones, striving to be the first in the market to launch products, building my own stellar team, and more.

But along the way, I realised that apart from my own professional achievements, I can add value to the customers, teams, and communities around me. I began to see how my work can inspire and create ground-up change, and it became more important for me not just to perform for myself, but to use my ability and power to positively impact the lives around me. This is also where I came to be passionate about supporting and mentoring women through my own development.

As they say, you are sitting under the shade of a tree that was planted by someone many years ago. I am where I am today because of the mentors and people whom I have met and who guided my journey. I believe in paying it forward, in giving courage, confidence, and encouragement to those around me and to support their journeys.

More women today are boldly transforming workplaces

approach, by first understanding our key target segments.

We use Human Capital Diagnostic Tools (HCDT) to understand the pain points, create an empathy map, and draw insights to design product solutions that serve savings, spending, investing, and borrowing needs across different lifestyles and life stages.

What can you say about the gender gap in the industry?

During the early days of my career, there were only a handful of women in senior management roles and as such there were few visible successful female role models from whom I could take guidance. I am pleased to see that this has since changed within the banking industry. More women today are boldly transforming workplaces, and many are successfully juggling both work and personal commitments whilst still being able to pursue their passions.

For instance, as of the end of last year, women accounted for over 60% of UOB’s total workforce, with nearly 40% of senior management positions being held by women.

Women also accounted for about half of the Bank’s middle management. I’m pleased to see that organisations are also designing more programmes to support women and create an inclusive culture. UOB’s first-in-the-industry gig employment program, Gig+U, was extended to women last year, where the Bank offered gig employment jobs for women to ease back into the workforce whilst juggling their caregiving duties. Part-time and flexible-work options, as well as workplace measures like our Flexi-2 and permanent 60/40 hybrid work arrangement are embedded in the UOB’s culture as well.

Was there a point in your career that made you say, “oh, this is my purpose as a banker?” How is this inspiring you in your position today as head of group PFS in UOB? My journey in banking has certainly evolved over the years. When I first started out, like many young and aspiring bankers, I was working mainly for my personal

I believe in paying it forward

Let’s talk about the UOB Lady’s Savings Account and Savings Card. What was the mindset that drove you and UOB to create these products?

Women are one of our key customer segments. Our women’s proposition is an embedded part of the bank’s product solutions, and we celebrate women not just for a day, but throughout every woman’s life.

UOB was the first bank in the market to introduce a gender-specific card offering, with lifestyle features that are tailored to women. The UOB Lady’s Card launched in 1989 is the first and longest-running card dedicated to women and their changing needs, lifestyle and life stages. As women cross from one age set to the next, their priorities and spending habits change.

UOB’s Lady’s Savings Account is also the first femaleonly savings account in Singapore to support, celebrate and empower women who do it all. The latest study by the Life Insurance Association in 2017 showed that an average working adult in Singapore has critical illness coverage

The UOB Lady’s Savings Account gives women the freedom of choice to define their rewards (Photo from UOB.com.sg)

ASIAN BANKING & FINANCE | Q2 2023 15

INTERVIEW UOB empowers women clients through the UOB Lady’s Card

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Launched in 2020, the UOB Lady’s Savings Account aims to address the protection gap for today’s women (Photo from UOB.com.sg)

of just $60,000—well under the recommended coverage of about $316,000. We launched the UOB Lady’s Savings Account in 2020 to address the protection gap for today’s women, offering account holders complimentary coverage for six critical female cancers of up to S$200,000. This helps to encourage our lady account holders to save regularly and also receive sufficient protection in the event of unfortunate circumstances, so that they can continue to protect themselves and their loved ones.

What are your goals in the next one or two years? What can clients expect from UOB and from your team in the future?

We just announced the completion of our acquisition of Citigroup’s consumer banking business in Vietnam, following our completion in Thailand and Malaysia in November 2022, which has already expanded our retail customer base to nearly seven million across the ASEAN region. Our acquisition of Citigroup’s Indonesian consumer banking business is planned for 16 ASIAN BANKING & FINANCE | Q2 2023

completion by the end of 2023, and once completed, we expect to double our existing retail customer base in the four markets. We will also onboard an additional 5,000 people to our team strength, as they continue to grow, develop, and build successful careers with us.

So far, our teams are integrating well. Our financial and integration costs are on track, and we are expecting an additional $1b in revenue this year.

By tapping the rising affluence in Southeast Asia, we are acquiring and serving customers across the wealth continuum and meeting their financial and lifestyle needs through our omnichannel approach.

We continue to drive innovation, leveraging digital and analytics, and tapping on data, technology, and human expertise to acquire customers and deliver personalisation at scale, whilst offering personalised solutions and products.

We also continue to build our regional partnership ecosystem to bring the best deals for travel, fashion, online shopping and dining across the entire region, serving the diverse needs and lifestyles of our customers.

sian Banking & Finance spoke to Jacquelyn Tan about how they are empowering women within their bank—but what about their female clients? UOB touts the UOB Lady’s Card, launched in 1989 to meet Singaporean women’s financial needs.

Over 30 years later, the card has changed to accommodate the immediate needs of the modern-day Singaporean lady.

“Upon review of UOB’s card data, we found that the top seven spending categories amongst our female cardmember base were fashion, travel, dining, beauty and wellness, family, entertainment, and transport,” Tan said.

Today, the card grants women a choice of choosing their priorities amongst seven categories and enjoying accelerated rewards from each whenever they spend using their cards.

“For instance, with borders opening and travelling becoming a priority, a cardmember can choose the travel category to earn accelerated rewards on her travel-related spend,” Tan explained, adding that a foodie can select the dining category, especially during festive periods, to maximise her rewards while dining out.

Cardmembers have the flexibility to switch up their selected categories every quarter.

The card also offers exclusive deals tailored to women’s lifestyle preferences, including one-to-one dining deals, complimentary room stays, popular merchants’ discounts, spa promotions, and others.

Protection gap At present, Tan and UOB set out to address one key issue faced by Singaporean women: the lack of insurance coverage.

A study by the Life Insurance Association found that the average working adult in Singapore has critical illness coverage of just S$60,000. This was well under the recommended coverage of about S$316,000, according to Tan. In 2020, Tan and UOB launched the UOB Lady’s Savings Account in order to address the protection gap for today’s women. The account has since offered its holders complimentary coverage for 6 critical female cancers of up to S$200,000.

“This helps to encourage our lady accountholders to save regularly and also receive sufficient protection in the event of unfortunate circumstances, so that they can continue to protect themselves and their loved ones,” Tan said.

ASIAN BANKING & FINANCE | Q2 2023 17

INTERVIEW

DBS’ Lareina Wang on why role models matter to women in banking Only 20% of bankers in C-Suite and senior leadership roles in Hong Kong are women.

W HONG KONG

omen’s representation in banks has come a long way, but much work still needs to be done. In a report, Deloitte noted that barely two in 10 C-suite and senior leadership roles in Hong Kong are occupied by women, at 17.9% and 23.9%, respectively. This is below the already dismal global averages of 21% and 19% for each; and the share is not expected to change through 2030.

Having women in senior leadership positions is important to foster more women to enter the financial industry, a reality echoed by Lareina Wang, ED, head of digital & innovation, Institutional Banking Group of DBS Bank Hong Kong.

“I have been fortunate enough to have had many female senior leaders that I look up to and learn from, they all have different backgrounds, different styles and different personal life setups, which is brilliant because that sends a strong message that success comes in many different formats and shapes,” Wang told Asian Banking & Finance.

Wang makes it a point that this applies not just to women, but to any underrepresented groups– be it different ethnic groups, neuro groups or LGBTQ groups.

“We need to be mindful that all of us have [an] unconscious bias, [and] it’s important to acknowledge that and educate ourselves so we can overcome them. Resist the urge to box anyone in any stereotypes, be empathetic and if you are fortunate enough to be in a decision-making position, be extra generous with the opportunities you could give to under-represented groups,” Wang said, noting women, introverts, people who are non-native English speakers amongst the underrepresented.

In celebration of International Women’s Day, Asian Banking & Finance spoke with Wang to learn more about the challenges still being faced by women in the industry– and what Wang and DBS are doing in order to help them thrive in the banking sector.

What are the current concerns and challenges faced by women in the banking industry?

Regardless of geo-locations, the challenges have always been: one, the lack of representation at senior levels, which means the collective female voices are not as loud as their male counterparts, and also means younger women have fewer role models to look up to and be inspired by.

Second [is] the conscious and unconscious biases that form unnecessary stereotypes—for example, people tend to associate tech roles with males, and as a result, fewer females choose to enter this field and the vicious cycle continues.

Over time, as awareness and efforts in this area grow, both these areas have seen big improvements, however, the challenges are still very prevalent today.

18 ASIAN BANKING & FINANCE | Q2 2023

Resist the urge to box anyone in any stereotypes

Having women in senior leadership positions is important to foster more women to enter the financial industry (Photo: Lareina Wang, ED, DBS)

Your career in banking and finance has spanned different continents–from Europe to Asia. Could you tell us about how you began your career in the banking industry?

I’m a marketeer by training and only stumbled into the world of “digital” with Ogilvy London because there weren’t that many roles around in the depth of the financial crisis.

At that time, digital marketing was only just emerging and I was fortunate enough to catch that trend and see my career progression accelerate as “digital” became more and more mainstream. As head of Digital, I see myself as a business leader rather than a tech leader, because digital is at the core of how DBS operates, and as customers become more and more digitally savvy, digital is increasingly becoming our competitive advantage to attract and engage with our clients.

Are there differences in the needs and challenges faced by women in Asia compared to Europe?

I definitely see more senior female leaders in Hong Kong than in London, and I think it has a lot to do with the “support network” women have here, be it the easily accessible paid-for help or help from family.

This is not the case for London as childcare or elderly care are extortionately expensive, and culturally families are not as involved to provide care. As a result, mothers often face a tough choice of whether to return to work after childbirth, particularly after multiple children—the childcare cost will very likely outweigh the mother’s income and because of that a lot of new mums choose to either delay the return to the workforce or only doing it on a part-time basis. Needless to say, this has a knock-on impact on these mothers’ career development in the long run.

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ANALYSIS: WOMEN IN BANKING

Banks offer flexiwork, mentor programmes to uplift women’s careers On International Women’s Day, Asian Banking & Finance spoke with Singapore’s industry experts on how they are helping close the gender gap in their workforces.

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sia has come a long way in closing the gender gap.

According to a 2022 report by the World Economic Forum, the East Asia and Pacific region— which includes Southeast Asian countries–has closed 69% of the gap.

But even with 13 of the 19 countries improving their performances, it will still take 168 years to fully close the gap at its current pace.

In the banking sector, a 2021 report by Deloitte observed “divergent numbers and uneven progress” when it came to the share of women working in the financial services industry. Notably, Singapore bucked the trend and is expected to reach parity in next-generation roles by the end of the decade.

Despite this, Deloitte estimates a reduction in the share of women in C-Suite roles by the end of the decade: from 20.8% of all current C-Suite positions as of 2021, to 15.3% by 2030. Meanwhile, the share of women occupying senior roles is estimated to remain unchanged at almost one in every four roles, or 24.5%.

Role models The three banks—DBS, OCBC, and UOB—that Asian Banking & Finance spoke with all performed well in various diversity metrics.

Female directors make up four out of nine of OCBC’s board, or 40%, the bank shared. This is 15% higher than the Council of Board Diversity’s target of 25% by 2025 for Singapore’s top 100 listed companies.

Representation in OCBC is also at 40% (nine out of 23).

DBS’s Hong Kong branch touted its even split in gender with 52% of its staff being female, whilst 45% of its management team in the city is made up of female leaders.

UOB meanwhile highlighted the contribution of women to its revenue, noting that nearly 60% of its revenue-producing colleagues are 20 ASIAN BANKING & FINANCE | Q2 2023

Having women in senior leadership positions is important to foster more women to enter the financial industry

Success comes in many different formats and shapes

Lareina Wang

Dean Tong

women. In terms of new hires, over 55% were women, the bank said.

Having women in senior leadership positions is important to foster more women to enter the financial industry, a reality echoed by Lareina Wang, ED, head of digital & innovation, Institutional Banking Group of DBS Bank Hong Kong.

“I have been fortunate enough to have had many female senior leaders that I look up to and learn from, they all have different backgrounds, different styles and different personal life setups, which is brilliant because that sends a strong message that success comes in many different formats and shapes,” Wang said.

In a separate statement, DBS Hong Kong said that the bank embraces gender and cultural diversity, which the bank believes is key to a conducive working environment where individuals are respected, supported, and included.

“We hire based on merit, competencies, and organisational fit, regardless of gender, race, religion, or physical attributes.

This allows us to tap into a wider talent pool and have a multiplicity of views and perspectives,” a DBS spokesperson said.

DBS Hong Kong further shared that it achieved a high engagement

score of 95% for diversity and inclusion in its annual engagement survey. “Our people find DBS is a workplace accepting diverse backgrounds and ways of thinking,” the spokesperson said.

Return-to-work A key issue faced by women in the banking industry–echoed by both WEF and Deloitte—is the struggle to return to work full-time, especially after the pandemic.

“Women bankers may face the challenge of transitioning back into full-time work whilst juggling their personal commitments, such as parental care or elderly caregiving duties,” Dean Tong, head of Group Human Resources, UOB, told Asian Banking & Finance.

UOB has permanently implemented flexible working arrangements. It offers staggered working hours and Flexi-2, where employees can take 2 hours off each month to tend to their personal matters, Tong shared.

OCBC’s Lee Hwee Boon, head of Group Human Resources also shared their various initiatives to bring awareness to the importance of gender diversity.

To read the full story, go to https:// asianbankingandfinance.net/

FINANCIAL INSIGHT: ENERGY FINANCING

Lenders have been quick to outline ESG goals

Banks still lag behind netzero energy goals

Only 7% of energy-related financing went to green energy projects.

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et zero and sustainability are amongst the key factors often named by experts as likely to shape the future of banking. On the surface, it seems to be the case: lenders have been quick to outline ESG goals.

The biggest banks globally notably made pledges under the Glasgow Financial Alliance for Net Zero (GFANZ), whose commissioned research shows low carbon energy investments need to account for at least 80% of energy investments compared to fossil fuels by 2030 to reach climate goals.

But the pledge may be for nought, as at least as of mid-2022, no bank is set to reach the minimum requirement needed to reach climate goals, according to a report released by Sierra Club, Fair Finance International, BankTrack, and Rainforest Action Network.

The study, which made use of data gathered by the Profundo organization, found that only 7% of energy financing extended by 60 banks globally went to renewables.

Meaning, of the US$2.5t loans and bond underwriting provided by 60 banks to energy companies between January 2016 to July 2022,

[Banks] should [have been] much more ambitious much sooner

Ward Warmerdam

US$2.3t were loaned for fossil fuel energy production–and just $178b were used for clean energy activities such as wind and solar.

“We did see that over the period, there is an increase in the value of financing that’s going to renewable energy. But at the same time, there’s also an increase in the value of financing that’s going to companies engaged in fossil fuels,” said Ward Warmerdam, Senior Financial Researcher for Profundo.

Warmerdam’s team found that the percentage of energy funding going to renewable energy never went above 12%, and only hit double digits in 2021 before going back down to 9% of total energy funding in 2022.

Expectation vs reality Warmerdam–whose teamwork in mapping out the financial flows of fossil fuels–said that the study’s findings, whilst alarming, were in line with their expectations.

“There’s a difference between what I was expecting and what I was hoping. I was hoping that the proportions of financing would be shifting the other way and that we really would see a rapid decrease in financing going to fossil fuels, at least

in the proportions,” Warmerdam said. “But [the result] is pretty much in line with what I was expecting.”

There is an increase in the value of financing glowing to renewable energy projects. The problem is that financing for fossil fuels has also increased, if not more so than for green energy projects.

“We see an increasing trend in the extraction of fossil fuel companies, they’re extracting more than they were before 2016. So then it shouldn’t be surprising that the value of financing going to those companies is increasing, because they need more money to extract, explore, and increase their production,” he said.

So what did the banks have to say for themselves regarding the study’s results? “We sent the data to them for verification, to ask them if they could verify the data that we had extracted from the financing databases,” Warmerdam said. “Most financial institutions didn’t respond.”

Of the 60 financial institutions Profundo contacted, Warmerdam said only five responded.

“And of those five, pretty much all of them said, ‘we cannot comment on the data. We cannot verify whether this data is correct or not.’”

More ambition When asked whether banks could still attain the commitments outlined under GFANZ in order to achieve net zero, Warmerdam took a different approach–noting that the commitments, which banks already struggle to attain based on the study’s data, should actually be more ambitious.

“The 2050 net zero targets is far too far away. We should have been transitioning much earlier and we’re already too late,” he said. “They should be much more ambitious, much sooner.”

He recommended setting more punitive measures that can be monitored by external parties.

“Additionally, this reliance on false solutions such as gasfired power, carbon capture and storage–these are ways the financial industry and the fossil fuel industry are maintaining this continued dependence and reliance on fossil fuels,” Warmerdam warned.

For the full story, go to https:// asianbankingandfinance.net/ ASIAN BANKING & FINANCE | Q2 2023 21

SECTOR REPORT: WEALTHTECH

WealthTechs succeed by managing wealth and not the wealthy Firms are breaking down barriers to entry by fractionalising costs of assets, analysts said.

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he current state of wealth management services has one fatal operating flaw: they are managing rich people instead of wealth. “We have conflated this issue of wealth management to managing the wealthy as opposed to actually providing wealth management services to individuals,” Leon Ong, partner, financial services advisory at KPMG Singapore, told Asian Banking & Finance. “Most people now see there’s a gap in the wealth management market, which is to serve the most underserved segment of the market: people like you and me, who earn more money than we spend.”

Although not flush with cash, the mass affluent market has the capacity to save money, Ong noted, but does not meet all the criteria to qualify for traditional wealth management services. Traditional wealth managers often have their eyes locked on servicing high net worth (HNW) and ultra-high net worth (UHNW) clientele-people who own at least US$1m and US$30m in liquid financial assets. This snubbing of the mass affluent market is a massive missed opportunity that wealth technology or WealthTech firms have readily filled in. WealthTech firms have notedly enabled lower cost, easier and simpler access to wealth management services and products that were traditionally available only to HNW individuals at a higher cost, noted Theron Lam, head of product development Southeast Asia, Schroders; and Sin Ting So, chief client officer, Endowus.

Singapore as WealthTech hub Lam and So, representing Singapore Fintech Association’s (SFA’s)’s WealthTech subcommittee, particularly highlighted how WealthTechs have helped democratise access to private assets by allowing individuals to access them via lower minimum 22 ASIAN BANKING & FINANCE | Q2 2023

Traditional wealth managers often service high net worth and ultra-high net worth clientele

This new generation of investors demands more control over their wealth journey

investment amounts.

“With high rates of adoption of digital financial services, this new generation of investors has more access to information and demands more sophisticated products and more control over their wealth journey,” Lam and So said.

“These clients, with relatively smaller amounts to invest, were subject to high fees, poor access to investment products, and lack of aligned advice. [They] now collectively form a key market, which encourages traditional financial institutions to rethink their models and service offerings,” they added.

WealthTech firms have particularly found a haven in Singapore, taking advantage of its location, regulatory environment, and reputation to attract investors across the region.

“Asia, in general, is the second

largest wealth hub in the world after Europe; [and] Singapore has long been a regional hub of wealth,” Ong said. Demographics are another key factor. “The city has an increasing population of middle-class and high net-worth individuals,” Ong noted. The financial regulator, the Monetary Authority of Singapore (MAS), and organisations such as the Singapore Economic Development Board also encourage innovation. “They provide grants and funding to kind of get startups off the ground to sort of accelerate their growth.”

All these, along with Singapore’s stable economy, and its position as a financial services hub make the city attract venture capital funding, and therefore startups, to set up shops in Singapore.

In a report, the SFA and PwC identified WealthTechs as one entity that will increasingly shape the asset and wealth management sector in

SECTOR REPORT: WEALTHTECH

Leon Ong

WealthTech players are fractionalising the minimum investment and spreading it out over many investors

Singapore and across Asia-Pacific.

“With several MAS-licensed WealthTech platforms reporting Assets Under Management (AUM) reaching into billions of Singaporean dollars, this interest is likely to grow and present opportunities for Singapore’s fintech(s) to partner and participate in the asset and wealth management sectors,” SFA and PwC said in its FinTech State of Play report.

New models Two entities, in particular, trump other WealthTechs in the city: Endowus and StashAway. Both have succeeded in tapping into the large gap of mass affluent, not-yet high-net-worth individuals looking for a platform to accommodate their wealth management needs.

This was exactly what Endowus CEO Gregory Van told Asian Banking & Finance as one of the three things that allowed WealthTechs in Singapore, and particularly Endowus, to successfully grow their AUMs. “Number one is our business model, where we can be totally client-aligned, [or] what the industry calls fee-only; which means we can only be paid by our clients. This business model is very difficult unless you can do it at scale, and that scalability is helped through technology. Technology allows expertise to be delivered at scale, and in a business-like wealth management, that expertise is really, really important,” Van said.

Second is that their use of technology allows WealthTechs to deliver the best access to products

and solutions at a very low cost.

“Number three is, there’s a generational shift or an experiential shift in what the end clients expect from an experience. That experience is more and more moving online even for things as intimate as wealth management,” Van noted.

KPMG’s Ong further noted that WealthTech’s success as a subsector of the financial technology sector lies in its ability to change the narrative in the wealth management services space.

“The way I look at it is, if wealth tech is a sub-segment of fintech, if it becomes truly successful, what you actually are successful in doing is democratising a lot of the wealth management services that traditionally are only reserved for the ultra-wealthy,” Ong said.

Traditional wealth management services do so from a base, which is retail banking. “They lack visualisation of the portfolios, the visualisations of that person’s

Theron Lam

Sin Ting So

Gregory Van

WealthTech platforms have significantly changed how people invest

wealth, and the ability to be able to suggest what that person should do based on their previous actions.

This is definitely something that the wealthtech players do better and they’re also kind of changing the dialogue when it comes to how you engage with the client,” Ong noted.

Michele Ferrario, CEO and co-founder of StashAway, further noted that the emergence of WealthTechs changed the game when it came to offering wealth management services.

“Wealth in Singapore is still largely managed offline, with people buying unit trusts, insurance products, and structured notes from banks’ relationship managers and independent financial advisors.

Not only do clients pay higher commissions, they also don’t receive any real advice on portfolio construction,” Ferrario said, adding that financial products are sold individually, as the system is built on revenues generated by buying and selling products.

WealthTechs has now made it simple and cost-effective to invest in diversified portfolios offering access to different investment products – from crypto to ETFs and stocks.

“WealthTech platforms have significantly changed the industry and how people invest. As a significant amount of investors opened accounts with these new players and started to invest part of their savings, many banks and advisors felt the need to offer similar services, and a few launched digital wealth management services,” Ferrario noted.

“The push from new players

Mapping Singapore’s fintech industry (Photo from PWC.com)

ASIAN BANKING & FINANCE | Q2 2023 23

SECTOR REPORT: WEALTHTECH has created enormous value for investors, as it is now possible to invest in diversified portfolios easily and at a low cost. This was difficult and only available to a small minority 4 to 5 years ago,” he added.

Fractionalisation WealthTechs, in particular, are democratising wealth itself, reducing minimums not just by offering lower fees but making certain expensive stocks and products more reachable for the mass affluent market.

“Imagine you try to buy, for example, Berkshire Hathaway, it’s a classic example of a stock that’s never split. Therefore the value is very high, in terms of the minimum investment that you need to be able to buy into it,” Ong said.

“That’s similar to a lot of other hedge funds, a lot of other funds and some of the other stocks that are out there. The entry-level investor may not have the money or even the appetite to spend that much money on a single investment choice,” he added.

What Wealthtech players are doing is fractionalising the minimum investment and spreading it out over a lot of their investors. “So rather than having to invest $1,000, to start with, WealthTech firm can find 100 people who want to buy

the same stock, and offer the investment to each person for a minimum of $10,” said Ong. “So fractionalisation is another way that they’re making investments that were otherwise reserved for the ultra-rich, and they’re bringing it now and making it available to those of us who might think a bit harder about putting down that kind of money on my first investment,” he added.

The rise of WealthTech also introduced several new models in the last few years, according to Ferrario. This includes from peerto-peer lending offering direct investments into SME lending to low-cost self-service brokers to more holistic digital wealth managers like StashAway.

“As a significant number of investors opened accounts with these new players and started to invest part of their savings, many banks and advisors felt the need to offer similar services, and a few launched digital wealth management services. The push from new players has created enormous value for investors, as it is now possible to invest in diversified portfolios easily and at a low cost. This was difficult and only available to a small minority 4 to 5 years ago,” Ferrario said.

With the rise of WealthTech, it is now possible to invest in diversified portfolios easily and at a low cost

24 ASIAN BANKING & FINANCE | Q2 2023

Risk & reward: Investors in the defense to grow their wealth

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midst a high interest rate environment and ongoing economic difficulties, investors are seeking to strike a balance between risk and reward in order to grow their wealth.

This is just some of the insights shared by StashAway and Endowus regarding what trends are shaping WealthTechs and the wide wealth management space in 2023. “After a difficult year for both equity and bond markets, investors are looking for solutions that can balance risk while providing upside should the market rout end,” StashAway CEO and co-founder Michele Ferrario said. He shared that StashAway’s cash management solutions are enjoying much popularity amongst investors.

Naturally, products that offer favorable projected returns, such as StashAway Simple Plus– which offers projected returns of 4.6% to 5%-- and their General Income portfolio have seen a spike in interest.

For Endowus, CEO Gregory Van shared that they have seen much popularity in their diversified income portfolios, which can generate up to 6% to 7% in income every year.

Ease of choice Ease of use and transparency are two qualities that investors look for in their WealthTech providers, a sentiment echoed by representatives of both companies.

“Being able to organise the thousands of options out there into what is suitable for me in my [current] life situation is really important [for investors]. Basically, greater personalisation of investment solutions for a specific client’s needs and desires,” Van noted. He shared that there is also greater demand for conscious investing, or investing sustainably or ESG-related investments. “For a certain group of users or clients, there is a desire to access strategies that have previously not been accessible to the individual. We are talking about the private equity and hedge funds, and certain public market strategies that have had very long and proven track records,” Van said.

Transparency has also emerged as a key trait that investors seek in their wealth servie providers. Investors, for example, want access to data and analyst reports that was only available to agents and managers in the past.

Endowus, for example, has seen much demand for its Fund Smart Platform, which offers over 300 investing strategies from 50 global fund managers.

ASIAN BANKING & FINANCE | Q2 2023 25

FINANCIAL INSIGHT: DIGITAL BANKS

Now that banks have not lived up to the media’s expectations, they see it as a disaster

Did digital banks fail to disrupt Most became niche players, yet served their regulatory purpose, said McKinsey & Company Associate Partner Hernán Gerson.

ASIA PACIFIC

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hey were touted as game changers, expected to revolutionise the banking industry and cause major headaches to the “old” incumbents.

Yet, in the decade since the massive boom in digital-only banks—also known as virtual banks, neo banks, and challenger banks, amongst a plethora of other titles—only a select few have managed to reach profitability in Asia.

“There was a lot of hype, and some of the hype may be due to companies themselves trying to get a better valuation,” Michael Makdad, senior equity analyst for Morningstar. “A lot of it was media-driven [too] because to the media it was something new.

So they’re like, ‘Oh, wow, disruption.’

Now that banks have not lived up to the media’s expectations, they see it as a disaster, Makdad noted.

This should not be the case, Makdad, along with other industry experts told Asian Banking & Finance. “The expectation for digital banks depends on your point of view.

Consumers, regulators, and investors have very different expectations,” said Hernán Gerson, associate partner, 26 ASIAN BANKING & FINANCE | Q2 2023

There was a lot of hype, a lot of it was mediadriven

McKinsey & Company. “[One] of the reasons why [regulators] allowed digital banks to enter the market is for consumers and customers in general. The digital banks were able to deliver a customer-centric proposition with end-to-end digital choice, and in many cases, with much lower fees, and much lower pricing than incumbents.”

This, Gerson said, pushed incumbents to ramp up their digitisation drives, even before the pandemic struck.

“Since digital banks have raised the bar for customer experience, incumbents reacted. You can see how many of these incumbents are now investing heavily in technology, have digital in their core, and are improving their offerings,” Gerson added, noting that this was exactly what regulators wanted: innovation.

Looking back Whilst the interest and subsequent boom in handing out digital bank licenses only really began during the mid-2010s across Asia, there was one country in the region that has licensed challenger banks as far back

as 2000: Japan, where challenger banks have been profitable for more than a decade, according to Makdad.

Models vary. Two of the banks— Seven Bank and Lawson—have a business model of generating profits from fees on ATMs located in convenience stores rather than from making loans. Aeon Bank’s business model, meanwhile, focuses on the low-cost operation and retail banking.

For the rest of Asia, digital banks only emerged at the forefront of the banking industry in 2014, spurred

by China’s decision to hand out licenses to Ant Group’s MyBank and Tencent’s WeBank.

Following this, South Korea handed out licenses in 2015, from which two players emerged: KBank and Kakao Bank, launching in 2017.

A third virtual bank, Toss Bank, launched in October 2021.

These four digital banks in South Korea and China—MyBank, WeBank, KBank, and Kakao Bank— are now all profitable. It was a story that other digital banks across the region are struggling to emulate.

Ecosystems The advantage of MyBank, WeBank, and Kakao Bank—which outpaced rival KBank to become profitable in 2019, versus KBank’s 2021—is their connection to their parent companies’ platforms.

“What is interesting about South Korea and China is that most of the successful digital banks there are linked to an ecosystem,” Gerson said. “These ecosystems allow them to tap very cheaply into millions of customers.” The Customer Acquisition Costs for Digital Banks linked to an ecosystem can be as low as 10% of the average acquisition costs of traditional banks. “We’re talking about less than $5 per customer” “And digital ecosystems provide a unique advantage to reach customers at scale efficiently. So the digital banks that are actually part of an ecosystem or can partner with an ecosystem will be able to provide the right value proposition to customers, he added.

These ecosystems, especially in China and South Korea, provided unique data for the banks as well.

FINANCIAL INSIGHT: DIGITAL BANKS

Michael Makdad

Since digital banks have raised the bar for customer experience, incumbents upped their game

Economic moats The strength of incumbent banks within the market is another important factor that digital banks should consider regarding their chances for success.

“One of the things that enables a digital bank to succeed or not is if they have an economic moat. For a virtual bank to get an economic moat, I think it would need something like a strong internet platform, but also if the incumbent banks themselves have strong moats or not,” Makdad said.

For example, Japan’s incumbent banks, in Morningstar’s view, do not have economic moats.

“There’s already too much competition in Japan; MUFG, SMBC, all these big banks in Japan compete very strongly against each other. None of them has a very strong advantage. In Korea as well, we also think they don’t have economic moats,” Makdad added.

In contrast, Singapore’s big three banks—DBS, OCBC, and UOB—all have narrow moats. This gives the three banks a cost advantage.

“So if any other foreign bank or if somebody gets a banking license in Singapore and starts up a bank, they’re going to have trouble competing against the cost advantage of the incumbent banks in Singapore,” Makdad noted.

No COVID boom The onset of the pandemic did no unique favors to the digital banks, either, despite the fact that it pushed more people to use digital services.

Data from McKinsey & Co. showed that the adoption of digital services accelerated four years in just the first six months of the pandemic, with the share of APAC companies’

digital interactions jumping to 53% in July 2020 from just 32% in December 2019. McKinsey & Co. partner Bharath Sattanathan named two factors as to why digital banks did not benefit from the pandemic’s digital boom.

“If you looked at it more broadly across the region, there were probably two factors to consider in terms of what happened during COVID. One was that a lot of these digital banks were very young during the COVID period, or they had very specific or very niche service offerings for their customers,” Sattanathan told Asian Banking & Finance.

“The second reason is, the [incumbent] banks really upped their game during the COVID period, right, considering all the complications. The banks really came to party when it came to increasing their digitalization, increasing and their service offerings online. In many ways, a lot of the banks moved mountains to be available fully online for their most important products and services,” he said.

Both of these factors meant that customers who needed to access

Hernán Gerson

Bharath Sattanathan

Paul Sommerin

One of the things that enables a digital bank to succeed or not is if they have an economic moat

banking services remotely still got what they wanted with their existing service providers.

“There was no reason for them to look at things outside, particularly when something’s so small or so young at that stage of evolution,” Sattanathan noted.

Turning a profit Factors such as inclusion in an ecosystem and the strength of incumbent banks in the market alongside the right value proposition are key for banks to make a profit.

Partnerships are especially key for neo banks to scale their operations, Gerson said.

“Rethink partnerships. Look very broadly; who are the players in the market? Are there retailers, are their e-commerce platforms, are there messaging apps, what is out there?

Who could be your right partner?

Think about this very carefully. Every market is going to be different,” Gerson said. “Think about how you can establish a partnership that can benefit your partner, the consumers and yourself. If not, it will not work.”

Paul Sommerin, partner and head of digital and technology at Capco, advised banks to look beyond promotions.

“Understand what the customer really wants after the high-interest rate deposit rate promotion ends. I have also noticed that digital banks— once the promotion period ends— tend to focus on acquiring new customers rather than keeping their existing customers satisfied, thus creating churn,” Sommerin said.

The onset of COVID-19 did no favours to digital banks

ASIAN BANKING & FINANCE | Q2 2023 27

MARKET REPORT: HONG KONG

Real estate exposures will still be a downer for banks in 2023

Banks’ fee income plummets as loan demand dwindles Border reopening to benefit banks, but economic challenges remain.

I

nterest income is expected to rise, but economic slowdown will weigh on fee income, analysts warned.

Analysts are mixed on what 2023 has in store for Hong Kong banks, but one thing is certain: it’s likely going to be a challenging year.

“Interest rates are rising, so margins and interest spreads will drive increased interest income.

However, the economic headwinds and recession risk will impact overall loan growth and there are continued concerns around loan impairment and, in particular, exposure to Chinese commercial real estate,” David Scott, EY Banking and Capital Markets sector leader for Hong Kong, told Asian Banking & Finance.

“Whilst regional growth has been adjusted upward as a result of Mainland China and Hong Kong’s recovery, uncertainties remain in global inflation as there is not much evidence that it has come under control,” said Natalie 28 ASIAN BANKING & FINANCE | Q2 2023

Strengthening the operational and financial resilience of the banking sector should remain a key focus

Chan, Deloitte China FSI Audit & Assurance Partner.

She noted that the US Fed is expected to continue its rate hikes in 2023, and geopolitics remains “highly complex.”

“Given these uncertainties, strengthening the operational and financial resilience of the Hong Kong banking sector should remain a key focus,” Chan added.

Interest rates go up, fee income goes down Despite the challenges, the overall outlook is more positive compared to late 2022. The rise of interest rates is expected to benefit the city’s banks. This will expand margins, a positive after years of low margins, according to KPMG’s Hong Kong Banking Outlook Report.

However, the economic slowdown will adversely affect fee income that banks will earn from wealth management and other fundraising and general spending

activities by their customers, said KPMG analysts Paul McSheaffrey, senior banking partner, Hong Kong, KPMG China; and Terence Fong, head of Chinese banks, Hong Kong, for KPMG China.

Loan activity–both in Hong Kong and cross-border transactions with China–will be constrained until the economy begins growing once more, McSheaffrey and Fong warned.

The recently announced easing of travel restrictions will be an important factor that will help the city recover, and in turn, benefit banks. “Cross-border travel boosts the Hong Kong economy significantly and this will certainly help banks,” said Scott. “There are also knock-on effects from a number of stimulus measures in mainland China and hopefully continued growth of the GBA and connected initiatives as the reopening continues.”

Chan noted speculations that regulatory measures around certain sectors including tech might be relaxed to support economic growth.

“Sectors in the Chinese mainland including hospitality, autos, consumer and technology will benefit from the reopening. The reopening is expected to enhance the flow of logistics and travel between the Greater Bay Area, thus promoting cross-border transactions in various financial sectors such as investment and wealth management,” Chan said.

Real estate Real estate exposures will still be a downer for banks in 2023.

“Since the second half of 2021, the China real estate industry has been hit by a wave of defaults and a liquidity crisis, and many property developers have had to be rescued,” noted Chan.

McSheaffrey and Fong echoed this sentiment in KPMG’s report.

“One thing that will weigh negatively on performance in the year ahead is credit costs and loan impairment charges. In particular, many banks that have exposure to the China real estate market, or to real estate more generally, are going to continue to find that is going to weigh negatively on their earnings,” they warned. A respite could come from the wide array of

MARKET REPORT: HONG KONG

David Scott

Certain areas such as regtech, paytech, and loantech have already gained high exposure in the market

support measures that regulators in China have launched in the final quarter of 2022. With this, the real estate industry is expected to see a turning point towards gradual recovery in 2023, Chan said.

“A series of systematic and comprehensive relief measures are steadily restoring liquidity and allowing property developers to gradually turn around to healthier, more sustainable businesses,” she said. In the short term, different regions are expected to continue to implement policies locally.

“The effects will be manifested in the effective implementation of policies, and market sentiment might gradually improve. The specific impact on banks depends on their sector exposure. In the long run, those policies will proactively alleviate liquidity crunch in the industry and provide solid fundamentals to support its stable development,” Chan said.

Wealth is still key Whilst fee income from wealth management may be affected by Hong Kong’s economic slowdown, demand for such services is expected to rise over the year, particularly from China.

“Demand for ways to manage finance and wealth is expected to increase tremendously. As a result of the immense economic growth over the past decades, the investable assets held by individuals in the Chinese mainland are estimated to grow from RMB2.7t (approximately US$391.1m) in 2021 to RMB3.5t (approximately US$507.04m) by 2025. With such an increase in demand and investable assets, there is tremendous potential in the industry

and we expect it to experience high growth, with an emphasis on globalisation, transparency, and digitalisation,” Chan said.

Overall, wealth management is expected to remain a key focus of Hong Kong banks through 2024.

“It’ll be a continuing growth focus for banks in Hong Kong, both in traditional wealth management segments of high net worth and ultra-high net worth, but also with a growing focus on capturing clients earlier in their wealth journey and growing those relationships along the wealth continuum, as the clients’ wealth increases,” Scott said.

Scott pointed out that the latter segment has seen particular innovation in digital wealth products by traditional wealth managers and especially the virtual banks who are targeting this market.

“This digital wealth focus has been a key driver for investment in the mainland China market and aimed at the more emerging wealth end of the continuum,” he said.

Natalie Chan

Paul McSheaffrey

Terence Fong

Demand for ways to manage finance and wealth is expected to increase tremendously

The future In the future, expect to see developments in the financial technology (fintech) space as well as the rise of digital asset-related businesses. In 2021, the HKMA unveiled a strategy called Fintech 2025 to drive fintech development, with three main objectives and five focus areas. The objectives are driving fintech demand by facilitating banks’ application of technology, enhancing data infrastructure, and growing the HK fintech ecosystem, according to Chan. “Certain areas such as regtech, paytech, and loantech have already gained high exposure in the market. There will continue to be a focus on private wealth as private wealth holders seek diversification and optionality, digitisation of the banking sector including the use of regtech and suptech, and the acquisition of assets across APAC. Going forward to cater for Fintech 2025, the primary focus will eventually shift to investtech, wealthtech , greentech and insurtech,” Chan noted.

Digital assets-related business will also be a key trend as the HK market is slowly opening up to retail investors.

“We also expect that more ESGrelated assets will become available as transition finance is being used by governments to encourage developments in this area. In the medium term, AI will also be used more widely in the banking sector, while its ethical implications will be monitored closely by regulators,” Chan said.

Digital wealth focus has been a key driver for investment

ASIAN BANKING & FINANCE | Q2 2023 29

OPINION

YVES ROESTI AND RAHUL BANSAL

The rapid evolution of digital banking

A

sia-Pacific is now the region for the rapid growth of digital banking services. Financial institutions have been making investments to create new products and platforms, all in a bid to meet the accelerated increase in demand for such services during the pandemic. In the past couple of years, people of all ages have reached the tipping point of shifting their buying patterns to digital channels such as e-commerce and food deliveries. Transactions that were previously made in-person have now largely moved online.

Businesses saw the urgent need to develop digital products to interact with and retain their customers whilst ensuring business continuity. Whilst some were able to make the necessary adjustments, others were rendered irrelevant in the new world.

Our expectations of how we can live our lives have transformed to incorporate locational convenience.

Consumers today especially Gen Z and millennials – value convenience, low touch points, ability to solve issues without the need to leave home, and expediency to toggle between a myriad of digital solutions that have been made easily available to them.

Digital transformation, coupled with the shift in consumer patterns, has catalysed the need for digital banking. Governments across the region are now playing catch-up to implement policies and regulations to govern the new banking landscape.

For example, as digital banks become ubiquitous in Singapore, the government has been careful in awarding licences to new operators.

There are currently five digital native banks in Singapore, with the most recently set up Trust Bank becoming the first to launch services beyond just financial transactions, including services like savings accounts and family personal accident insurance.

Other countries, including Malaysia, recently granted banking licences for five digital-only banks, whilst Hong Kong currently has eight digital banks with more than half a million customers.

YVES ROESTI Managing Partner and CEO Synpulse RAHUL BANSAL Associate Partner Synpulse

Ever-growing digital banking trends The Asia-Pacific region is now a key player in the acceleration of digital banking, not just for the purposes of personal banking, but also for other services, including cross-border payments and collecting rewards from one’s expenditure – just to name a few.

According to McKinsey’s 2021 Personal Finance Survey, the share of active digital banking users across the Asia-Pacific increased sharply to 88% that year, up from 54% in 2017. Nine in 10 consumers in the

30 ASIAN BANKING & FINANCE | Q2 2023

region actively rely on digital banking services, and most of them are keen to purchase more banking services through digital channels.

Consumer behaviour changes, the shift to a hybrid work environment, and even the emergence of new channels of communication and interactions have all influenced the pace and market penetration of digital banks and fintech. With this in mind, more services will continue to appear and evolve.

More recently, Buy Now Pay Later (BNPL) and customer rewards systems have become popular among consumers – a reinvention of credit card payments and their associated benefits. Consumers have always valued the ability to get more bang for their buck, and the option to spend first and pay in instalments, but without the interest that comes with it. This gives them the assurance of having more ‘cash on hand’ to spend.

What’s next for digital banks?

Consumer trends will continue to mature and service providers must keep up with this wave of digital revolution. With most of the world now able to live comfortably through their mobile devices, there will be more demand for the ability to do everything through as few steps as possible – perhaps from a super mobile application that would allow consumers to do everything from paying bills, investing savings, claiming their medical insurance to booking vacations.

There will also be higher pressure imposed by regulators on digital banks to show their value in the long term. For instance, the Monetary Authority of Singapore requires non-bank players with a digital bank licence in Singapore to turn profitable within five years. As a result, industry players, including digitally native and incumbent banks, would have to create an ecosystem that works together to address consumer needs whilst also meeting their business goals to survive and thrive.

Digital banks, which leverage penetration strategies to ensure optimal market timing alongside a steady customer acquisition cost (CAC) whilst bolstering the lifetime value (LTV), must develop bespoke offerings for customer engagement to differentiate themselves in the market. This makes it possible to reduce the cost of acquisition, whilst simultaneously improving employee retention.

To create even more meaningful and unique customer journeys, digital banks will need to leverage customer data across multiple channels.

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OPINION

ROHIT NARANG

How embedded finance democratises financial services for SMEs in APAC

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he past few years has seen embedded finance proliferating in the APAC region, with digital technology lowering not just the costs of financial services but also their access barriers.

In 2023, embedded finance will make traditional financial services even more prevalent, so here is a look at how it is shaping up.

Financial services, anywhere, anytime Partnerships with infrastructure providers through API integrations are growing between financial institutions and solution providers, and this has led to service flexibility, innovation and enhanced customer experience. The most common embedded iterations such as payment, lending, and/or investment are already found in many SME service and B2C commerce platforms.

For other enterprises, embedded finance is also gaining traction in B2B use cases. With fintech simplifying B2B payment innovations, companies big and small can choose to enable digital B2B commerce to facilitate more efficient cross-border payments. An example would be a solution that could help businesses and their customers make collections, conversions and payouts in their respective time zones, using local currencies and networks. Such an implementation would automatically streamline the money movement process to make things simpler, cheaper and more convenient for all parties, without sacrificing traceability.

Reaching the unbanked and underbanked Embedded finance today, is extensively implemented in SME platforms, resulting in essential financial services becoming available to the masses. This includes those unserved or underserved by financial institutions and infrastructures, hence, embedded finance is often mentioned interchangeably with the democratisation of finance.

The World Economic Forum estimates that over six in 10 Southeast Asians are either underbanked or unbanked today, and embedded finance can provide these demographics access to financial services like storing money digitally, making cross-border payments, and possibly even investing in stocks and shares.

ROHIT NARANG Managing Director Currencycloud

Helping banks grow Embedded finance, in the form of B2B banking-asa-service solutions, can also help traditional banks grow. For the thousands of local banks, community banks and credit unions across the APAC region, such

32 ASIAN BANKING & FINANCE | Q2 2023

offerings can benefit them with fast service portfolio expansion, speedy market penetration, and increased payment revenue. According to Accenture, embedded finance is actually an ideal vehicle for commercial banks, as it protects their business customer bases and allows them to capitalize on new growth opportunities.

Results from its recent global survey show that some 40% of businesses are already interested in receiving banking services on the digital platforms they currently use. It was also discovered that should embedded finance penetrate the SME market successfully by 2025, Accenture estimates that global bank revenue could increase to US$92 billion. In fact, if SME banking revenue were to hit $32 billion by 2025, it would trigger traditional banking offerings to shift to embedded finance experiences.

Embedded finance in the B2B space would likely begin with smaller banks and financial service providers, as the bigger institutions are more wary of potential disruption to their existing offerings.

Community and regional banks, however, will find this option viable for expanding their revenue base with more footprints and local relationships.

More investment choices One of the fastest growing embedded finance iterations is embedded investment, which includes the investment-linked insurance plans that are mushrooming across digital platforms. Generally considered a lower risk investment, such long-term, low upfront cost investments are easily consumed and hence, more popular amongst entry level, infrequent and younger investors.

For the more serious players, fractional trading is trending on fintech investment platforms, like the UK-based micro-investing platform, Wombat. By augmenting its services with embedded trading, it is attracting the small investor market segment with offerings like the trading of fractional UK, US, and EU shares, and unlimited commission-free trading of UK and US shares from a new, no subscription-fee service.

A brighter future with embedded finance Embedded finance is making financial services more vibrant and competitive, with end consumers the biggest beneficiaries. However, banks and enterprises too can benefit from more cost-effective, efficient, and varied financial options, while gaining new channel opportunities, opening more revenue streams and keeping ahead of the competition.

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