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In Asian Banking & Finance’s July-September issue, we featured an exclusive interview with Edwin R. Bautista, UnionBank of the Philippines’ president and CEO. He talked about the bank’s growing API platform with internal API calls rocketing twentyfold in 2017. Could this be the biggest API sandbox in Asia? Flip over to page 15 and read more about this innovation.

Tim Charlton Elisha Yamzon Elizabeth Indoy

Rochelle Romero

We also caught up with ING Bank’s Aart Jan den Hartog about the bank’s Greater China growth strategy. He revealed how their specialisation in China-Europe connectivity make them seize opportunities from the Belt & Road Initiative and the country’s market internationalisation. ADMINISTRATION Advertising Editorial

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For our sector reports, we tackled the different emerging trends in the retail banking and cards & payments sectors. Analysts and bankers sahred their insights on how Asian banks are now going mobile to cater to their tech-savvy customers and how these financial institutions are responding to the boom of digital wallets. We also have in-depth coverage of the Retail Banking Forum 2018 in Jakarta and Kuala Lumpur where discussions on the digitalisation of banks in Indonesia and Malaysia are put on the spotlight. Our country report, meanwhile, zooms in on Indonesia and how banks in the country are finally taking next steps to digitise. We also bring you stories on several trends that are taking over the banking today such as artificial intelligence, open banking, and digital transactions amongst others. Enjoy the issue!

Tim Charlton

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




unionbank of the philippines 10 INTERVIEW

Country report do banks have what it takes to be at the centre of digital disruption in indonesia?


20 Jakarta & Kuala lumpur SECTOR REPORTS



06 Digital trumps branch transactions

20 Banks go mobile-first to

28 The Ark: UnionBank’s take on

in Asia

attract digital natives

the future of branch banking

07 How is AI innovating APAC banks?

22 How do Asian banks respond

30 How may HDFC Bank’s humanoid

08 Australian banks speed up

to the digital wallet boom?

bot help you?

Asian retreat

10 Regulatory uncertainty fails to

cripple open banking adoption

in Asia

Published quarterly on the second week of the month by Charlton Media Group Pte Ltd 101 Cecil St. #17-09 Tong Eng Building 2 ASIAN BANKING AND FINANCE | August 2018 Singapore 069533

OPINION 32 The biggest challenges Southeast

Asian banks are facing today

For the latest banking news from Asia visit the website

Thought leadership article

The key for banks to lift efficiencies and cut costs SmartStream addresses the challenges faced by financial institutions through a wide range of services.


n this increasingly interconnected world thanks to globalisation and technology, business and economic transactions are not anymore constrained by geographic barriers. This integration and interconnection is happening across economic sectors and countries, with companies like SmartStream banking on the reality that firms and institutions will need to keep up with this rapid change. Founded in 2000, SmartStream welcomes the challenges faced by financial institutions by providing a broad range of solutions and managed services that cover the entire post-trade lifecycle, for more efficient, streamlined, and cost-effective front, middle, and back office operations. These solutions enable their clients to gain a lower cost per transaction whilst reducing operational risk, aiding compliance, and improving customer service levels. The right partner This innovative spirit in SmartStream is evident throughout the organisation’s structure. Nick Smith, SmartStream’s global head of managed services explained that the company is designed to provide services that are timely and evolving to firms and institutions and the environment they are operating in. “SmartStream is the right partner to develop the future for you,” said Smith, noting SmartStream’s comprehensive suite of services including the provision of software, information technology infrastructure, and other on-demand services. “But we don’t just offer the infrastructure to run the software; we also offer managed service or formally known as BPO, or business process outsourcing,” he added. “This means it’s not only the infrastructure that we provide, but the people actually doing the work.” A particular focus for SmartStream are financial institutions, providing them Transaction Lifecycle Management (TLM) solutions and Managed Services to dramatically transform their middle and back-office operations. Over 1,500 clients, including more than 70 of the world’s top 100 banks, 8 of the top 10 asset managers, and 8 of the top 10 custodians rely on SmartStream’s solutions. In a nutshell, SmartStream delivers greater efficiency,

automation, and control to critical posttrade operations including reference data operations, trade process management, confirmations and reconciliation management, corporate actions processing, fees and invoice management, collateral management, cash and liquidity management, and compliance solutions. Solutions and new technologies Looking to the future, Smith said that cost efficiencies through technology, particularly artificial intelligence and automation, will be key. He reckoned that there would be another flavour of outsourcing and getting the kind of services from professionals outside of banks and financial institutions, which is the automation of their processes, particularly in applying new technologies. “The overall topic is the same: decreasing costs and increasing efficiencies. But the way we achieve the next big step in doing that is definitely applying artificial intelligence methods. We’re working on that already,” he said. Smith added that emerging markets in Asia are already following the footsteps of the developed ones when it comes to this topic. “In Asia, we have very developed countries but also emerging markets. The cost pressure, the efficiency pressure we see in the more developed countries is reaching out to the more emerging markets, too,” he said. But there is also the issue of differing local regulations and contexts in these countries where financial institutions operate in. Smith said that there are common themes across all financial institutions globally, with increased regulation globally, regionally, and locally. Part of SmartStream’s solutions include Liquidity Management, which is already a focus for institutions from Japan, all the way down to Australia. “With Liquidity Management with BCBS 248, you have localised focus on this, such as APS 210 in Australia,” Smith noted. “Organisations even in Asia have been affected with the regulatory requirements of the MiFID II.” This means that regulations

Nick Smith, global head of managed services, SmartStream

in other parts of the world will still have an effect on organisations headquartered in Asia-Pacific. Smith added that regulation and compliance has been at the forefront of financial institutions in the past couple of years—something that should be a priority, rather than an alternative. SmartStream describes that at the heart of its success is the ability to react to client, market, and regulatory changes through innovative solutions. That is why at the end of the day, it is all about being able to provide a comprehensive suite of solutions to its clients and making their operations better and more efficient. “Large financial institutions still have separated silos, maybe two or more similar solutions performing similar functions. Being able to drive these into true shared services allows a bank to reduce their total cost of ownership, and reduce the cost per transaction,” Smith concluded. “Providing managed services helps organisations reduce their cost, and we can provide faster time to market as we run the platform and provide the expertise in these areas.”

“Providing managed services helps organisations reduce their cost and we can provide faster time to market.” ASIAN BANKING AND FINANCE | AUgust 2018 3

News from Daily news from Asia most read

financial technology

Chinese fintech companies are tapping on Asia’s unbanked As China’s mobile payments giants Alipay and WeChat Pay scramble to conquer the Hong Kong market, the country’s lesser known fintech companies are also turning their formidable digital expertise to capture the opportunities in SEA.

investment banking

Singapore and Hong Kong lead Asia’s asset management charge Home to a total of 160 independent asset management firms, the combined private wealth held in Singapore and Hong Kong hit $91.5b as of end 2017, accounting for 5% of regional high net worth wealth, according to a report.


retail banking

Is the worst over for Thai banks? Thai banks are set for an earnings recovery in the coming quarters as a brighter picture brought about by higher investment levels and the end of the household deleveraging cycle is set to buoy the banking sector from its protracted slump, according to BMI Research.

cards & payments

China banks grow mobile payments as millennials drive cashless push The volume of mobile payments handled by Chinese banks rose 16.8% YoY to a whopping $11.1t (70.8t yuan) in the first quarter alone, according to central bank data, as the country accelerates its ongoing cashless push.

foreign exchange

Can Indonesian banks survive the severe local currency depreciation? Indonesian banks may just be able to weather the downturn of currency depreciation, according to UOB Kay Hian. The Indonesian rupiah has plunged to a three-year low which might level strain on the banking system.

financial technology

Thailand is developing its digital currency for interbank transactions Thailand’s central bank is in the process of co-developing its own digital currency with the country’s major lenders with which to conduct interbank settlement, Bank of Thailand deputy governor Veerathai Santiprabhob said.

Thought leadership article

SmartStream: Preparing firms as initial margin segregation becomes the new status quo Financial institutions are in for a transformation as regulatory changes come in the next two years.


hen examining the regulations about to come into force over the next two years, it might seem like only the biggest financial institutions will need to brace for the impact of stricter requirements surrounding initial margin. But even smaller firms would need to prepare for the regulatory changes, such as having third-party segregation for initial margin, as the targeting becomes more granular over the phase-in period. “In the past, initial margin segregation used to be something that some parties would decide to do. Now everybody has to do it if you are doing OTC derivatives,” Jason Ang, programme manager for TLM Collateral Management at SmartStream, a global software and managed services provider, noting that it is more prudent to prepare early and avoid the crush of compliance demand expected in 2019 and 2020. Initial margin concerns Ang said that some clients that choose to do their own calculation of initial margins might be drawn to using the standard initial margin model proposed by industry body ISDA in order to reduce disputes. But to be able to do such a calculation, clients would need to generate sensitivities, which is where they could start engaging a provider like SmartStream who can help coordinate creating the sensitivities or running the calculation for them. The whole process, which involves different parties, can become quite complicated and firms should not underestimate the time and resource requirements, said Ang. Delays can quickly add up given that parties often have to wait for another party’s action to move forward, so starting early provides the necessary buffers to ensure on-time compliance. If companies that will be in scope in 2020 only begin working on compliance that year, Ang warns they run the risk of competing with other firms who might be doing it last minute. “There might only be a certain number of resources to serve that kind of volume. If you’re in scope in 2020, you should be starting the preparations sometime in 2019.” More clients are also finding out that

the responsibility of checking whether the tri-party custodian is doing the right thing still falls on the two parties. Ang reckoned that there were some clients who thought that long as those assets are allocated appropriately, it is the custodians who bore the bulk of responsibility for making sure the process is done smoothly and correctly. “This is not immediately the case, which is why we felt we needed to build a module to be able to take the information from those custodians and use that and compare that with what we think is correct in our systems,” said Ang.

Automated compliance monitoring SmartStream also provides increased convenience, speed and efficiency by automating client monitoring the proper fulfillment of collateral calls. Ang said most clients have shifted towards using an automated tri-party arrangement with the broker, who is given authority to figure out different assets on how to fulfill a collateral call. “However what we’re seeing now in the marketplace is that does not absolve clients of checking whether they did a good job or not” in selecting assets, he said. If custodians make a mistake and choose an asset that is ineligible for the contract, it still falls on clients to flag the mistake so it

could be corrected, which can be a tedious process. Ang said more clients have started to realise that it is still their responsibility to check that the custodian has correctly chosen eligible assets and have taken it upon themselves to raise concerns when ineligible collateral had been selected. Given the increased workload for clients, SmartStream’s system eases the compliance burden by providing tools for automating the initial margin call process. The system also automates the custodian review and should there be a lapse, the client will be able to clearly communicate the regulatory or eligibility violation so the appropriate fix can be implemented. “What we’re doing with our system is to make sure that after we dealt with regulatory concerns, we now help deal with operational concerns,” Ang added. For clients, Ang said the advantage is clear: leveraging on a well-built, proven system that has been further bolstered by the perspective of serving both buy-side and sell-side clients. “We marry that perspective with our expertise as former practitioners, and then we come up with solutions so our clients do no have to go out there all individually themselves and get all this information and then figure things out.”

“We make sure that after we dealt with regulatory concerns, we now help deal with operational concerns.”

Jason Ang, programme manager for TLM Collateral Management, SmartStream


FIRST monthly transactions, with customers preferring digital platforms for simple, routine transactions such as checking their balance, peer-to-peer transfers, or bill payments. She added that overall customer engagement rose from an average of 12.7 to 14.9 monthly transactions in developed Asia, and from 6.0 to 8.1 in emerging Asia, from higher smartphone usage. “However, a significant percentage of customers in Asia still use the physical branch for transactions they consider complex,” noted Barquin. “For Asia’s banks, this means that as they evaluate their branch networks they need to think about more than simply footprint. They also need to shift branches from purely transactional points to interaction hubs that meet customer needs for financial advice and sales of more complex products.”

ocbc’s all-digital account application

Aditya Gupta

OCBC Bank recently launched an all-digital, paperless bank account application and it aims to provide customers a seamless onboarding experience. Customers do not have to provide identifying documents anymore as the onboarding process leverages on their information from the national data repository MyInfo, enabling customers to open an OCBC 360 account without the need to visit a nearby branch. Asian Banking & Finance caught up with OCBC Bank’s head of e-business Singapore to talk about their new fast and convenient application process. What pushed OCBC Bank to launch an all-digital account opening service? We have always strived to provide our customers instant, frictionless, and secure access to our core banking products and services. We believe this differentiates our customer value proposition and experience as well as makes it hugely compelling for people to initiate and deepen their banking relationship with OCBC. With the launch of this service, we are the first Singaporean bank to let customers immediately open and use a new bank account digitally, without having to visit a branch. What’s next after rolling out this service? How does this open technology-based possibilities for your other products and services? Our ambition is to have one in every two new customers on-boarded digitally and instantly with zero human intervention, and this launch is an inflection point in that journey. Leveraging on Myinfo—Singapore’s digital vault of government verified personal data—and our real-time digital KYC (e-KYC) process, we will be extending this service to a broader suite of our products soon. That will help us drive more customers to embrace our digital solutions as well as move the needle in making Singapore a smart nation. 6 ASIAN BANKING AND FINANCE | August 2018

Higher smartpshone usage, more digital banking transactions

Digital trumps branch transactions in Asia


hen Thailand’s four largest banks announced in late March that they would waive digital transaction fees for retail customers, it showed the shrinking role of physical branches as online payment channels and electronic wallets take to the fore in Asia. Thai banks are reportedly facing increased competition from non-banking rivals that offer alternative methods of money transfer, including the government-backed PromptPay and digital wallet TrueMoney. The rising focus of banks on digital transactions is a trend that holds true across Asia, according to analysts, prompting many banks to revamp their physical branches to handle more complex transactions and build digital platforms that can handle simple transactions quickly. “Physical branches have been the traditional customer engagement channel, but there is a clear shift in Asia towards digital channels for daily transactions,” said Sonia Barquin, partner at McKinsey & Company. Barquin noted that bank branches now account for only 12% to 21% of

Bank branches now account for only 12% to 21% of monthly transactions, with customers preferring digital platforms for simple transactions.

Succeeding in transaction banking Banks that quickly and effectively reorient their operations towards digital will likely survive the wave of disruption hitting the sector and rise above their rivals. “To succeed in transaction banking and stay ahead of the pack, individual banks likely will need to overhaul most aspects of their operating models. Too many banks are saddled with payments and other core functionality embedded in legacy IT systems,” said Thomas Olsen, partner at Bain & Company. Olsen reckoned some banks currently run two or three payment systems covering multiple regions—an expensive and complex setup that hurts their long-term competitiveness. Many banks also still rely on largely paper-based processes for their operations, which will need retooling, he added.

Across Asia, digital transactions are 1.6 to 5 times as frequent as branch transactions

Source: McKinsey Asia Personal Financial Services Survey 2017

FIRST Asia-Pacific banks are being smart about AI implementation initially focussing on applications within high cost, low risk areas of the business.

Banks continue to experiment on AI implementation

How is AI innovating APAC banks?


anks and other financial institutions in Asia-Pacific are ramping up efforts to incorporate the hottest trend in the industry today in their operations: artificial intelligence (AI). This trend is also evident when the Monetary Authority of Singapore announced its collaboration with the Economic Development Board, Infocomm Media Development Authority, and the Institute of Banking and Finance to accelerate the adoption of AI in the country’s financial sector. In a sense, the trend towards the

incorporation of AI and machine learning tools is gradually becoming a necessity—and not just a luxury—for financial institutions in the region. Smart implementation “The use of robots to drive tangible business benefits is very much a reality today,” said Ho Kok Yong, Deloitte Southeast Asia financial services industry leader. “Robotics and cognitive automation, including artificial intelligence, is expected to foster greater collaboration between humans and machine by both

automating repetitive tasks and enhancing the quality of jobs.” According to Ho, the different ways AI can be used can help elevate the customers’ banking experience, something that also bodes well for the future growth of banks in the region. “We believe Asia-Pacific banks are being smart about AI implementation, initially focussing on applications within high cost, low risk areas of the business, and on limited activation of machine learning,” said Jan Bellens, EY Global Banking and Capital Markets deputy sector leader. “They are experimenting with AI in key domains, including the use of chatbots, biometric recognition, and credit risk scoring to help improve operations and business insights and enhance the customer experience.” Bellens noted, however, that whilst the advantages of AI and machine learning are clear to see for banks in APAC, they should also be fully aware of the unknown risks that these technologies may entail.

The five-step AI process

Source: Bain & Company

THE CHARTIST: chinese banks’ profits are soaring amidst rising npls Chinese banks were off to a good start in 2018, with the net profit of 31 banks rising an average of 5.95% YOY in the first quarter, up 2.6 percentage points from their increase a year ago, according to EY. The report showed profitability improving in all three segments. Earnings of large commercial banks, which include ICBC, CCB, ABC, BOC, and BOCOM, grew an average of 4.7% year-on-year to $38.2b (RMB248.6b) compared with a 2.48% profit rise in the first quarter of 2017. Nine national joint-stock commercials banks’ profits climbed 5.88% to RMB106.19b, whilst that of city and rural commercial banks jumped 11.68% to RMB30.3b. Meanwhile, the aggregate amount of NPLs of 29 Chinese banks was $197.7 (RMB1,285.6b) as NPL balance of most banks continue to rise.

Trend of year-on-year net profit growth

Source: Annual and quarterly reports issued by banks

NPLs and NPL ratio of listed banks

Source: Annual and quarterly reports issued by banks


FIRST Thai banks’ blockchainpowered platform

Australian banks speed up their Asian retreat

Seeking to be ‘unquestionably strong’, Australia’s big four banks common equity tier-1 capital ratio, %


Tanawat Ruenbanterng

In an exclusive interview with Asian Banking & Finance, Maybank Kim Eng analyst Tanawat Ruenbanterng talks about Thailand’s plan to roll out a shared trade finance platform powered by blockchain technology. What does this development mean for banks both in the near term and long term? It suggests that banks together are consolidating. You may hear that Thailand’s policy makers keep voicing that M&A may be necessary for banks, especially in medium/long term to compete with foreign banks in light of evitable financial liberalisation trend. M&A may be hard in the short term but banks apparently, at least, try to pool resources. Policy makers also encourage pooling resources and sometimes guided when needed. PromptPay system is a good example and this blockchain technology too. Recent technology like blockchain allows them to hasten the process. One can expect more cooperation from banks in many aspects going forward. There are several rooms for banks to cut cost (without M&A) like duplicating ATM machines. In light of higher competition/stringent regulations/ more efficient information system brought by new technology, banks’ toplines also have limited room to grow. Cutting cost is necessary to maintain the margin. As banks roll out digital models, what will be the most prominent changes we can expect? Pominent changes I foresee are in the cost-saving side. I do not believe that Thailand (both from the customer perspective or the regulation/ institution perspective) is ready to see advanced digital banking services such as no-branch banking (like N26 in Europe) or P2P lending (via blockchain technology). Thus, prominent change is how banking service will be cheaper here and there, coming along with lower banks’ opex. 8 ASIAN BANKING AND FINANCE | August 2018


ustralia and New Zealand Banking Group’s sale of its retail and wealth business in five countries to Singapore’s DBS in February marks yet another exodus by Australian lenders from Asia’s banking scene as heated competition are putting a growing number of foreign players out of the running for the region’s banking pie. The sale follows a flurry of regional exits as banks attempt to focus on markets closer to home. Whilst offshore expansion poses a challenge for any business seeking further growth beyond its borders, it is particularly hard for banks who have to deal with multiple levels of regulations, both at the product disclosure and prudential fronts, said EY Oceania Banking and Capital Markets leader Tim Dring. “Trust takes a long time to build and Australian capital and Australian shareholders may not have the patience—particularly as there is no guarantee that the returns are there for an overseas entrant,” added Grant Thornton partner & national head, Financial Services, Madeleine Mattera. Tighter regulatory pressures back home may also be speeding up their Asian retreat as regulator, Australian

Source: BMI, APRA

Prudential Regulation Authority, unveiled stricter capital requirements. To be classified as “unquestionably strong”, major banks would need to raise the common equity tier-1 ratio to 10.5% by 1 January 2020 which can be achieved by selling assets with high risks and low returns, said Natixis chief economist Alicia Garcia Herrero. Taxing traverse The country’s tax system also aggravates banks’ expansion plans. Under the system, a massive share of offshore earnings reduces the ability of lenders It is to pay fully franked dividends, meaning particularly they are more likely to incur higher hard for capital costs for overseas activities. “It banks who is little wonder that many Australian have to deal with multiple companies are opting for Australian takeovers rather than expanding levels of offshore when they are faced with the regulations, alternatives of investing offshore at an both at the overall tax rate of 70%, or investing product disclosure and onshore with an overall tax rate of between 0% and 49%,” BDO director of prudential national tax Lance Cunningham said. fronts.

Closing time: Japan’s megabanks shut branches down JAPAN

With Japan’s largest banks facing falling revenues, rising costs, and a shifting customer preference towards digital transactions, they made decisive moves to either reduce their domestic branches or update their current ones with more costefficient models. In May, Japan’s largest lender, MUFG Bank, said it would cut nearly 100 domestic branches over six years, with half of its conventional retail branches to be replaced with Mizuho plans to close 100 domestic branches self service-style branches. Mizuho Financial Group also plans to shutter about 100 domestic locations by the end of March 2025. Sumitomo Mitsui Banking Corporation, meanwhile, will move their branches from expensive prime locations and reduce branch staff size in order to lower costs. Moody’s Japan K.K. noted that the three megabanks will continue to face difficulty improving their core revenue domestically and abroad, although they have seen SMBC will relocate branches from expensive locations gains in asset quality and lower credit costs.


Regulatory uncertainty fails to cripple open banking adoption in Asia


ith the Monetary Authority of Singapore, in partnership with the Association of Banks in Singapore, publishing a comprehensive API playbook to serve as a guide for financial institutions aiming to share their data, it comes as no surprise that the Lion City has outpaced Australia and even financial hub Hong Kong in readiness for adopting open banking in the Asia Pacific. However, this is not necessarily the case for all countries in the region. Clear guidelines provide banks with a greater sense of confidence to open up their data, said Anuj Agrawal, senior research manager at IDC Financial Insights, adding that it is arguably one of the most important parameters to measure open banking readiness. Open banking allows the use of APIs (Application Programming Interfaces) to share banks’ data with third party players such as fintechs, either for a bank to monetise from its data, expand network, or reduce costs through partnerships amongst other purposes. Proponents of open banking argue that making data available could significantly boost the efficiency of the financial system and enhance customer choices. Furthermore, instead of building technology

from scratch, banks need to only forge partnerships with fintechs or external partners who already have the expertise to provide a product or service offering from the data that is otherwise gathering dust. Australia trails just behind Singapore as banks enjoy strong support from its de-facto central bank but remain hesitant to experiment as the country still has to roll out clear API guidelines, a sentiment echoed by Tanawat Ruenbanterng, analyst from Maybank Kim Eng. “Policy makers normally strengthen banks’ balance sheet, encourage M&A, to make them ready for higher competition from global players,” he noted. “Unless there is clear framework, it is hard for the private sector to develop and invest in the service.”

Who’s ready for open banking?

Source: Data from IDC Financial Services

Key to open banking readiness Countries such as India, China, and Hong Kong, on the other hand, have been forging similar third-party and fintech partnerships as they try to meet customer needs and innovate their product and service offerings, even without rules governing APIs use in place, Agrawal observed. Alibaba’s Alipay and Tencent’s WeChatPay have become an indispensable part of Chinese life as consumers use the app for

their shopping and money transfer needs. Hong Kong and India’s thriving fintech ecosystem are also powering through the global rankings, disrupting various banking functions from lending, money transfer and retail payments. “So if tomorrow say regulators of India, China and Hong Kong decide to come out with firm guidelines around open banking, it will definitely boost the adoption and we’ll see probably these countries will give strong competition to Singapore in the future on readiness for open banking,” said Agrawal. There is even room to argue that the growth drivers of open banking in the region respond more accurately to the banking needs of their customers as opposed to a blanket approach compelling banks to toe the line like Europe’s PSD2 initiative. Even MAS chief data officer David Hardoon refuses to mimic the approach of Europe by forcing lenders to share data to accelerate open banking adoption. “The point being, we are heading there in an organic fashion,” he said in an interview.


Banks are leading Singapore’s upskilling charge With UOB launching its own professional conversion programme to strengthen the digital capabilities of its staff and OCBC Bank rolling out a $20m upskilling programme, the hiring model is fast losing currency as a go-to solution to address the city state’s chronic employment problems. Tightening foreigner hiring policies and a lack of qualified manpower in people-short Singapore is making hiring less attractive, with over 98% of finance bosses admitting to having trouble finding the adequate professional from the available talent pool, according to Matthieu Imbert-Bouchard, managing director of Robert Half Singapore. “With skill cycles becoming shorter than ever due to digitalisation, hiring talents as you need is no longer feasible as it is not costefficient in the long run. Employers have to shift from being consumers of work to builders of talent,” said Linda Teo, country manager of ManpowerGroup Singapore. Local banks are thus stepping up to the challenge and leading Singapore’s upskilling charge. Not to be left behind, foreign lenders have 10 ASIAN BANKING AND FINANCE | August 2018

also been strengthening their human resource practices, with Maybank launching its digital upskilling programme across its Singapore, Malaysia, and Philippine offices in line with an HR tripartite advisory urging banks to keep up pace with the impact of technology on the workforce. Citi, meanwhile, also launched the Core Consumer Banking Skills training wherein 1,600 employees from frontline to managerial levels can avail of skills-based training in Process/UX design feedback and cybersecurity, according to Jorge Osorio, chief human resources officer at Citi Singapore. Upskilling initiatives are borne out of necessity, according to Nilay Khandelwal, regional director of Michael Page Singapore, as banks increasingly offshore BAU- or SLA-driven jobs into countries more suitable for shared services. “To ensure that the whole organisation is digital-ready, banking institutions have to implement upskilling programmes to transition the roles of employees such that humans and technology can complement each other,” said Teo.

The need and the will to reskill banking talent

Source: 2017 MIT Sloan Management Review and Deloitte Digital’s global study; Deloitte Center for Financial Service analysis

OCBC’s $20m Future Smart Programme

Thought leadership article

Corporate actions: How can financial institutions adopt the industry’s best practices as standard ? Task-driven automation and active alerting enable effective governance of corporate actions processing.

Delivering control and visibility across the entire corporate action event lifecycle


position within multiple funds and running ertainty is critical when processing event strategies, to a custodian bank corporate actions. This principal instils servicing the same asset for many different a cautious approach to changing clients, and an investment bank processing incumbents’ manual processes, even as the high volumes against a book’s P&L and the volume and complexity of corporate actions back office managing the outturn against increase. Financial services firms are the full stock record, all firms need to weighing up how advances in technology, prudently mitigate the risk of processing cloud based computing, maturing industry corporate actions. standards, and proactive controls of the event lifecycle can facilitate effective Industry standards governance over all event “high levels of manual effort required types. Today, firms view automation have The to administer corporate business process redesign become accessible actions in open Universal of corporate action as a in the corporate Data Access tools (UDAs) step forward, not just to is both cumbersome and mitigate the risk of a missed actions arena event, but to step ahead creating smarter inefficient. Vendor options of the market by adding ways to mitigate have not always been adopted by the industry business insight into the risk process.” due to their inability to investment ecosystem process all event types and assets along these events impact. with their expensive technology footprint The risk associated with dropping the and limited automation capabilities. ball—from missing a dividend payment Today, SmartStream views corporate to failing to elect on time—is that a actions initiatives, by financial services considerable cost will be inflicted on a firms, as looking to standardise the next firm. From a buy-side firm holding a large


step in their evolution and accommodating market practices in a systematic way across the complete event lifecycle including: standardising event definitions from announcement to entitlement, managing the communication across market participants, and diminishing proprietary discrepancies upon processes. Automating corporate action processing against industry standards and market practices can take away the manual overheads so that operators can apportion effort through an event diary towards high risk events, decision-making activities, and management of exceptions. The success of each firm’s corporate actions initiatives will be dictated by keeping abreast of these standards by both sharing in a positive network effect through their application, and reaping the efficiency gains of selecting compliant solutions to handle their process. High levels of automation have become accessible in the corporate actions arena creating smarter ways to mitigate risk process. Creation of the golden record on the fly through trusted source hierarchy

Thought leadership article that is enriched with market information and client options initiates a firm’s ability to automate. The diary view provides transparency into events details and schedules which position holders require to choose whether to take cash or staying invested in a security and supports analysis to find arbitrage opportunities. Meanwhile, timely management of positions for determining eligibility, processing elections, and calculation entitlements realise many efficiency gains through its automation. Proactive reconciliation of positions, elections and confirmations in the event lifecycle adds integrity into the process of managing both interparty and intersystem communications. For market participants the key decision in determining the best model for technology provision has become applying industry standards to gain efficiency without risk.

Deployment models


TLM Corporate Actions enterprise grade software is made available to be managed within a firm’s IT environment. All upgrades and the Annual SWIFT release are included in maintenance terms as standard. Enterprise, Premium, and Standard support packages are available to meet your needs.


This delivery model offers TLM Corporate Actions hosted in a Dedicated Private Cloud environment governed by SOC3 Certification and 99.5% uptime guaranteed. The solution is configured to each client’s specific processing and workflow requirements upon delivery. SmartStream’s OnDemand team will support the technical day-to-day running of the system, application upgrades, and SWIFT updates to achieve a ‘zero’ technical footprint for the client.

Source: SmartStream Technologies

are confronted with a demanding context Only with SmartStream’s solution will to validate, timely process, and not least you be able to efficiently automate your reach all stakeholders impacted from corporate action process and thereby such events. This presents a complex and substantially improve your service levels hard-to-automate context. Corporate and quality to your end-customer. In the Efficient corporate actions model actions at large are deadline-driven events. same way, measuring the service received SmartStream’s TLM® Corporate Actions The operational pressures to update, from market participants that you interact service offers an industry standard reconcile, and be efficient and accurate are with and more importantly paying for the systematic process to offset operational paramount. service rendered are the only risk, and is a compelling solution for Therefore, when “the operational viable ways to monitor that all those who are looking to automate one talks about service level agreements are pressures to corporate action processes without losing efficient corporate being met, to track trends, update, reconcile, sight of critical risk events and without the actions management, and to introduce continuous and be efficient need to add more headcount. The solution this task goes beyond improvement. and accurate are presents a solid service for any business the company’s The speed of implementing wishing to automate, process, and execute capacity to manage paramount.” the TLM® OnDemand for corporate actions. such workload. It looks Corporate Actions allows SmartStream provides automation and at realising cost savings by automating the for swift activation and realisation of proactive controls when processing all bulk of the data workflow whilst freeing service benefits. In fact, in some cases mandatory, mandatory with choice, and up staff’s time to focus on the exceptional user acceptance testing can be performed voluntary event types. On a daily basis and risk critical events. It eliminates time within a few weeks following project the market will see thousands of events wasted with manual tasks and being commencement. The service is offered being communicated via the different operationally ready to handle a much higher in a modular format so that financial distribution channels. In consequence, we volume of corporate actions events. institutions can address each phase of the event lifecycle aligned to their operational TLM Corporate Actions overview & automation goals. This enables them to automate individual components, or the entire corporate action process, delivering Diary Management Ι Event Processing Ι Client Portal automation, control, and flexibility to the entire event lifecycle. Elections SmartStream’s TLM® service is the best practice standard for all institutions Entitlement Calculation wishing to dramatically improve their Market Client Eligible Position Golden Record Integration Integration corporate actions lifecycle management Management Posting processes and reduce cost. Some of the key benefits include: end-to-end event lifecycle Communications automation, task oriented processing via a prioritised event diary, early sight & escalation of exceptions, universal position Management Information Ι KPI Governance Ι SLA Reporting management, event broadcast and lifecycle communications, calculation & posting of Source: SmartStream Technologies entitlement benefits. ASIAN BANKING AND FINANCE | AUgust 2018 13

The API platform has been instrumental in the enhancement and replication of features for our convergent banking application.

Edwin R. Bautista President & CEO, Union Bank of the Philippines 14 ASIAN BANKING AND FINANCE | August 2018


Union Bank of the Philippines’ Edwin R. Bautista discusses their massive API sandbox With the number of API calls ballooning twentyfold in 2017, could it be the biggest API platform in Asia?


dwin R. Bautista is the president and chief executive officer of Union Bank of the Philippines (UnionBank) who is responsible for starting the bank’s digital transformation in 2016. His more than 25 years of experience and game-changing skills put UnionBank’s name on the global digital banking map. In this exclusive interview with Asian Banking & Finance, Edwin talks about the bank’s journey to convergent banking, its growing API sandbox, and its goals in climbing the ladder of the top universal banks in the Philippines.

the different transformations that we had to undergo: the back-end system, the people training, and the process. The entire work process is on the cloud, and we had to get BSP (Bangko Sentral ng Pilipinas) approval to do that. We had to retrain the people because there are no tellers and the whole process is completely paperless. The second tier is when we launched selfie banking which was a first in Asia. That was also a landmark and a statement for us. Meanwhile, the third is what we call convergent banking. We revamped our entire mobile banking and internet banking solutions where they converge into the same look and feel. Now wherever the customer is, our system can recognise him. User experience is key and these are the three big things. Moving forward, we share the things that will define our next milestones. We are going to do the digital relationship manager who can provide advice to his clients with the help of robo-advising. We are also going to do robotics process automation. This is where the real money will be because there are lots of processes in banks in the Philippines that are still manual. With this technology, everything will be automated and it will just be the start. We will also use artificial intelligence, specifically cognitive learning, to provide the right solutions to our customers’ concerns. These are the three things that will define our accomplishments as an effective digitalised bank.

You revealed at the ABF Retail Banking Forum 2018 – Manila that your API sandbox can compete with that of Singapore’s DBS in terms of size. Please tell us more about how it is growing so far. Based on recent reports, we have developed over 400 API endpoints already under our platform. This has grown eightfold over the last year. But what is more important to track and measure are the API calls that we are getting. Internal API calls have grown twentyfold over the last year, whilst external API calls have increased by 300% over the last 4 months. These numbers constantly change, so I do not want to claim that we have the biggest API sandbox in Asia. Although, we are very excited in the development of our API platform. This is key in establishing quick connectivity, not only within our internal systems, but as well as with customers and other external partners. Internally, the API platform has been instrumental in the enhancement and replication of features for our convergent banking application, The ARK, Rafa, and EON. Through the API, these channels are able to get information across various back-end systems to address transactions and queries realtime. Development for external parties are likewise faster since we do not have to repeat the onboarding up to testing process for new connections. How do you see Union Bank of the Philippines as an effective digitalised bank? To me, there are three major milestones. The first tier, you set the foundations first. This is where you put up your API platform, link all your different systems, hire the right people, set up data analytics. You do all of those things. Evidently, your impact on the market does not happen on the first tier. In 2017, we were finally able to get The ARK, which is a concept branch, off the ground. This year, we are going to have five more branches like the ARK and 10 more lighter versions, called The ARK Light, all over the country. What will eventually happen in the other ARKs may not be exactly the same thing as what we originally had in the first ARK because we constantly learn and we adapt. Now for us, that is a landmark because it incorporated all

In the short to medium term, we should have completed the enterprise architecture and organisational transformation needed for us in creating the bank of the future.

How are you planning to climb the ladder of the top universal banks in the country? What specific goals will you be focused on in the next 3 to 5 years? In the short to medium term, we should have completed the enterprise architecture and organisational transformation needed for us in creating the bank of the future—we should be fully digital to the core. On the customer front, we should have gained significant traction in our moonshot aspiration of growing our retail and middle-market base. The growth will be substantial for us to gain market share, not necessarily in terms of assets, but in terms of customer share of wallet. The digital channels we have built and continue building should contribute to this and that would result to higher recurring revenues. At that point, our cost efficiency ratios should have likewise improved substantially. Industry cost-to-income is currently around 60% and we are close to 50%. A digital bank should range somewhere between 30%-40%, so we are initially aiming for 40%. The impact of business process automation, robotics process automation, and artificial intelligence should reduce costs significantly. So in 3-5 years, the so-called “jaws of the tiger” should have been fully opened. It is unlikely that we will not be in the top 3 most profitable and most efficient banks in the country by that time. ASIAN BANKING AND FINANCE | AUgust 2018 15

Our mandate for growth is to expand our client base and enhance our lending capabilities and market coverage with bigger teams on the ground.

Aart Jan den Hartog Country Manager Greater China and Chief Executive Hong Kong branch, ING Bank



What does ING Bank’s Aart Jan den Hartog leverage to push for Greater China growth? He also reveals how the bank eyes opportunities from the Belt & Road Initiative and market liberalisation.


art Jan den Hartog is the country manager of Greater China and chief executive of the Hong Kong branch at ING Bank, with branches in Beijing, Hong Kong, Shanghai, Taipei, and the representative office in Ulaanbaatar reporting directly to him. He is responsible for driving the bank’s growth strategy for the Greater China region and Hong Kong. In this exclusive interview with Asian Banking & Finance, Aart talks about the strong Pan-European network of ING Bank and its plans to boost growth in Greater China. How is the Greater China market different from Europe? How ready is it to adapt to the bank’s strategies? With the shift of global economic power to Asia in the last decade, we have seen an abundance of business opportunities and growing appetite for outbound activities by clients in the Greater China region. Clients have become more sophisticated and global, and continue to look for overseas investments, particularly in Europe, but also in other parts of Asia. This plays to our strengths as ING is a global financial institution with a strong European base and an international network across 40 countries. We also have a solid network across the Asian region, with business presence across 14 markets. This means that we are able to support our clients—whether they are Chinese clients who are looking to invest overseas, or European and US clients who want to be a part of the Asian growth story. China in particular, with its 2018 growth target of 6.5%, is one of the key markets for ING in the region. The huge potential of the Belt and Road Initiative, as well as the country’s ongoing market liberalisation and internationalisation, presents tremendous opportunities for outbound business coming from our existing and prospective Chinese clients. At the same time, our financing expertise in focus sectors such as utilities & infrastructure, natural resources, real estate, trade & commodities, and transportation are aligned with many of the key sectors in Greater China. ING Bank runs a global franchise, and is present in more than 25 countries along the Belt-and-Road. In addition, we have local expertise in many of the markets where our clients are looking for acquisition targets. We are therefore well-placed to support Chinese companies as they are ramping up activities. How are you leveraging the bank’s Asia-Europe connection to push for growth in Greater China? Europe continues to be a key investment destination for our Chinese clients whilst European clients continue to expand their business in Greater China, taking advantage of the growing demand in the region. Combining our strong Pan-European network, our

local expertise, and our sector knowledge, we specialise in China-Europe connectivity. For example, due to our knowledge in the food and beverage sector, we were able to provide our Chinese client with valuable propositions on the acquisition of olive oil companies in Spain and Italy. Our M&A teams in Asia and Europe worked closely with the client which led to a successful acquisition. ING was also the lead coordinator for the debt financing. We provide our clients tailored solutions to access the markets and effective execution of transactions. We offer a wide range of financial services: specialised sector financing, financial markets, debt capital markets, trade finance, corporate finance, and M&A advisory. Our mandate for growth is to expand our client base and enhance our lending capabilities and market coverage with bigger teams on the ground. Over the past year, we have grown our team with colleagues who have deep market expertise in China, so as to better support our clients. We are dedicated to extending our full product suite available in Europe to our clients in Greater China. Going forward, we will continue to leverage on our local teams in different markets to advise on transactions, including potential M&A opportunities that tie in with our clients’ growth plans. Our focus is to provide effective and timely advice to our clients.

We are going to double our client base in the Greater China region by 2020, with a focus on clients who want to invest overseas.

What are your goals for the next 3 to 5 years? In China, we have been providing financing and risk management solutions to top institutional players, ranging from state-owned enterprises and privately owned Chinese companies to Hong Kong blue chips and multinational corporations. Over the past five years, we increased our outbound revenues by over 30% annually. In mainland China, we have grown our Shanghai branch to become one of the largest foreign bank branches in Shanghai. To accelerate this growth, we are going to double our client base in the Greater China region by 2020, with a focus on clients who want to invest overseas. Innovation and sustainability are also focus areas for ING. We acted as Senior/Active Joint Bookrunner on China Development Bank’s debut International Green Bond issue, which was the first offshore green bond issued by a Chinese policy bank. We see growing interest in green finance amongst Chinese corporates, such as green bonds and loans. We have a dedicated Sustainable Finance team in Asia and we are here to support clients who want to move towards operating more sustainably. For example, we have partnered Wilmar International Limited on its first sustainability performance-linked loan in Asia. If performance milestones are met, the interest rate for part of Wilmar’s existing bilateral, committed revolving credit facility with ING will be reduced for the following year. ASIAN BANKING AND FINANCE | AUgust 2018 17

Country report: INDONESIA

Indonesian banks are now feeling the pressure to go all out in digital

Do banks have what it takes to be at the centre of digital disruption in Indonesia? From addressing specific needs to developing new business models, banks are getting a digital makeover.


ccording to PwC’s Indonesia Banking Survey 2018, only one in twelve Indonesian banks are employing the same strategy that they did 18 months ago. This shows that the country’s banking sector is rapidly changing amidst the challenges of digital disruption. Despite this state of flux and the uncertainties that are abound, analysts are positive that the banking sector will remain stable and has actually improved, driven by strong economic growth, easing commodity sector conditions, and macroeconomic policies geared towards maintaining stability. PwC’s survey showed that business transformation, digitalisation, and talent are the top focus areas for Indonesian banks at present, amidst challenges to react to industry disruption and non-financial institutions entering the financial services landscape. As a double-edged


sword, technology is not only an opportunity, but is also a major risk for banks who fear being rendered irrelevant by emerging fintechs and e-commerce platforms. Liew Nam Soon, managing partner, ASEAN markets at EY said that digital channels are proliferating along with the increase in digital transactions through these channels. For Indonesian banks, digital has become a “must have” strategy that has increased focus on designing strong customer experiences and investments in digital platforms as well as fintechs. “We are seeing more banks and fintech collaboration to strengthen the value proposition to customers. Technology and digitalisation enable business transformation and there is significant uplifts in spending, much of which is focused on front-end systems as well as process automation,” Nam Soon added.

Business transformation, digitalisation, and talent are the top focus areas for Indonesian banks at present.

With the onslaught of digital disruptions, banks have also embarked on initiatives to re-skill their employee pool and make use of the appropriate talent acquisition platform to attract the right skill sets. The lack of a deep talent pool has made it difficult for Indonesia to fully embrace the digital revolution, and further disruptions are making it hard for the country to catch up. Nam Soon said that banks need to actively assess the future of work in order to align a suitable workforce that is relevant to constant changes in business models, automation, and digitalisation. Digital overhauls “One area that is playing catch-up is the use of analytics to provide customer insights, particularly in customer experience and mining social media data. Banks are also at a disadvantage relative to platform

Country report: INDONESIA providers in the ability to harvest customer and transaction data,” Nam Soon added. If banks hope to be at the centre of digital disruption in Indonesia, they must know how to cater to a rapidly growing digital savvy clientele that will increase from 10% to around 25% of the total population by 2022. Ernest Saudjana, partner and managing director at BCG Jakarta, said that this does not include “hybrid” customers, who prefer online transactions and form a majority of retail customers. “And the emerging fintechs, which have been aggressively tapping the potential of the financial services industry in Indonesia, are partially serving these customers. Besides, we have also seen many tech companies entering payment space such as Gojek, OVO, etc.; lending such as Investree, Kredivo, etc; and asset management such as Bareksa, etc. Banks need to make sure they are building the right solution for digital customers or are connected to these ecosystems to make sure they are not disintermediated in some customer segments in the future,” Saudjana explained. Economic woes In addition to the rising pressure to go all out in digital, Indonesian banks have been experiencing high levels of non-performing loans (NPLs), particularly in the mid-corporate and commercial banking segments. This trend has continued as the Indonesia economy slowed down in the past year, with the commodity sector facing headwinds. Analysts at Fitch Ratings noted that the NPL ratio of the banking sector had stabilised at below 3% by end 1Q18, with the large banks averaging at 2.6%. The average credit cost and restructured loans ratios of large banks had declined to 1.5% and 5.6%, respectively, compared to 1.7% and 5.8% in 2017. Fitch Ratings expects the operating environment to support the assetquality profiles of the large banks throughout 2018 and beyond. To address operational challenges beyond the digital demand as well as ensure the banks readiness for any form of change, Indonesia’s major

banks have been deploying their intelligence teams to gather deep sectoral insights to help them capture industry trends and perspectives across the value chain. Saudjana said that this allows banks to understand customers’ business cycle and their pain points, and thus allows them to design targeted and more robust solutions. “Banks are also beginning to review their credit processes, to make them more robust and efficient, whilst strengthening early warning capabilities through the use of transaction analytics. Analysing data enables banks to improve credit risk modeling, provide early warning signals and strengthen loan tracking,” Saudjana added. Furthermore, the new digital ecosystem will require banks to develop a different business model. Saudjana said that banks, for instance, can innovate to deliver better payment solutions such as digitally sanctioned loans to tech companies through a cash flow lending model and cash management system for e-merchants to monitor cash flows. Emerging segments Returns in mid-sized banks have been improving in the past two years, however topline growth has been relatively modest. According to Saudjana, margin pressures will force banks to find a more efficient model to win in the market. As an example, innovative banks in the SME segment are working to build one-stop digital shops, helping SME customers access products and services, secure fast credit decisions in an instant, connect with professionals, and obtain search results. “Loan growth will be modest in 2018 but is expected to recover moving forward as economic growth strengthens. A few plays such as mortgage, SME lending are expected to grow healthily as banks are beginning to focus and differentiate on these segments to drive future growth. Wholesale loan (corporate and commercial) growth will also be improving as economy recovers,” Saudjana added. The World Bank’s Global Financial Inclusion Index showed that the percentage of adults with

Ernest Saudjana

Liew Nam Soon

a bank account in Indonesia grew from 20% in 2011 to 49% in 2017. According to Saudjana, this is a positive development that provides an opportunity for the banks to crosssell other financial products such as consumer finance, basic insurance, wealth management, etc. Greater financial inclusion in Indonesia has definitely been fueled by digitalisation and disruption, and Nam Soon added that one other interesting statistic is the relatively higher proportion of women with bank accounts. Nam Soon said that apart from a reflection on diversity, this statistic gives banks an open door to market to this segment of customers who have unique needs. The increase in adults with a bank account also provides opportunity in micro or SME banking. According to Saudjana, choosing the right digital strategy for this segment has become even more crucial, since a stronger deposit and payment franchise can generate valuable transaction data from customers. He added that banks can analyse the big data to better understand customer activity, a key learning process that will allow them to offer more effective service models and better pricing. “This opportunity will be more pronounced as the country’s middle-class population increases rapidly towards 150 million by 2023. The middle-class population traditionally has higher propensity to take up consumer finance (mortgage, auto loans), insurance and other products,” said Saudjana. “There is also a bigger opportunity for the banks to continue to drive cash digitisation, to provide a more efficient payment infrastructure in the country,” Saudjana added.

Loan Growth vs. GDP Growth vs. Policy Rate

Source: Bank Indonesia


SECTOR REPORT 1: Retail Banking

Service convergence on mobile devices appeal to modern banking customers

Banks go mobile-first to attract digital natives They expect real-time information and responsiveness at their fingertips.


hen Asian banks map out their plans to attract the next generation of investors and wealthy individuals, it became clear that a mobilefirst strategy was key to winning over these cohorts that grew up accustomed to digital technology. Industry observers reckon that the emerging waves of banking clients are increasingly expecting the same exacting standards in digital responsiveness in their banking transactions as they do in sectors such as e-commerce, helping push banks to accelerate investments in mobile platforms, cybersecurity, and technologies such as artificial intelligence (AI), and application programming interface (API). “Millennials and Generation Z expect to have real-time information at their fingertips on their mobile devices,” said Charles Wong, head of retail banking, Citibank Singapore, 20 ASIAN BANKING AND FINANCE | August 2018

New operating models should seek to transform customers’ financial interactions into an organic part of their daily activities.

which led the bank to bolster its Citi Mobile app over the past year with tools such as eBrokerage and foreign exchange. The app also has access to Total Wealth Advisor (TWA), which provides an expansive view of portfolios and financial insights and includes the Citigold Diversification Index, which tells users whether their portfolio matches their risk appetite and have sufficient diversification in both asset classes and products. Wong reckoned that whilst the emerging affluent segment is distinctly digitally active— demanding accessible solutions and global markets insights on mobile or online—they still require assistance in reaching traditional financial goals such as investing for their children’s education or for their own retirement. He noted that the bank’s digital and mobile efforts have led to increased traction amongst the younger, investment-savvy banking

clients, with the Citi Priority segment growing 20% and Citigold segment expanding nearly 10% in 2017. “As customers become increasingly digitally savvy, they will expect banks to interact with them based on the exacting standards set by more digitally progressive sectors, like retail e-commerce,” said Jan Bellens, citing the 8th EY/IIF survey of leading banks both globally and within APAC. “New operating models should seek to transform customers’ financial interactions into an organic part of their daily activities, such as shopping and entertainment, and help them achieve personal goals, like funding a wedding, home ownership, or education.” Bellens reckoned that service convergence is an appealing factor for modern banking customers, where they prefer to manage all aspects of their financial lives within robust platforms, without having to switch between different financial portals or channels. By more actively participating in digital financial platforms, banks can also collect a richer set of customer information to better understand their clients, identify new market opportunities,

SECTOR REPORT 1: Retail Banking and develop personalised or contextual offers, he said. Over the immediate to mid-term horizon, especially in developing Asia-Pacific markets like China, Bellens flagged the significant impact of digital disruptors on retail banking’s competitive landscape. Retail banks face increased pressure not just from specialised fintechs, but also BigTech e-commerce firms and platform players that boast of their own, well-established, integrated financial ecosystems. “To compete, retail banks will need to refresh their traditional product and marketing strategies,” said Bellens. “As more customers live their life digitally, particularly Millennials and Generation Z, incumbent banks need to consider how best to leverage the digital platform infrastructure and its participants to emulate the BigTechs and provide more integrated customer experiences within the financial services ecosystem.” Evolving risks However, as mobile-centric and digitally-powered retail banking booms, cybersecurity risks threaten customer data and bank reputations. Peter England, CEO of RAKBANK, which is based in the United Arab Emirates, said ransomware and crypto-mining malware are two of the fast-rising threat vectors, enabling attackers to extort money or simply mine cryptocurrency using computing power of targeted technology infrastructure. Attackers are also developing capabilities to target critical payment systems such as SWIFT through low-and-slow attacks that can avoid detection for longer periods, which led the bank to develop isolation strategies to cordon off payment systems from generic network elements. With cybersecurity threats becoming increasingly complex and threatening to inflict high monetary and reputational damages to institutions, England said RAKBANK has been using machine learning and AI techniques to bolster its cybersecurity defence, particularly enabling it to define what is “normal”

and identify “anomalous” behaviour. This has helped the bank create a system that detects and prevents attacks and fraud attempts instead of reacting only when such an incident occurs. To enhance the capability to predict risks, England said the bank has also participated in initiatives such as generation of private threat intelligence and collaboration with peer banks. Highest risk priority The intensive efforts by banks to strengthen their cybersecurity was ranked as the highest risk priority by both chief risk officers and boards for the coming 12 months, said Bellens, whilst data-related risk was identified as the leading emerging risk over the coming five years. “In practice, there is significant interdependency between cyber, data, and fraud risks. For example, investments in cybersecurity are in large part designed to protect both the institution’s most sensitive data and the infrastructure most vulnerable to fraud, such as payment systems,” he said. Bellens reckoned that Asian banks operating in the more developed markets are ramping up their investments in cyber threat management and resiliency capabilities. “The less developed markets in Asia-Pacific have in fact been fast to adopt some of the more innovative banking technologies, which necessitates investment in cyber, data, and fraud risk mitigation,” he noted. “So we are seeing rapid evolution in the sophistication of some local banks.” However, banks can be vulnerable to the weakest link operating in a given local market and the current levels of investment and capability in some developing markets is “inconsistent.” In enhancing their security measures, banks are under pressure to keep up with their rapid evolution in terms of digital banking applications, cloud technologies, and the use of third-party vendors, Bellens warned. The shortage of suitably skilled and experienced professionals in the Asia-Pacific region provides further challenges. The introduction of General Data

Protection Regulation (GDPR) has also generated considerable activity, and Bellens expects the broader data agenda to be “a major area of focus in coming years.” Charles Wong

Jan Bellens

Peter England

Transformative AI and API Amongst the emerging technologies, AI and API are two elements with the highest impact potential in retail banking in Asia-Pacific in the next 12 months, according to Bellens. Aside from its security applications, AI technology is being used by banks to enhance business insights and customer experiences. “In terms of AI, whilst it is not easy to quantify the return from AI investments specific to retail banking, customer fronting components can have a high impact on operations,” noted Bellens. “AI is not new and has gone through several stages of hype, but recently it has started to deliver real-life business benefits and the ingredients for a breakthrough are finally in place.” A notable AI application is in credit scoring assessments assisted by leveraging on social behaviour and big data analytics technology. Other core applications of AI, such as improved chatbots, are also helping raise the level of customer experience, noted Bellens. Meanwhile, open banking is being mainly driven by regional regulatory requirements but the technology paves the path towards new platform models crucial in winning customers. “The most obvious return on investment from open architectures is that nudging banks to collaborate with the developer community helps to build-out existing applications and create greater customer value propositions,” said Bellens.

Digital channel satisfaction has signicant potential to grow

Source: McKinsey Asia Personal Financial Services Survey 2017


SECTOR REPORT 2: Cards & Payments

UOB rolled out more than 10,000 contactless unified POS terminals which accept cashless payments

How do Asian banks respond to the digital wallet boom? Their own digital wallets were built around customers’ payment preferences.


hen Citibank launched its Citi Pay app for Android devices in Singapore, the bank made sure the digital wallet supported both Apple Pay and Samsung Pay in line with the island’s growing demand for a wider range of payment options. This thirst for flexibility when it comes to transaction payments has made digital wallets a critical battleground for banks that want to defend their cards and payments businesses. Like Citi, some Asian banks are fast-tracking the development of their own digital wallets to catch up and compete with rivals, whilst others are exploring ways to work together with wallet providers, according to Varun Mittal, ASEAN fintech leader at EY. “We are seeing a transition period where banks are starting to adapt not just more fintech-like services, but also more ‘FinLife’ ones that 22 ASIAN BANKING AND FINANCE | August 2018

Both globally and in the AsiaPacific region, wallets are gaining wider acceptance in the market and the line between wallets and card schemes are blurring.

are specifically designed to fit into a customer’s lifestyle,” said Mittal. “By engaging customers with lifestyle products that encourage them to interact with the bank more often, they are also lowering the risk of disintermediation.” Citi, for example, dug deep into the payment preferences that are unique to its Singaporean clients and built the digital wallet around those key considerations. “We are seeing an increasing trend of customers preferring to use their mobile wallet when contactless payment is available,” said Vikas Kumar, head of cards and personal loans at Citibank Singapore. He adds that the Samsung Pay service in its mobile wallet incorporates the bank’s Pay with Points programme, which accounts for more than one in three redemptions of points or miles. Both globally and in the Asia-

Pacific region, wallets are gaining wider acceptance in the market and the line between wallets and card schemes are blurring, noted Mittal. “Some of the large Chinese wallet companies focusing on competing with card networks not just on data, but by becoming a more holistic service and expanding their infrastructure,” he added. Interoperability arena The encroachment of wallet rivals into traditional banks’ cards and payment business is further complicated by the issue of interoperability, where Mittal said banks are demanding to a see a more level playing field. “At the moment, the cost of compliance is significantly higher for traditional banks than it is for smaller wallet players,” he said. “So, banks are asking the regulators to streamline compliance models and make the requirements similar across the board to make it a fairer game.” However, questions remain around who should provide QR code technology to merchants and whether wallet companies should pay a service fee to use the banks’

SECTOR REPORT 2: Cards & Payments existing infrastructure, according to Mittal. The commercial model also continues to provide uncertainties, especially on who among the stakeholders—the issuer, providers, merchants, or end customers— should ultimately pay the fees for it. Some banks are taking a more proactive stance, with UOB building an interoperable cashless acceptance network in Singapore as part of its thrust to grow its e-payments. The bank has rolled out more than 10,000 contactless unified pointof-sale terminals, which accept various forms of cashless payments, including for transit. Jacquelyn Tan, head of personal financial services Singapore at UOB, said a majority of Singapore residents rely on public transport for their daily commute, which convinced the bank to seek tie-ups with the Land Transport Authority, TransitLink, and Mastercard to facilitate contactless credit and debit card payments for public rides in Singapore. Industry efforts to move towards unified digital payments should also further support the growth of such transactions on mobile devices. “As the industry works together on common e-payments standards, such as SGQR, the digital payment journey will become seamless across different mobile phone operating systems and payment apps,” said Tan. “This means that consumers can expect the same simple, safe, and intuitive experience when they make e-payment transactions—no matter where they are or whichever e-payment service they choose.” Targeted, specialised offers The competitive pressure from wallet companies comes on top of the heated rivalry in the traditional cards market, which Mittal reckoned is increasingly crowded. Customers are constantly bombarded with advertising and offers in social media and other digital platforms, which presses banks to go beyond cookie-cutter services. “In this environment, even smaller players are able to compete, so Asian banks need to look for new and innovative ways to stand out from

the crowd,” Mittal said. Sourcing alternate revenue streams through more targeted and specialised offers that go after a particular lifestyle need will be key. For example, tailoring cards that provide particularly good offers around transportation or telecommunications merchants could help engage targeted customer groups, according to Mittal. Kumar said an open architecture approach has helped boost Citi’s digital acquisition efforts even amidst this glut for card offers. Through API integration, customers can apply for Citi credit cards directly on SingSaver, MoneySmart, and BankBazaar as well as receive quick in-principle approval. The bank estimates that such partnerships and collaborations with large e-commerce brands such as Lazada now account for more than half of its digital card sign-ups. UOB, meanwhile, discovered that most consumers do not like to take up their phone’s storage space with too many apps. This insight formed the basis of its banking app UOB Mighty, which seeks to integrate all digital payments within a single app. “Customers do not need to toggle between multiple apps to send money to their friends and family through PayNow, scan and pay with NETS QR Code, or to tap their mobile phones at contactless pointof-sale terminals to make payments,” said Tan. “They can do all this easily from the home screen of our app.” Lifestyle approach UOB also drew on data to guide its digital efforts to deepen customer engagement. Having observed a shift to online options in the way people plan and book their travel, the bank created a travel-oriented online marketplace called The Travel Insider in March. The initiative— which UOB said is the first by a bank in Southeast Asia—assists customers when they search, plan, and book their holidays. Tan said UOB card members spent 20% more in 2017 than the previous year on travel-related spend online, which includes e-commerce spend on airlines, cruises, online

Vikas Kumar

Varun Mittal

Jacqelyn Tan

travel agents, hotels, tour packages, and land packages. “However, whilst people are using online travel resources more, the experience of researching and booking the best deals online can still be quite time consuming and tedious,” she said, noting that users no longer had to search through different online websites to research and compile a travel itinerary and best travel deals for their trip. The bank tapped into a broad range of partners to set up The Travel Insider, which currently offers 350 UOB card member exclusive deals, including British Airways, Cathay Pacific, Club Med, Contiki, Emirates, and Insight Vacations. UOB used the APIs of both online travel platforms Agoda and Expedia to select the best deals from more than a million hotel and flight possibilities specifically for their customers’ preferences. Cybersecurity threats As customers start to demand wider mobile access to cards and payments services from their phones and other devices, Mittal said banks face greater vulnerability to cybersecurity threats that may already be on the device or could be inadvertently downloaded when a customer uses other apps and sites outside the bank’s direct control. “At the same time, the risk from phishing attacks has also increased significantly as more sophisticated technology makes for easier replication of these attacks,” he added. This has led Asian banks to work with cybersecurity and technology companies to develop software and back-end systems that bolster security regardless of which device a bank’s products or services are being accessed from.

Citi Pay in Singapore is linked to both Apple Pay and Samsung Pay


retail banking forum: Jakarta

For the first time, technology-related risks have become the top concern for Indonesian banks

Why are Indonesian banks thinking twice about speeding up digitalisation? Banks should strategise solutions and create lasting value propositions amidst the threat of cyber attacks.


hen OCBC NISP found it increasingly challenging to prevent cyber threats from attacking its business network’s 3,000-strong mobile users, the bank partnered with a technology and security company to inspect traffic and block cyber attacks across internet gateways and data centres. This is one of the main discussions at the Asian Banking & Finance Retail Banking Forum in Jakarta, Indonesia, attended by more than 70 delegates. Analysts report that for the first time, technology-related risks have become the top concern for bankers in Indonesia, with cyber risks placing first and fintech disruptions placing second. PwC’s Indonesia Banking Survey 2018 showed that technology risk placed only sixth in 2017 whilst fintech disruptions placed twelfth. Despite the fear of fintech disruptions, many Indonesian banks have moved on to competing 24 ASIAN BANKING AND FINANCE | August 2018

The lines between banks and fintechs are becoming blurred as banks take on fintech roles and fintechs offer banking products.

and even partnering with fintechs in providing customers the latest and most relevant digital solutions. Hendri Chow, vice-president and head of e-channel, OCBC NISP, said that in fact, the lines between banks and fintechs are becoming blurred as banks take on fintech roles and fintechs offer banking products. “This represents not just a shift in technology, but also a fundamental cultural shift. The fintech phenomenon proves how ‘others’ have become more banklike, making financial services more accessible in new and existing markets. The existing banking model is unbundled,” Chow added. Sambit Pattayanak, Applied Predictive Technologies (APT) vice-president client services at MasterCard, highlighted that in a constantly evolving region, innovative industries and organisations cannot depend on past performance as an

indicator of success. He said financial institutions are constantly reacting to new initiatives. However, he cautioned that leading organisations reported that over 50% of new initiatives did not break in 2017. The question then becomes: how do Indonesian banks squeeze out the most value from the risk they take in innovation? Edy Widjaja, partner at Bain & Company, said that whilst many banks in Indonesia have not yet gone on a total banking transformation, decisionmakers must remember not to lose customer focus as they proceed with the changes they want to implement. Physical changes Widjaja said that digital transformations do not necessarily have to be new. He observed that many banks are undergoing transformations in format, but the existing branches have not

retail banking forum: Jakarta As regulations loosen up for fintechs, banks must take this opportune time to develop their roadmaps for better customer engagement, product development, and service delivery. Analysts say that banks should not be afraid to innovate

yet adapted well enough. Whilst many countries in Asia are already shedding off branch numbers, the sheer diversity of the Indonesian demographic and the remaining number of unbanked citizens are keeping the branches where they are. And yet, more work needs to be done within branches. “The good branch tends to be customer-focused as the branch evolves. When you go into a good branch, you know where you should go. The less advanced branch, you go in and you go wherever you think is the right way and you may be in the wrong queue,” Widjaja added. In terms of branch rationalisation, Indonesia has also been moving along with other countries. For instance, Jakarta has a lot more branches than other areas, but new branches are becoming smaller and are being built in strategic areas with higher traffic. Currently, the regulatory environment in Indonesia seems to be working in favor of banks over fintechs. Widjaja noted that Indonesia is a bit unique in a sense that the regulator is still in some ways helping the banks, resulting in a bit more stable banking environment than the environment for fintechs. Eventually, as regulations loosen up for fintechs, banks must take this opportune time to develop their roadmaps for better customer engagement, product development, and service delivery. Digitally speaking Whilst it may sound exciting for Indonesian banks that the regulatory environment is still in favour of them, analysts warn that it is better

to take transformations slowly. Pattayanak said that it is important not to be afraid of innovation, but experimentation would be the best way to go about it. As banks go into trial and error mode, they must also simultaneously catch up with the speed of change in the bigger digital space beyond Indonesia. Mohit Mehrotra, partner, co-leader at Monitor Deloitte, said that there is a large digital wave that is coming through with the rise of TMD or Toutiao, Meituan, and Didi. These three companies have taken over the famous trio of BAT or Baidu, Alibaba, and Tencent, all of which have been investing in the large tech landscape in the country. “BAT was built on commerce, whether e- or social. If you look at the world of TMD, they are built on the world of sharing economy. So the narrative in the next four years is gonna be very different than the tech ecosystems that we’ve seen in the last four years that we saw in the country,” Mehrotra added. If Indonesia is to succeed in the growing sharing economy at all, it must encourage the use of application programming interfaces, or APIs, to capture the best of the market. Fransiscus Kaurrany, senior vice president at Bank Central Asia, said that increased interconnectivity is one of the major opportunities for APIs in Indonesia. Kaurrany said that the only threat this sharing economy poses is if Indonesian banks do not start to open their APIs, where fintechs can and will takeover. Bob Ananta, managing director of planning and banking operations at

Bank Negara Indonesia, said that his bank has been meticulously grabbing digital opportunities as they come. Since 2017, Bank Negara Indonesia has been mobilising its resources to energise real digital transformation through initiatives such as the BNI Digination Program and BNI Hackfest activities. According to Ananta, his bank has been differentiating front-end channels with new digital channels and creating new business models and value chains for its financial solutions. Customer is still king Financial institutions who wish to become more digital must keep in mind that solutions should be useful, usable, and contextual. Ananta said that products and services delivered should enable customers to effectively and efficiently achieve their end objectives after using the products. In addition, products and services should be more personalised and should meet the exact needs of customers at the right time and place. “Even today, customer is king. And the most important thing is not product and services, but customer connectivity. Think about your core system or your main banking system. Is this easy to connect to your customer? Easy to connect to your partner or fintech? Easy to update everything on that agile or developer platform?” said Eichiiro Yanagawa, senior analyst at Celent. According to Yanagawa, times have changed from just mere transformation to collaboration. He said that Indonesian banks seriously need to think about their value proposition, recognise their competitors, and identify their real customers.

Indonesian banks must catch up with the speed of change


retail banking forum: Kuala Lumpur

Banks and fintechs see a great demand in catering to emerging segments of the Malaysian market

Malaysian banks race fintechs in offering digital services to the emerging affluent How are banks grabbing digital as an opportunity to provide convenience to its evolving clientele?


ith smartphone adoption rates poised to reach 76% by 2020, Malaysia’s banks and fintech companies are standing toe-to-toe with each other to roll out the next best digital solution. As discussed at the Asian Banking & Finance Retail Banking Forum in Kuala Lumpur, the country’s internet penetration rate of 79% remains the highest in Southeast Asia, making it a very attractive space for local and foreign digital giants. Like many others across the globe, mobile is Malaysia’s first point of internet connection. However, analysts observe that Malaysian mobile users have even closer similarities to Chinese consumers in terms of behaviour, making Chinese brands and products even more appealing to them. The Chinese invasion is indeed aggressive in the Malaysian market, as evidenced by Alibaba’s first Southeast Asian office 26 ASIAN BANKING AND FINANCE | August 2018

Banks must be able to go with the emerging affluent anytime anywhere because they crave the ability to access their wealth wherever and whenever they wish.

launched at the Digital Free Trade Zone (DFTZ) in Kuala Lumpur. Jasmine Ng, head of strategic digital alliances at Maybank, said Southeast Asia is a key battleground for Chinese tech giants, with Malaysia, Thailand, the Philippines, and Indonesia ranked as the top four countries in the region. Ng said the digital dragons are coming out of China to reach wider aspects of customers’ lifestyles, diversify revenue streams, serve increasing outbound Chinese tourists, and penetrate new markets by international investment, as a strategy for future growth amidst saturation in the domestic market. China’s key investments in Malaysia include Alibaba’s launch of Alitrip Malaysia Tourism Pavilion and Tencent’s 15% stake at Patimas Computer, a leading IT service provider in the country. Banks and fintech companies are also being challenged to step up not only to

huge foreign companies, but also to changing demographic compositions and preferences. Amongst these trends, banks and fintechs are seeing greater demand to cater to emerging segments of the Malaysian market. The emerging affluent Aizuddin Danian, head of digital banking at Standard Chartered Bank, said that Malaysia is seeing the rise of the emerging affluent, young professionals, and business owners whose upward income trajectories collectively contribute significantly to their nation’s GDP. According to him, the emerging affluent are ambitious, highly confident, optimistic, and crave accessibility. To capture this highly significant demographic, banks must be able to go with them anytime, anywhere because they crave convenience and the ability to access their wealth wherever and whenever they wish.

retail banking forum: Kuala Lumpur Clients can expect banks and fintechs to develop seamless bank-customer engagement through efficient frictionless humantechnology interaction. How should banks reimagine ‘work,’ ‘worker,’ and ‘workplace’ of the future?

Danian said that the bank that the emerging affluent will have the closest affinity with will be the bank who does the basics the best: bills payment, fund transfers, check balances, check transactions, overseas remittances, and changes in personal information. But whilst the emerging affluent are tech-savvy, they also put importance on the human touch. “The emerging affluent understand that a digital bank is a machine, a piece of technology, online-only. But being humans, they will sometimes look for human interaction to answer more complex needs,” Danian added. In order to address these complex needs, banks must be able to declutter the digital banking experience and deliver flawlessly. Danian said that the emerging affluent need advice on how to save, where to invest, what their portfolio looks like, and how it is performing at the moment. Lastly, the emerging affluent demand superb wealth management. Danian said Standard Chartered has been able to provide online unit trusts, investment profiles (CIP), market commentary emails and alerts, and premium Click2Chat to its diverse clientele. He noted that banks must grab digital as an opportunity to make information available in the convenience of a smartphone. Reformulating banking “Do we need to rethink our source of competitive advantage and new revenue streams? Can we reimagine customers’ assets as channel partners for our retail banking business? Should we shift our thinking from building Big Data to being in places

where there is client attention? How should we reimagine ‘work’, ‘worker’, and ‘workplace’ of the future? How should we prepare as a business for more of PSD2 themed regulations coming in?” asked Arnub Ghosh, director, strategy consulting at Monitor Deloitte, Southeast Asia. Ghosh added that asset-heavy companies are beginning to move into services, as the percentage of fixed assets owned by companies continue to go down by 7%-8% each year. With all of these changes and challenges coming in, Ghosh said that the entire region must be able to answer the question of whether it is ready to adjust and step up. When JP Morgan Chase and OnDeck partnered up to build Chase Business Quick Capital, the bank + fintech collaboration enabled small businesses to access up to $200,000 in loans for up to 24 months. Nisha Paramjothi, director, head, Ecosystem Partnerships and JVs, CIMB Investment Bank, said that this was a win-win partnership, with clients having their applications processed within minutes and receiving decisions in seconds and disbursements in one day. According to Paramjothi, the role of banks is to serve as collaborator, mentor, and investor. She said that banks must be able to build a facilitative environment where there is an integration layer for internal, external, and partner APIs. Banks should also ensure a conducive, nondestructive sandbox for experiments and enhanced security for data. To get experiments right, Paramjothi said that banks must

have established a business case or customer need, agile development or roll outs with streamlined processes, and they must be embedded in banks’ existing businesses. CIMB had a promising start she said, with partnerships with Grab, Gojek, and AliPay. The bank has also onboarded fintechs like ActiveAI, MoneyThor, KataAI, Sleekr, and Bambu. The future of banking At present, however, the current way of banking is still full of friction. Whilst there may be several channels through which clients can do business, these channels work in silos and thereby, engagement is still disconnected. Many banks have not been careful with their technology investments and rollouts, reinforcing current systems and processes that do not cater for timely innovations. Additionally, changes have been very costly to implement and data collection has been disparate with analyses usually out of date. Nevertheless, Paramjothi said that the future of banking still holds much promise. Clients can expect banks and fintechs to develop seamless bank-customer engagement through efficient frictionless humantechnology interaction. Banks are also moving into better ease of integration or collaboration with other internal and external systems, resulting in frictionless back office integration. Malaysia’s banks should keep in mind the essential elements of future banking, if they want to succeed amidst the speedily evolving digital landscape. These elements are scenario-based invention, anytime anywhere banking, digital at the core, customer-centric approach, and big data analytics.

The role of banks is to serve as collaborator, mentor, and investor


Case Study: Union Bank of the philippines branch banking in the Philippines: lack of technological integration and inconvenience. However, The ARK is much more than just a revolutionised bank branch where people do banking transactions using new technology. “The ARK is not just a branch. It is also a community space and venue that will host exchanges in thought leadership amongst our teams and our clients,” said Delgado. “Aligned with this purpose, The ARK will host regular events to bring different members of the community together to learn, share ideas, and make connections.” The ARK is the Philippines’ first fully digital bank branch created to help customers embrace digital banking

The ARK: UnionBank’s take on the future of branch banking A branch with no bank tellers, no long lines, and completely paperless, The ARK pushes the frontiers of digitalising the country’s banking industry.


hen Union Bank of the Philippines launched its first fully digital branch called The ARK in September 2017, the goal, according to the bank’s chief user experience officer Ana Delgado, was to showcase and introduce to their customers, and to the rest of the banking industry in the Philippines, what the future of branch banking in the country can and may look like: fully digital, customer-friendly, and convenient. “The ARK is the first of its kind demonstrating a transformation of space, people, and processes to deliver a suite of digital experiences, products, and transactions,” said Delgado, adding that the launch, in one way or another, pushes the frontiers of the banking industry in the country, which is often characterised by a slow acceptance and implementation of digital transformation and innovation. These bold ambitions and proclamations have served as a breath of fresh air from the typical experience Filipinos have when they visit bank branches and carry out their transactions. Inside the Philippines’ first fully digital bank 28 ASIAN BANKING AND FINANCE | August 2018

The ARK was conceptualised to address existing bottlenecks in branch banking in the Philippines: lack of technological integration and inconvenience.

branch, customers do not have to wait in long lines. They do not have to secure slips of paper with queue numbers from a machine or handed out by a bank staff, and wait for their turn on the cue of an overhead digital signboard. In The ARK, customers also do not need to fill out papers for specific transactions and, most of all, there are no bank tellers. Everything is done and carried out through self-service machines or tablets. In The ARK, customers are greeted with comfortable, bright-coloured couches, freeflowing refreshments, and a host of technologies and gadgets for banking transactions, including standalone terminals, tablets, touch screen TVs, and virtual reality goggles. Despite having no bank tellers, The ARK still houses bank staff ready to offer customers advice and guidance on financial tools, opportunities, and other services that UnionBank has at their disposal. Located in the country’s busiest business district, Makati, where many people juggle time between work and squeezing in banking errands, the digital bank branch was conceptualised to address existing bottlenecks in

Setting sail Launched less than a year from when it was conceptualised by a team of internal finance experts and leading designers from around the world, according to Delgado, The ARK was largely based on five concepts: space transformation, people transformation, process transformation, 24/7 machines transformation, and customer experience transformation. For the space transformation, The ARK provides a “third space” where customers can have coffee or log in to the internet to get whilst doing their banking transactions. “UnionBank has designed The ARK to become a destination before and after work, providing room for offsite productivity and encourage creative tech ideas not just from its partners, but also its customers,” Delgado said. In terms of people transformation, The ARK encourages bank staff to be beyond just bank tellers or financial advisers. They are called Ambassadors who will lead to educate and drive customers towards the digital space in financial services. For process transformation, The ARK is at the forefront of digital branch banking in the Philippines, digitising all branch transactions for customers including product application. This includes the novelty of customers able to fill out their transactions via a tablet provided in the space and route these to the ambassadors straight through, with customers receiving digital transactions receipts via email or

Case Study: Union Bank of the philippines instead of paper for transaction zones, and SMS or email receipt instead of paper. Other groundbreaking facilities provided by The ARK includes a real café experience with a barista, private zones equipped with screens for business class customers, as well as the ability to pre-order transactions through UnionBank Online.

Ana Delgado, chief user experience officer, Union Bank of the Philippines

SMS. “Turn-around time to process transactions, in turn, was reduced especially in account opening from average of one hour to average of 15 minutes,” Delgado noted. In terms of round-the-clock machines transformation, The ARK launched four new machines including a Virtual Teller Machine, the first in the Philippines, which provides virtual customer service, cash deposit, and cash withdrawal. It will also include virtual account opening and card issuance, biometrics and QR code, cardless withdrawal, and passbook update down the road. Other features launched, also include a cash recycling machine where customers can do cash deposit and withdrawal, and a teller cash recycler, which replaces the need to have a bill counter, counterfeit detection machine, and cash trays. End-of-day balancing was reduced from 30 minutes to 10 minutes. Lastly, and perhaps the most important, is the transformation of enhanced customer experience in branch banking. The ARK eliminates the eventual long lines and paper waste, whilst providing new innovations like augmented and virtual reality experiences for home and auto loan, screens instead of posters for marketing zones, tablets

Fuelling innovation But how secure and safe is this innovation for customers who are starting to be receptive about moving entirely to digital banking and virtual financial transactions? “The ARK is the first bank in the Philippines to use cloud-based platform, Appian, for its transactions approved by the Bangko Sentral ng Pilipinas,” said Delgado. “Appian enabled the bank to rapidly develop automated processes and applications.” To ensure the centrality of security and safety of its clients, particularly their confidence towards digital banking, UnionBank made sure that The ARK follows all the strict guidelines and standards for security. Currently, The ARK has more independent security certifications than any other BPM or low-code platform, including PCI-DSS, Cloud Security Alliance, Privacy Shield Framework, SOC3, and SOC2 certifications. Appian PaaS is powered by Amazon Web Services with best-in-class 99.99% missioncritical availability.

The ARK is the first bank branch in the Philippines to use cloudbased platform, Appian, for its transactions approved by the Bangko Sentral ng Pilipinas.

In one way or another, The ARK is UnionBank’s foray to introduce the future of banking to many Filipinos. “No doubt, the next generation is dictating changes upon the banking industry,” said president and CEO Edwin Bautista. “But we also don’t want to isolate clients that have been loyal to us for the past 35 years. We built The ARK so that nobody would get left behind. UnionBank pioneers this concept and paves the way for the new age of banking.” Roughly 7 months after its launch, The ARK has been getting warm reception and rave reviews for the efforts to revolutionise how banking can be done in the country. For Delgado, The ARK was launched mainly to answer this burning question: what is and will be the role of the branch in the future? “The ARK is the answer to this question, reaffirming that the bank branch is not going away but its role and purpose will shift from a space to simply process transactions to a venue for advisory conversations, digital channel onboarding, selfservice banking, and interactive experiences,” she concluded. “We believe that we spearheaded branch transformation in the Philippines with customer experience as the focal point. As unconventional as it sounds, The ARK by UnionBank hopes to win over clientele that is very comfortable with digital technology but still prefers the warmth of face-to-face transactions.”

The Ark is strategically located in the Philippines’ busiest business district


Case Study: HDFC Bank customers to specific bank counters based on their intended transactions. But the “guiding” part of IRA is not just about telling customers which counter to go to. Customers also have the option of having IRA itself physically guide them to the counters, providing them a more intuitive and interactive experience.

IRA 2.0 brings HDFC Bank customers a more intuitive and interactive banking experience

How may HDFC Bank’s humanoid bot help you? The AI-powered IRA 2.0 can identify customers, carry conversations, and guide them to specific counters based on their intended transactions.


hen HDFC Bank Limited, one of India’s largest financial institutions, launched its first interactive humanoid robot, aptly named IRA or the Intelligent Robotic Assistant, back in January 2017, it was considered a collective win for the India’s banking industry. The idea for IRA is to improve financial products and services provided by HDFC Bank for over 4,500 of its branches across India through better and more efficient transactions for its customers. It was no surprise that HDFC Bank launched a second version of the bot. Whilst digital and mobile banking have been gaining traction globally over the last few years, providing convenience to customers at their fingertips, there is still a significant portion of the population that prefers the good old brick-and-mortar feel that branch banking offers. Rajnish Khare, senior vice president and head of digital transformation, social business and new media, and mobility banking of HDFC Bank, said that the launch of assistive humanoid robots like IRA will help the bank provide a better experience 30 ASIAN BANKING AND FINANCE | August 2018

IRA helps the bank provide a better experience for its customers and at the same time give their staff quality time to focus on more pressing and cerebral tasks for greater productivity.

for its customers and at the same time give their staff quality time to focus on more pressing and cerebral tasks for greater productivity. “Many customers walk in to the branches, especially senior citizens who require in-person assistance to guide them to the correct staff or service counter,” said Khare. “Branch staff has to invest a lot of time in replying to the basic customer queries, which affects productivity.” Khare noted that a humanoid robot can aid and assist the branch staff in attending to customers, providing them basic information and routing them to the relevant branch staff to carry out the desired service. “At the same time, this can also add to customer delight, thereby enhancing their experience and creating a positive impact for the bank,” he elaborated. Positioned right after the entrance doors of select HDFC Bank branches around India, IRA is programmed to identify customers once they come in, greet them with a handshake and a friendly greeting of “I am IRA. Welcome to HDFC Bank. May I please help you?” Afterwards, the assistive humanoid will guide

IRA 2.0 Although HDFC Bank is not the first financial institution to have explored and employed robotics in branch operations in India, which are mostly standard robots with functionalities tweaked to suit these banks’ individual needs, it is at the forefront of one of the technologies highly in demand today—artificial intelligence. “Whilst few global banks have already explored robotics technology, robotics and artificial intelligence technology is still evolving in our country,” said Khare. “HDFC Bank is the first bank to launch a fully customized artificial intelligencepowered humanoid robotic assistant in India.” The first version of IRA has provided HDFC Bank a solid case study and proof that AI-powered assistive humanoids can elevate customer experience towards their banking products and services. “We have received a lot of positive response, and on average, 60 customers are being serviced by IRA daily,” he said. “We have received an average rating of 4.3 out of 5 for the first version since inception.” Upping the ante for the rousing success of the first version of IRA, HDFC Bank launched IRA 2.0 in the bank’s Koramangala Main Branch in Bengaluru. But what is the main difference between the two versions? “IRA 2.0 is an enhanced version of the first one,” Khare said, explaining that similar to the earlier version, it can detect a customer walking towards it, greet the customer, and guide him personally to the branch counters. “Additionally, it can answer HDFC Bank-related and customer queries through artificial intelligence and machine learning backend engine, powered by the bank’s virtual assistant EVA.” Another element differentiating

Case Study: hdfc bank

Rajnish Khare, senior vice president and head of digital transformation, social business and new media, and mobility banking, HDFC Bank

the two versions is that against the first IRA which had a tablet for accepting customer input, the newer version is completely voice-based, which can carry out a two-way voice interaction or a conversation with the customer, further making the experience personalised. Some of the other features of IRA 2.0 include visual and voice interaction; built-in indoor GPSbased navigation module, helping it move across the area with ultrasonic sensors for obstacle detection; speech recognition module that can be trained to understanding what customers are saying; a proprietary facial detection algorithm for detecting customers; and the integration of Senseforth’s EVA chat engine for natural language processing and identifying intent of the query posed to it. Journey to build IRA The journey to conceptualise, design, and implement IRA for HDFC Bank goes as far back as three years ago. Khare explained that the idea of a robotic branch assistant was conceptualised in September 2015 by the bank’s digital transformation and mobility banking team. This was followed by phases of vendor evaluation to look for technology providers, “since this is a niche

technology and there are limited service providers in the country who can develop a full-fledged humanoid robot” that follows and meets HDFC Bank’s strict requirements, he said. The development was officially kicked off in December 2015, with Kochi-based vendor Asimov Robotics. A prototype was successfully tested in Pallarivattom branch in Kochi in August 2016, and the first version of the robot was deployed in the bank’s Kamala Mills branch in Mumbai in January 2017. “Since then, we have been analysing the feedback received and understanding what the customers’ expectations are from a robotic assistant,” Khare noted. “Using these insights, we identified the new services to be introduced and incorporated for the next phase, which is IRA 2.0.” The development and prototyping of IRA 2.0 was spearheaded by Bengaluru-based Invento Makerspaces. The newer version of the humanoid robot which utilises artificial intelligence-based chat platform EVA will be more effective, efficient, and intuitive in providing responses and services for HDFC Bank clients. To technology and beyond The launch of IRA and IRA 2.0 is part of the bank’s artificial intelligence push in line with their digital transformation project which was launched last year to improve

The launch of IRA and IRA 2.0 is part of the bank’s artificial intelligence push in line with their digital transformation project.

the institution’s technological capability and readiness. Currently, the bank is looking at using AI and other technologies to enhance its customer service, besides marketing, transactions automation, and other operational aspects. The bank is also looking at utilising these methods to drive growth in rural areas to expand its portfolio and operations. According to HDFC Bank, majority of its customers have already migrated to digital banking— around 71% at end-March 2016, so it makes sense to start the transformation at this time. Khare also added that moving forward, HDFC Bank is looking to enhance IRA, and perhaps other robotic ventures, by incorporating additional features such as leading generation for other bank products; basic account level request and inquiry transactions such as balance inquiry, statements, and others; dealing with service requests such as addressing change through Aadhaar-based e-sign; and providing status of pending applications with the bank, like credit card application. “We believe that though robotics might not replace critical banking functions but starting with very basic functionalities like greeting the customer and guiding them to relevant counters, the use of this technology can be further enhanced to support the bank’s retail branches,” Khare concluded.

IRA 2.0 is integrated with the chat engine of HDFC Bank’s virtual assistant EVA



ho kok yong

The biggest challenges Southeast Asian banks are facing today


Ho Kok Yong Financial Services Industry Leader Deloitte Southeast Asia

anking executives today not only have to deal with running the bank, but also transforming it to grow in a sustainable manner. Banks have to balance these goals against the exigencies of the day, and those that are able to do so will be amply rewarded. This holds true for all banks, even those operating in Southeast Asia (SEA). This transformation is far from easy as banks come to grips with challenges such as complex and diverging regulations, legacy systems, disruptive models and technologies, new competitors, and a diverse customer base of increasing expectations. Fintechs and customer-centricity In just a few years, fintechs have defined the direction, shape, and pace of change across the financial services industry. Once considered a threat, fintechs represent a great opportunity for incumbents on multiple fronts: modernising business functions to improve efficiency and helping banks serve their customers, both through emulation and collaboration. Long-term sustainable growth in the banking industry is possible if banks are willing to do away with a traditionally sales- and product-obsessed mindset to one of genuine customer-centricity backed up with strategies to target the right markets, customer segments, and solutions. Customers now expect seamless digital onboarding, rapid loan approvals, and free person-to-person payments (all innovations that fintechs made popular); proving that it is possible to meet, and even exceed, customer expectations. Regulatory recalibration 2018 presents an opportunity to modernise regulatory compliance and bring together disparate silos created for individual compliance goals. Banks should consider integrating regulatory compliance goals with strategic initiatives such as growth, operational simplification, risk management, and cost efficiency. Regulatory compliance should be aligned with business strategy. Not doing so could put banks at risk of unmet regulatory expectations and poor performance. Technology management To help banks become more agile, bank CIOs should manage their portfolio of technology assets to emphasise activities that truly differentiate the bank. Externalisation efforts should be focussed on generic functions with an emphasis on cost efficiencies. Modernising core operating infrastructure is also an obvious priority. CIOs have to ensure that new solutions sourced from multiple vendors are integrated to maximise value creation and minimise internal disruption. In their drive to simplify and modernise, and to build technology agility, banks should ask themselves three important questions: (1) How can they best manage the portfolio of technology assets to deliver the most impact for businesses? (2) What is the right level and type of technology externalisation (i.e., the use of third-parties to design, develop, and manage technology 32 ASIAN BANKING AND FINANCE | August 2018

How can banks remain dominant in a rapidly evolving ecosystem?

solutions)? (3) How do they direct development resources toward only the activities that truly create competitive differentiation? Mitigating cyber risk Financial services innovation and digitisation are certainly being encouraged by regulators and are being advanced by financial institutions. In SEA, this is particularly so in Singapore, Thailand, and Indonesia. With this development comes increased cyber risk. In the region, financial institutions are focussed on building cyber resilience, where the emphasis is not just on preventing cyber attacks, but being able to respond, recover and adapt. Importance is being placed on enterprise-wide cyber risk programmes that are continually being tested and updated to allow for agility and swift recovery, and that are overseen by the executive and board, and underpinned by strong governance. Reimagining the workforce Banks should consider rethinking their workforce strategy given how work is evolving with increasing automation. As a start, bankers would need upskilling to work more effectively in a digital environment. They will also need to reorient existing workforces to be collaborative and inclusive, whilst providing them with more integrated employee experiences. This workforce experience would have to be designed to accommodate a work-life balance, a purposedriven career, and be digitally enabled. Conclusion 2018 could be a pivotal year for banks in accelerating the transformation into more strategically focused, technologically modern, and operationally agile institutions, so that they may remain dominant in a rapidly evolving ecosystem. To achieve organisational agility, they should consider embracing innovation, managing talent differently, and pursuing key partnerships within a broader ecosystem to manufacture and deliver solutions for customers.


Combining the elements for highly responsive solutions 1



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At SmartStream we believe that starting with a solid foundation of elements is vital when creating new operating models. As a result, it’s never been easier for firms to access highly responsive, tailored solutions which can be deployed at speed and with immediate impact. We have helped over 1,500 customers to implement the necessary controls to manage complex processing and regulatory requirements across their operations. So, whether you are looking to replace legacy systems, build an internal processing utility, utilise the cloud or outsource your entire operation, partnering with SmartStream is the perfect chemistry.

Asian Banking & Finance (July - September 2018)  
Asian Banking & Finance (July - September 2018)