This year's SIBOS hosted in Singapore was a wakeup call for all the transaction banker to focus on redefining value delivered to customer. An excellent keynote from Piyush Gupta, CEO DBS group stresses on the fact that Asia is transforming from factory of
the world to market place of the world. He also, emphasised on how Digital technology is changing the way businesses are done (50% of internet population lives in Asia,
Facebook userbase highest in India by 2017, Indonasia highest number of Tweeter, Alibaba the ecommerce giant sold 14.3 B USD in Singles Day 2015, Alipay manages 80 M transactions/day with 300 M userbase, 300 B USD low value payments. Mutual fund launched
by Alibaba raised 80 B USD in 8 month with 100 M customers, SME lending close to 18 B USD with 250K SMEs, Webank (Tencent) implemented e-KYC process using voice and facial recognition).
In this digitally disrupted world, banks could well be disrupted (disruption assumes an end to the incumbent).
Yet, there is an window of opportunity where banks can transform (transformation assumes the incumbent can make a change) themselves through digital innovation, risk management and collaboration.
Unlike Telco networks, Banks networks (SWIFT) can avoid being a dump pipe. Smart phone services provided on top of TELCO networks are creating value, similarly Fintech can generate value for banks customer. So, future will see a great degree of collaboration
between Fintech and banks to provide value to the customers.
Here are the key takeaways from the event:-
In one end Fintech is transforming the front-office, but at the other end blockchain is disrupting the back office.
The key issues on mass scale blockchain adoption are lack of open standards, regulatory policy (i.e. liability structure etc), lack of Handling the high volume transaction systems, securities and collaboration among banks. Barclays Simon Taylor thought,
Blockchain will be useful for dealing to reconciliation, Errors, sanctions and identity, Trade finance Paper contracts. Clearly initial usecases will drive operational efficiency and cost reduction. R3CEV is trying to setup the blockchain standards involving
42 banks. Block stream, zerocach are trying to address the network security threats. In this fast evolving world, key is to experiment and be ready, like Oliver Bussmann mentioned, UBS has experimented with Smart bonds on Etherium ledger and also they are
looking at Trade Finance usecase to improve efficiency in operation.
Bank owns most of the financial rails, yet we still call them dumb because banks inability to use the information's like transaction history, credit scores, location etc and provide product and services to the customers. Algorithm have been at the heart
of the many startups businesses. For example, Kreditech building an alternate credit scoring platform using machine learning algorithms enabling flow of credit to many individuals.
iWoca is a SME lending platform. They are using e-commmerce (Uber, Amazon, eBay) data to create the risk profile of the customer before providing credit.
Signify implemented a bigdata platform & Use the mobile behavioral model from TELCO to analyses data and create risk profile on the CLOUD.
Mo-de is a mobile finance startup. They are using TELCO & Utility provider data to build credit scores.
Next generation Cx will thrive on Algorithm. Finding the right balance will be key for banks to win customers.
Mobile - Future of Money
With the rise of mobile economy, banks lost the last mile to TELCO & Smart phone manufacturers (POS or ATM or branches are no longer last line, it's your Smart phones and mobile wallets). Future of money will be Digital and it will be exchanged, managed
in a mobile device. To be a part of the mobile economy banks need to be part of the boring space (like in the elevator, before going to sleep etc). Also, be like a weather app in everyday morning. Apart from building its own wallet, collaboration with the
likes of Payment wallets (Apple pay, google Pay, Samsung pay, MCx, first data, Paypal), payments (Stripe, Transferwise, Xoom, CurrencyFair etc), investment (Motif, SigFig etc), lending and personal finance (Mint.com. Nutmeg, CreditKarma etc) will benefit banks.
Reinventing corresponding bank
Key issue brought up was time consuming Low value cross border payment. Comparisons were made between Amazon and banks. If Amazon can move Atoms between 2 countries in a day, why banks can’t move electrons. The rails to move money are built for high value
transaction banking use cases. For consumer banking remittance, Fintech is doing better than banks (TransferWise etc). A renewed focus on low value domestic and International payment infrastructure will help address some of the challenges exist today.
Future of corporate banking
A major shift from Developed market to emerging markets for corporate banking is taking place. User exp for consumers are much better than user exp for Treasurers. Corporate treasurers wants a single cash management tool & single KYC platform. SWIFT promised
to focus more on corporate by 2020 and adding capabilities in connectivity, security, stability and integrity of transaction. Also, SWIFT's KYC registry platform could be used for doing KYC, removing the dependency on banks.
Agile Global security marketplace
The security market (80 Trillion USD) is facing challenges around trade settlement, fee compression, margin dilution, low interest rates and regulations (transparency and disclosure and reporting). In this environment, Simple Cash, custody, lending products
are no longer accepted, rather customers are looking for theme based solutions around Liquidity, balance sheet, risk and collateral. It was important to notice, E2E service is no longer an option, rather banks are better off providing modular services.
Cyber security threats require a holistic Risk management approach. Cyber security has financial stability risk, it also has direct impact to reputation. There is a growing realization that not all threats can be prevented. But, if banks focus on Operational
intelligence, testing & quick & safe recovery then the impact of the attack can be minimized. One of the other area of focus was around sharing of information with industry peers and consortium after an attack, which banks are not good at. Some of the security
startups (like magiccube) can bring fresh ideas in dealing with cyber threats.
Banking industry can learn from Aviation and aerospace where they operate on zero risk failure mode. Defence/military can bring rigor in process, training, Long term disaster recovery Planning and testing. Formula-1 can bring value to low latency and high
frequency trading environments. Startups like Bugwolf crowdsourcing and gamifying the testing process. Collaboration wish such vendors can help improve the resilience.
To bank the unbank, there is a need for collaboration among banks, Telco, Fintech. There are 4 areas of focus to make financial services available to bottom of the pyramid:-
- Mobile money
- alternate distribution and collection networks
- new real time payment rails and transaction instruments
- Bigdata for Credit scoring.
Bill and Malinda gates foundation provided great insight on how they are working with private and public sector to help the under privileged.
As technology is making business global, regulators are still acting local. There is a need for regulators to collaborate and act global. Also, with the pace of change driven by technology (i.e. blockchain etc), regulators should set up groups & participate
in Innovation to understand the emerging technology. At the moment Singapore regulators do it, but UK and others European regulators should have it.
Next SIBOS is in Geneva. See you all there.
Note: This is my personal view and not the view of the organisation I work for.