Steering banks through maze of fintech options

Twenty-three financial institutions opened their fintech labs and innovation centres to visitors as Singapore kicked off the FinTech Festival at Fusionopolis on Nov 14, 2016.
Twenty-three financial institutions opened their fintech labs and innovation centres to visitors as Singapore kicked off the FinTech Festival at Fusionopolis on Nov 14, 2016.ST PHOTO: SEAH KWANG PENG

It was festive - even fun - but for the banking industry, it was also a very serious look at the way financial technology (fintech) is taking the sector by storm.

Last month's inaugural Fintech Festival was a week crammed with innovation lab tours, conferences and awards as the industry came together in a strong show of expertise, resources and intent.

Some banks, such as DBS, even brought out the flashy toys, showcasing 3D visors and robots at their exhibitions.

But beneath the festive buzz, the urgency remains greater than ever for banks to explore and prepare for both the opportunities and challenges of technology.

A year and a half after the Monetary Authority of Singapore unveiled its vision for Singapore to become a smart financial centre, technology remains a disruptive force in the banking industry.

It is disruptive because, even as banks here continue to grapple with business issues ranging from a slowdown in earnings to weakening asset quality, technology opens up a new playing field of many unknowns, possibilities and pitfalls.

In some areas, banks have made solid progress. Using digital channels on mobile devices to offer retail banking services and shape customer experience has become an industry norm. Then came the analytics of customer data, giving banks deeper insights into spending habits and the ability to craft more effective sales strategies.

These have been the key priorities for Standard Chartered's new chief information officer, Mr Michael Gorriz, for instance, who engineered the relaunch of the bank's mobile app earlier this year.

Collaboration is another facet of banking's technology scene. Innovations will not bloom behind closed doors. The three local banks know that and have been racing to woo the most promising fintech start-ups in the region through a flurry of mentorship programmes and funding support.

But these are really just the baseline. The bigger challenge now is to make sense of the myriad innovations and technology infrastructure earmarked by the Government for the fintech evolution's next phase.

Cyber security questions remain crucial as the Association of Banks in Singapore works with banks to build a central addressing scheme for fund transfers using only a mobile number or an e-mail address.

Meanwhile, banks are just learning to take the first steps in the realm of digital currency. MAS has partnered eight banks and fintech firm R3 to explore the use of blockchain technology for inter-bank payments and cross-border foreign currency transactions.

The message contained in MAS' ambitious fintech plans is about both potential and survival.

"In an industry facing the headwinds of lower economic growth and heavier regulatory burdens, innovation must be the way to refresh and re-energise the business model," MAS managing director Ravi Menon stressed in a speech during the Fintech Festival.

For its part, MAS knows full well that its regulatory approach will be a decisive factor in managing technology's disruptive impact on financial services.

The name of the game is balance, and Mr Menon has vowed that regulations will not "front-run" innovation. Instead, they should come in only to address material risks.

The regulator's willingness to be nimble was reflected in the "regulatory sandbox", launched this June as a platform where new solutions and their potential failures can be tested safely.

Even with this much planning and commitment, the industry must accept that the transformation may be a long and winding journey.

"The industry will continue to make use of technology to improve product features and customer information. But none of us has changed our mode of operations," OCBC chief executive Samuel Tsien told The Straits Times in a recent interview.

"That is because the buzzword technologies that we talk about - blockchain, cloud computing - are not yet at the stage where they can fundamentally change banking operations. That may happen in the future, but I don't see that in two to three years."

Part of this journey is also about finding ways to minimise job casualties as technology takes over industry functions and relegates human workers. This, too, will not be easy, but there is hope.

"Will some jobs go? Of course, especially the ones that can be automated. But new jobs will also be created," Singapore Management University finance professor Annie Koh noted.

"Artificial intelligence can identify patterns, but it is our seasoned bankers that can make sense of credit profiles and unstructured data... Our bankers will need to learn new skills, but their understanding of customer needs and deep customer relationships are still very valuable."

A version of this article appeared in the print edition of The Straits Times on December 22, 2016, with the headline 'Steering banks through maze of fintech options'. Print Edition | Subscribe