By Antonio DeLorenzo, vice president of Partnerships for identitii, a company using technology to help banks with regulatory compliance and to fight financial crime. Prior to joining identitii, he worked with SWIFT to lead their ASEAN integration initiative and held various positions within the tech and finance industries. He has also worked as a capital market regulator in Asia.
ASEAN Banks Play The Innovation Game
Innovation is in the center of banks’ crosshairs in ASEAN. This week, the Thai Bankers Association, along with the Association of Banks in Singapore (ABS), hosted the ASEAN Bankers Association (ABA) Digital Forum in Bangkok. They brought together banks, regulators, influential industry figures, powerful-decision makers and fintech companies covering innovation; eKYC (Know Your Customer); cybercrime; cloud computing; and the governance of fintech. The dialogue reflected the pragmatic nature of the industry, as it grapples with an ever-changing future. What shape will their response take?
Financial institutions will have their lunches eaten by the new fintech kids on the block. Their slow pace of change and antiquated technology will have banks eating the dust of each cutting-edge application and solution hitting the financial markets.
While those maxims may have held some truth several years ago, in the last few years the financial services industry has poured love and attention into innovation. This includes buying inventive solutions rather than building them – it makes sense to buy when you can’t as easily build. It makes even greater sense when there are literally thousands of startups in the fintech space globally, hunting for opportunities.
— Antonio DeLorenzo (@heydelorenzo) March 6, 2017
In this region, banks have stepped up to the innovation plate. They have funded incubators; accelerator programs; invested in startups; partnered; developed their own technological solutions; funded research; hired talent; and, explored endless use cases. Phew!
Will all these activities help banks keep customers from moving on to other solutions? Maybe not. Perhaps there is another way to look at this.
For example, in retail banking, the greatest influencing factor is human behavior and we humans like habit. These days we remember to bring our phones more than any other item – even our wallets. This habit helped to drive global ApplyPay adoption, shooting up by some 500% in 2016.
Most of us who made the ApplePay switch have a phone, a credit card, a bank account – and they’re all linked. That makes us comfortable. We are used to it. The change in behavior is simple. Using the phone is incremental. I use my phone to access the same infrastructure where I would traditionally pull out my wallet. Heck, even the receipt is instantly on my phone. However, for all the shiny new customer front-ends, the reality is that any technology solution still relies on banks to settle cash both for merchants and for people.
Of the many trade-offs, let’s consider one here. Does it makes sense for a bank to pump money into customer retention when their infrastructure will be used to settle all these transactions anyway? Wouldn’t it make more sense to build out the infrastructural connectors, APIs, that allow for the banks to experiment with the thousands of potential solutions out there? This could enable business retention and the possible expansion of margins, a far more satisfying metric, rather than simply focusing on customer numbers as the issue.
— Antonio DeLorenzo (@heydelorenzo) March 6, 2017
Back in ASEAN, there are technology companies looking to help. On access and innovation, Ravi Patel CEO, Yolopay believes it makes more sense for banks “to build APIs they can reuse,” to keep trying different technologies until something works for them. It’s better than trying to solve for challenges in many business lines by dedicating resources to build tech for each one. For others, it is about accepting that revised business models are the new norm. Saul Caganoff from Deloitte talked about the need to embrace change and adaptation, more than solely tackling the technological issues. This ties in nicely with the words of Sopnendu Mohanty Chief Fintech Officer, Monetary Authority of Singapore, who believes “more experimentation” by all involved is needed.
So, if banks don’t innovate, could fintech potentially eat the banks’ lunch? If this really is a conflict, then it’s a war of attrition. The last one standing wins. In this region, we have one key battleground. Interoperability for nascent markets dealing with advanced economies is paramount. This is where the real innovation will ignite, with ASEAN at the epicenter. It possesses the characteristics required for it to happen and for it to be sticky.
Why? Well, I’m glad you asked.
Ten different national cultures, ten different languages, more than one financial regulator in more than half the markets and legal codes that do anything but match. All of these things collide with a desire and firm commitment to grow through harmonization and innovation. Disparate systems and standards combine to mean that the industry is left searching for a common denominator.
In our hunt for a solution, we need to be realistic. Banks and fintechs alike will need to work together. Create problem-appropriate solutions that are easy to form hypotheses around and test. Account for speed to market, scalability and cost savings, through this time of industry uncertainty about where the road leads.
The ASEAN financial services community is taking serious initiatives to understand and solve for this interesting and unique set of challenges. It is equipped with sophisticated investors, ample deal flow, capable talent and accommodating regulators. It seems as though the ASEAN Bankers Association is going to be the bridge between all of the players in this innovation game, and fintechs ain’t the only players, folks.
— Antonio DeLorenzo (@heydelorenzo) February 22, 2017
Antonio DeLorenzo, is vice president of Partnerships for identitii, a company using technology to help banks with regulatory compliance and to fight financial crime. Prior to joining identitii, he worked with SWIFT to lead their ASEAN integration initiative and held various positions within the tech and finance industries. He has also worked as a capital market regulator in Asia and has given guest lectures at New York University’s Stern School of Business and School of Law, University of Pennsylvania’s Wharton School of Business, MIT, and Baruch College.