Asian banks race against time to shake up payments scene

The rise of virtual banks is intensifying competition in an already crowded arena.

Banks must race against time to retain their dominance in the payments space and retain lost ground as tech upstarts with formidable data capabilities threaten to rapidly erode their market share.

The rise of virtual banks in Hong Kong, Taiwan, Australia, Vietnam, Indonesia and Thailand underscore the importance of getting payments right as they jostle for market share in the contested SME and retail segments, Ken Lo, Head of Strategic Partnership at Zhong An International said at the Asian Banking & Finance Digital Payments Summit in Hong Kong which was held on 28 August 2019. The event was graced by over 100 attendees. 

Also read: Virtual banks threaten to take a bite out of Hong Kong's small lenders

In China, eight of the 17 privately-owned lenders are digital banks such as WeBank, MyBank and Baixin Bank. With Hong Kong issuing licenses to eight players and Singapore set to issue five licenses, Lo expects to see intensified “co-opetition” as virtual banks forge partnerships with fintechs and traditional lenders in order to survive.

Fintechs are not the only problem. Commerce first ecosystems like Alibaba and Amazon have generally entered the payments space after achieving 15-20% share of the digital commerce market in their bid to strengthen their position as ecosystem players, observed Arthur Shek, Associate Partner, McKinsey & Company. “Ecosystems have core advantages, especially in areas where fintechs have struggled, positioning them to disrupt banks who are more limited by regulation and shareholder focus on ROE,” he added.

To stay competitive, Lo believes that players are expected to embrace Open Banking models as data exchange and omnichannel schemes enhance the overall customer experience. This will also open customer information to third service providers and enhance KYC capabilities reinforce security protection. Against the possibility of open API to be extended to other service areas, revenues could receive a potential 20% uplift by 2020 although the availability of testing environment as well as TSP and API standardisation may pose a challenge in implementing open API.

“API functions as a B2B product, API platform evolves from being for financial and IT services to becoming platform for innovation,” Eiichiro Yanagawa, Senior Analyst, Celent said in his presentation.

Also read: Singapore still beats Hong Kong over Asia's open banking readiness crown

Policy changes are also driving fintech adoption in Hong Kong including a lower profit tax rate of 8.25%; $10b university research funding; $500m Technology Talent Scheme designed to attract talent; $50b for Technology Development allocated to HKSTPI and Lok-Ma Chau Loop, outlined Musheer Ahmed, General Manager, FinTech Association of Hong Kong.

It is against this backdrop, according to Rajesh Mehta, Managing Director, Treasury and Trade Solutions Region Head, APAC, Citi, that client expectations are rapidly changing as end-users come to anticipate 24/7 availability, immediate settlement and reconciliation, instant processing and real-time information as the norm. This will be powered by the shift from data as a byproduct to data-driven intelligence, prompting banks to rethink their fundamentals.

This entails a shift to a data platform that provides direct or indirect access via APIs, analytic tools or scoring methodologies for data offerings and use cases for insurance processes and various lines of business.  

“In the next 10 years, the banking industry will change more than in the past 100 years,” Avril Rae, Head of Fintech at KPMG said in her presentation, noting wide-spread changes to data, business models, technology and regulation.

Also read: Can South Korea's web-only banks break out of beginner's rut to ensure sustainability?

The next frontier for banks, according to Rae, is lifestyle integration as lenders try to be automated, intuitive, proactive, forward thinking whilst still imbibing context, sensitivity and pioneering trust and security.

“The new value is not being a bank,” Ajay Mathur, Managing Director, Head of Consumer Banking Group & Wealth Management, DBS Bank said in his presentation. “It is to understand the role of product & services in the life of a customer.”

Regardless of the winner, overall business efficiency will be achieved as lower transaction fees bring savings of up to $10b; release of trapped cash generates savings of up to $20b and savings in resource cost bring savings of up to $10b, contributing around 10% to the Hong Kong GDP, according to Michael Ho, Principal, Financial Services Practice, Oliver Wyman.

However, the adoption of powerful digital tools also serve to amplify the risk of fraud but banks can plug gaps in their defenses through global shared intelligence, according to Cameron Church, Director, Market Planning Fraud and Identity at LexisNexis Risk Solutions. For instance, a unique digital identity that makes use of extensive web and mobile device intelligence, true location analysis, trust score and benchmarks the data against industry peers will be useful to track fraudsters across the banking network.

As Hong Kong prepares for the nationwide roll-out of digital personal ID cards by 2020, there were some versions of a previous eKYC solution designed to boost economic growth such as TransUnion’s IDVision which was launched in late-2017, said Victor Yim, Global Product Owner, Fraud & ID Solutions, TransUnion. Yim shares plans to develop on the IDVision to which will support documentation authentication module, feature detection algorithms that use short video clip of the ID instead of relying on images. It also comes with an overall confidence score to allow and will soon feature a China citizen ID verification.

Speakers and panelists include John Wong, Head of Global Liquidity & Cash Management, Hang Seng Bank; Jimmy Chan, Chief Operation Officer & Head of Operations Management Department, ICBC (Asia); Josh Heiliczer, Asia-Pacific Financial Crime Compliance Leader, EY; Jayant Kulkarni, Head of Domestic Payments, HSBC; Joel Yarbrough, VP, Asia Pacific, Rapyd; Erin Murphy, Global Affairs Officer, KBZ Bank; and Jessica Lam, Head of Strategy, WeLab.

The ABF Digital Payments Summit was held on 28 August 2018 at Hotel ICON Hong Kong. Please email [email protected] for any event inquiries.