A recent news headline “Banks in reverse gear” in the daily Financial Express caught my attention; the news talked about various aspects of banks in Bangladesh centralizingtheir system as an ongoing trends while majority of their customers prefer a decentralized system instead according to a survey conducted by BIBM (Bangladesh Institute of Bank management). Banks are in right direction towards centralizing their operation in order to reduce or eliminate corruption, fraud and malpractices but customers’ demands services in branches where banks are not fully capable to meet that demand. Is it possible by appropriate synchronization between centralized and decentralized system? Can Fintech revolution help banks’ to make branches full-fledged efficient service point? We will put more light on these points as we go through this article.
Last month I attended the Singapore Fintech Festival in Singapore, the week-long mega FinTech event, a global platform for Fintech community in Asia that enlightened not only the massive disruption happening in financial industry but also an eye-opener of the paradigm shifting of financial services in business and people. The SFF event comprises start-ups and technopreneurs, policy makers, financial and technology industry leaders, investors including private equity players and venture capitalists. The festival covers wider area around financial services and technology industry from future of banking, future of money, financial inclusion, and investment aligning with technologies like Artificial intelligence, Blockchain, robotics, IoT, cyber security and so on. The festival scheduled with varieties programs including Conference, AI in Finance Summit, Global Investors’ Summit, the FinTech Awards, Global FinTechHackcelerator, Innovation Lab Crawl, Industry Networking and Workshops.
The DFF festival is the biggest of it’s kind in the world observing apx.45,000 participants, 500 exhibitor, 250 speakers and 16 int’l pavilions from 130 countries. Fintech has started making such disruption in business and society that it is no more an annoyance of financial industry or technology companies, Government, regulators are also taking this revolution into account seriously. This has reflected by the participation of top leaders and officials likeNarendraModi, Prime Minister of India, Christine Lagarde, Managing Director, International Monetary Fund, Ong Ye Kung, and Minister for Education of Singapore, Justin Trudeau, Prime Minister of Canada, HengSweeKeat, and Minister for Finance of Singapore, Patrick Njoroge, and Governor of Central Bank of Kenya.
An agile path of transformation and Role of AI
People from non-financial background involving in financial services innovation and therefore creating companies to serve people in their banking and other monetarytransaction needs, it is no longer ‘small matter’that finance industry can ignore. Banks and other financial institutes such as insurance or capital brokers are facing turbulence in business significantly. Traditional banks who are addressing this challenge from an opportunity perspective will be the early gainer in the race to sustain and grow their business. According to recent studies, only 7% of banking processes have gone to digital transformation. Most companies are using technology to redo existing business, doing little about anything new. In the future, financial services will bear no resemblance to today and people are central to driving this change. People do not know what services they will have in five to ten years’ time. The opportunity for banks and non-banks is to identify these unmet needs and start preparation.
In SFF event, HSBC, MUFG, DBS, standard chartered, Wells Fargo and Bank of China like giant bankshas demonstrated their Fintech innovations which they are harnessing either from internal development or partnering with Fintech companies. Plug & Play, one of the Silicon Valley born Fintech Company, has accelerated over hundreds of startups and invested in over 50 of them. The founder and CEO Mr. SaeedAmidi, mentioned that over 50 banks are members of Plug & Play FinTech, and the company assists banks by connecting them with startups and in turn, the banks assist startups via their various programs and networks such as corporate partners and venture capitalists. Technology is disrupting every sector and companies will need to reinvent themselves to stay relevant.
Obviously Analytic, BoT, Big Data, Blockchain, IoT, are the giant tech horses while Cloud services getting the sturdy featured race track playground of the digital transformation race. Among top technologies, AI and ML are the center of attention of most companies as these are becoming essential backend to frond end tools in financial transaction, products design, data management, service model, personalize banking. In the AI Financial summit, speakers highlighted how AI in Finance driving the global progress in economy. Use of AI, besides other areas, may enable financial institutions to provide more personalized solutions to their customers, better manage back-office operations such as Anti-Money Laundering, fraud detection, and to inform better and faster loan approval process. AI will also allow financial regulators to lend a better regulatory oversight.
Companies that transform from an “analog” to a “digital” way of working often ignore the cost of data privacy. Securing customer data is probably the biggest “blind-spot”, therefore investing in resources (both talent and systems) to protect customer privacy and identity is critical for any organizational transformation success. The more AI capability becomes available and more democratize, new issues and threat will be seen. Panelist in the “Responsible AI” session focused on having clear theory and policy why a data should be used for an application.Proper governance and framework should be in place so that AI works as agent to imply good principals of what human decides. Good news is MAS (Monetary Authority of Singapore) has recently issued guiding principles to promote Fairness, Ethics, Accountability and Transparency (FEAT) in use of AI and data analytics in Singapore’s financial sector.
Transformation is to keep abreast of changing customer demands and being agile enough to adapt and cater to those changes with support of technologies, not the reverse of technology being dominating.
Disruption to Deterioration and Restoration
Disruption is new normal now a days whatever related with technology. In financial sector, cash replaced cheque, than ATM and card replaced cash, cheque, EFT (electronic fund transfer) taking place of cash, cheque and cards. While cards become weighty in people wallets, internet banking or mobile payment becoming popular. The latest upcoming Crypto currency is possibly going to replace most of these technologies in financial transaction. Every time new technologies arrive, older technologies become obsolete and as a result disrupt the business models and its associated linkage industries significantly. So what should a bank or insurance or other financial institute do to address their declining business model. Experts from finance and technology filed, tried to find answers in this festival for the disrupting finance industry.
Fintech startups are mostly taking lead to disrupt traditional banking services by offering new model of financial services to business and consumers.But banks and financial institute including elephant corporations are not sitting ideal, they are creating, developing in-house team and/or partnering with Fintech startups to bring new business model to offer those to their customers. Not that every banks are successful in one go, some has success, some are evaluating and there are examples of banks, which are far behind in this race, both in developed and emerging countries.
Instead moving to backward, financial organization should face this new reality of disruption and deterioration and find proper ways to restore their business, before they face significant declines. In a session titled “Big Tech to TechFin”, all four panelists has echoed on the wave of innovation that is driving transformation in banking industry and they all emphasized to look this shift from disruption to collaboration approach. Through revamping technology infrastructure, proper data management using BI and Big Data or such solutions, aligning with changed regulations and most importantly adopting cultural shift in organization, financial institutes can safeguard to shift from disrupted business models to restoring into the new Fintech based models.
However, this simple math is not so easy to implement, the depth of complexity grasped when two panelist’s debated on weather technology companies replace banks in the “Future of Banking Enablers” session. ArvindSankaran, Venture Partner, Jungle Ventures opined “it is difficult to capture the entire market, but certain segments and channels are possible’. He saw a more collaborative ecosystem instead. On other hand, Jo Ann Barefoot, CEO, Barefoot Innovation disagreed to his point stating, “Noting that the tech revolution is coinciding with a generational shift – and banks cannot afford to lose the millennial market share to tech companies.”
Whether we like, accept or decline, definition of money is changing in fast pace from Cash, Cheques, Cards to Crypto as a result of digital movement. Banks are the stakeholders who have major impacts due to the immensity of the changes in technology. However, the powers of collaboration in the development of technology can eradicate the gap between finance and technology with collaborative inclusions in multiple ways.
Digital Maturity of Banking Sector
Banks have gone digital already; there are banks hardly found without data center or DR site, CBS in operation, treasury, payment, deposits, accounts are operates with software applications and multiple digital correspondence methods beyond emails. However, digital maturity starts evolving new technologies from customer to bank-end operation. Identifying and developing kind of products customers wants, aggregation of daily operation of customer, manage flow of value added services and importantly complying with updated banking regulation should be automated as part of digitization. In respect of digital maturity of a bank, concern like Integrating customer, not only selling, more personalize banking, digitizing without or with human touch, use of AI and ML has been raised during the “Future of Banking Enablers” session in the event. Participant’s opined to focus on MVP to market, with simplified pricing and on a subscription, not transaction, basis. Basically, the product should not be complex, but simple to market. In order to adopt simplification in products, customer and operation, a robust infrastructure is essential as ArvindSankaran, Venture Partner, Jungle Ventures statement rightly pointed “Noting that the best-in-class banks invest heavily on IT and infrastructure”, in a session.
Looking into next 5-10 years from now, Fintech expert’s foreseenthat bank, especially bank branches operation will no longer sustain, in other way bank will not be visible. The future of banking should be invisible to customers by embedding banking services into their lives. People need banking and not banks. Combining the use of data, product and services should be contextual and not products push. Thus, they emphasized not to consider digital banking just a channel only, rather streamline digital in every aspectof banking to serve people the way they expect to be served.
While banks are struggling for one stage maturity to another stage in their digital transformation journey, Fintech is new category of digital motion they have to adopt and align to their digital maturity process. International monetary regulatory and policy organization like World Bank and International Monetary Fund has full focus and priority to address these issues. In one of the track “Tech in Asian”, Mr. Ross Leckow, Deputy General Counsel of IMF stated FinTech is an area in which IMF has put a lot of attention on, including Blockchain technology, distributed ledger, big data, biometric data and mobile phone technology. Designing of policies around FinTech and the digitization of the economy are two inter-dependent issues that must be looked at a whole”.
Fintech in Bangladesh– where we are
In Bangladesh, while digital financial product or services are inadequate, internet connectivity cost is still high, lack of skills among banks and tech companies, fragmented efforts are some major reasons of unavailability and low usages of digital financial services. Due to insufficient infrastructure including power and internet connections, bank’s in last few years spreading their financial services thru agent banking and MFS (Mobile Financial Services) channel to reach banked and unbanked population covering rural areas. Interestingly, non-banking Fintech Companylike bKash is dominating market in mobile money services in Bangladesh since last few years. Recently iPay, an online payment platform getting popularized where aanyone can pay from their mobile phone or computer, connected to the internet for their daily transaction. In respect of mainstream banks, few bank’soffers such services (Rocket, mCash, Ucash) but has got lower market share. Not only in mobile money services, other various customer services AC opening, loans, insurance and internet banking like common automated services has not been fully automated in most of the public and private sector banks.
This scenario indicates slow-progress Fintech inclusion in financial services. If we compare with few similar or less developing nations, they have made remarkable progress in Fintech, for example Kenyia’s Fintech are contributing significantly by providing services around mobile and online payment, micro lending, and credit management. Electronic and digital payment is the most popular in Myanmar’s due to few Fintech firm’s success in transactions for various services. Indonesia, Philippines, Kazakhstan driving customer financial services in money market in their respective countries.
The progress of our banking sector digital transformation has well alignment with the outcome of BIBM’s researchabout significant gap of synchronization between centralized and decentralized automation of banks, as I have pointed this, at the beginning of this article. The survey revealed that two-third of the respondent was against decentralized systems, reasoning abuse of power and various malpractices of the bank officials at the branch level. But in my opinion, it should be reversed; in this era of modern Infrastructure, such as cloud services, AI-integrated applications, information availability and various productivity tools can easily help to bring banking services at branch level rather holding into centralized system only in headquarters.
If banks are failed to strengthen their services in branches under decentralize environment, gradually new non-banking financial service providers, such as Fintech startups reach to their customer and grab the market. Probably keeping in mind about Fintech disruption and benefits of technology adoption across branches, CEO of Standard Chartered Bank Bangladesh Mr. Naser Ezaz Bijoy stated, “at this point of time, origination coverage of the banks should be more decentralized, while processing should be more centralized” about the survey. This point reminds me one of the session of SFF “Digital only bank – Strategies and Challenges” where It was acknowledged that digital banking is customer-centric and not a revenue generation tool. They need to know their customers in a real way; the more customers share, the more the banks can tailor solutions to meet their needs.
It is true that Fintech is at baby stage in Bangladesh but adequate care is not taking place yet to grow this baby (developing of some e-commerce business is not enough for Fintech based economy growth). I was bit surprised to find that from Bangladesh neither any private technology/software or Startup Company nor any govt. body incl. central bank or any IT association has participated in this global Fintech festival. With our Digital Bangladesh vision, this disconnection of zero footprints in such a mega international event sounds unexpected and not aligning with the objective of digital economy.
Singapore Hub for Bangladeshi Fintech
With the rise of Fintech, Singapore has become the Fintech hub for Asian Fintech startups as well as center of excellence for global Fintech community for their Asia pacific market. Singapore government, especially MAS (Monetary Authority of Singapore) which is the central bank of Singapore along with ABS (Association of Bankers in Singapore) are playing vital role to support, foster and promote Fintech ideas, business models, entrepreneurs and building bridge among Fintech and various vertical industries. SFA (Singapore Fintech Association) is a cross-industry platform designed to facilitate collaboration between all market participants and stakeholders in the FinTech ecosystem and help it’smembers to engage with multiple stakeholders to find solutions related to develop/grow Fintech based businesses.
There were lots of tractions around technoprenure in the entire event while I would like to share few points from Joey A. Concepcion, Chairman and CEO of RFM Corp, Presidential Consultant for Entrepreneurship here for Bangladeshi Fintech entrepreneurs. In the Global Investment Summit; Beyond Fintech” session, he shared that his learning over the past few years as an entrepreneur has brought him to a different platform. He stated that big businesses need to start looking at how to be more inclusive in their structure by embracing local businesses as part of the supply chain. The fourth industrial revolution will change the game. Combining mentorship, money, market and FinTech will allow for greater access to the markets.
Singapore Govt. is pretty much open for foreign Fintech firms, individuals and organization to be part of the Fintech ecosystem in Singapore as Mr.Ong Ye Kug, Ministry of Education voiced in his closing speech in the festival. Like other Asian countries, this has created scope for Bangladeshi Fintech entrepreneurs to explore central zone in Singapore for their company to market their services in Singapore as well as other Asian countries. Besides SFA, there are private VCs and Angel investors to support innovative ideas in financial services from multiple countries. The challenges and necessity of re-writing policies/rules for Govt. has been emphasized about borderless or cross-border transactions and product/service delivery for Fintech firms in multiple forums in this festival. Bangladeshi Fintech Startups can identify new opportunities having their supports that could help to expand beyond their home market as well as neighboring countries in the region.
In the arena of Fintech dynamism worldwide, everybody agrees one key point that people and talent is the biggest driver of organizational transformation, and they should be empowered and encouraged to constantly think about new and better ways to do their everyday jobs. How companies galvanize their talent resources to willingly embrace transformation is the most critical element of digital transformation. Singapore as a most successful nation in Asia has taken comprehensive initiative to develop talent’s of their own but also very proactive in inviting talents across the world. Bangladeshi tech talent and technopreneures can take advantage from various initiatives of govt. and private sector in Singapore.
Despite many challenges, Bangladesh with high density population has most potential for Fintech growth. Besides main stream bank’s agent banking, mobile money services and wider coverage of micro credit provided coverage of almost 70% population. With this greatest coverage advantage, such wider financial inclusion has created scope for financial services through Fintech based business models in the country. Our Fintech entrepreneur should embrace this potentials innovating and offering various digital financial services among the mass populations. Government has lot to do to support Fintech and can follow Singapore’s Fintech practices around people, identity, data governance, and research and innovation platform.
Technology is for welfare of society and mankind and like other digital transformation areas, in financial sector, building something should be impactful beyond Fintech. In this aspect, I would like to conclude this article sharing the views of Chris Colbert, Managing Director, Harvard Innovation Labs. In his speech he asserted, innovation is not about creating the function, but is focused on affecting the adoption of the function, that is, changing human behavior. A disconnect between the commitment and business’ understanding of the human behavior results in failure. Thus, the key is decoding the human behavior for successful innovation. In his view on ‘whether technology is dead’ – the value of it lies in its capacity to be connected to the human truth and the human condition”.