Rising up to the Fintech phenomenon

The long-term viability of financial institutions (FI) will lie in their ability to embrace technology and work with financial technology players.

Financial technology (Fintech) has gained popularity and interest, arising from the success stories that have been able to disrupt or replace conventional banking mechanisms used, for example, in payments, transfers, loans and fundraising.

This in turn has fuelled rapid growth and investment in Fintech. Investment in Fintech in Singapore hits S$83.3 million in the second quarter of the year, three times more than in the first quarter, according to KPMG. How do we make sense of  this growth in Fintech?

Adapting to technological changes

There will always be a need to save, transfer, borrow and invest money. However, advances in computing power, ubiquitous mobility and data explosion have significantly transformed how these are delivered, says Shameek Kundu, Chief Data Officer and Global Head of Data, Technology Strategy & Innovation, Standard Chartered Bank.

Moreover, FIs are facing competition from new-generation start-ups, who are vying to capture parts of their value chain.

It may seem natural for traditional FIs who are shackled by legacy systems and encumbered by layers of regulation to feel immense pressure from their youthful counterparts. However, rather than take this as a death knell, many FIs are using the Fintech movement as a catalyst to revamp their technologies and innovate their product offerings.

“At Standard Chartered Bank, we view this as an opportunity to partner with talented individuals and companies that are attempting to transform the industry, and so we can build better customer experiences. Singapore’s proactive regulatory environment, which encourages innovation, competition and opportunities for discovery, enables banks like ours to forge win-win collaborations with Fintechs,” adds Kundu.

For instance, Standard Chartered has started Proof of Concept projects with Bambu, a B2B Robo Advisory company that builds intelligent software and investment solutions to improve efficiency in wealth management; and KYC Chain, a blockchain-based technology platform that helps to authenticate and verify client identities as part of the onboarding process.

More recently, United Overseas Bank (UOB) worked with Israel-based Fintech start-up, PayKey, to introduce UOB MyKey, a mobile keyboard for Android smartphones. UOB MyKey is built into the infrastructure of the bank’s all-in-one mobile banking app – UOB Mighty. It also enables UOB’s customers to be the first in Singapore to use PayNow, a peer-to-peer payment service, directly on their social messaging apps such as WhatsApp, WeChat and Facebook Messenger, and e-commerce mobile apps such as Carousell.

Combining the network of FIs with Fintech innovation

FIs are also likely to reap greater benefits by collaborating with Fintech companies, using their expertise to understand customer segments better and roll out new products quickly at a fraction of the cost.

“Fintech players can capitalise on the vast customer base and funding capacity of FIs to commercialise their ideas and to reach a larger audience,” says Janet Young, Managing Director and Head, UOB Group Channels and Digitalisation.

The collaboration between FIs and Fintech players is therefore a win-win situation for both parties, as it draws on the strength of FI’s capabilities and the latter’s innovative ideas.

“As an FI, we are keen to leverage external innovation to enhance our digital capabilities,” says Paul Cobban, Chief Data and Transformation Officer at DBS Bank.

For example, DBS partnered with three Fintech players – Kasisto, Moneythor and V-Key – to develop digibank, India’s first ever mobile-only bank. This platform offers the artificial intelligence expertise of Kasisto, the personal finance management capabilities of Moneythor and V-key’s soft token solution.

Apart from jointly developing innovative products, FIs are encouraging the growth of Fintech start-ups.

DBS has a few programmes in place to help early-stage start-ups develop their business ideas and seek funding, according to Cobban.

For instance, DBS HotSpot is the first pre-accelerator programme to be fully run by an Asian bank. Over the past two years, more than 40 start-ups were accelerated in this programme, which saw them receiving mentorship from experts, undergoing rigorous training and pitching to investors.

Developing digital-savvy employees

To facilitate the adoption of the latest Fintech and innovative best practices, FIs are looking to build their talent pool.

For example, UOB encourages digital skills and experimental thinking among its employees by regularly hosting hackathons and workshops. The bank also enrols its employees in design thinking courses, so that they can apply the approach in creating products and services that would make banking simpler, smarter and more convenient for its customers.

“FIs are also working closely with industry organisations such as The Institute of Banking and Finance (IBF) to train employees in agile thinking, data analysis and insight, and overall digital awareness,” says Young.

Such programmes and initiatives aim to help financial practitioners be better prepared for opportunities in this industry.

Collaboration is key to long-term sustainability

In the coming years, the role of technology will play an even bigger role in financial services, with FIs increasingly investing in digital transformation. There could also be some form of equilibrium in the sector, with larger players dominating and smaller ones consolidating with other Fintech players or FIs.

“We can expect the industry to become more collaborative in nature, as more Fintech players pivot to B2B products or offer white-label solutions to FIs,” says Chia Hock Lai, Head of Digital Office, NTUC Income and President of the Singapore Fintech Association.

In order to maintain their long-term competitiveness, FIs will need to make the most of Fintech. As customer expectations evolve, those who proactively take on technology and successfully join hands with Fintech players to deliver innovative customer-centric solutions will emerge as winners.