Banks rethink business models as fintechs play catch-up

To hold their ground against fintechs, banks are redefining themselves.

As financial services pie increasingly shifts into a free-for-all playground, banks are opening up their data vaults and forging partnerships with former foes as they come to terms with the demands of the open model in an attempt to regain lost ground to agile competitors. 

“To forge ahead, banks must strengthen their core, capture pockets of growth, and reinvent themselves,” Ervin Ng, Associate Partner, McKinsey & Company said at the Asian Banking & Finance Digital & Open Banking Conference in Singapore. The event was graced by over 130 executives from top banks and companies across the region.

The task of rewiring the organisation is especially critical as banks grapple with declining profitability, said Ng. The pre-tax profit pools of the region’s banks slowed to a CAGR of 3% in 2014-18 from 12% in 2010-14, data from McKinsey show. Return on average equity has also been trending downwards and closer to the global average to around 10.1% in 2010-2018 compared to 9.5% for the global average.

The sentiment was echoed by Charamporn Jotikasathira, Member, Board of Executive Directors, Bangkok Bank Public Company Limited who stressed that even the most established incumbents are facing growing challenges from multiple fronts, leading to a compression in profit pools as well as a loss in data exclusivity and primary customer relationships.

Fintechs have been able to successfully integrate themselves into a consumer’s day-to-day life with WeChat being the prime example and Grab and GO-JEK trying to mimic its success, suggested Varun Mittal, Associate Partner, Global Emerging Markets FinTech Leader, Ernst & Young.

Jakub Zakrzewski, General Manager, APAC, Revolut shared how to scale a fintech unicorn as he shares milestones and opportunities in disrupting the financial services sector.

Although the threat is real and the business impact quantifiable, much of the response from incumbent banks increasingly appear to be lip service. “Most retail banks assert that they are "open" to open banking but what counts for being open, varies,” Anand Chawra, Principal at BCG echoed in his presentation. “Instead of opening channels, banks keep closing opportunities.”

To successfully compete against upstarts, Chawra cites three winning strategies. By integrating third party functionality, banks can reinforce their core. A savvy bank can also become a partner of choice by offering top-end financial products, rich functionality and critical integration support. This would lay the ground for the bank to launch innovative ventures and disruptive business models that could enable the bank to build sticky relationships that increase total lifetime value.

Growing adoption of open banking gives rise to different business models that banks can adopt depending on their strategy and priorities, suggested Shrikant Patil, Associate Partner, Digital, Technology and Analytics, Asia Pacific, Oliver Wyman.

On its part, Citi has been actively offering digital experiences powered by open APIs through a thriving partnership ecosystem in Singapore, Hong Kong, Indonesia, Australia, Thailand, Taiwan, China and Malaysia that counts partners like Facebook Messenger, WeChat, Alipay, and tokopedia. “Banks that want to be successful in the future will have to consider opening up their transactional data to third-party developers and consume third party capabilities via APIs,” Himanshu Shrivastava, Managing Director and Head of Digital Technology, APAC and EMEA, Global Consumer Technology, Citi. 

In the same way, Singapore’s DBS is able to offer instant payments and collections, real-time information and workflow optmisation through DBS RAPID (Real-time APIs at DBS). “DBS has a proven track record of 93 live business API use cases and to date, we have engaged a total of 19 unique customer and partner consumption,” Trevor Cheung, Managing Director, Ecosystems, Group Technology & Operations, DBS Bank. For corporates, this could reduce in claim settlement TAT and cheque related costs whilst improving operational efficiency and end-customers can benefit from instant claim receipts and improved customer experience. 

OCBC Bank embarked on its API journey in 2016 where it was the first in Southeast Asia to launch an open API platform and a developer portal called Connect2OCBC, allowing the bank to make significant milestones in its open banking journey, said Dilip Krishnan, Vice President, Digital Transformation, OCBC Bank Global Consumer Financial Services.

OneConnect Financial Technology, the fintech unit of Chinese insurance giant PingAn, makes the case for forging partnership with ecosystem players to add value. With over 30,000 tech staff, more than a thousand patents and 25 research labs, OneConnect is banking on its track record to enhance the operations of its partners, suggested Rohit Chowdhry, Vice President and Head of Business Development and Channel, OneConnect Financial Technology.

As part of an effort to deepen collaboration across sectors, the Monetary Authority of Singapore (MAS), World Bank Group's IFC and the ASEAN Bankers Association set up the ASEAN Financial Innovation Network in 2018. Through its flagship product, APIX, financial institutions and fintechs can get the chance to work together, design and trial experiments and deploy solutions at a more affordable cost. Manish Diwaan, Managing Director at ASEAN Financial Innovation Network makes a case for APIX as it offers a global fintech marketplace, an API catalogue, ready-to-use integrated development environment and private sandbox. By Q1 2020, the network is aiming to launch common use APIs.

Open API is just the begining as the traditional model gives way to a new and modular paradigm that shifts contact points and UX to TPPs, leaving little functions for the bank, according to Eiichiro Yanagawa, Senior Analyst at Celent.  “Making smarter decisions is increasingly driving competitive success. Data platforms provide a way for almost any insurer to gain competitive equity, or possibly competitive superiority,” he said in his report. “All platform sponsors have to increase their use of AI and related advanced analytic tools — and migrate to the cloud, if they are not already there.”

An ecosystem that leverages on fintech integration will be more able to cover the full scope of the underserved SME segment as they go beyond onboarding to offer core banking services to value-added services like tax and accounting, travel and entertainment, e-commerce integration, financial data, invoicing and expenses, CRM, corporate loyalty programmes, HR, communications and networking and social media, Guillaume Rico, Director, Chappuis Halder & Co.

“A bank needs to be defined by convenience and convenience used to be defined by access to a branch,” said Chris Wooldridge, Head of BSG Infinity - APAC, Temenos. “[However,] a bank is no longer a place we visit - it has become an app experience.” 

Speakers and panelists include Arapat Sangkharat, Advisor to the President, Head of Transformation, Krung Thai Bank; Pintuwan Kleijssen, Vice President, Bangkok Bank Public Company Limited; Jason Loughnane, Head of Digital Credit, Yoma Bank; Stefano Virgilli, Chief Executive Officer, Pocket Money; Namita Bhide, Managing Director, Denim Consulting and Vasant Chaudhry, Head of Management Consulting, Singapore, BearingPoint.

The ABF Digital & Open Banking Conference was held on 22 October 2019 at The Westin Singapore. Please email [email protected] for any event inquiries.