Banking disruption: It’s about collaboration, not competition

• Interoperability needed between banks, tech providers, telcos and fintech startups
• Regulatory framework needed to support collaboration and seamless integration

 
FINANCIAL inclusion is a critical concern in South-East Asia, where many in the region’s emerging markets have no access to banking services or financial products.
 
In this haphazard scramble to meet a market demand and address a social issue, the traditional players like banks and others in the financial services industry (FSI) are being joined by telecommunications and technology providers, as well as the new breed of financial services technology (fintech) startups.
 
But rather than looking at it as competition, all these stakeholders – as well as governments – should be working together, seamlessly, to foster a cashless society.
 
The main challenge in South-East Asia, as well as emerging markets elsewhere, is simply shifting the habit of cash to digital transactions, according to Qasif Shahid, founder and chief executive officer of Singapore-based FinSurgents.
 
“For society and the economy to quickly move from a cash-based economy into a cash-light play, all we need is interoperability,” he told the Mobile Money & Digital Payments Asia 2016 Conference in Jakarta on Jan 20.
 
‘Interoperability’ is the ability for different system and platforms, in this case financial services system and platforms, to work together seamlessly, without any restricted access, he explained.
 
“Interoperability can be fired up by something like person-to-person (P2P) transactions, and when you link interoperability and P2P together, then you got a recipe for large scale behavioural change,” he added.
 
To make digital payments and transactions a reality, banks and all other financial services need to realise that they are now acting as platforms, said Qasif (pic below).
 

 
In fact, their platforms are going to be the enabler for fintech startups to create innovative solutions that in turn can ride on top these platforms, to create a complete digital transaction ecosystem.
 
“So rather than thinking that fintech startups are competitors, incumbent platforms such as banks and financial services need to open up and level up their game to embrace the innovation that fintech startups can provide,” he said.
 
Large-scale innovation in digital financial services can only happen in South-East Asia with such collaboration, he added.
 
Think ‘platformification’
 
Kony Inc vice president of Sales Engineering Malachy Martin (pic) concurred with Qasif, saying that banks need to shift their journey towards ‘platformification.’
 
Banks need to deliver a platform which can be integrated with third-party providers, including payment providers.
 
“The bottom-line is, to be able to move forward with digitalisation, we all need to provide quantifiably superior solutions in terms of cost, performance, speed and convenience,” he said.
 
Banks and other financial services providers will have to go the extra mile to embrace the technology that can support this journey, Martin argued.
 
“The world has changed so much to the point that now everyone who has the capability to consolidate cash in their platform can be a bank already, without the need to start as one,” he said, referring to the ICBC-WeChat banking consolidation as an example.
 
Banks, however, are not blinded to the changes in the business landscape. The head of the Information Technology and E-Channel Division at Indonesia’s Bank Index, Muhamad Jumadi, in fact argued that many see this as providing tremendous potential for their business in the future.
 
Speaking to Digital News Asia (DNA) on the sidelines of the conference, Muhamad said that with the digitalisation of financial services, small and medium banks could now compete against the giants.
 
Bank Index, as well as the Indonesian subsidiaries of Commonwealth Bank and QNB Bank, is currently placed under Category 2 (Buku 2) of the industry, which covers banks whose capital range from US$71.6 million to under US$358.5 million.
 
Larger banks such as Bank Mandiri and Bank Central Asia (BCA) are at the top, or Category 4 (Buku 4), with capital above US$2.2 billion.
 
“We cannot compete with the big banks in terms of assets and capital, but we still can compete and be ahead of our game if we embrace technology and open up our platform to collaboration,” Muhamad said.
 
“As quickly as possible, we need to build our own digital platforms and look for collaborations with solutions providers as well as third-party payment providers.
 
“If we get there first, then there would be a big chance that we can be at the forefront of digital financial services in the country,” he added.
 
Regulatory setbacks
 
Non-traditional services provider have another edge: The efforts of banks and financial services providers to innovate and embrace technology require support from the industry regulator and central bank, such as Bank Indonesia in the republic.
 
“As much as we want the digitalisation of financial services to go further and to play its role in the economy, the central bank needs to think carefully of many aspects first, especially risk management and security,” said Ricky Satria (pic), deputy director of Electronification & Financial Inclusion at Bank Indonesia.
 
He said that although the central bank already came up with a national ‘less-cash’ campaign in 2014, implementation faces many obstacles, mainly because regulations need to cater to many industries.
 
“It is not only banks and financial services we are talking about here – we have to include telecommunication providers for their e-money products, as well as the fintech industry,” said Ricky.
 
“We do not want to put out strict regulations – we want to invite all these industries to come to us and give us recommendations that they think can benefit everyone in the ecosystem,” he added.
 
But neither can Bank Indonesia delay too long in its efforts to come out with the best and most comprehensive set of regulations either, argued FinSurgents’ Qasif.
 
“It is good that Indonesia’s central bank is not considering strict regulations, yet regulations are still urgently needed in order for stakeholders in the industry to move,” he told DNA on the sidelines of conference.
 
He said that regulations can either make or break the digital transition, and the latter would be an unfortunate situation for a potentially huge market such as Indonesia.
 
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