Emmanuel Daniel, founder of The Asian Banker, in a rather straightforward speech to the heads of technology of banks in Singapore outlined why the fintech phenomenon in Singapore is not in any danger of any breakthrough that is innovative or transformational and why Singapore banks cannot afford to be concerned more with themselves than with their customers.
March 17, 2014 | Emmanuel Daniel
I guess, to some extent, I’m the old man of the industry. The Asian Banker is 21 years old, and the funny thing about being called The Asian Banker is that we’re no longer Asian and we’re no longer banker. We have offices in Dubai. We do businesses in Nigeria, in West Africa, and in South Africa. Whenever we hold an event, you’ll see people of many different communities – Arabs and Africans and Chinese and, now, Japanese, in our community. We’re no longer banker because we also started to cover the peer-to-peer industry and, then, building from there to a much broader industry.
Before I start, one of the things for which you will excuse me is the way in which I’ve evolved as a person, and I think it will show in the presentation that I’m about to make.
So, all of you will remember that Kim Jong-un, the respected leader of North Korea, gave a speech recently. He said that, in the next ten years, North Korea will be the first country to send a man to the sun. When he made that announcement, he received amazing applause, but the foreign media in North Korea went to the side and said, “Sun? Isn’t that a little bit difficult and too hot to get close to?” and he said, “We’ll do it at night.” But of course, not to be left behind, the great leader of the United States heard this, and at his big post-election and post-presidential rally in Florida, he said, “That’s not possible because there’s no sun at night.”
There is no such thing as a customer-centric bank. A bank is an institution for profit. Its first motivation is profit, and it’s the most important reason for existence. In the rest of my presentation, you will start to see the dichotomy between being what we imagine to be customer-centric and that big divorce, that big divide, between banking and its customers, and why that divide will never be matched.
Banking is also not employee-centric. If I were to bring it a little bit closer to those of you who have seen your colleagues lose their jobs, have a security guard stand next to them, and be handed a yellow slip – everything that HR says about being employee-empowering and team-building, and building a franchise suddenly disappears because, at the end of the day, the institution is a profit-making animal. This is the profit-making animal that all of us spend our careers trying to make sense of and contribute to, and we think that we’re making a meaningful change.
There are three things that I want to talk about today. I want to talk about fintech, I want to talk about APIs, and I want to talk about the conversation. I apologise to all of you who are in the fintech community who think that you are making a huge difference to the society and to the industry.
When I started The Asian Banker in 1996, one of my goals was to be the most connected person in the financial services industry in the next ten years. Then, 1997 came, and many bankers lost their jobs. By 1999, I had friends who had gone to jail, and I had friends who had given up the banking industry and did other things like teaching in universities. And then, that phenomenon just kept repeating itself every three to five years.
And as I see all of you here in this audience, you’ve had massive changes in your careers in the last 20 years or so. In fact, one of the reasons The Asian Banker has been able to grow into the Middle East and Africa is because we follow some of the key professionals who are moving into those regions, even as there was consolidation in this part of the world.
So, in my eyes, fintech is made up of three important dynamics: excess people, excess capital, and the liberalisation of the technology itself to become more open. One of the favourite phrases that IT vendors like to say when they make a presentation on a product is, “I used to be a banker,” almost as if it gives them the validity to substantiate a product that they are introducing for the short term.
This slide on core banking systems is something that I copied from a very good friend of mine, Leslie Loh. Some of you know him to be an entrepreneur who actually pioneered one of Singapore’s original core banking systems. You will recognise the structure which is that, in a core banking system, at the very baseline is the general ledger, and then from there, the customer information files, the middleware layer, the data analytics, and so on.
In the early years, we used to think of core banking in an enterprise sort of a format. As the years went on, the IT vendors started to deliver to the different levels, or layers, of the infrastructure. So, what we call “fintech” today is a lot of different players providing, on a Java platform, what used to be an enterprise solution.
The most important dynamic that has changed in fintech is the pricing structure and we, who run The Asian Banker as well as the organisers of this conference, who have all these sponsors, feel it. The IT companies that used to spend lots of money with us, because they were able to charge $2 million for a data analytics project with a bank, have been disintermediated by smaller companies that are able to provide very targeted solutions at the customer relationship management level.
Quite recently, I was speaking to someone who was doing that exactly with one of the local banks. He was trying to show me his technology, and I said, “So, how are you building this?” He said, “I have $2 million in funding, and it is growing.” I said, “How much are you charging the bank for the project?” He said, “$40,000.” In all likelihood, he will have just one bank for that project, and, if he’s lucky, three or four banks around the region. Like him, there will be many different players who are disintermediating the fintech phenomenon in the industry that we serve.
As long as their customers are the banks, you are in no danger of introducing innovation. You are in no danger of being creative. You are in no danger of disrupting the industry. As far as the banks are concerned, you are a different pricing proposition for something they had always been doing.
For banks, it is a very interesting journey. What used to be an enterprise-level core banking infrastructure is being disintegrated but still carried into the new world, and there’s no change in that regard. Even as the IT vendors are talking about moving onto the cloud, the way the banks map it is, if we had core banking hardware on a mainframe, we now do it on a server. If we had a dedicated operating system, today we have Linux. Everything that we used to do just get mapped into what we think the future will look like.
When we think of APIs, it is a very promising infrastructure. But if we think about it in a way that we think of our traditional technology and carry it into the new world, then we lose the chance to make sense of it and benefit from it.
The evidence is that there are thousands of APIs out in the marketplace, and there are companies that make lots of money from APIs. In other words, it is a viable business proposition. The discipline of the API industry is being built. In fact, you can sense it because those of you who are already creating APIs, you know that you need to build chat groups, you need to have good documentation, you need to have practice runs, and you need to have samples, and build a community.
That part of building the API infrastructure is the easy part. The part that we forget as banks, because of the way that we’re structured and the way that we think, is the part that builds that relationship with the industry that we want to serve.
Let me personalise this for you. Being of the age of Rama, some of you have kids... I have no kids, but I have five godkids – two in Hong Kong, two in San Diego, and one in Seattle – and I love them. When I go out into the parks with them, they will look up and name the animals, and I have to look it up on Wikipedia because I’m not sure what they’re talking about, just to keep up with them.
Quite recently, Jeannie was sitting next to me around Chinese New Year, and she was showing me her app on the phone, and her mother said she built this game app on her own. She was using an API.
I was sitting in the audience during the Money 20/20 event. On the back of three or four different APIs, based on what the sponsors were giving them, I saw an enthusiastic crowd of people or participants in Hackathon building applications that made sense to them. There was this couple that did something about paying street performers with a QR code. Another couple was building a Fitbit app on Alexa.
But the interesting team is the one that won the top prize. It used the device called Alexa, which is a voice-prompted data analytics tool, to build a sales mechanism. It checks on how many sales you do in a day. They did a test of it where the device could tell them what the sales were last month, what kinds of things they sold, and who were the customers who came to see them. The most interesting thing that caught my attention was that, when they were accepting the prize, the girl in yellow said that the girl who did the programming was her sister, aged 14.
There are other kids –18, 21, 24 years old – whose imagination you want to capture in order to give life to your APIs.
So, I asked myself, “What would little Jeannie, or that 14-year-old girl” – let’s call her Kate – “or the 18-year-old kid called Muhammad, or a 21-year-old boy called Wei Kong say if they looked at the Association of Banks in Singapore-Monetary Authority of Singapore (ABS-MAS) API playbook?” Remember what I said about how we’ve transposed a core banking infrastructure into the new world? They’d probably look at it and say, “Uncle Mohanty, what is this MAS data that you’re putting up into APIs?” And you’ll say, “Well, this is the stuff we have.” “So, what do we do with it?” “Whatever you want – it’s up to your imagination.”
And if the kids ask, “Uncle Mohanty, what does your imagination tell you about what we can do with the data you’re putting up there?” well, I hope that Uncle Mohanty’s here to answer the question. They’ll probably ask Auntie Ai Boon, “Auntie Ai Boon, your APIs look suspiciously like the problems that your banks wanted to solve ten years ago, which they haven’t solved yet, and they’re just putting it up on the open space so that maybe somebody will solve it.” There is such a great need to walk away from the world that we come from to the world in which we are entering today.
These are the top finance APIs in the world right now taken from a website called Programmable. Most of them have to do with payments. Most of them have to do with things that are fronting the customer, the customer experience, in the same way that I pointed out to you the Money20/20 competition, Hackathon. One API, or the strongest API in this room that could be in this list, is NET, but it’s in the nature of shared infrastructure that its member banks will not allow it to. And there’s nothing wrong there, by the way, because I see this repeated in every country.
The most shareable platform is the platform that banks will not share. The most intimate platform to the industry is the platform that the banks will keep to themselves that keeps a lot of fintech companies trying to solve problems that they’ve not been able to solve over time.
So, the question that I’d like to ask you is: As you think about APIs, are you carrying the baggage in your head into the future? You know something? We should not even be talking APIs. We’ve now gone into chatbots. And so, those of you who are trying to set up APIs, thinking that that’s the future, the future is already here. APIs now function at the back-end, and today, you need to look for that conversation that customers are having to provide your value proposition at the point of need. That technology is here today.
And so, even as we think about what it is that we need to do on the API front, we need to make sense of: What is the core idea that we want to build, the bridge that we need to build? One of the things that we do in The Asian Banker is organising study or innovation tours – Silicon Valley, China, and Japan.
When we did this in China, the head of wealth management of Ant Financial, said that the success of Alipay was not because they thought of a product and commercialised it. The success of Alipay was because there was a real need in the community on Alibaba’s platform, and that came through the data that they were putting together or the trends they were seeing in the data.
Similarly, the success of Yu’E Bao – that huge mutual fund that they launched, which grew to $100 billion in one year, the world’s largest and fastest-growing mutual fund that you can ever imagine, all in a mobile device – was because the small merchants that they were doing business with told them, “Look, when we need to make payments, there is a float aspect involved. Can we keep the float somewhere in an escrow account, but at the same time, can we invest that?” From all of these needs, they provided solutions.
The way banks think about the relationship with customers is the other way around. We think of our products and then work out how to sell it to the customer, and we’re not even interested in listening to what the customer really needs.
I took screenshots of one website. All the banks are equally guilty, so please forgive me for choosing this one. When I see products like this on the website, what I see at the back-end is a legacy institution made up of thousands of salespeople, a daily sales focus, and a fear of not being able to meet targets on a daily basis. I don’t see a conversation. I don’t see that picture reaching out to customers to figure out where the needs can be.
MAS and the Association of Banks are very proud of the Fintech Festival. On the morning after the Fintech Festival, if you took a taxi from the airport to town, there is hardly any taxi driver who will accept credit cards for payments, including the ones who do have credit card machines, despite having a 10% surcharge on credit card payments. They beg you, “It’s three days’ float.” They beg you, “I don’t have the infrastructure in.” They beg you, “It’s too expensive.”
MAS and the Association of Banks slipped in the excuse that real-time payment and peer-to-peer payment, will be out at some point in the future. If you live in condominiums or are members of associations like clubs like this, you still need to pay by writing a check.
In the newspapers, MAS is so proud that Singapore is up there on the fintech list. At the checkout counter, this looks like a third-world country. Cash withdrawal? Proud? Necessary? And if you look at all of the contact lists initiated, the so-called innovations taking place, they’re all credit-card-centric because, unlike Japan, Malaysia, Australia, and even the US, this is the one country where there’s no legislation on reducing interchange rates so that it promotes the non-interchange-based payment infrastructure.
But do you know what is the saddest thing about this list of areas where improvements can be made immediately? And it’s something that I’ve mentioned to Jocelyn before? This remains the one country where credit cards are taken away from you by the merchant to a hidden place, processed, and given back to you. Even in China, they don’t do that anymore. They bring the device to you.
These are small disciplines that can give the man on the street a feel that, “My country is changing,” because this same man on the street goes to China. I spend every month in China, and I use vCheck. I honestly do not carry cash anymore. And then, they come back, and they read the newspapers, and there is a disconnect between what the banks are saying about themselves and the experience of the man on the street. And do you know what the saddest thing about that disconnect is? There are no complaints. And if you think of complaints as being the first step to building a conversation, the MAS’s key performance indicator (KPI) to banks when they receive complaints is, “Reduce the complaints.”
This is a country which, for 30 years, has been trained to leave financial services alone. We don’t leave public housing alone. We don’t leave healthcare alone. We don’t leave transport alone. We complain loudly. But financial service is the one area that has been able to get away with so much.
So, my last point is this, that if all we’ve been doing is digging in to the world that we’ve been familiar with, then we’re not making a change. At the same time, it’s so important to stand away from the hype that we pump ourselves with. We say that the future is in robo-advisors. Robo-advisors is more of the same of a phenomenon that started in the 1970s, where retail investors started getting involved in markets. It’s a phenomenon that’s changing rapidly because people are no longer investing in companies, because in companies today – and from the ‘70s, the ‘80s – the retained-earning capability of the corporate sector has been dwindling.
The profitability of the corporate sector has been going down, and what the markets have been doing is, instead of investing in underlying assets, they’re increasingly investing in indices. You can tell what the logical conclusion of the robo-advisors will be. It will finally end up in the hands of the investors, and the financial institutions will be disintermediated.
One thought that I leave you with is this, and it’s from someone I respect very much, David Ronfeldt. Nobody hears about him, but he belongs to the RAND Corporation. In the 1990s, he wrote a paper which said, “Society moves in four phases: tribal, institutional, markets, and network.” He wrote it at a time when the most advanced equipment you found was the fax machine, and internet was new.
When I use this to develop my own thinking of how the financial services industry is moving, I can use it to make sense of things like Libor, for example. If you think about Libor, it was developed during the tribal phase in the UK, in the 17th and 18th centuries, where market makers got together and shared data with each other, and then it was institutionalised.
In 2010, when the Libor crisis was breaking up, every time there was an announcement in the UK, the next morning, I was always invited to Bloomberg or BBC to make a comment so that they could get an early-morning comment or sound bite, and then it would travel around the world to the other side. One question I was always asked was, “Isn’t this fraud on Libor going to affect the $5.5 trillion FX market?” and I said, “Libor doesn’t owe a duty of care to the FX market. FX belongs to the market’s phase of human society.” In the back of my mind I knew this. And Libor has been institutionalised to provide a guide to loans.
It took seven years before the UK courts were able to prosecute the first person on the grounds of duty of care to the markets after that. But now, we are going on to a whole new world where we are going to be defined by the networks – and the networks do not belong to you or to me. They belong to the society out there who will be doing things with each other and having intense conversations with each other to which you, who belong to the institutional face of human development, will have to figure out a way to plug in and make sense.
If you’re carrying your baggage from the banking that you knew into the world that we are going into, you might as well say that there is no sun at night. Thank you.
Categories: Core Banking
, Financial Technology
, Retail Banking
, Risk and Regulation
, Technology & Operations
, Yu’E Bao
, Ant Financial