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Leaders debate future of digital and retail finance in largest annual meeting

https://live.theasianbanker.com/
Written by TABLive  
  • Jan 01, 1970
  • 115 min read

Key industry players from all around the world gather in the largest annual meeting of heads of retail finance in Asia Pacific, Middle East and Africa for one day of remarkable discussion to tackle the current themes reshaping the international digital and retail financial landscape.

Here is the transcript by sections:

 

Emmanuel Daniel (ED): We learn a lot every year from just interviewing and assessing over 300 institutions across all the different countries you come from. And all of you who attend this meeting regularly already know the valuable insights you get from the submissions made and from the assessments made by our researchers on the key findings.

Ladies and gentlemen, one of the issues that I wrap my mind around a lot is how does a traditional institution map its own journey? What is the story that you create, in order to internalise as part of the decisions that you need to make?

If I were to conceptualise the challenge that the banking industry has, I will go back to the Kodak story. I gave a speech about three or four years ago, which I called the “Banking’s Kodak Moment”, the Kodak story. We think that Kodak was disintermediated by a digital. Actually, Kodak invented digital. What was interesting is that they invented it several times in the process. They had the automatic camera and then they put the digital device and so on.

In the 1990s, they made one very important decision, and that is to make digital available to their corporate customers. And they were so in love with the 35mm film that they thought that's going to continue as their core business. They were in love with their global, loyal distribution base and all of that. Guess what happened in the seven years after they commercialised digital film? Their share price continued to go up. They had a seven-year hike up to about the year 1997. Even after that, it was still a very investable stock, where they continued to benefit from the digital investments that they had made running that alongside their traditional business.

Now, I'd like to say that I think that all of you are succeeding as financial institutions today. Your numbers are good, your bonus is very good, your boss is happy with you. That's because we are in that phase where financial institutions are the net beneficiaries of the digital dividend being created today. And that's because the regulator has mandated that all of the digital transactions being created is routed or funnelled through your institutions. You are the beneficiary of Visa and MasterCard going digital. You are the beneficiary of supply chains being digital. That’s because of know your customer (KYC). The best players to go through to finish a payment transaction to originate a loan and so on is still the traditional financial institution.

The question is, at which point did that story break? At which point did that traditional institution lose the mandate? In the case of Kodak, they lost the mandate when someone put digital on a consumer camera. That someone was Sony. And by that time, Sony had a brand which was commensurate with consumer convenience, and which was able to carry that. The fall of Kodak was swift. Between 2000 and 2010, all the way down. And 2010 was when they had to declare bankruptcy.

So the things that we are looking for in financial services are what are the triggers that will eventually take that mandate away from you? One trigger was Sony putting it on the camera. The other trigger was the mobile phone operators putting the camera on mobile phones. Another trigger was the start of YouTube, Facebook, and all of the digital platforms that were being created, which transformed what film was all about.

Now we have here Steve Monaghan, who worked both for banks and insurance, who like you, is in this business of thinking through at which point traditional institutions lose their mandate. And also Andrew McRobert, who is a very highly regarded small business banking teacher.

The interesting thing about small business banking, small and medium enterprises (SME) banking is that the most important component of that is to be able to assess credit in a very rigorous and impartial way. Andrew is very good at that. Even Andrew has started to onboard things like digital and the fact that credit assessment has gone digital. So I like to benefit from their input in that sense.

 

Are we at the inflection point?

ED: Now having made this first assessment, I'd like to get a sense from all of you. What do you have in your head in terms of the trigger points that can disintermediate traditional institutions?

Johannes Hermanus de Wit (JHW): I think we are already beyond the inflection point. If you look at the origin of banks, many banks are heading towards the single-digit returns on capital. What will trigger it is that investors are not willing anymore to invest in banks, because they don't see the margins there. And why are some banks waking up and doing a good job, but most banks are still all there? It’s because of the mindset, the culture, and the people. You see, in many banks still, net sales is the thing they work on. The sales people are managing the company, not the operations people, not the IT. That's typically second stage. You look at them and say that they still think in traditional organisational structures, where traditional departments are leading the organisation, and typically in a very siloed way, instead of thinking platforms. If you want to be successful in the future, you have to start thinking of platforms as a bank. But again, this requires a different mindset. It's not about technology. It's about the mindset of the current management. All of the banks still thinking products. How many products can I launch?

I've seen great examples where banks have reduced the number of products significantly, simplified operational processes, improved their core customer experience and their market share and sales went up. So it's not about products versus customer experience. Think about what the customer wants from you. It's not about how many products you have. It’s about how easy it is to buy the products. The last one is that many banks still make the mistake of building the future solutions themselves. They can never compete with the fintechs and the bigtechs. If you want to be successful, collaborate with a number of fintechs you believe in. Use the infrastructure and technology there. Go collaborate, and then sell your things where you're really good at, because banks are not good in building.

Joanna Lam (JL): I would like to share that in Hong Kong, most traditional banks are now watching out for the establishment of virtual banks in Hong Kong, because the regulatory bodies in Hong Kong are very likely to issue licensing to the virtual banks. This is a major threat to the traditional banks, especially for us Bank of China, Hong Kong, because we have a major competitive edge of 200 branches in Hong Kong. But is this still a competitive edge for us? In recent months, I see a lot of Chinese traditional banks preparing for a virtual bank. They go and come out to sell their mobile banking, digital banking. But is this just on the mobile banking or digital banking to compete with the virtual bank? I think this is a very good question to discuss.

Girish Sehgal (GS): I believe it's a question of whether we compete or collaborate with different tech startups. Specifically for India, when the startups and the fintechs started, it's been a big boom out there. Both banks and fintechs try to intimidate each other. But over a period of time, both entities have realised that unless they partner each other, they won't flourish.

So if you take the case of ICICI bank, we have partnered with Amazon and I think we are the first bank in India to have a co-branded card with Amazon. So how does Amazon benefit? Amazon benefits because we have close to 65 million customers. We benefit because we also get access to their base, and both the spending for us increase and the spending on Amazon increase. So it's a win-win for both. And being a bank, bank controls deposits. We control investments, we also control assets under management (AUM). So if I'm a client, I would always love to go to a partner who would offer me everything. I don't want to split my banking and do piecemeal with multiple partners. I want to be the primary with one entity, and that one entity can only be a bank because we have all the elements available with us.

A fintech can be very big, but it can only offer some piecemeal and they can only be successful if both these entities start working together, right?

Spiros K. Margaris (SKM): What Girish (Sehgal) was saying, the fact that Amazon partners with them, it shows me clearly that Amazon, the tech giants, sees the value in banks. So you don't have to play their game. You have to understand your game, what you're good at. Because if you play their game, you lose. You have data they want and you just have to modify it. As Steve (Monaghan) was saying, find what's really good data. And when you have that and you price it for yourself, that's more valuable. Then you can compete because if I try to compete against (Roger) Federer in tennis playing, I'm dead in the water. I'm playing something else. I’m talking about fintech, he’s dead in the water. That's the game we have to play. You have to start finding out where you are really good at, really, really good at and protect this and provide the customer with that. All the rest, you lose.

 

Relegated to dumb pipes

Steve Monaghan (SM): I think it's already happened and it really comes around payments. If you look at liquidity management and the difference between deposits and loans, we've lost the source. It's like the tech companies have already created the dams and the customers and we’re relegated to dumb pipes. When I was chief innovation officer of a bank in Singapore, I remember this vehement argument that came back at our first big data day and it was that there was no trust in these tech companies, and that banks had that trust. The argument that was put forward that caused the reaction from the CEO is that banks would become dumb pipes. Q4 last year, he was quoted in the press saying banks run the risk of becoming dumb pipes. So I think we've already had that moment. And the last time that the banks really collaborated was Visa. We've really lost that opportunity because we're so stuck in silos that we forget the application of that data into where we really make money. So we've given up the source of that data now. And unless we take action quite urgently, from a banking perspective, we run the risk of being marginalised.

Ketan Samani (KS): I can complement what Steve said. I have tremendous respect for Steve's points of view. And he mentioned the word collaboration.

Very recently, I was advising the board of a telco in Singapore around ecosystem and collaboration and after 25 years in banking and back after a three to four-month stint, the realisation that came to me is that banks are really poor in collaborating outside themselves. And this is exactly what tech companies are showing us over the last 20 years, that without creating an ecosystem and true partnership, you cannot flourish. We have to leverage each other's strengths and banks are very poor in creating partnerships. They just themselves don't trust anybody. So how are they going to invoke trust in a customer?

Girish Sehgal (GS): I think the traditional banks again, have an edge over there because the recent guidelines, which have been issued by the government and the Supreme Court in India is that you can't use the Aadhaar, the identity number, for doing the KYC unless the customer has an explicit consent, otherwise you can pull the data and do a KYC. So that's an advantage, which has gone in favour of the banks.

ED: Actually, David (Gyori), the UK situation is also the same, where it’s interesting. Open banking regulation came in force last year, and guess what? The banks didn’t lose market share.

David Gyori (DG): Yes. So, currently there are nearly 100 third parties in open banking in the UK. And this ecosystem is full of surprises. For example, the primary role they statistically fulfil is turning towards micro, small and mid-sized enterprises. Everyone expected that open banking will primarily serve the individual client, classic retail banking. As opposed to this, I see third parties who are specialised on aggregating accounts for SMEs, specialised on giving better automatic funding to SMEs based on their account aggregation, specialising on helping SMEs creating accounting automatically, based on all the aggregated data, helping SMEs find the best services for themselves, and so on. So this is a big surprise.

All in all, this open banking is still in nascent stage and the rest of the European Union is slowly following up. I tell you a negative surprise, because I think this is a positive surprise about open banking. We all feel that we have adapted towards micro, small and mid-sized enterprises. And now the negative surprise. In the UK currently, there are more than 40 licensed challenger banks. These are digital-only entities. They are licensed by the Financial Conduct Authority (FCA) and they are called challenger banks because the entire regime has been set up to challenge the four market-leading, oligopolistic, incumbent players. Now, the expectation was that these challenger banks will be extremely active and potent third parties under open banking. As opposed to this, what we see is that these challenger banks are absolutely clumsy and most of the time are staying away, for some reason, from open banking, as opposed to challenger banks grabbing the third-party position in open banking. What I see, it's a little bit of a subjective observation, is that some incumbent players are actually mustering it, and you log into their mobile banking app. And now you can see all your accounts in the incumbent banks’ mobile banking app, and actually clients in the UK love these!

Nguyen Mai Khanh (NMK): People are talking more about the providers first. So as we have fintechs, we have company, we have more banking services and solutions for our customer. But from my point of view, I would think and see it in another direction. Let's go back to the traditional market many years ago when people go there to buy everything, every day. But now we have a lot of convenience stores. Everything seems to be very convenient and then people change their lifestyle, the way of buying every day and buying at every stop and I would believe that in retail banking, things are the same. So I would say that the key factor that changed the traditional banks is lifestyle or the convenient factor in using banking and financial services. And maybe the disruption factor could be the laziness of people in using stuff.

Laurence Darius Loh (LDL): Is there a competitor here in all space? There’s onboarding much faster than the banks. Look at what Grab just launched, Grow with Grab. He's doing the money 2020. Basically, they are able to onboard customers much faster than the banks. They are able to lend their ticket size, like what we want to do as well without going into the vigorous KYC. They are actually basically in all our space right now, the small business space. They are able to do insurance. They are able to do small business lending to the Grab food merchant. On top of that, they are now going to work with the likes of Lazada, Q10, to even give credit lines to merchants that they're able to pay via GrabPay. So they are intruding in all our spaces, and that we, as bankers are thinking, this is three years up. So in order for us to build our infrastructure, what is our payback? Because I need to be able to justify the bottom line to my shareholders, to my senior management as well. So it is very challenging. I know what to do. I know that I need to be able to compete with them, the ecosystem, but I cannot build as quickly as I want to, because I am held back by the balance sheet, the growth of the profit and loss (PnL).

ED: A lot of this is because Southeast Asia is the net beneficiary of all the transformation that is taking place in China, which is now being exported outside. And so what he was describing is the Southeast Asian equivalent of Uber, or in fact they took over Uber's business. They were competitor to Uber, the company called Grab, which was started by the son of car import family in Malaysia, and today offers car transportation services, Grab, in 14 countries, 140 million customers hands down. In other words, there is no bank in Southeast Asia that can cover 14 countries in 140 million customers. Then they started onboarding all of the other products and services on top of that, which is as long as you say food delivery and then credit to the food deliverers’ supply chain and lending and so on and they're doing it very, very quickly.

Let me tell you that this aggressiveness in creating entire ecosystems is taking place in Asia far more than in the West today. And why is it that Twitter, WhatsApp and Facebook are still mulling around with just putting a payment component to their own ecosystem is unfathomable? I keep asking them these questions. Maybe it's because they don't want to get into regulatory trap in different markets and they want to be ubiquitous and keep to the lowest common denominator. But entire ecosystems are being created in places like Southeast Asia, which is actually a fragmented market. But you have a player that can capture 140 million customers, which banks like DBS will have to pay billions of dollars to be able to acquire another bank in a second country, never mind 14 countries. So that's an amazing story.

Gordian Gaeta (GG): I think there's one answer and everyone will like that. Most of the players are intermediary distributors, value added, but the banks are exposing their balance sheet. When you expose the balance sheet, when you are a principal, you think differently about the business than when you are an intermediary. It's very easy as an intermediate, you have 140 million customers. There's no bank who could afford 140 million customers on their balance sheet. And I think that's why not everybody can do what everybody else does.

SKM: The responsibility doesn't lie in the balance sheet. The responsibility to your customer lies in providing a future for the business. If I'm a shareholder, that's all I care about. I don’t care about the balance sheet as long as they invest into the future. That's what I care about. If we think we don't spend money, pay more dividends, that's the future. It's just slow death.

ED: It’s an interesting thing because if we took the whole funding component of this discussion on the table, the funding universe is now very sophisticated. You have the traditional institutional investors, the blue chips, you have the venture capitalists and then you have the seed funders and so on. And each of them has an ecosystem behaviour, what they're looking for, which is very different from the other. And it's almost like the parent of the banking system is different from the parents of the startup community. And once dependent on being able to sell a startup to the next level of funding, and that's where the revenue stream is and the other is on traditional dividends. We are talking about completely different parents when it comes to funding. This is something that we have to come to terms with, and no one parent now dominate. So if you talk about the stock market, yes, it's now lost its lustre as a source of exit, but the private equity players have their own discipline, which is to scale up an organisation before being able to sell it. So they all have, each of them, different disciplines. And now the range of choices you have is amazing.

Wilson Chia (WC): Now I’m looking at the traditional thinking. You know, open banking concept. In the past, most retail banks, when you have bancassurance services, because you don't produce your own insurance, you take third-party products and you sell, because you said I'd rather use third-party products to sell to my customers to serve them holistically. So there's a concept. Now in the era of open banking, it allows you an opportunity to export your services to third party. At the same time, you can use third-party products to import into your platform to sell to your customers. So that's the opportunity of open banking, to make it simple.

Elissar Toufaily (ET): What he's saying is totally right. That bankers who are challenging already have their system and are bringing third parties to work on their system. So unless they have their core banking functions and services and they're providing innovative new ones, new solutions that will work will be able to do it because of fintechs and others are here to play it. So that's why they're succeeding. They are already serving the traditional banking system and offer additional services, like a one-stop platform for the customer. So it's like they are offering values and attracting new customers, which are the digital natives, the SMEs.

ED: So we are now in that seven-year period where Kodak continues to enjoy the digital dividend, and then comes the trigger. Now, what is the trigger? What are some of the triggers?

 

Change should come from top and bottom

Terrence Teoh (TT): So bankers like us, we just can't run like Uber, right? The more money they lose, the higher the valuation is. That's not the old way of doing things here. But nevertheless, if we look at Ant Financial, at Alibaba, they do a lot more lending to small businesses. So the way of doing things is no different as the way that banks are doing it today. For example, they lend to the SMEs, but they do their market check through their customer feedback. Instant life, right? And today we call their supplier, we call the customer and get feedbacks and we put into PayPal, whatever things that get approved. So these are definitely things that we need to improve and change. Alibaba does billions of transactions on a daily basis and they send out zero hardcopy statements while today, banks like ours, we are still doing that in some form. So definitely this gives us big areas of improvement as well.

It goes back to the speakers today. It comes back to the employees. How hungry and how fearful we are.  We want to drive change and driving change is not only from the top itself, it has to come from the bottom as well, concurrently. But we are facing a dilemma where buyers say you do nothing, you fail nothing. After all, we are not Jack Ma, the more failure you have and things like that. So is there a lot of roles for all of us to drive change? And is our employee coming to work every day? And are they're making a difference to our customers in improving their life? Yes, there are constraints. We all have compliance and legal in other banks. So we all report to some central bank but definitely, there are many rooms for all of us to improve on.

Samir Gupta (SG): Same here, in Malaysia too, CIMB. Of course, other banks too. Everybody's working on this turnaround. But I think it’s not just a question about speed. It is a question of the entire customer journey.

The question you asked is when will the seven-year time period end? It'll depend on how quickly the regulators allow the payments guys, the non-banks, who are quickly gaining market share on ecosystems or payments to do banking. Now banks per se, I believe that some of us are able to compete with these guys. Where we are struggling is the point which was made on culture. On digitisation and data alone, there are pluses to be had. But this entire culture of getting other functions to play ball from a customer journey and customer obsession standpoint, that's where the struggle comes. For example, the number of fields of data entry that is required to onboard a customer is a small thing, but it does play a big role in terms of how banks are still caught up in the past versus some of these new guys who, within five to seven fields, are able to make a decision.

So, customer journey. Data partnerships, ecosystems are not enough without the customer journey. This whole customer journey is the point about onboarding. Community creation will only happen when you get mass scale onboarding. That happens when your large customer is onboarded. It goes back to that culture of customer obsession, which needs to be not only in the retail function, but in other supporting functions, digital and data hygiene. I mean, everybody's going through a transformation journey today, the ones who will succeed are the ones who are able to transform this customer journey. And that leads us to the personalisation we just talked about.

Stewart Lockie (SL): I think collaboration is the only way to go. And banks are wise enough to realise that. I don't want to speak ill of them because they're not here, and it's a compliment to them, really, but if you look at Liv Bank here in in Dubai, the one thing they recognise here is that they’re bankers, they're not millennials. So if you go over and look at their lab, where they launched their mobile-only banking platform, in the first few months, nobody signed up until they went back and said ‘Powered by Emirates NBD’. And then all of a sudden it went through the roof. But if you look at the team there, none of them are bankers. They've got a gamification guy and an AI guy. And when they set it up, it's exactly that they didn't have a bunch of bankers thinking product. They had a bunch of non-bankers, actually a creative agency, saying if we're going to launch one thing, what is it going to be? And I think that's a classic example of collaboration in action and being successful for the future. Profit pools.

ED: A lot of the innovation is taking place in the West, in Europe more than the US. But definitely Europe is onboarding. The speed with which you're able to onboard 60,000 customers a month and they’re very happy all these mobile phone, mobile banking and so on. And after they onboard, they don't know how to monetise it because they have the deposit side and then there's no transaction, there is no lending and then start keeping quiet because they start waffling on things like cost of operations, which is difficult to monetise.

The second battle is really whether the financial institution or an insurance company is in asset creation. And I think the traditional institutions are far more successful. You have real assets build up, except for what I said just now. Alipay, for example, and Financial Ant and other players in China, which have been more successful in creating huge assets or mutual funds. Also in lending, the average large peer-to-peer-lender in China does $10 billion in two to three years. On the back of very simple information – such as your friends on your mobile phone, the fact that you belong to a supply chain – the whole approval period is three minutes and there is insurance against that. There's a protection element against the asset being created. But that's the magnitude of the size of assets being created on digital devices today. But the hard one, both again in China, because there was a small regulatory arbitrage, the small window where the regulators were watching, where you have both Tencent and Alipay creating a whole ecosystem around themselves before the banks came in, and now the regulators are coming in to regulate even them and forcing them to play with banks. You see the same in Europe today with players like TransferWise, which have been able to scale very quickly but now have to work with traditional, financial institutions.

JL: I just want to backtrack and respond to what Wilson (Chia) just talked about. I am 100% in agreement to what Wilson said. And Michiel (Ykema) mentioned earlier, it needs to come from the tone from the top. Because is not just about technology, it’s not just about data, it’s about everything. In our bank, we went through that transition last year on our retail bank. We spent about half a year studying and then we totally restructured the bank so that it will be on the retail side. So it’s customer-experience driven. The products would just be technical experts and we are building collaboration with all the different traditional industries, who are depending on brick and mortar to drive the business because they all face similar challenges, not just banks. Every retailer, they face the same problem. So that tone from the top and that restructuring is done. But there are still difficulties from the other side, not just banks but our regulators and also our financial systems. They're all built around products. So banks are regulated the way they sell their non-products and their insurance products and their fund products and all that. You can't change that overnight. Also being the tone from the top, you can't tell your compliance people to forget about your product protocols or change the accounting system.

ED: But you can mobilise your own staff if you did have a product approach.

JL: You can't change that overnight. These are the things that even if it's tone from the top, it needs to go step by step. We can change the frontend, but we still need the backend control. You can’t change your accounting system and say you'll be entirely customer-experience driven. Now the digital players have a definite edge because they're just coming in from one product or one service platform. For the banks, the personal lending side, the battle has already been lost. Because there are so many players just coming in. From the use of data, it can be from everywhere to build that profile for the customers, whether you want to lend to them or not, and your pricing model and everything and this is built from the other way around. So the way we think as traditional bankers, we think about next year, we want to increase our revenue by whatever percent and that's what you're going to do. From the digital players, it’s the other way around. They’re solving customer pain points and building their business, building their traffic and then having a business model. For traditional bankers, it's not just about all these things that we've talked about. I totally agree with Wilson (Chia) that we need to look at it from the top, what are the various things that you need to move and the step by step basis in order to survive.

 

The future lies in the use of technology

ED:  I want to guide, I want to curate this process through. We need to leave this room with our own idea of three levels of evolution and our take on that.

The first level is the whole digital revolution. And when we talk about that, we're talking about from physical to digital, we're talking about platforms, we're talking about identity, about integrity of transactions. We're talking about friction, intelligent data, devices, even energy. Because your mobile device is capable of a lot more than what it does, limited only by the battery power.

Now, as these transformations take place, there's going to be a revolution. In other words, your mobile phone as is, at least it is today, once the energy revolution it cracks, it just takes devices to a whole new level. This is not even 5G. 5G is yet another element in there. And business models and so on.

We need to take a view. How long is the platform industry going to evolve? And are we still talking platform? Because privacy rules. And if the revolution in blockchain continues, it is going to create increasing personalisation of platforms. In other words, it's no longer a game of you becoming another Uber or a Facebook, it's you having to conquer each customer one at a time.

SM: Your argument is basically saying you'll get to networks of competence where you'll have different feeders to a network with different competencies. But I think the one thing that makes it for every consumer is interesting quality, cost and access because humans are fundamentally lazy and want lower prices, right? True, they drive everything. And if you use technology in a way that maximises that, that's where the future lies. We'll get to places where there's just basically an AI over blockchain. The question is, how do we move from today to there? Because our friction within the silos is massive within banking where we actually make money. The most frightening thing that I find in banking and insurance, we don't do math outside of our own silos.

GG: I think that you're asking for inflection points. And you made a really good point this morning about blockchain. At the end of the day, it's about the bond. And at the moment, the banks believe they have the bond with the customer and therefore they can defend their position. The day the bond moves to one of the suppliers in the chain, the whole game changes. That is going to be the sea change. And just to give you an idea, when you go into Carrefour, you see products made by Carrefour, products made for Carrefour, brand products from somebody else, non-branded products, and all the other things. You actually don't care very much at the end. Everything you buy is what you need for cooking. But the key is that the Carrefour-made product is the same value than the equivalent brand by somebody else and you shop on price and convenience. The moment that happens, most of the banks will be out of business. And blockchain may actually be the enabler. I think you made a good point about that. That actually could be the only reason for blockchain.

Jocelyne Chahwan (JC): How will you prepare this digital environment, the segregation of duties, the way you have it in the physical environment? Who is responsible for the customer experience, the acquisition, the IT and how to make it happen? We know the rules but how do we make it happen in a digital environment? The same way that we have today on the physical. This is mainly the big challenge today, especially if you have platforms. Maybe they are also the trigger.

ED:  If you allow us to come into your banks to help you benchmark, this is one of the data that we show, which is the rise of the technology employee. And what's interesting is that you have financial groups like Ping An, which has made a public comment saying that they are no longer a bank. They are a technology company. They are a platform, they are an aggregator, all this good stuff that you guys have been talking about, and therefore, about 63% of their employees are IT people. And guess what? Their balance sheet changes, their income is no longer from net interest income. Their income is from enabling other banks, basically, right? They’ve become a Bank of New York.

Michiel Ykema (MY): I was really triggered by what was said about how to get the responsibilities divided online or in the digital world, as in the real world. And the assumption is that one should do them. But I think you shouldn't do it. You should find a new way of working. Because traditional banks really measure themselves by how many people they've got working for them and what kind of people they've got working. So I'm not sure that having 63% IT in your company is the best or the only way to go. Perhaps you should find a whole new way of organising yourself and not just try to cut out your desk and put it online and do the same thing in a different space.

SKM: We have to forget about technology. We talk a lot about technology. Most of us probably don't understand technology deep enough, including myself. So I forget about it. Of course, I bring it to the point. Think about what we need as customers. And then when you pick that up, you ask the technology people to deliver and then you will see all the problems because they're going to say, ‘Oh, this legacy system, we can't do it’. All right, let's change it. Point 1, Point 2 here. Everyone wants to be a technology company. But I don't see banks spending the money technology companies spend. UBS, for instance, sucks. But they all suck. If UBS would say no dividends, we spend a fortune on new technology, the stock would explode. But people don't think that way. When change happens, and that's my last phrase for this moment, is the period how long the CEO stays in power. If you want to see change, change will happen, the CEO leaves. Because the new management properly, hopefully thinks differently. Coming back, you have to spend a lot of money in technology. You will make losses, but they’re good losses.

ED: I need to add a correction, because Ping An has 22% of employees in technology. They are in the process of evolving, whereas Ant Financial is truly a technology company. But guess what? In the year that they introduced a mutual fund, they had a 100 billion dollars within one year. Can I repeat the number? One hundred billion dollars in one year and still holding the top spot in mutual funds in China. And not only that, on a product front, they have transformed the idea of mutual fund into a current account. And that's because you can buy and sell on your mobile phone and the people who do that are your mom and pop, who, instead of having a current account or a savings account, believe that they are participating in the equities business. And that's something that technology has changed.

SM: But I don’t think we’re doing one or the other. How many spin outs and carve outs has Ping An done? And you look at the cost of funding. We’ve adopted all these sorts of things they're making, pulling in massive amounts of money off to the side by mimicking what the startups are doing, your Ant Financials, your WeChats and all that sort of thing. How often are we using those tools as bankers ourselves within our core business? There's one institution which is the most valuable financial institution in the world that's actually doing it. We're just talking about it. We assume that these are the only mechanisms that are available to the tech companies and it's simply not true.

Piyasak Ukritnukun (PU): I run a small micro finance company. We have the benefit of being a subsidiary of a bank. The benefit being that we have Japanese shareholders. We worked in an environment where we had American shareholders a few years back and there's an impetus for serving your shareholders with quarterly updates. We've experienced a situation where there's been a mindset shift. When your shareholders are a bit more patient, they're looking further into the future. You actually have a bit more room to have that discussion, to say, hey, my number is going to look like this, but it's a good loss. You know my numbers aren't going to grow at the same trajectory as before. We're going to dial it back a little bit. We're going to divert resources to investment because our ultimate job as fiduciaries of companies is to ensure long term sustainability. So I think that's the way we're thinking about.

JC: The biggest challenge we see today is the responsibilities and duties within the bank during this transition, the segregation of responsibilities. Who does the job? And we see the appetite of the IT controlling the bank and the business feels frustrated not to be able to do the customer experience the way it is supposed to do. The same way as we have on the physical environment.

GS: I tend to disagree on one thing. I believe banks sit on huge data and it's our ability to use that data. So if as a client, I'm using my credit card, I have the entire spending which reflect and give me a great insight. If I'm using a debit card, I have great insights. If as a relationship manager, somebody is going and meeting the client and entering the details, I have the entire set of unstructured data available. Somebody is calling the call centre I have the entire unstructured data available.

ED: You know where I first heard that sentence, what you just said? 1999! Big Data has not come in place yet. 1999!

GS: The huge data which is available. So, if somebody is transacting through my account, I have the entire history, geography available for that client: what transaction, where is he spending, how is he loading the wallet?

ED: So the era of thinking that way is quickly coming to an end.

GS: I believe with this data, your question of how to reach to a level which is equal to one. You can reach only by using this data. Of course the data is present outside on social media, which you are saying the footprint and other stuff, which we don't, which we can have access as well.

ED: It is true that banks have not been using the data that they already have. It is true that when you look at a credit card and how opaque it is and how it is a token of a relationship that doesn't tell you anything is now over. And that whole era is coming to an end.

SM: Running an AI company and working on the primary data sets of some of the largest financial institutions, 90% of the data that they think is valuable is a complete waste and they're wasting their time. Small data. And once you've arrived with that decision with AI, you don't need the AI. But what we don't know is what we don't collect as banks is what's valuable in data. So for instance, in the payments field, we don't collect the barcode on the back, which would be able to tie together entire financial supply chains because we're so stuck in the silo that all we care about is that something was sold on MasterCard. Who cares once something’s sold? It doesn't predict the behaviour.

 

Do regulations hinder, or nurture innovation?

ED: So it's not just your business model that is being eroded, it’s your very institution. Going back to the roadmaps that we need to build is that, do we have it in our minds that the institution is going to be disintegrated slowly? And you've already started giving the examples of how that's happening. One is that the data that sits outside is more valuable than the data that sits inside. The customer is doing their own thing and so on.

Every day that you think product today, you're actually thinking cost, you're not thinking revenue anymore. That has a bearing on everything else that we're working on today. If you take APIs, for example, the way banks behave on APIs is as if we own the relationships. We don't. APIs is about opening up your institution to anyone. And who are the coders today? It's an 11-year old kid. It's not another institution. And if an 11-year-old kid can be interested enough in your bank as he is interested in a game – I actually have a kid in my head because I watched this kid actually programming a game on his mobile phone – interested enough in your bank to create a link or a patch solution, then you are relevant to that next generation.

ET: We’d like to add from a research perspective. We interviewed entrepreneurs, startup CEOs of banks and so on, to ask what is the main pain point? What is the main barrier to innovation in your institution? And it’s regulation. If there is the intention to digitise, there is the intention to go customer-centric orientation. The fintechs want to build a lot of solutions. They have a lot of interesting ideas. But regulations worldwide, not even in the Gulf Cooperation Council (GCC) countries, are hindering the innovation, are stopping the innovation for reason of know your customers, for anti-money laundering, all these. So that's why here come the collaborations. You have the banks who have this compliance, we have the expertise and compliance with the regulation. From the other side, you have the fintechs who, like you said, are changing their name techfin to escape the regulation or who don't have the expertise. Here are the collaboration and the platform. When you are open together to build an ecosystem of collaboration and once there’s a platform, I can benefit from your capabilities, you can benefit from innovation and ideas. This mainly will be the best solution for innovation.

Yannis Karagiannis (YK): I will express a slightly different opinion. I've been listening quite carefully on the discussion. First of all, with regards to the last comment to regulations, I don't see that as a limitation at all. Strict regulations, actually, are source of innovation for fintechs right now. And regtech is one of the hottest places. Right now we see Fast ID Online (FIDO) authentication, we see global KYC services with good technology that can be implemented by everybody, but we don't see everybody implementing it.

What I'm diagnosing by this discussion and also by having interviewed a lot of people in the banking space that want to move to fintech, I'm seeing that the big problem for the banks is the lack of relevant talent. Banks can pay good salaries, they can give progression, there are organised tracks, which will know where they will end up in five years if they follow the path, but they don't attract the right type of people to build things. They don't attract makers. For example, I've heard a lot about digitalisation, personalisation, experience. I will speak about Europe because I haven't used any banking services in Asia. We still see web use in mobile environment. And that's a sign that there’s not a right product leadership in the organisation. And I think that can easily be diagnosed by just taking the products and comparing them with fintechs. The decision makers are not taking the right decisions.

Andrew McRobert (AMR): I would just like to draw your attention to the situation with the Australian banks. Like a number of other countries, we have this whole bank monopoly. And then about 12 months ago, we had a banking Royal Commission, which exposed the appalling behaviour of the four big banks, both in retail banking and in investment management products, and there's been this enormous whole scale flight away from the trade of the banks. The Royal Commission has shown breach of trust. Once you lose the trust of your retail customers, that opens the door for the alternative, the challenger banks.  Look at the Australian experience and see what's happening there over the last 12 months.

 

We must be led by values and hard numbers

Varun Sabhlok (VS): We've talked a lot about banks. I'm from the old school so I do appreciate all the issues that they face. But I'm also looking at a lot of new stuff. I think the tipping point has arrived. I think the banks are going to change if they haven't started yet because we have to talk about the customer. It was mentioned few times before. The customer today pays, if he takes a loan or he takes a mortgage from $100, he pays 10-15% 20% more.

Let's talk about numbers. Today with blockchain technology, I can pay .02%. That's what he wants. He doesn't want to pay 10-15% more on top of the mortgage or the loan value, he just wants .02% and the recurring .02%. If the banks can provide that, we are in battle, if not, we've lost the battle. Because really, the numbers matter. The customer wants convenience, but he wants also pricing. The models today that the banks have are the balance sheet models. The customer has a different kind of mindset for his kind of models. It's more of a cash flow model. And that's where you have to balance it.

WC: I think I'm going to act in the practical sense of what you guys all on the banks are facing. I think everyone knows the opportunities, the threats of the digital era. That's why I no longer use the word digital strategy. It is something you have to live with in order to serve your customers. So nobody uses the word digital strategy anymore because it is part and parcel of it, you’ve got to accept it. You know it. The question here is how you address all the challenges inside the bank first. Because from my experience, we're very clear that everything has to come from the top. If there's a strong buy-in at the board level, at the management level, what do you do to address those things out there to serve your customer? And there is always a challenge between the investments versus your balance sheet and your shareholders. This is it.

I remember, perhaps three years ago, I was sitting next to the chairman of DBS. He was my vice chairman of my subsidiary at Temasek, a company that I work with. He said to me, ‘Wilson, we're very clear. We're going to leverage on digitisation to invest and make a difference for DBS.’ He told me the X amount he’s going to spend. He's very clear and I think it runs from the top. And once you’re very clear, how do you address the culture?

In my recent experience advising a bank in Indonesia, we revised the values of the bank just to address the changing landscape. Sometimes traditionally, you have your vision mission and your values stated for life, but you can't. I had a discussion with a CEO and he said ‘I have to change the values and I want you to work with me on the implementation method, taking into account the changing landscape’. Of course, there are other issues other than digital landscape. So it's very clear that you need to have the culture. Second, someone mentioned silos. Absolutely, silos exists. Everybody wants to be the first within the retail versus the SME. You can’t afford that. You need an accountability to make sure the whole bank leverage on it clearly. Once you're very clear with it, then how do your people work with it as if it's part and parcel, including the frontline business, including the use of data, including how you collaborate? Do you want to build your own capability? Do you want to collaborate with fintechs? That is something which the board has to address, not the business level.

KS: I have two points of view on business models. We talked about silos. We talked about collaboration. We talked about platform. We talked about product push. We talked about employee and client frustrations. I think a majority of it stems from not having the right business models. The technology driven organisations have to change the organisation structure. Why are the companies in China evolving so fast? Primarily, founders are still running it.

How many banks are today run by founders? None. So there is no passion in leadership. There is no involvement in leadership. Having run innovation labs for UBS in Asia Pacific, I can tell you the innovations can be done, the incumbents can succeed. However, the decision-making power is fragmented. While if you look at the Chinese companies, the decision-making power is at the top, and guess what? Spending time with Ping An’s management, I can tell you, they get involved in client experience design on a whiteboard, themselves. None of the CEOs of the bank really get into the technology side and understand it even. The foundational change that will happen in the bank is when Piyush Gupta’s engagement in depth of changing DBS has come because he himself spends eight to nine hours a week on the topics, getting into the spreadsheets and the coding side. And that has made the change of that bank. You do need CEOs to really get into the decision making and risk taking. But that can only happen if you build the knowledge and confidence, instead of playing around with stakeholders and billionaires. Spend time in the lab to build the banks properly.

Philippine Paillart (PP): I've been following the discussion and a lot of things are very positive. And I agree with most of the arguments. However, I was wondering, what would have been that discussion 20 years ago? And I came to the conclusion, it would have been the same. I'm going to be very abrasive because you are all showing your age.

My second question was what would be the discussion if we had people who were in their 20s or 30s in this room? It would be totally different. The third point I would like to say is that I would like to go back to the Kodak story of ED. What happened was a crisis. The crisis was created by Sony, in that case. We have our own crisis.

I have been in banks – unfortunately for me – which were always in crisis. I was with Joanne and Wilson in the bank, which at the end of the day, we didn't know if we were going to survive because we didn't have enough cash. That was 25 years ago. What we did at that time was to reorganise the bank. We were working in teams where we realised that to launch new products took 18 months. And then we needed new products within three months, because we had to survive. You know what? We put all the teams together in the same room. You had marketing, sales, technology, and credit. We organised the teams physically. And it was no more silos. It was survival. So that was a crisis. I was in the US. We were losing $3 billion. We had to reorganise as well. So the crisis will come from within, or it will come from outside.

Let's take a real example. We were at Emirates NBD and in the same day, I had the privilege to meet old bankers, people like me, and the new generation. We met the people who have created Liv and who have created these new platforms. In one day, I saw the old world and the new world. So what I just want to say – I’m just picking up on what Steve (Monaghan) said or what several of you said – is that it comes from the top. And then the solutions are already within the banks. So we have the solution. They were created 25 years ago. And what did they tell us at Emirates Bank? They said in order to do what we did so fast – they have 300,000 customers now – we reorganised the banks. We put all the dimensions in the bank in the same room. So it was the Standard Chartered theory we had 25 years ago because of a crisis. So I guess bankers are waiting for a crisis? The crisis will come from within because people won't come for the bank? Or the crisis will come from outside? But everything you said, I agree with you. Now banks are being run by governance, right? But for me, these are excuses. I think the new banking is there. It's somewhere but it is up to us to make it happen.

ED:We've heard the word leadership several times actually. And it's funny, it means it's resonating somewhere and then talent. There was a guy named Tom Brown. He outlined how the better banks in the US actively, consciously go through curating processes to hire employees. In other words, 10,000 people, 5000 people get to the first round and the second round, and then write down 225 people who get hired or get employed. You go through that process again and again and again. And you keep throwing people out until you find the skill sets that you need.