Thursday,23 May 2024

ANZ’s Michael Lim in working with disruptors: An opportunity to cover all bases

5 min read

Interviewed By Foo Boon Ping

Michael Lim and Mark Evans, ANZ Institutional executives, discuss the opportunities made available in collaborating with fintechs and how these can be beneficial for both ends.

  • Australia and New Zealand Banking Group (ANZ) adapts a “customer lens” in finding solutions to real problems 
  • The bank’s leaner and sharper Institutional business focuses on enabling trade and capital flows in the region – particularly into and out of Australia and New Zealand
  • ANZ’s Project Lygon is about solving an age-old pain point in the industry by using distributed ledger technology to digitise guarantees and eliminate the risks associated with paper-based guarantees. 

Foo Boon Ping (FBP): I am speaking to Michael Lim, Head of Financial Institutions and Mark Evans, Managing Director, Transaction Banking at ANZ Institutional. In the last few days, this SIBOS had a lot to do with new payment infrastructure, innovation and open banking. What are some of the opportunities that you see for financial institution clients?

Michael Lim (ML): As in, fintech and digital space and what’s happening across open banking? Probably less at the moment around open banking. This still has a bit of a way to go before we see an impact. I do think that the current payment accumulators are having an impact on the way that we behave and the way that we think about our correspondent banking arrangements and products.

The revenue model is definitively changing. We need to be more transparent, sharper priced and transact faster. SWIFT GPI and real-time payments has been a huge topic in the last four days. Also the revenue model has definitely changed from the historical rebate and FX sharing arrangements between banks to a simple pricing model for the consumer. A lot of that is being driven from the banking perspective so we can compete more effectively with new entrants.

Mark Evans (ME): The open banking side is interesting, but we need to be clear that the way in which open banking is being discussed in the Australian environment is quite different from the way in which open banking is being rolled out in the UK. Within the UK, it's focused more around the payment vertical. Whereas in Australia it's more horizontal. It’s not limited to the payment flows. It actually goes across utilities, governments and other uses of the data. It’s almost equivalent to open data. 

It will be different in the way it impacts correspondent banking and would have a slower impact. But, as Mike (Michael Lim) says, the model around correspondent banking, the way in which we pay and behave, need to provide transparency, reminding and remembering that at all times we’ve got to be compliant. We’ve got to support and help supervise the financial system. That's what's going to drive the change more so than just open banking as a topic.

FBP: Open banking in the sense of data sharing and in the sense of sharing of networks with your correspondent partners, opening up of APIs and exceeding of data. What kind of potential do you see in the Asian region?

ME: Anything that we do with regard to sharing of data with a view to either supporting a strong financial system or providing a better customer service is going to be a good thing for all of us. It doesn't mean we're not going to have to change some of the way in which we operate. But, from our perspective, we benefit from having customers in 33 different markets. It's not that I'm sitting here as a banker thinking that I’ve got all the answers. The likely changes will take place on the basis of our open conversation with our customers. We identify a pain point within their supply chain, within their payment flows or within how they operate with other categories within the ecosystem and collectively resolve. We may solve that, not just as a bank, but we’ll do it in partnership. As we heard last year at SIBOS in Sydney, our CEO is very open to the approach that says we take a customer lens first, we work out what is needed to solve it, and then we work at the extent to which we can solve it ourselves or the extent to which we need to partner. That partner may be a fintech, maybe another bank or maybe another service provider.

FBP: Mike was referring to the changing business model, the revenue model, how technology can transform the business model and the advent of fintech, for example, aggregators. Now, their relationship has shifted over the last two, three years. From the point where they're both here and now they are kind of being brought into your own ecosystem. How do you see that at ANZ?

ML: There are two ways you can approach this. You can approach it as a competitive threat, from an industry perspective, or if you’re losing business to somebody, you provide a competitive response. We touched on that at the beginning here, getting faster, more transparent and easier access. There's also an opportunity in there as well. If there's an opportunity for us to learn from them or partner with them, or if there's also an opportunity for us to bank them, might as well. If they’re building volume for themselves, there's a great opportunity for us to actually bank them and see that volume come across our infrastructure. Or, if we think their service and their product is best in class, potentially, there's an opportunity for us to partner with them to cover all the bases.

ME: The other side of it is appealing more holistically. It's great to have disruptors out there, but what we want to make sure is that we have a robust and secure financial system. Banks have historically been held to account, rightly, to ensure that we complete Know Your Customer (KYC)  and in turn help with activities against money laundering, bribery, corruption and tax evasion. The advent of a lot of these disruptors are not easy to deal with, because  they’re not necessarily always being held to the same standards of scrutiny around financial crime.

So rather than putting our head in the sand, we actually have an opportunity, as Mike says, to work with them because some of them have really good ideas that would take us way too long as a bank to necessarily execute. We actually ensure that whatever the solution that comes into our economy and into the hands of our customers is a compliant solution that helps protect against financial crime. So that's the other aspect. We have an opportunity. We shouldn't just resist disruption and we shouldn't just look at it from a business perspective. Actually, we’ve got more of a broader responsibility to help influence them so there’s a compliant outcome.

FBP: How are you transforming your own technology? In that with it, think one to industrialise the cloud and you are heading towards micro services, cloud-based partnering Google use of technology. Can you talk about how that merge into the business and into your client?

ML: We're thinking about real-time payments, which I mentioned earlier have been a real topic of conversation. We’re also thinking about the digitisation of trade. This week, we've been talking a lot about our distributed ledger guarantee project in Australia, Project Lygon, which is in live pilot at the moment. I guess, thinking about innovation and our approach to innovation, for us it's not just about experimenting, and getting some media attention. It’s really about solving a genuine customer problem. Also, the solution needs to be scalable for the customer. The Google piece, also about us using Google's processing power from a data analytics capability, for the benefit of the customer from the insights perspective and delivering that extra value. 

ME: It’s the value add that Google’s processing power brings to the equation for us to then translate data into identified insights for our customers, whether that's to help them succeed or help them remove competitive threats or whether removing operational pain points. Our partnership with Google is basically meant to help speed that up and make it a more scalable proposition across the network. While Project Lygon came from working with a customer, and identified processing efficiencies and a means to reduce fraud risk in the system. 

FBP: Throughout in the region, you have completely mentioned that it’s not just about proof of concept, but also implementation.

ML: Project Lygon is about solving a pain point for our customers in the industry, which is eliminating paper guarantees and a lot of fraud. That's a scalable project for us, and it's not just a pain point in Australia our home market, its a pain point everywhere, in every market.

We’ve been discussing Lygon with a lot of banks here at SIBOS London. There’s a lot of interest. We are commercialising in our home market and there is the potential to license it into another market. A lot of organisations and banks have come to the conclusion, the same as us, that you can't build everything yourself. You can't join every project. Ultimately, if somebody's already built it. Then, why not take advantage of that, learn from them, collaborate and cut down your development time, get it to the market and do the best thing for your customer.

FBP: The number of case validation projects currently talked about like Voltron, Trade Information Network (TIN), Marco Polo. How do you see those? How are you tracking them? When do you expect them to go to market?

ML: We’re one of the founding members of TIN, so we know that the goal is to take TIN and commercialise it in 2020. The company has already been incorporated. TIN was conceived three years ago. Frankly, technology is not the challenge. The challenge is the collaboration, the commercial agreement, agreement around ownership of intellectual property (IP), the operating model and shareholder’s agreement – all of the commercial things that take time to negotiate and move forward.

There's a number of these projects that have progressed quite well over the last 12 to 18 months and are moving through the commercialisation.  The thing that we do see frequently now is a discussion around interoperability. That is a critical element. Because each consortium realises that unless we get all of these projects interoperable, we’re going to end up with all these microcosms networks, and nobody's going to monetise their investment.

FBP: Just a quick word towards trade common standards, ICC-related bodies and even about SWIFT.

ME: I think it’s important to point out that ICC is playing a lead role to simplify the industry’s approach to the supply chain. Clearly, everybody understands the various traditional trade instruments that are out there. Working with BAFT to define the common terms of supply chain in 2016 and since then working with the global supply chain forum along with five different stakeholders, all of which influence different components of international trade.

In the same way, not one entity, not one region, not one bank, not one shipping company is going to dominate global trade the convergence of some key data, the interoperability, the exchange components and the standardisation are really critical. ICC also has a digitisation working group with representation from banks as well as the consortia. It’s encouraging to see the increasing standardisation in the playbooks of each consortium. Standardisation will be key to success. 

FBP: We talked more about the actual business of trade. We are leaning to this period of trade tensions, protectionism. What kind of opportunities and challenges you face and what kind of adjustments you have to make?

ME: First thing is that when there's uncertainty, many of our treasurers are more conservative about where they wish to invest. We’ve got a lot of uncertainty at the moment. We’ve got increasing tariffs. We’ve got geopolitical uncertainty. And, that's unfortunately distracting a lot of our customers, because they’ve got to anticipate many different scenarios. Only one of which is most likely to happen. The effort to prepare for multiple scenarios is not going to contribute to international growth.

It's a distraction for business. So, from our perspective, we look at it as an opportunity to share insights with our customers, whether that's in relation to their supply chain moving perhaps from China into Vietnam or Thailand – not just what sort of opportunities they represent, but also the associated risks. Also for a Treasury who may have significant deposits, at what point in time do I move it into another jurisdiction, in a  different interest rate environment, etc.? So that's a key component to it. At the moment, we’re seeing that trade levels are not growing, certainly not on traditional trade instruments. We’re seeing increasing interest in supply chain finance. But again, from the ICC point of view, we really want to see much more rigour around what a true supply chain proposition is with a truly lower risk profile.

ML: Back to basic strategies. It may be a bit cliché but we plan for the worst and hope for the best. It means getting back to the basics of understanding things like what is appropriate financial leverage? Can you absorb risks and shocks? If your supply chain is disrupted, do you have a plan B? Some of that basic planning is coming back to the fore.

FBP: Your Asian strategy for ANZ. There was a time when there’s a “Super Regional” strategy. Give us an update in terms of your focus on the region.

ME: We’ve continued to make investments in our Institutional businessin Asia – and are seeing great success. We best serve those customers that value us. We can differentiate on trade and capital flows to and from our home market of Australia and New Zealand, but also support customers in multiple jurisdictions. So, if we’ve got a large multinational that's looking to expand into Vietnam, as a double-A rated entity with a cash management capability that is market competitive, why wouldn't we support them? The last few years have showed us that we're very happy with the direction we're going with those institutional international clients. We see plenty of upside.

ML: I would just quickly add that, Australia and New Zealand Banking Group (ANZ) is the number one trade bank in Australia and New Zealand as well as the most international bank. Our Asian business and network across the Pacific is a material differentiator for us – and quite enviable too. They also strengthen our value proposition for our home market customers as well as customers across the globe that want to do business in the Asia Pacific region. 

FBP: Great. Thank you, Mark and Mike.

ML and ME: Thank you.

Keywords: Sibos 2019, Real-time Payments, Know-Your-Customer, Blockchain Consortiums, ICC
Institutions: ANZ
Country: Australia
Region: Australia And New Zealand
People : Michael Lim, Mark Evans
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