• The risk appetite across Asia is always evolving
• Australia embraces the use of mobile phones in banking, fully utilising the tap and go approach in making payments
• Through Reinventure, Westpac’s corporate venture capital fund, a number of startups in Australia get the opportunity for development

Foo Boon Ping (FBP): We’re very happy to be here at Westpac, representing Australia and Oceania. We are talking to Michael Correa, the general manager for Asia Pacific, Westpac. Tell us a bit about your focus in Asia now. In the past few years, there has been an interesting growth in the business. What is your strategy now?

Michael Correa (MC): The exciting thing for me is that payment is now sexy for the global markets. What's happening in banking, very much of that is being driven by what Asia has been doing, and then the rest of the world has taken notice. SIBOS is a really important event for not only banks, but for a lot of technology companies to come together and talk about what the developments are. Westpac in Asia has been there for a long time, almost 40 odd years.Ourhistory is very long and strong.

In 2012, we made some investments, and those investments are still very valid today. We thought in 2012 as we emerged into the Asian sanctuary, “What was the role that Australia played in Asia?”You could argue, from many points of view, that Australia is part of Asia. We havea very strong natural resources base. We have a strong agricultural background that feeds a lot off Asia. Australia is very relevant to the Asian markets and diverse Asian markets, spreading from all the way up to North Asia, Japan and Greater China, all the way through to West Asia, South Asia and into India.

Our strategy then is the same strategy that we have now, which is banking between the relationships across Australia, Asia and New Zealand. What happened over the last, I would say three years, and I've only been in this role since April last year, has reflected in some respects the global activity in banking as much as what Westpac was trying to do.We had a little bit of self-start as you said, but that has to do with how the evolution of markets were going. We looked at building transactional banking before we saw a lot of the innovation come to the market, and the cost of that transaction banking platform was going to be very expensive. We felt that maybe it wasn't the right time to do that.

The risk appetite across Asia is always evolving. We had substantial amount of quality assurance, as we remember coming out of Europe and America. Margins and returns for debt, in particular, became unattractive to us. All those factors pulled together, plus a number of organisations said to us at the time, probably in 2016-2017,to pull back and not necessarily take away the investment we've made, but really just to understand what the right time for that will be.

The year 2019 for us has been a growth year, not necessarily in growth in balance sheet. We haven't looked necessarily to put more money in the market. We feel that the market is still very flush with cash. Our strategy is to really follow where the right relationships are. What we've been doing is really right sizing where the relationships, in particular in Greater China, are.

We did make a decision to close our Indian branch and move thatto arepresentative office, because we didn't see the strength of Australian relationships coming to India in the way that we thought we would in 2012. Those factors said to us at a time, we should pull back out of India and redeploy maybe more into Greater China. Think about what has happened. In particular, the area that I'm most excited with is what's happening in ASEAN.

Everybody says, “We've put a stability in Indonesia.” What we're seeing out of Vietnam, with US-China relationships and trade wars, has meant that ASEAN in my view has been a significant benefit. From our point of view, it's really been around how we pivot, where we think the best risk for return that we can get out of our relationships and really focusing on the nexus between Australia and Asia.As I said, this year has been quite pleasingly a growth year, when the markets have been quite difficult. 

FBP: There's a bit of halting now in the region, especially the economic growth in China and around the ASEAN region. How is that impacting your business? You’re saying you're growing, where is this driven from?

MC: It’s all relative to what your position in the market is. As I said before, we took some positions in 2016-2017, to pull back risk and that's helped us in 2019, and hopefully into 2020 as well. We've been able to maintain relationships and look to build on those relationships we have, while we’ve seen foreign direct investment out of China reduced across all segments, there is still a significant flow into Australia.

In that industry, as we see, is around natural resources. Agriculture services, in particular. Travel and educational services have been still quite strong. We also started to see some financial services impact coming into Australia and coming into Asia at the same time. We're trying to understand where those flows are taking us at the same time. Those growths, they're not large for us. China is a big market. It’s still growing at 6%. If you understand your relationships well enough, you can create those growth opportunities for yourself. 

FBP: Asia is a diverse region. The challenges for banks are kind of moving to target those markets, the different regulation that you have in different jurisdictions. How do you see those challenges? 

MC: Regulation is the defining element of what we're thinking about at the moment. An overlay of banks historically is very much focused on financial risk. You couldn't risk your market risk, and they didn't really focus too much on operational risk. We've seen that through the regulatory environment in the Western world with the amount of fines going through. When you overlay that into a multi-jurisdictional environment in Asia, you think about how you want to build your platforms and how you want to position yourself within certain markets. Understanding your operational risk, so that's with financial crime, anti-money laundering, terrorism financing, what you want to do in your financial regulations and compliance and where you want to deploy your capital as a result of making your decisions a lot easier.

Whether you want to be a full branch full-service operation, versus maybe you want to build on relationships and work as a regional player, the exciting thing for me is that technology is enabling a lot of these. It isn't a one platform technology. Look at what we have in Singapore with fast and secure transfers (FAST) and the payments we got there relative to what's happening in Hong Kong, or potentially in Thailand or Indonesia. There is no real absolute connectivity, but there are technology companies coming together and solving these problems. Where before with banks, you had to come in and be present everywhere, you don't have to be that anymore to service your customers and solve their problems. It's really about how you think about where your platforms are and how you want to innovate.

FBP: We talked about the faster payments in the region. You have the faster payment system in Hong Kong, PromptPay in Thailand and in Singapore you have FAST. Talk about the pace of payment digitisation in Asia and how that is allowing the information to flow in a more common system and infrastructure. We heard SWIFT announcing the global payment initiative. How do you get those developments? How will you leverage it?

MC: These are all incredibly positive developments, and they are leading the market data direction where cross border payments will become frictionless in some aspects. Whether we like it or not, we're not at the end state yet. We've seen some amazing proof of concepts, some trials and test of payments, cross-border and domestic. It's great to see that across Asia most of the really important markets now have strong, effective payment systems. That's a really good step forward, and that allows innovation to occur.

There's a sense that banks are being left behind by technology companies, and the technology companies are leading the way. My contention is banks are starting to understand what partnership models are. They’re starting to understand how they do their own development and innovation, and they’re starting to get kind of a balancing effect that's occurring in the market today. I find it pleasing to hear what Hong Kong and the Hong Kong Monetary Authority are trying to do with virtual banking licences and the Monetary Authority of Singapore (MAS) are similar. These new innovation and new players will come in and help us bring together these disparate markets and hopefully provide the solutions, the rails as we call them.

Players like Westpac, we’re not necessarily going to be the absolute innovator, but we're going to look at where the best practices are and we're going to try and take that on board or work with people who got that in place. That makes it interesting.

The other part of payments in Asia that we have to really appreciate is the way that low value payments operate. It's not a sophisticated market. The ability to use quick response codes or point of sale systems, which don't insure having a huge amount of infrastructure is quite critical. I still think that China is one of the leaders, if not the leading market for domestic payments. And you see the roles of banks playing in China versus the new development technology companies that are bringing forward. What we are learning from China is we are learning how to approach those problems that the customers have, and then broadly think about what the problems that our customers are trying to solve. Bringing together these elements of financial services is going to be really exciting. In Asia, China is leading the way and we expect to see that coming to other markets.

If I reflect back to our experience in Australia, where the market is very sophisticated, Australia's got full penetration on smartphones, full penetration on banking, everybody has a debit card or credit card, where we've used and seen the tap and go product be immensely successful. Then the question is, would you need a digital wallet if your credit card connectors serve? How does that think about all the markets as well? We see that a little bit in Singapore and Hong Kong.

The question then for me, it always comes down to what is going to be the end state. Are we in this testing mode now, where we're trying to figure out what works and what doesn't work or what becomes dominant? What doesn't become dominant? Over the next five years, we'll start seeing some emerging trends that tell us where and how things are operating. That's where banks are, and we're one of them developing more and more innovation centres. We're partnering with our customers, partnering with other people in the market to understand how and where the solutions are going to come from. The way that we think about our investment in some of these fintechs represents a concept that we don't know what the answers are. We need to think about the number of different solutions in the market that we can work with and help with the regulator to develop those solutions for customers.

FBP: In that part of the world, you have the non-banks, you have the fintechs. They are creating platforms and digital banks. In some markets in Hong Kong, they are testing it out. There is a great diversity in different markets like Indonesia. A lot of the emerging market space, there is still a lot of room for financial inclusion. Some solutions might be needed to bring those who are unbanked right now into the system. How do you position yourself? You are very clear in terms of positioning Westpac to serve the corporates and capture flows between China and ASEAN to Australia. Are those opportunities to be threatened by some of these new platforms that are coming out?

MC: I'm not sure if “threaten” is the right word. There are definitely challenges that are coming to the market. This concept of solving customers’ problems, banks don't have the one size fits all approach. There are many use cases where the banks just won't have the solution that they can deal with. And that's the role that fintechs can come in. I'm really pleased to see some of these fintechs think about these problems very differently than the way the banks do. We can work together. It doesn't mean that we are actually competing all the time. I'm really pleased about that and actually quite excited.

One of the things about being here at SIBOS, which I've really enjoyed, is speaking to a lot of these fintechs and understanding what they're using, how they're thinking about cybersecurity in the cloud and how they're thinking about a range of mobility problems. There's a number of facial recognition elements that are coming through, which again, are very new and exciting methodologies, like voice recognition. This is where, when you talk about financial inclusion, the banks then run into what I call as a fundamental problem, which is, we then have regulators who say, “On a prudential basis, you can’t breach a threshold.”

For instance, for a client onboarding, when he talked about financial inclusion, we have to have a number of documentation for our customers, whether it be a very wealthy listed company to a very small individual. We have a standard which says as a minimum you need to have at least two to ensure that we comply with our prudential standards.

Fintech companies don't have the same standards. They probably could be well placed to think about where financial inclusion is headed, how they can provide solutions for that, probably better than banks. But then again, at some point in time, the fintechs need the banks to come in and operate within the court, the payment rails and the banking rails that make the money move around. That has to intersect at some point, and this is where regulators have to come on a journey with us as much as the fintechs and the banks and understand the problems that we're trying to solve.

BP: Tell us about your innovation initiatives in Asia. You have a venture capital kind of fintech venture. What is that accomplishing, how much of that innovation will stay in Asia and how much of that will be migrated to the bank in Australia? 

MC: We have a corporate venture capital fund called Reinventure, which is based out of Australia. At the moment, 90% of that investment has been in Australian fintechs. Focus is on the Australian market, focus on problems and solutions for Australian customers. What we start to see now is a number of those companies being very successful in Australia looking at ASEAN, and then China probably to a lesser degree, as the next stage of their development and opportunity. We want to help them as well. We take an equity stake in them. We don't manage their businesses. They got their own founders and their own boards, and they go off and run their own business strategies.

What we've done in Singapore is we have opened a space called a co.lab, the Westpac co.lab. We actually have four of them around the world. Singapore was opened last year. It's nearly a thousand square feet in a space where we can bring together partners. It's a space where we can look to solve problems for Westpac and our solutions which we’re trying to do for customers.

Within that space also, with an agreement with the MAS, we have actually let our fintechs, the companies you see on the board here do their own business development in Singapore. They can go and speak to the other Singaporean bank and they can speak to the other fintechs in the market and do their business development. We can help them and assist them with that place, in a separate space within our co.lab. We have one in Shanghai, one in Australia, and we got one here in London. There's an ecosystem that operates for not only ourselves, but also our equity partners and our business partners that we can use in this space. It's kind of a multipronged approach. We directly invest, we help them with business development, sharing and partnering some of our problems internally, and then we have an ecosystem, which is geographically based. It gives us access to more markets. 

FBP: What are your key performance indicators for your products? And are there specific technologies, use cases or digitalisation of service that you are working on?

MC: We're measured on delivering outcomes. In some respects, a success for us could be just solving a very small problem, could be thinking about maybe how we innovate differently or the approach we want to take to fulfill our customers’ needs.

Recently, we did a hackathon in Australia and the hackathon was based in Sydney. It was around a number of use case problems. Some of them were around insurance, some around different aspects of the customer markets. We did one of those teams stood up as sprint in Singapore, and they use the space in Singapore. We brought the data in there and we ran that out of Singapore. We work with the sandbox, think about what the solutions are. They were then able to work back into the hackathon and present a solution at the end of a 24-hour period. At the moment, we're doing more proof of concepts than actual delivery. I can't say anything specifically, but we will have some announcements in the future date.

We’re working on blockchain with trade finance. We're working on some capital market solutions in fixed income. We're working on some regtech solutions. It's a broad range. We're using artificial intelligence and ran some of the datasets. We got intensive know your customer and more post trade entities than pre trade, understanding how we can do that better.

FBP: Thank you so much, Michael.

MC: Thank you.