COVID-19 has accelerated businesses’ adoption of digital initiatives to stay relevant and get in front of evolving demands. Digital is no longer a good-to-have solution; the pandemic has catapulted business innovation to the forefront of organisational goals. According to the Singapore Fintech Association’s report ‘Southeast Asia: Coming of Digital Challenger Banks’, the region has emerged as a Fintech hotspot, with a CAGR of ~55% in equity funding and reaching a ~20% share of the total APAC Fintech funding in the first half of 20201. How a company leverages Fintech solutions is key to transforming its business and creating new revenue opportunities. Standard Chartered has been actively partnering with Fintechs to make financial services more efficient and accessible for its clients. Chang Wea Meng and Simon Figures, members of Standard Chartered’s innovation arm SC Ventures, share how Fintech solutions can revolutionalise the way business is conducted in ASEAN in the foreseeable future.
Q1. We experiment with disruptive business models that create optionality for the Bank to better serve our clients. How do you think the engagements between banks and Fintechs will need to evolve to meet new client needs?
Banks’ engagement with Fintechs have matured significantly in the last five years, emerging from a relationship that was partly cautious and adversarial to one that is opportunistic, collaborative, and partnership-oriented. The narrative of five years ago, that “Fintechs will eat the banks’ lunch”, prompted banks to sit up and take notice of the evolving technology landscape. But what truly hit home was when banks realised they must change with the times in order to stay relevant to customers.
Since 2017, we have engaged with over 2,000 Fintechs to provide our business expertise and a safe environment for them to test their products as well as help sharpen their value proposition. To date, we have completed some 100 Proof of Concepts (PoCs), with about 40% being scaled-up across multiple geographies. In addition to providing cashflows for the PoCs and enterprise licenses as part of scale-up implementations, we have also invested in nine of these start-ups, further deepening these strategic partnerships.
One of the key mandates of SC Ventures is to experiment with new business models and better design for clients’ evolving needs. We do this by incubating business venture ideas through a series of customer interviews and market research, iterative prototyping to validate that we are solving the right problems, creating an improved user journey, and that the idea is commercially viable. We currently have about 20 ventures at different stages of incubation. Each one is built almost entirely on new technology stacks comprising of best-of-breed Fintech/new tech solutions.
A bank-Fintech engagement needs to take into consideration that the future could happen differently from how we anticipate or prepare it to be. To effectively respond, banks and Fintechs will need to be open and flexible to potential changes and evolving demands. Smart, efficient, fast experimentations are the key to unlocking insights throughout the ideation journey. The key to success is iterating these solutions based on actual problems that matter to our customers and users and creating a seamless customer journey. The right enabling environment and a strong collaborative relationship is what will take the Bank-Fintech partnership effectively forward.
Q2. What do you think are the unmet needs that banks and Fintechs need to focus solutions on?
The unbanked and underbanked: More than 70% of the adult population in ASEAN is either underbanked or unbanked2. The extremely high mobile penetration3 and exponential growth in e-commerce4, present great opportunities for banks and Fintechs.
- Online platform and digital wallet-based economies require omni-channel payment capabilities that provide safe, real time, high throughput cross-border payments to empower merchants. In 2020, Standard Chartered partnered with Assembly Payments to bring their capabilities across our global footprint. This will significantly enable our customers’ online business, further scaling the growth of e-commerce.
- Likewise for modern consumers who have grown accustomed to meeting their daily needs at the click of a button, easy access to payments and buy-now-pay-later capabilities will be critical. Banks and Fintechs can support the infrastructure building for seamless and safe, secured customer authentication and credit scoring based on transaction history. This will further ease commerce and significantly reduce the risk of online economy. We have announced a “Banking as a Service” venture, built around best-of-breed Fintech solutions to enable this growing e-commerce platform-based economy. Our partners can offer financial services co-created with the Bank to their customers on their digital platforms or ecosystems under their own brand name.
SMEs: Despite being the backbone of the ASEAN economy, forming between 89 – 99% of all enterprises, and account for between 51.7 and 97.2% of total employment5, SMEs continue to face significant challenges in obtaining financing at competitive rates, scaling up their operations due to a lack of access to business services such as accounting, legal, insurance, transportation, warehousing services, and access to other markets. SC Ventures has built and launched a new Solv SME platform in Bangalore, India during COVID-19 when physical business was disrupted by the pandemic. It has helped a significant number of SME clients move online and gain access to suppliers and buyers in the midst of the country’s lockdown. By building data footprint of their transactions on this platform, SMEs can also establish credit scores to improve their accessibility to financial services.
Millennials: this tech-savvy generation’s digital lifestyle and experience pose a challenge to most conventional banks. The launch of “Mox”, our mobile-only digital bank in Hong Kong aims to reach out to this segment to stay relevant to their lifestyle and help fulfil their financial aspirations.Beyond solving for the known unmet needs of our customers, the greater challenge may well be for banks and Fintechs to create a culture and environment to continuously test and learn, to anticipate and address the yet unarticulated needs in an ever-changing commercial and user landscape.
Q3. What are three predictions you have for Fintech innovations that will transform how companies conduct business in the future?
Firstly, the rapid growth of aCommerce (algorithmic commerce). TikTok and Shopify announced in October 2020 a partnership to reach more merchants and expand its in-app shopping features. Their move signified the progression from predictions that are based on demographics or a social graph to those based directly on interests. Successful aCommerce apps will build a tight feedback loop in order to provide the algorithm with the highest quality training data. For example, TikTok employs large teams of people to ‘tag’ video content created by Tik Tok users - that content is then ‘canary tested’ with segments of the Tik Tok user base. Reaction to this content is then used to decide whether to release it to a broader audience. This fast and specific feedback loop through the “For You Page” algorithm greatly enhances Tik Tok’s predictive analytics, which will translate into commerce.
Secondly, crypto and more specifically DeFi (Decentralised Finance) will spark a Cambrian Explosion of financial product innovation, both in derivatives markets and in the provision of financial products to the historically underserved. Consumer expectations about the kinds of companies who provide them with financial services and what those services look like will change.
Last but not least, more near-term, Equity Fractionalisation coupled with zero fees brokerage and data to enable values-based investing aligned to environmental, social, and governance (ESG) principles will radically reshape wealth management. Such a scheme could lead to more funds under management, with more innovative financial products offered to a broader range of retail investors.
Q4. How will Fintechs evolve and become an integral part of any businesses in the future?
The accelerating pace of innovation is essentially a function of combinatorial innovation – e.g. the integration of existing and emerging capabilities to create new products and services. The classic ‘Innovator’s Dilemma’ which highlights how incumbents are forever susceptible to being disrupted by smaller, nimbler companies is unlikely to change fundamentally. The cycle will continue – new capability emerges, becomes commonplace, another new capability emerges.
Fintechs will become increasingly ‘plug and play’. As an API-based approach towards accessing system functions becomes more common, Fintechs will be able to launch quick tests within days (rather than weeks or months). Much of this is contingent on the existing bank infrastructure which has decades of legacy. But over time, as “API-sation” becomes more prevalent, Fintechs will find it easier to engage with a business. This of course allows for more rapid iteration towards a better solution for all.
As Fintechs start to amass domain knowledge, they may increasingly start to collaborate amongst themselves to create entirely new and multiple products and services, end-to-end user experience, new ecosystems and value chains. Banks and other financial institutions will be pressured to stay competitive and relevant. But banks have a window of opportunity now to be part of this transformation, partnering Fintechs to rewire the DNA in banking, to stay relevant to our customers.
1Crowdfund Insider, Nov 2020
2‘Fulfilling Its Promise’, Bain & Company, Google and TEMASEK, 2019
3Over 100 per cent for Indonesia, the Philippines, Malaysia, Myanmar, Singapore, Thailand and Vietnam, ASEAN Investment Report 2019
4The value of e-commerce in ASEAN has increased by four-fold, from US$5.5 billion in 2015 to more than US$23 billion in 2018. E-commerce transactions in the region are expected to exceed US$100 billion by 2025, ASEAN Investment Report 2019
5Tech collective Nov 2019