Will we witness an evolution or revolution in banking? – Remarks by Deputy MD of MAS
Will we witness an evolution or a revolution in banking?
Mr Ong Chong Tee, Deputy Managing Director (Financial Supervision) at the Monetary Authority of Singapore (MAS) believes it will be both.
Speaking at the German-Singaporean Financial Forum at the Singapore Management University, he said that digitisation of services has transformed the customer experience for on-boarding or transactional purposes. But Mr Ong emphasised that these are not groundbreaking in themselves.
At the same time, a revolution is happening when new digital services or business models emerge that employ technologies like artificial intelligence (AI) or blockchain. He gave the example of an UK bank called BABB that leverages on blockchain and biometrics to provide peer-to-peer financial services. These can fundamentally change how we borrow, save, pay, invest or insure.
Mr Ong said, “Time will determine the winners and losers as this cycle of technology disruption takes it course.”
Future of banking – Collaboration between banks and Fintech players?
With the rise of new Fintech players, activities that are considered banking services are no longer provided by traditional banks alone. Technology or e-commerce giants like Alibaba and Tencent, as well as startups are playing a role in this.
Mr Ong highlighted two underlying factors driving these changes. The first is the arrival of smartphones and mobile apps, enabling anytime, anywhere banking. Secondly, the accessibility afforded by technology has led banks to shift away from a production-consumption model. Previously, banking models focused on providing services meeting customers’ needs. Now competition centres on the customer experience.
“The notion of delighting a customer opens up a whole field of competitive ideas as to how to generate that positive experience. This is what the FinTech players have sought to do, and this is what banks are fighting back on,” Mr Ong explained.
He added that smaller, newer players may find it hard to challenge the banks’ advantage of being highly regulated and trusted and Fintech players and established financial institutions (FIs) will collaborate.
Collaboration with financial institutions enables Fintech players and technology firms to broaden their reach. At the same time, the solutions from these Fintech players present the established FIs with opportunities to enhance their product offerings or to improve operational productivity.
The idea behind open banking is to give consumers ownership over their financial data, to make the data portable enabling easier switching between financial service providers. A consumer should be able to share their own information with any third party they choose, for example through APIs. This is expected to improve pricing and service quality.
The EU has made payment and data interconnectivity between banks and non-banks mandatory, through the Payment Services Directive. The Australian Government announced last year that it will legislate a national Consumer Data Right in 2018, allowing consumers open access to all their data including banking-related ones.
But Mr Ong said that while these hold a lot of promise by promoting consumer interests and welfare, there are other details to consider.
These would include questions such as: What primary data rightfully belongs to the customer?; What about secondary data about the customer that a bank had made sense of?; How should a customer’s data be packaged for onward sharing?; How do technical standards be developed to share this information efficiently and securely? Who should pay for these?
Mr Ong said about the approach in Singapore, “In Singapore, we subscribe to the notion of banks sharing their data openly as a larger good. Some of the operational details have to be worked out.”
“In MAS’ engagement with the banking industry, there is broad consensus as to the benefits of open banking. What we see is an opening up of customer data as a ground-up process led by the banks themselves. We believe this is a constructive development, that industry players themselves see the value in doing so.”
Role of Regulators – Adopting a risk-proportionate approach
Regarding the role of financial regulators, Mr Ong said that regulators need to have a sharp understanding of emerging technologies and new business models, and to be alert to potential risks.
The aim is to balance supporting innovation and technology use, and pre-empting new or heightened risks. MAS takes an even-handed approach by providing a regulatory regime that is risk-proportionate.
MAS adopts a “materiality and proportionality” test, and seeks to right-size regulations to be fit-for-purpose; for both traditional as well as new business models, according to the risks the activity poses.
For example, in the new Payment Services Bill, regulatory requirements for payment activities will be differentiated according to the risks that specific activities pose rather than applying a uniform set of regulations on all payment service providers.
Singapore is also one of the first jurisdictions to have established regulatory sandboxes for experimentation with innovative solutions in a contained environment, with access to a limited pool of actual customers.
Mr Ong stated, “What we will diligently protect is the trust and credibility in our financial system. We will also be paying closer attention to financial institutions’ management of cyber-threats and to new forms of financial stability vulnerabilities as digitisation blurs the boundaries across geography and industries.”
Earlier this month, MAS announced the setting up of a regulator-industry group (FEAT –Fairness, Ethics, Accountability and Transparency) to co-create a guide for promoting the responsible and ethical use of AI and data analytics by financial institutions.
In addition, the need for financial inclusion and access to basic banking and financial services for under-served communities should not be overlooked in the quest to innovate.
Mr Ong concluded his remarks with a quote from a speech by President Kennedy in 1966:
“There is a Chinese curse which says ‘May he live in interesting times’. Like it or not we live in interesting times. They are times of danger and uncertainty; but they are also more open to the creative energy of men than any other time in history.”
“Many will agree that we are living in interesting times; and a forum like this will be useful in bringing together the constructive and creative energy of experts like yourselves to share, to understand and to co-operate. Ultimately, it falls on all of us to do our part to make the future more promising and enriching for this and the generation that follows.”