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
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
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
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
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.”