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  • Building A Customer-centric Digital Bank in Singapore - A paper from Kapronasia and Equinix
    Building A Customer-centric Digital Bank in Singapore - A paper from Kapronasia and Equinix Singapore will become one of the focal points of Asia’s digital banking evolution when the city-state awards digital banking licenses later this year. As a key fintech hub in Southeast Asia, Singapore is a natural starting point for digital banks in the region and was an early adopter of digital…
  • Next-generation Compliance: Ensuring the Integrity of Digital Banking in Asia
    Next-generation Compliance: Ensuring the Integrity of Digital Banking in Asia In recent years, the financial services industry has digitized rapidly, with transactions becoming speedier and more efficient. This transformation has mostly been a positive development for financial services providers and their customers. However, as the industry landscape has changed, illicit activity has moved in tandem. Put simply, just as it…
  • The Asia Pacific Gig Economy 2020
    The Asia Pacific Gig Economy 2020 The gig economy is roughly defined as a prevalence of short-term contracts or freelance work as opposed to permanent jobs. As the global economy changes, the gig economy has been growing rapidly. According to a recent Mastercard report, the digital gig-economy generated ~USD 204 billion in revenue in 2018, or,…

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Great Expectations – the Asian Retail banking Customer

Written by Kapronasia || October 16 2013

The Asian retail banking customer is changing. Increasingly wealthy and connected, customers want even more from their banks and are becoming picky about who they bank with to get it.

Development of Wealth Management in China

Written by Zennon Kapron || October 15 2013

Cash is always king and no more so than in China. Traditionally a very cash-based market with many High Net Worth Individuals (HNWI) skeptical of having someone else manage their money, wealth management got off to a slow start in China. It started with the establishment of few foreign private banking such as Citi Bank, UBS, and HSBC in China in 2006. In 2007, Bank of China was the first Chinese bank that established a private banking department in Beijing and Shanghai.

Business was slow initially for both foreign and domestic banks. Trust was a key factor – many HNWIs were not comfortable with someone else managing their money, much less a foreign bank, but the sophistication of services offered was also very low. Even today, the private banking business mainly provides consulting services for asset allocation and very little forward planning. Most banks push particular products rather than tailored financial plans that take into account not just a person or family’s financial situation, but their future life events.

Although wealth management is still in a nascent stage, the HNWI population in China has increased dramatically, reaching 700,000 by the end of 2012. In addition, the total AUM in Chinese private banks was 573.6 billion yuan in 2008, but is over 2 trillion yuan today. With this growing trend, we see the huge potential in the wealth management sector in the near future.

China’s large banks also see this opportunity and are focusing more and more on wealth management. The wealth management business does not only bring significant intermediate business income, but also provides an opportunity for organisations to re-structure their retail banking business. This has become especially important as it appears that regulators are finally going to reform interest rates. More flexible interest rates will mean that banks will face increased competition and be able to rely less and less on traditional spread income – this is where higher margin wealth management products and services can help.

Nevertheless, Chinese banks still need a long time to build trust with their customers. In western countries, many private banks already have more than a hundred years of history. Will Chinese banks accomplish the same in less than 90 years?   

 

Total Customers

Customer Growth Rate

AUM (Billion RMB)

Minimum Amount (Million RMB)

BOC

40000+

-

450

8

ABC

35000

12.90%

396

8

ICBC

26000+

18.18%

473.2

8

CCB

-

18.82%

-

10

CMB

19518

18.34%

434.2

10

Source: Bank Annual Reports, 2013 

Strategy and Positioning of Supra-regional Banks

Written by Fay Zhou || October 15 2013

Although the Asian banking market presents a tremendous opportunity for banks, it is also increasingly competitive as smaller banks grow and innovate to compete against their large rivals. This competition, coupled with slowing growth in many countries is pushing large domestic banks to start looking abroad outside of their home countries. China’s Industrial Commercial Bank of China (ICBC), Hong Kong’s Bank of East Asia (BEA) and Singapore’s Oversea-Chinese Banking Corporation (OCBC) are great examples of domestic heavyweights who are rapidly expanding across the region.

So the reasons for expanding are fairly clear, but what about the strategies? How are banks able to justify expansion, at least in the short-term? If we look historically, many of the Japanese banks that initially expanded overseas in the 1970s and 1980s for access to deals as their customers moved abroad; we’re seeing much of the same trend today.

Although the Chinese banks started expanding for access to new f/x markets, but are increasingly following their Chinese customers as those firms also expand to ‘escape’ domestic competition and slowing demand in their home markets.

Facing almost the opposite problem, Taiwanese banks have been eager to enter the mainland China market for nearly a decade as their domestic market is relatively small and very saturated. Yet, similarly to Chinese banks, Taiwanese banks are looking to first enter the market to support their domestic customers who are represented by some of the largest manufacturers in the world like Foxcon, makers of most of the world’s iphones.

So following existing customers into new markets seems to be a good strategy to enter a new market, but what about positioning and expanding once you get there? That is actually where the challenge lies and where both supra-regional banks and global banks often struggle. How do you differentiate? How do you position your product?

Using China as an example, regulations on banking products and services for foreign banks are pretty controlled which doesn’t leave much scope to compete or innovate in terms of product scope or breadth, but where we have seen banks be more successful is looking at different underserved markets like rural banking.

BEA and HSBC in particular have been working with the government and regulators to follow the ‘go west’ policy and tap those new markets. Although the jury is still out on whether the strategy will be successful, it has helped the banks better their relationships with key stakeholders like the regulators and has positioned the two banks differently in the market.

How about you? What have you seen work in Asia? What are banks doing to successfully compete outside their home country?

This blog is part of the Oracle / Kapronasia series on Future Finance. For more information, please visit the Future Finance blog at here.

Hidden Risks in Mobile Banking: how are you overcoming them?

Written by Zennon Kapron || October 11 2013

According to a user survey on mobile banking security conducted by the CFCA (Communications Fraud Control Association), users’ assessment of how safe mobile banking is has really not changed since 2010. But are the users’ security concerns valid or do they arise from a lack of understanding of how mobile banking works? Perhaps even more so than mobile payments, mobile banking seems to provoke more worries as it seems more closely attached to their banking accounts; no one wants to the risk before they understand how it works.

There is some validity to the concerns. Although mobile banking accounts and nearly all  phones have passwords, they still cannot stop professional fraudsters. According to the Internet Security Report by Symantec, attacks on mobile phones have been increasing in recent years. Mobile hackers are possibly targeting users’ financial and personal information. With increased use of mobile financial services, banks will need to devote more effort in in eliminating these threats and customer concerns.

This is even more the case in Asia where mobile phone penetration is increasing faster than anywhere else in the world and millions of individuals are becoming ‘banked’ via mobile banking services. Although the region has pockets of very sophisticated and mature user bases, there are millions of rural users who may never have had a phone before much less mobile banking products and services.

In a fraud example that we found in China, one mobile banking user in China found 40,000 RMB (~US$6,700) missing from her bank account. An investigation with the bank revealed that someone used her phone number to report a lost mobile phone. After receiving her phone number, the fraudster transferred all of her deposits out of her account by using her mobile banking service.

Unfortunately these few examples of fraud stand out much more in the press and in consumers minds more than many examples of successful transactions. We have seen financial institutions put education programs in place as well as implementing new more secure versions of their mobile banking software.

But what have you seen? What ways have you seen Asian banks mitigate risk and security concerns and still drive consumer adoption?

This blog is part of the Oracle / Kapronasia series on Future Finance. For more information, please visit the Future Finance blog at here.

Risk Issues for Expanding Supra-regional Banks in Asia

Written by Fay Zhou || October 09 2013

China’s banking system was historically quite segregated: each of the original four state owned banks were created for a specific purpose. China Construction Bank was created to administer and distribute government funds for domestic infrastructure and construction projects, Agricultural Bank for farming / agriculture projects, etc..

The challenges these banks face as they expand both geographically and by business sector across China is not unlike supra-regional banks as they expand across Asia. One of the biggest challenges is Risk Management. Typically, existing risk management systems in many markets have been built and customized for their home markets, but may not be robust enough for foreign markets.

As an example, Chinese banks have, until recently, been operating in an environment with essentially fixed interest rates, so many of the risk management systems implemented in China never really had to adapt to a rate changing environment. These systems that had been customized for the mainland market might struggle in a more mature market such as Australia where a fully liberalized interest rate environment makes understanding loan profitability (in some cases even down to the individual loan level) very important.

In addition to the market risk that can be presented by newly liberalized interest rates, credit risk can be a challenge as banks may not be familiar with the operating status and financial standing of the enterprises in other countries. This makes it difficult to understand and manage credit risk effectively and increases the possibility of losses arising from credit risk.

Finally, as banks expand more rapidly, operational risk can increase if operational procedures and standards maybe involved if the rapid expansion leads to ineffective internal control. Differences in employee attitude and habits across culture can vary dramatically.  

All of these risk management issues can be identified and controlled, but it takes focus and consideration. Too often organisations look at new markets they fail to take this into account, but in this case, it could mean the success of a new country’s business or the failure.

This blog is part of the Oracle / Kapronasia series on Future Finance. For more information, please visit the Future Finance blog at here.

Self Service Innovation in Asia: Little changes, big impact

Written by Zennon Kapron || October 07 2013

Many countries in Asia have been traditionally cash and brick focused: customers have been used to holding and using physical cash and visiting the brick and mortar branches. That’s changing rapidly as competitive pressures and demands from an increasingly sophisticated customer base are driving banks to create a new normal in both business model and customer interaction. A key part of that transformation will come from self-service innovation, yet self-service means different things in different countries.

In Japan, regular bank ATMs actually have limited hours of service both during the week and on the weekends. Historically this has been down to increased costs in terms of security / safety of both the machines and people and less demand from customers outside of normal business hours, especially in rural areas.

A certain subset of Japanese customers however, have, over the years, increasingly looked for “Anytime, anywhere” banking services. In early 2007, Japanese Seven bank brought ATMs into Japanese 7-Eleven convenience stores; the integration was made easier by the fact that 7-Eleven stores and Seven Bank itself are both owned by Ito Yokado. Japan actually has the largest absolute number of 7-Eleven stores in the world so now customers can withdraw money any time of day or night with their debit and credit card in more than 18,000 ATMs installed in 7-Eleven stores in Japan.

These ATMs also process remittances from Japan to other countries allowing Seven bank’s customers to send money nearly anywhere in the world, at any time of the day. It provides a convenient cash service for their customers and also satisfies their remittance needs, which means a more satisfied customer and bank.

ATMs in China have never had challenges of hours as most of them, unless they run out of cash, run 24/7 in nearly all locations. What has changed is the functionality. 10 years ago if you wanted to transfer money from one person to another, you faced a potentially hour plus wait at your local bank branch and many times had to transact in cash unless you wanted to go through the paper work.

Today you can use a Chinese ATM to directly pay anyone who has an account with that bank. Further, even if you don’t know their account number, you can even input their mobile phone number if it is associated with the account.

Although many of the changes in self-service aren’t major, they are tailored to the local customers and what might be an issue in one geography might not be in another. They can also result in increased revenue, such as the surcharge on out of hours transactions at the 7-Elevens in Japan, and decreased costs, such as fewer branch visits in China’s case, but they aren’t one size fits all.

Many financial institutions have come to Asia with this ‘one size fits all’ mentality and really struggled to gain market share and drive business. Not having the right mix can result in decreased revenue and incredible costs from poor strategies, but can also alienate customers which gives the bank a different problem: not how to move customers to self-service, but even how to have customers in the first place.

This blog is part of the Oracle / Kapronasia series on Future Finance. For more information, please visit the Future Finance blog at here.

According to the figures from the Securities Association of China, the assets under management and revenue earned by Chinese securities companies asset management businesses has grown dramatically from the 1h 2011 to the 1h 2013. The total AUM in the 1h 2013 is about 13.75 times of the figure in the 1h 2011, which reflects the thriving of client asset management business of securities companies in China.

One reason for that for the dramatic expansion is the demand from clients. As China has a growing number of high-net-worth individuals and the investment options are relatively narrow compared to western countries, asset management business provided by local securities companies are thought to be a good choice. Market analysts estimated that the figures will keep growing exponentially for the following few years; at least the current market is far below saturation. 

 

Client asset management business of Chinese securities companies CNYbn

 

1h 2011

2h 2011

1h 2012

2h 2012

1h 2013

Revenue earned by securities companies

0.898

1.215

1.044

1.632

2.88

Total AUM

248.673

281.868

480.207

1890

3420

 

Source: Securities Association of China, 2011-2013

China Bitcoin payments developing gradually

Written by Zennon Kapron || October 03 2013

In our previous commentary, we looked at the future of Bitcoin in China and its potential to become a widely adopted and used virtual currency. One aspect of its development which will be critical if the fledgling currency is to really gain traction is the maturation of Bitcoin as a transaction platform.

The growth of the property and housing market is a key part of Chinese economic growth, but at the same time, there is increasing worries of a major bubble.

The US Federal Reserve (Fed) announcement that it will continue the program of quantitative easing (QE) boosted the Asian stock market, but many now worry that this is only a temporary fix.

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