In conversation with... Mathias Faure, CTO, Standard Chartered nexus

Written by || January 20 2022

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Hello everyone and welcome back to Kapronasia's in conversation with series, where we talk to some of the leaders within Asia Pacific's FinTech industry. Today, we're happy to have Mathias Faure who is the CTO of Standard Chartered nexus and will tell us more about the focus of Nexus, and how that fits into Standard Chartered's strategy in Asia. So Mathias welcome. Could you tell us more about your role within nexus.

Good afternoon, everyone. I'm the CTO for nexus. So my role is to manage the technology, to make sure we add value by aligning the technology vision and strategy to the business vision. This covers looking after the architecture, the developer experience, the infrastructure, and obviously, the cyber security, which is a very important aspect for the banking stack.

That's great. You have a deep history in the financial industry, and largely on the tech side. Just to set the stage for our listeners. What are some of the things that have surprised you about the bank's attitude towards technology in the past few years?

So I've been in this industry for about 10 years and we've seen a big shift from banks considering IT as a cost, to now considering IT as an opportunity and as a new way to drive new revenue streams. That's a very important change in the industry. I think where banks are still struggling in this change, it's to adjust the risk approach to technology.

Can you talk a little bit more about that? How has that changed, that risk approach?

Sure, so I think banking is all about taking the appropriate risk. The art of banking is the art of taking risk, and so traditionally we are seeing technology as a cost, and we're always saying, okay, we must make sure we're super secure and define the strong framework around that. But technology has evolved a lot. And now, it's about banks, or financial services in general, having to expose themselves more on the internet. Therefore needing to adjust their risk posture, doesn't mean take more risk, but to reconsider their existing framework on the risk approach.

That's really interesting. Can you think of a specific example that you've seen either from Standard Chartered or another bank in terms of taking more risk with their technology stack?

Sure. So I think smaller banks are usually quite agile in terms of adapting to risk. Probably because the business is a bit more aligned with technology and can drive it. In larger organizations it's a bit harder for banks to align business security and the risk team all together. They tend to work a bit in isolation.

So, Mathias, that's interesting. Looking more specifically at Standard Chartered and nexus, how does nexus represent Standard Chartered's vision for the future of banking?

Standard Chartered is investing massively in digital innovation through its venture arm, SC Venture, and nexus is part of this initiative. I think the bank understands that the industry is being disrupted heavily, especially in its existing footprint, so it has had to adapt quickly.

So, nexus is a way to target customers at scale, which the bank was not really looking at before, it tends to target customers at scale via partnerships. This way, we'll be able to lower the acquisition cost of our customer and target this mass segment that was a bit ignored in the past. We will also be providing a brand new full digital customer experience that will increase the stickiness of our platform.

Interesting. And so, with that footprint, specifically talking about the nexus business, who do you see as the main competitors, both in terms of FinTech and banks? What type of companies are typically there, and competitors, to what nexus is focused on?

So, we see a lot of neo banks, new digital banks, coming. We also see these mega apps, ride hailing companies that are acquiring banking licenses. And then there are also FinTechs and BaaS that are emerging. I think the BaaS model is really gaining in popularity, but it's still being defined. There will be a lot of competition coming soon for sure, but nexus has some big advantages in comparison to the others.

First, we are part of Standard Chartered Bank, and are part of this global footprint in over 30 markets, with 30 retail licenses that we can leverage. So we can scale to multiple markets and service global customers with a single engagement for different countries. So that's quite a massive advantage. Also, we have built this new technology stack within the bank. We didn't build that like a FinTech with a lot of freedom, which is good and bad. The good aspect is that it is a bank grade technology stack that has been reviewed by multiple security teams. We can answer any kind of audit request from regulators across our markets.

That's really interesting. I think that global footprint and the bank grade platform is a real differentiator, certainly, for the business. Specifically talking about BaaS, banking as a service, what do you think the risk is for the traditional financial industry? Once we move to this model where there's just embedded finance everywhere, do we still need traditional banks? What becomes the role of traditional banks once BaaS really does take off?

That's a good point. I think BaaS offers a few challenges. The role of bank is being redefined worldwide, and it started a while ago. So the bank is now a bit less front facing for the customer, a bit more acting as a utility provider, almost in the backend. But its role still remains as running a license, which is not something that anyone can actually do. So that's the challenge, is how do the banks adapt?

Another challenge is how the regulators and the banks collaborate to define how BaaS can actually work in terms of data sharing, and of sharing services. We see some big initiatives in the world like open banking, which starts to facilitate that, and it's being rolled out to many countries. So the change is coming and there are also some opportunities coming with this change. For the successful banks that will be able to rethink their business model, then they can target customers at scale. They don't have to worry too much about marketing, customer acquisition cost, and all of that. They can actually probably increase their revenue.

For the customer, there's a lot of opportunity to innovate, drive some very nice digital experiences around banking, that banks are probably not great at providing. Currently partners of banks are probably doing this better.

Yes, enabling that change it seems is a big part of the value proposition for BaaS and probably for nexus, in that respect as well. From the technology perspective, when you talk about nexus and BaaS, what are the elements of technology that are limiting the adoption of BaaS? Or is it not a question of technology, is that not the limitation? And is it just comfort level from the banks, or is it organizational structure, readiness? What do you think is limiting it, and is technology one of those things?

So technology in itself is now mature enough to create some fantastic digital experiences. But in the world of the financial industry, the problem around technology or the limiting factors, are around the risk management framework. It’s about how banks are comfortable with running workloads in the cloud, opening their data to different channels. So the change is coming, so banks are getting more confident, and they know they have to adapt or die, pretty much.

Another priority issue, I think we touched already on it, is the regulatory framework. So how do we engage the regulator around initiatives like nexus, and get them to approve our applications to agree to sharing data and services. This is not yet fully defined. So we are leveraging existing standards like Open Banking PSD2.

That's interesting. That point about consumer data, especially in Australia, has come to the fore. What does the increased regulations around consumer data mean for nexus in terms of the way that you approach the market and your systems and operations? What are the considerations that you need to take into account as you're looking at these markets that are getting increasingly sophisticated around data regulation?

So, when we designed the platform, we really thought about the primary objective of sharing data and services, and we aligned as much as we could to open banking and all the security standards around data sharing and financial API standards. Then we use open ID connect to share identities with our partners and work with regulators across our different markets to get our model approved. I think a big advantage of banks like Standard Chartered doing BaaS is that we've got this regulatory engagement channels that are already set up as we've got dedicated compliance teams in each country that work with regulators. So, we can get this change pushed across the different market.

That makes a lot of sense. We have spent time talking about more established markets, like Singapore, Australia, Hong Kong, Japan, etc. A lot of those markets are very heavily banked. Let's talk for a second about financial inclusion, especially when you look at it in a region like Southeast Asia. Once you get outside of Singapore, the banked population drops off dramatically. When you look at BaaS and the potential for financial inclusion, do you see any immediate applications where we can really address that financial inclusion challenge using BaaS?

Yes. So we are launching nexus in Indonesia as we believe that developing markets in Southeast Asia are very receptive for the BaaS solution. We know that 50% of Indonesians are underbanked, 68% in Vietnam, and 65% in the Philippines. In these countries, we see a very high adoption of eCommerce and Indonesia has one of the highest eCommerce adoptions in the world, with 88% of the population using eCommerce services. So we hold two partnerships in Indonesia. First with a very large eCommerce unicorn called Bukalapak. They provide their services to over 100 million users, active users, which is incredible, and 14 million SME sellers. So for us, it's a very important partnership. And we also have another partner, Sociolla, which is a tech beauty eCommerce company, which is present in multiple markets in Southeast Asia. So we believe that for those channels, we'll be able to offer financial services to people who never had access to them before.

That's amazing. I think eCommerce is such a big part of the story here in Asia. It's a segment that's really enabled financial inclusion from everywhere, from China to Southeast Asia. Both in terms of allowing people to access financial products and services, and buy goods and services online, but as well for the merchants who are actually selling. So it's such an important part of the story. Mathias, this has been great. It's been really good conversation. I want to close out with one last question. When you look forward to the future, what excites you? What are you looking forward to in the next three to five years?

So we are already in the pilot phase with CASA, our transaction and saving accounts. We are launching very soon to the public. So I'm quite excited to be able to offer these financial services to people who never had access. So this financial inclusion is a big piece. We can do that via our full digital onboarding, so people don't have to access a branch. There's also the fact that because our customer acquisition cost is low, we are proposing to these people where we have probably never proposed before, to have access to financial services. And we are already going to deliver a pretty advanced financial experience. So we've done a bit of gamification. We have been able to use the data platform to hyper contextualize the experience for the users. It's going to be a pretty interesting experience. Very soon, we're also releasing some lending products, so buy-now-pay-later, some installment loans. And we'll be able to do that with a real time credit decisioning. So it means our users will be on their platform and buying any product they want, and we can propose them, on the spot, a loan or a revolving line of credit. In the future, we're also quite interested in the small and medium enterprises. I think there are a lot of very interesting pain points to be addressed in this space.

And then, I'm excited by the footprint of SCB. We are going to expand into multiple markets over the next couple of years and will be able to provide services to our partners across different markets, which is amazing.

That's great. The future is very bright, I think, for addressing some of these challenges in the market, and for Standard Chartered and nexus pursuing that. Mathias, thank you so much. This has been amazing conversation. I really appreciate your time.

Thank you Zennon. Have a good day.