This piece was originally published 30 December 2021 on The Business Times Opinions. Read the original article here. The author, David Fergusson, is the CEO and co-founder of Hugo. He is also the Director of Nimoi Holdings, Hugo’s major investor, Woodside Holdings Investment Management, and Chairman and co-founder of Global Precious Metals.
A revolution is underway in financial services. All those petty irritations that your bank, insurance company or fund manager provides you will soon be a thing of the past. No more queues, no more pointless forms, no more terms and conditions that are impossible to understand. Or at least that is the promise of open banking.
It should be possible to liberate ourselves from the faceless anonymity and wanton lack of accountability, which has allowed financial institutions to deaden the senses of generations of consumers, and normalised poor service and hefty charges. The same institutions have drained the very finances they claim to protect and grow. Until now, managing our finances has usually been a deeply frustrating part of our lives.
Consumers want better banking
Four years ago, I came across an app developed in the UK that offered a simple card account on my smartphone. It was easy to set up and was a “Campbell’s Soup” approach to money: it does what it says on the can! It was a revelation, reminding me of how simple things used to be, and how they can be again. We seem to have forgotten that complexity is stressful, and simplicity is beauty. This app introduced me to the possibilities of open banking and the benefits of flexibility and convenience that it could offer consumers.
So what is open banking?
Ask five people in the space and you will get 10 answers – which is to say, it is an evolving sector that we are all struggling to define. For us, open banking is a series of technological and regulatory changes that allow for the disaggregation of all aspects of the financial service value chain; and then the reaggregation of individual components to create new products and services that consumers desire.
Banking made more customisable
Consider breaking up any aspect of the industry into individual Lego blocks; and then build anything one likes from those individual blocks. For example: imagine the opportunity of combining spending analytics on all of your bank cards, assessing where savings can be made, pushing those savings into your pension account, and all while managing your household budget on one app. This approach towards consumer journeys, in this case focused on financial wellness, is sorely lacking across the sector, in and outside of Singapore.
Like any major advances, it is not one thing that has driven change, but small steps forward in many different fields coalescing to create a tipping point. The list is too long to complete, but even a partial list highlights the point: advances in compliance technology, cloud computing, programming languages, regulatory adoption of technology, communication and messaging infrastructure. We are now at that point where if we can think it, we can build it.
More power to the consumer
This is exciting indeed. It means smart and nimble players can build different products for different opportunities. And what is gratifying is that consumers will be able to decide. For far too long, financial mega-corps have decided what consumers can have, and they have done so with very little concern for their well-being. In Singapore, we have had in essence, 3 banks in the market, and they have provided virtually indistinguishable services – with prices that were way too high. There was no excuse for debit card FX rates being above 1per cent let alone the 3per cent that is pretty standard.
Breaking open natural monopolies is simply good for consumers. Consider the telecoms industry as an example, you had 3 players for a long period, and they all conformed to the same price plans. When the networks were forced open by the regulator (the telecoms version of open banking), you saw a number of innovative companies, like Circles.Life, enter the market and offer better services at lower prices and take a huge market share as a result. We switched our corporate plan to Circles.Life and our mobile charges have dropped to about 45%, and any problems we have are resolved quickly, politely and reasonably. This is a far cry from the dreaded trip to Comcentre.
The key point is that every single one of us has experienced the powerlessness of dealing with a bank or large corporation. More competition is good for consumers, and that is coming fast.
How will the market respond?
There are 300 banks across Southeast Asia and several hundred fund managers and insurance companies. And you can count on one hand, the number of true open banking players. Doubtless, there will be more to come but it is an enormous market with plenty of space. And let’s not forget demographics and economics. Southeast Asia has a comparatively young population. It is rapidly approaching middle income status as a region, and it is growing at 6-7 per cent per annum. And there is growth in savings of around a trillion dollars a year. This is easily large enough a pie to be shared and distributed across the new players and then some.
The status quo players will respond, certainly, and with all the tools in their arsenal. We are already seeing a huge pick-up in advertising by the banks, and a corollary pick up in public relations and lobbying activity focused on attacking the new entrants. We are seeing them launch new youth-oriented brands. But what will it serve? They can respond to the product, surely. And they can tinker around at the edges. But to what end? Financial services are like icebergs: 90 per cent is unseen below the waterline. All the operations, automation, systems and processes remain hidden from consumers. Anyone who has dealt with bureaucracy and its inertia knows these are far less easy to change. Higher levels of service, greater flexibility, improved responsiveness and innovation require wholesale change to what is below said waterline. Without this, it will be nearly impossible to match the significantly lower cost-base of the new players.
It’s all in the execution
All the big banks have strategies for the new environment, and they range from being very vocal about their strategies to being extremely guarded about their developments and product creation. For example: DBS wishes to be the wholesale digital bank for the new industry. And it has invested heavily to that end. But DBS has invested in technology aggressively for years so it is unsurprising they are well prepared. At the other end of the spectrum, you have Standard Chartered bank, which has invested poorly in technology for equally long. They appear to be following an Apple skunkworks approach, where they build a new digital bank, bring it to market, and then shut down their old bank. Needless to say they are not shouting about this. Irrespective of which route they go down, success will be a function of execution. DBS looks to be leading the field in terms of execution; others are either overwhelmed by the magnitude of the task facing them, or worse still, blithely unaware of the changes that they need to make.
What is the impact?
Open banking provides a real win-win scenario. It is an opportunity for the Singaporean economy and consumers alike.
For the economy, Singapore needs fintech to be a success. There are a huge number of jobs tied up in financial services, and without a vibrant fintech sector to replace what will be inevitable job losses in the dinosaur banking system, the economic prospects look dicey. And as financial services become more efficient, the deadweight loss to the economy from lower competition will diminish; lowering costs to benefit everyone. More importantly, fintech can form a fundamental pillar of financial sector regional development. Singapore truly has the opportunity to become a regional centre for this sector, offsetting where we have manifestly failed i.e., to create a regional stock, bond, or insurance market.
The sector needs help to do this and I am happy to see the government actively providing support be it Enterprise Singapore and their grant system (they are great by the way!), or the broader economic support from COVID. The Monetary Authority of Singapore (“MAS”) is chipping in their share, and is well ahead of its regional peers; but needs support from the industry to manage the levels of change heading its way.
Most importantly, consumers are curious. They are testing out what they like the sound of, safe in the knowledge that the MAS has done an excellent job of safeguarding their money. It will take time before behaviour changes, usage shifts and money walks across the street. But we see the start of this behaviour.
Open banking opens ears
Open banking is hitting the sector with enormous amounts of innovation, creativity, but most importantly listening. Customers are telling us what they want not just by the usual market research channels, but by how they are behaving inside our apps.
Pushing the boundaries of irony, and borrowing from Marx: Consumers of Singapore, Unite! You have nothing to lose but your chains, queues, bureaucracy, fees, bank indifference.
This piece was originally published 30 December 2021 on The Business Times Opinions. Read the original article here.