Big Tech, Super Apps Redefining the Status Quo in APAC’s Banking Space

Big Tech, Super Apps Redefining the Status Quo in APAC’s Banking Space

by September 30, 2021

A major paradigm shift is taking over Asia Pacific’s (APAC) banking sector, driven by a changing regulatory landscape, the onset of open banking, and rising competition from big techs and super apps.

By leveraging data and ecosystem partnerships, these new entrants are redefining the status quo, bringing superior customer experiences and hyper-personalisation to the industry.

For APAC banks and financial incumbents to remain relevant, they must move away from the traditional product-centric approach to focus on servicing their customers.

This means creating a holistic customer experience and embracing customer data analytics to understand their needs and expectations at a granular level, Arvind Swami, Director of Business Development for Red Hat’s financial services vertical in APAC, told Fintech News Singapore in an interview.

Data is now “a precious commodity”

Banks sit on treasure troves of customer data that they’ve been collecting for decades. Although using this data to provide banking services is not a new concept, what has changed is that banks are now becoming more alert to the value this data can bring to their operations and customers.

Swami notes that the journey of data has evolved in this landscape.

Where data was previously used for analytical purposes to upsell customers, banks are now taking an outside-in approach by trying to first understand what customers want.

Arvind Swami

Arvind Swami

“That, I think, changed the perception of data from just being a commodity, to becoming a precious one,”

Swami said.

“In order to look at the customer outside-in, I need to have a lot more data available.”

Subsequently, it has also led to data becoming a critical asset for banking institutions that’s paramount in bringing about a tailored, seamless banking experience, he added.

This shift has largely been driven by technological advances, notably in the fields of data collection, storing and accessing, as well as the entry of tech-enabled firms including big techs and super apps into the finance industry.

Big tech, super apps transforming customer expectations

These players are leveraging their extensive ecosystems and using customers’ data to deliver better customer experiences and improve operational processes.

This includes, for example, using social media and transactional data to risk-assess loan applicants, and using data to better target financial products to customers, at the exact time they need them.

The rise of super apps present a “classic example of how data can be used,” Swami says. The trend of ‘customer obsession’ brought about by these companies have led to consumers now having similar expectations from other sectors, including banking and financial services, he explains.

Super apps are a new breed of tech giants emerging out of APAC. These apps essentially serve as a single portal to a wide range of products and services. The most sophisticated ones, like WeChat and Alipay in China, bundle online messaging, marketplaces, and services together.

Because of their versatility, super apps have quickly become ingrained into users’ daily lives, and are now making inroads into the financial services space, providing digital payment capabilities, loans, insurance products, and more.

On the flip slide, although traditional banks have huge amounts of customer data, their siloed data and mainframe technology estates have affected their ability to process that data to drive insights and customise customer service, Swami said.

“Banks have been collecting a huge amount of data for a very long time. But the challenges for financial institutions have been around data silos,” Swami said. “They could not have a full view of their customer behavior.”

An evolving regulatory landscape

Banks have historically been reluctant to embrace open banking and data sharing, but new regulations in jurisdictions including South Korea, Australia, and India, are now mandating them to open up their customer accounts to other companies.

This changing regulatory landscape is bringing about the open financial data movement. By allowing a large pool of players to access customer accounts and data, open financial data offers customers greater flexibility in how their money is being managed, allowing better visibility of accounts and a more convenient access to payments.

“The government and regulatory bodies are trying to foster an environment where openness is embraced, and is, in some ways, nudging them into doing it,”

Swami said.

“If customers’ personal financial data are being shared through a government portal, as in the case of SGFinDex for example, then banks have no choice, the ones that do not comply will automatically come under the scanner of the regulatory authority.”

Across APAC, China has been a frontrunner in open banking despite the lack of regulation, Swami said. Singapore and Hong Kong have also been moving at a decent pace.

Rise of open data regulation

In Australia, deployment and adoption of open banking have been slower because of a huge pushback from the “Big Four” banks, and regulators also took some time to refine the Consumer Data Right (CDR) legislation.

“This means that they will not just apply it to financial service institutions but to other industries as well,” Swami said.

He noted, however, that his firm, which specialises in enterprise open source solutions, has had “very good interactions with some of the Australian banks.” These banks are looking to leverage artificial intelligence (AI) and machine learning (ML) to understand customer behavior and provide superior customer experiences.

“One of the largest banks in Australia is taking a view that they don’t want to turn into a utility bank, or a white-label services provider, but to be at the forefront of the customer journey,” Swami indicated.

In Australia, Red Hat has worked with Heritage Bank, Australia’s largest customer-owned bank, helping them deliver a new real-time payment platform for the nationwide New Payment Platform (NPP) 10 months earlier than the average financial institution in the country.

Macquarie Bank, as well, chose Red Hat. Leveraging the Red Hat OpenShift Container Platform, Macquarie Bank was able to bring its applications and services to the cloud, enabling it to significantly reduce application development lead times, increase customer centricity, and improve efficiency.

Open banking to improve financial inclusion

In Southeast Asia, where half of the population is unbanked with no access to financial products, open banking has the potential to bring millions of low-income people into the formal financial system and improve their ability to engage with the real economy.

However, despite the potential of open banking in Southeast Asia, development has been slower than more mature markets because of the lack of clarity on regulations, Swami said.

In Thailand, although the government has been supportive of digital transformation initiatives in the finance sector, there are still no formal guidelines around open finance.

In Vietnam, banks are becoming increasingly aware of open banking, and recognising the need to embrace open APIs, but there’s been no real commitment from the government nor regulators so far.

Having said that, Southeast Asian startups have brought about some breakthroughs in this space. For instance, universal data API provider Brick raised a seed round this year from a number of investors, including prominent startup C-Suite execs. They’re not the only ones in this space either, joined by the likes of Brankas and Finantier.

Indonesia, the region’s biggest economy, issued its framework on open banking in August this year. Accordingly, 16 banks and payment firms have been mandated to adopt open APIs by June 2022, with full adoption expected by the rest in 2025.

In Southeast Asia’s tech capital Singapore, the Monetary Authority of Singapore has been proactively promoting the use of open banking APIs through initiatives such as the Financial Industry API Register.

These are early steps, but as Swami points out, there’s much more work to be done in this space.

“Southeast Asian markets have huge potential. Indonesia is one such market when it comes to scaling, but it is also highly regulated,”

Swami said.

“Indochina – Vietnam, Cambodia and Laos – on the other hand, has the potential to develop a variety of financial services that can support the unbanked, but a huge amount of work will need to go into developing the infrastructure and networks needed to support it, as well as increasing acceptance of these services.”