Digital transformation is top-of-mind in the financial sector. It's a dynamic and ever-evolving space. How can financial institutions best keep up with the latest innovations, adapt and thrive? FMO joined forces with INSEAD, the Business School for the World, and the Inter-American Development Bank (IDB) to bring together 42 senior-level executives of financial institutions from FMO’s global client base: from Kenya to Kyrgyzstan, from Colombia to India. The Masterclass program ‘Strategy for Financial Services in the Digital Age’ combined world-class education and peer exchange, with exposure to innovations in fintech, banking and regulation at the Singapore Fintech Festival.
The program was led by Philip Anderson, Professor of Entrepreneurship at INSEAD. He challenged participants, all at different phases of their digital transformation journey, to think about their next digital strategy steps, possible future Fintech collaboration, and how to benefit from innovations in the Artificial Intelligence and Machine Learning space. The professor also prepared the senior-executives for their visit to the Singapore Fintech Festival, SFFxSWITCH, by showing them how to get most value out the sessions, pitches and network at this +60,000 people event.
What are we talking about when we say ‘Fintech’?
Fintech is technologically enabled financial innovation that could result in new business models, applications, processes, products or services with an associated material effect on financial markets and institutions and the provision of financial services.[1]
A very helpful start of the program was the professor’s categorization of Fintechs in roughly 18 groups, organizing them by main focus [2] – for example on wallets and money transfer, blockchain-based solutions, and credit score and analytics focussed businesses. A quick survey showed that most of our participants were actually interested in learning about solutions that could help them improve in the areas of ‘credit score and analytics’, ‘lending’ and ‘financial services and infrastructure’. Bringing in this focus allowed participants to become more specific about their needs and challenges.
Needs and challenges: Eat or be eaten?
The first discussions mostly evolved around the threats and opportunities of working with innovators. Professor Anderson: “One way or another, you are going to have to make a choice on who you want to be. Traditional banks have many advantages: their brand, history and track-record. Even though Artificial Intelligence (AI) is moving fast, the best lending decisions are still being made in the context of a relationship. Banks have relationships that new players can only dream of.”
Another thing most AI-based Fintechs desperately need from traditional financial services, besides relationships, is their data. A known saying is that ‘data is the new oil’. Professor Anderson adjusted that saying slightly: “If data is the new oil, AI is the new electricity. It is lowering the costs of generating knowledge from data, thereby lowering the costs of accurate predictions.” Still, the sharing of data, even aggregated and anonymized is a contested subject in the financial sector.
The speed of change and new solutions entering the market can feel threatening. The best way forward is partnering in order to have the right bundle of those solutions. Anderson: “Because there will not be one Fintech that is going to solve all your needs and challenges; you will need to try out and partner with a bunch of them.” Margarita Cherikbaeva CEO of the Kyrgyz Bank Kompanion expressed her worries: “How can small cap banks deploy new opportunities at the right price? We have no budget for trial, but we still need to transform. What are solutions that let us fly?”
This is where FinConecta comes into play. FinConecta and FMO partnered to launch the FinForward program, which matched Financial Institutions (FIs) FinTechs from all over the world by integrating them into one single platform (4wrd). Our masterclass participants had access to a Digital Transformation Readiness Assessment powered by FinConecta, to see in what phase of digitalization they currently are and what strategic changes were needed to bring them further. Important note by Jorge Ruiz, founder and CEO of FinConecta: “In all this, the application and tailoring of solutions is far more interesting than the technology itself.”
By the end of day one, participants were prepared for the ideas, technologies and business models they would encounter at the Singapore Fintech Festival.
Curious to find out what other insights and new strategies our participants took home?
After spending 3 full days with innovators, start-ups and scale-ups, the group reconvened at INSEAD Singapore Campus to discuss insights and their strategic way forward.
The 8 most valuable insights they shared:
- The financial ecosystem evolves rapidly and this creates cross-sector business opportunities
It was already clear that we need to redefine the role of banks as sole providers of financial services. Fintechs present exceptional process agility and are completely transforming the financial infrastructure, the digital rails. However, innovations are also moving in from other angles than most expect. A good example of the ecosystem change was presented by Raymond Leung, board member Maha Agriculture Microfinance from Myanmar, who told the group about his experience with Grab, an application widely used in Singapore. The app was first introduced as a taxi service, as Asia’s own Uber. Quite quickly, Grab added new services, such as collecting coupons and food delivery. At the Singapore Fintech Festival, Mr Leung discovered that the app had now entered into ‘his space’ of financial services as well: lending money to his customers! Why? Mr Leung: “Grab has a lot of data. They know who goes where, buys what, where and when. My take on this is that there are no boundaries anymore, business sector boundaries have become limitless. We have to start thinking about this as a strategic move because soon, someone will eat your lunch. It is also an opportunity to move into a different horizon.”
- Banks and Fintechs need to collaborate and consolidate to ensure the best customer experience and avoid customer confusion
Not only traditional banks, but also customers need guidance in selecting the right applications. There is a great need for consolidation in this respect, as there are so many players in the financial services market. A unified approach is required, because innovation, adoption and standards will be lowered if too many solutions are offered. All this diversity of choice could lead to customer confusion. Customers want integrated, simple solutions. Banks and innovators should carefully look at the interoperability challenges. There is a sense of Financial Servicers FOMO (fear of missing out) where all digital platforms want a piece of the Financial Services pie. And why not? Together, they have the customer base, some unique data, and the capacity to provide innovative and user-friendly services. In the best case scenario, this leads to SuperApps, like Grab, where many of the customer’s needs -including financial services- are combined in one, user-friendly ecosystem.
- Blockchain is changing the digital rails; even though real use cases are limited
Many participants noticed the huge focus on blockchain solutions at the Singapore Fintech Festival (SFFxSWITCH). One even counted that there were 90 booths at the Exhibition space by blockchain based start-ups. Douglas Mwangi, Director Finance & Strategy at Sidian Bank Ltd Kenya noted: “There are already so many uses for blockchain out there. Some, for example, make payment options for local and international transfers much quicker and cheaper. I also came across a blockchain-based carbon credit platform; Singapore created a securitized cryptocurrency for sustainability. That was really cool.” Another team of participants shared the thought that blockchain might be ‘close to inflection point’ because it has evolved so much over the past three years. Andrew Shaw, Manager Capacity Development at FMO: “Blockchain is already changing the digital rails. We might be running towards a Blockchain of Things.” Others were more careful and argued that, even though blockchain seems to be critical for the future, they hadn’t seen many use cases where blockchain was really implemented.
- Credit scoring solutions can make a bankers’ life easier
Khin Thida, Chief Operating Officer of Early Dawn Microfinance Co. in Myanmar shared that she encountered Fintechs that had developed a completely non-traditional way of credit scoring: “They are fast and outside traditional data source. Making KYC practices (Know Your Customer) and client onboarding so much easier. I even saw some who had developed software for facial recognition.” At the Singapore Fintech Festival a wide variety of ways to score risk was displayed: some focussed on customer behaviour, others on mobile data analysis and some even based analysis on social data.
- Artificial Intelligence, Machine Learning and data are more than buzzwords, however, solutions based on these methods are out-pacing the demand
India-based Aye Finance Ltd CEO Sanjay Sharma changed the saying to “data might be the new oil, but needs refining first.” He found very few credible AI or Machine Learning (ML) solutions. Many parties encountered had limited demonstrations to share; and marked data sharing by banks as a priority. The interoperability of the data format is still a huge challenge. Even though big banks are starting to open-up their data via APIs and create open platforms; currently the solutions are definitely out-pacing the demand.
- Cashless payment solutions are growing very fast, and there’s a mismatch with customer reality in emerging markets
The Singapore Fintech Festival showed that most Fintechs (by far) focus on cashless payment solutions. As participants of our Masterclass program all come from emerging markets, this focus on the cashless society seemed out of synch with their realities, where there still is a lot cash and credit involved. Robin Bairstow, CEO of I&M Bank Rwanda: “Our aim is to reach the unbanked market. These people are not using the kind of products designed by Fintechs yet. How do we make them shift away from their heavy reliance on cash? We have to rethink how we address this market.”
- Regulators need to be enabling to the new trends
“Rapid advancements in technology, particularly financial products being offered by Fintech companies, are creating a wave of change in today’s regulatory environment posing challenges for regulators such as central banks who have to balance encouraging innovation as well as consumer protection, argued Brenda Phiri, Payment Systems Development at the Central Bank of Zambia. Participants discussed the big differences across countries in terms of policy support for innovation, and how the role of the regulator either helps or hinders the creation of the right environment for improving financial services. In Singapore, for example, the government’s support for entrepreneurs, seems limitless: they have encouraged the creation of labs, incentivised innovation and through events like SFFxSWITCH tunred all eyes toward the country.
- It is great to see that the sector displays increasing interest to broader themes such as financial inclusion and sustainability
Read more about this last insight in the latest blog by Linda Broekhuizen, FMO’s Chief Investment Officer, who was also a participant of the Masterclass Program.
[1] Definition by the US Financial Stability Board
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