The Covid-19 pandemic is forecast to shrink the global economy by as much as 6% in 2020, and as cities stay in lockdown, the numbers are unlikely to get better. Despite this, the current situation could present an opportunity for financial institutions to make the leap and go digital – even though banks are tightening their belts and putting tech investments on the back burner.
“To drive change during a crisis is a very difficult call. During these difficult times, you’re going to see some changes [in banking] emerge, and some [banks] are unfortunately going to go down,” says Tan Bin Ru, the CEO of OneConnect – an associate of China’s Ping An Insurance Group – in Southeast Asia.
OneConnect provides technological applications and technology-enabled business services to financial institutions. These include digital onboarding solutions such as enabling companies to conduct the electronic know-your-customer (eKYC) process via facial recognition and biometric authentication. Originating unsecured loans for the unbanked, an area that traditional banks typically steer away from due to difficulties in ascertaining their credit worthiness, is another solution the company has adapted for its Southeast Asian clients.
Some banks, like India’s Kotak Mahindra Bank, have taken a different approach and are going 100% digital, Tan says.
In March, the Mumbai-headquartered bank extended its digital account opening platform to its corporate customers as part of the enhanced initiativesits enacting during the country-wide lockdown. It also implemented a bilingual voice bot named Keya which can tackle customer queries in both English and Hindi.
Rocking the boat
Over the last two years, New York-listed OneConnect has turned its attention toward Southeast Asia as the region’s financial sector picks up the pace in digital transformation. Tan says the company aims for the region to eventually make up 10% of its total revenue.
Digital onboarding, which employs technologies such as facial recognition and biometric authentication, was a particularly hot category for the firm in 2019, and Tan expects this will continue into 2020 thanks to government-led efforts in the region.
As an example, Thailand’s central bank has given its stamp of approval for six lenders, including Kasikornbank, Bangkok Bank, and Siam Commercial Bank, to use eKYC technology to verify the identity of customers who are opening online deposit accounts.
OneConnect is currently working with major financial institutions in Malaysia and Thailand, as well as KBIJ, a private credit bureau in Indonesia, and UBX, which is a subsidiary of UnionBank in the Philippines. While it hasn’t partnered with major banks in Singapore yet, Tan foresees that will soon change, as she says talks with players in the city-state are becoming “more regular.”
However, “Singapore banks are, unfortunately, relatively comfortable,” she notes.
An industry analyst agrees. “There’s a certain element of market structure and a lack of competition that’s preventing the competitive drivers that we should see to push [Singapore] banks to move beyond their complacent stage,” Zennon Kapron, the director of financial technology research and consulting firm Kapronasia, tells Tech in Asia.
With the pandemic, though, Tan predicts that the demand for these digital solutions – such as those enabling bank accounts to be opened remotely – will increase as banks become more conscious about cutting costs. With many bank branches shut, OneConnect has gotten “a lot of inquiries” on such solutions, Tan adds.
Targeting digital banks
New digital banks, many of which are looking to serve unbanked segments, have been more receptive to OneConnect’s solutions.
In March, the company became the technology partner of the Beyond consortium, which is gunning for a full digital banking license in Singapore. OneConnect will help the digital bank with its end-to-end technology stack if the consortium is granted the licence. The company plans to pursue similar partnerships in the region.
While OneConnect had initially considered applying for its own digital banking license in Singapore, there was some pushback from its clients in Malaysia. “It was a known thing that if you applied [for a license] in Singapore, you’d also apply in Malaysia. We would be deemed as a competitor to many of our clients,” Tan explains.
But it’s a different story in Hong Kong, where OneConnect runs its own virtual bank. Apart from boosting its presence in the Greater Bay Area, the soon-to-launch Ping An OneConnect Bank was also a chance for the company to test out its own technologies before selling them to its Southeast Asian clients.
These insights could prove crucial, given the parallels between Hong Kong and Singapore – both are major trade hubs where many import and export-focused small and medium-sized enterprises operate. The two cities are also home to a big underserved pool of foreign workers and expats and have a similar domestic market size.
Challenging times ahead
The combined impact of the pandemic and the earlier protests in Hong Kong has delayed the launch of Ping An OneConnect Bank in the city. But the outbreak’s effect has gone further than that.
OneConnect was planning to launch its localized insurance solutions in Southeast Asia on a broader scale this year, but that’s likely to roll out at a slower pace in the current economic slowdown. “The full impact on the top line – opening up a new revenue stream, potentially taking on some innovations to leapfrog [our] competitors – I foresee those will halt for the whole year,” Tan notes.
Despite a strong start in the first quarter of 2020, the company’s momentum has slowed, as financial institutions cut back IT spending.
But there’s a silver lining: The firm’s digital solutions might be exactly what incumbents need during this crisis.
With the Monetary Authority of Singapore delaying the results of successful digital bank applicants till the second half of this year, digital banking in the city-state will no doubt have a slower start.
Unlike incumbent banks, who’ve been around for a long time and are well-equipped to survive the downturn, “it’s going to be the first test of crisis for the new digital banks and fintech companies,” says Tan.