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Driving ASEAN FinTech Ecosystem

Southeast Asia is experiencing accelerated growth in its fintech industry with the sector attracting more than US$450 million in investment in 2018, a 33% increase from 2017. An increasingly digital consumer base have driven demands for more convenient and secure methods of payment and other financial services. Traditional banking systems and financial institutions are focusing resources on developing and integrating digital solutions into their operations to increase customer satisfaction and reach. Authorities across the region are taking steps to ensure consumers and businesses are protected from fraudulent activities while maintaining a competitive environment to grow for the financial sector.

Banking and Finance Digital Transformation intensifies in ASEAN

United Overseas Bank (UOB) announced the launch of its ASEAN digital bank in August 2018. As part of its continuing efforts to penetrate ASEAN’s increasing base of “mobile first” and “mobile only” customers, UOB also launched its pan-regional Engagement Lab (eLab) in October 2018. The eLab is designed to deepen customer engagement through behavioural insights derived from latest technologies like Artificial Intelligence (AI). It enables intuitive customer engagements such as having conversations designed in the customer’s mother tongue.  

In 2018, the Singtel Group launched VIA, its cross-border mobile payment alliance in partnership with Kasikornbank (KBank). Under the partnership, QR code-based mobile payments are offered through mobile wallets Singtel Dash, AIS GLOBAL Pay and Rabbit Line Pay, across Singapore and Thailand. Moving forward, the alliance will be progressively expanded to unify the region’s fragmented payments scene. The initiative aims to create a region-wide payment network of telco and non-telco wallets that allows customers to seamlessly use their local wallets abroad, while enjoying competitive foreign exchange rates.

Local banks in Indonesia are also integrating technology into their operations. An example being Permata Bank in Indonesia. It seeks to become a digital bank and has explored digital solutions such as Artificial Intelligence (AI), biometrics and blockchain. It has since introduced various biometric authentication systems, such as FingerID, FacialID and VoiceID, to speed up the authentication process for customer identity which has increased customer satisfaction and efficiency of customer service.

Grab, a regional ride hailing company, is expanding its digital financial services across the region. The company entered into a digital payment service alliance with UOB to integrate digital banking solutions onto Grab’s mobile apps. The alliance will also utilize the bank’s cash management service to allow app users the convenience of directly topping up their GrabPay wallet from their UOB accounts. Grab seeks to emulate a localized version of this alliance in Thailand as it’s financial arm, Grab Financial, enters into a US$50 million partnership with KBank. The partnership aims to launch mobile payment app, GrabPay by Kbank, which will integrate features of the bank’s K Plus app and Grab app as well as offer direct top ups to ensure a seamless experience for users.

Financial authorities weigh in on fintech

Some of fintech’s more invested and popular sub sectors include mobile wallets, e-payments and more recently, peer-to-peer (P2P) lending. These sectors provide several services such as loans and deposits that are traditionally covered by established financial institutions like banks. Fintech firms are not as regulated as banks and scrutinised as much, leading to higher possibility of abuse of services like using mobile wallets for money laundering and consumer data breach. Given the increasing investments and focus on fintech across ASEAN, financial authorities in the region are revising current policies in place to better manage their fintech market.

Malaysia has focused its efforts on regulating the cryptocurrency sector. The country’s central bank, Bank Negara Malaysia (BNM), issued the Anti-Money Laundering and Counter Financing of Terrorism Policy (AML/CFT) for Digital Currencies in early 2018 to ensure that effective measures are implemented to tackle such activities. BNM is also working with the Securities Commission to draft out rules that will bring digital assets, such as digital tokens and cryptocurrencies under securities law. The aim is to curb AML/CFT activities using digital assets and promote a transparent digital trading environment.

Similarly, in Vietnam, the country is cracking down on cryptocurrencies after dealing with a major fraud case involving the Ifan digital currency which swindled 32,000 consumers of US$660 million in early 2018. The State Bank of Vietnam (SBV) banned commercial banks, payment services providers and intermediaries from making transactions involving cryptocurrencies in 2018 and has issued warnings of money laundering and trade fraud risks when cryptocurrencies are involved owing to lack of accountability. The Ministry of Finance, the Ministry of Industry and Trade, and the SBV have proposed and agreed to suspend imports of crypto mining equipment to reduce proliferation of cryptocurrencies.

Indonesia is stepping up efforts to enforce new sanctions against unregistered fintech firms. The country’s financial services authority, Otoritas Jasa Keuangan (OJK), reported 407 illegal fintech firms in 2018, of which 227 have been shut down for failure to comply with consumer protection laws and suspected money laundering practices. OJK is also collaborating with the Ministry of Communications and Information to eliminate sites and apps of illegal fintech firms. Financial services by fintech firms are growing in popularity in the Indonesian market. The transaction value of fintech in Indonesia amounted to more than US$22.3 billion in 2018. OJK’s Head of Investment Alert Task Force Tongam Lumban Tobing stated that the immediate danger is the higher risk of money-laundering and misuse of consumer data given that fintech firms are currently much less regulated and scrutinised compared to banks.

To protect consumers and businesses as well as better control the payment services sector, Singapore passed the New Payment Services Bill in November 2018 which will require all payment services providers including e-payments to obtain approval for and procure a single license to conduct any payment services. The bill aims to curb illegal activities hampering progress of the fintech sector such as money laundering, fraud and mitigating consumer risks. Main features of the bill include new regulations on cryptocurrencies and lowering e-money protection threshold from US$22 million to US$3.6 million.

In the private sector, UOB has partnered up with Intel to enhance its cross-border anti-money laundering efforts. The collaboration will see the pilot use of advanced data analytics system in combating money-laundering and fraudulent activities. The system analyses customers’ banking activity patterns and identifies indicators of cross-border money-laundering or frauds. The system has been tested with simulations with the Monetary Authority of Singapore (MAS) and the Bank of Thailand as observers.

One of Indonesia’s largest banks, PT Bank Central Asia Tbk (BCA) has implemented NICE Actimize’s, a global provider of Autonomous Financial Crime Management services, Suspicious Activity Monitoring (SAM9) system to reform its anti-money laundering compliance and case management operations. The system combines machine learning analytics with robotic process automation, cutting time and cost needed for data gathering and reducing time needed for investigation alerts by 70%. The system seeks to improve the accuracy and efficiency of the bank in detecting suspicious activity and better support its 18 million and growing customer accounts in their daily transactions.

An Ecosystem To Drive Digital Innovation

To accelerate innovation across ASEAN, the International Finance Corporation, Monetary Authority of Singapore (MAS) and the ASEAN Bankers Association have collaborated to establish the ASEAN Financial Network (AFIN) to facilitate collaboration between financial institutions and FinTechs. Under AFIN, the industry sandbox approach enables a network of banks, FinTechs and regulators to refine new innovations in a cloud-based testing environment. It addresses issues of connectivity, local compliance and cross-border compatibility, and facilitates discussions among participating regulators on cross-border harmonisation.

A fintech ecosystem is progressively being established in the region with the sector increasing its foothold across ASEAN. Corporations and enterprises are capitalising on the region’s unbanked population and offering new services, and governments are crafting policies to regulate new systems and ensure integrity of the financial sector. More collaborations are happening between public and private sectors as well as within the private sector itself as financial institutions and the authorities are recognizing the benefits of partnering with fintech firms to achieve technology integration and innovative solutions.  

Share your thoughts with key stakeholders and gain further insights on the digital innovation in ASEAN at the Asia IoT Business Platform 2019. Drop us a note at info@industry-platform.com or learn more at http://bit.ly/2Hj62dW to be part of this enterprise digital transformation conversation in ASEAN.