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Freeing banks to take on tech firms for market share

July 17, 2017

Regulators in Singapore plan to relax certain rules on ‘anti-commingling’ so that banks here can invest up to 10pc of their capital funds in certain non-financial businesses.

In particular, they will be allowed to operate digital platforms that match buyers and sellers of consumer goods or services and conduct the online sale of such goods or services.

Strange as it may seem, it is already a reality in some countries and a necessary step for banks to survive today.

Tech company or bank?

Banks are facing increasing competition from online and non-financial players that have amassed a large user base, and then begun to provide digital wallets, payments and remittance services.

DBS chief executive officer Piyush Gupta noted one major example: Alibaba.

It is now one of the biggest payment companies in the world. Its financial unit, Alipay, handles more fund transfers than many banks around the world.

It is also one of the fastest fund gatherers in the world. Its four-year-old money market fund Yu’e Bao hit $100 billion in just over a year and is now the world’s largest.

Alibaba also has a rapidly growing loan book, extending 50bn yuan of loans to businesses and providing credit lines to over 100 million individuals for Single’s Day.

Plans to relax rules timely as large e-commerce players extend reach into payments and remittance services

“As new players enter our industry, they operate much like banks, but often benefit from a more favourable regulatory regime, often in the desire to spur innovation and competition,” he said.

Levelling the playing field Regulators here have taken heed.

At the release of the Monetary Authority of Singapore’s (MAS) annual report, Managing Director Ravi Menon made the point that despite their smaller size, tech firms do have an unfair advantage as they elbow their way into financial services.

“The consumer benefits from better solutions and services, but what we do need to make sure of is that financial institutions can compete on a level playing field.”

In some other countries, banks have already waded into e-commerce waters for a few years.

Bank of America, for example, has an online shopping portal that links customers to major retailers.

In this case, the bank does not sell the products and services themselves but facilitate the payment or provide loans for customers’ purchases.

Chinese banks have gone a step further, taking steps to become fully fledged e-commerce players in their own right, selling everything from cars to underwear, as they take on local behemoths such as Alibaba and Tencent.

Bank of Communications, China’s fifth-biggest listed lender, opened an online shopping mall in 2012, while China Construction Bank launched its online mall, buy.ccb.com, the following year.

The path forward

Mr Menon said at the annual report media conference that the MAS does not want its new rules to be seen as an encouragement for banks to move into e-commerce.

“We don’t want them to diversify outside financial services. We want them to remain rooted in financial services but be able to provide ancillary services that are synergistic to the provision of their core financial services.”

For example, he said, they could provide a matching platform to point private banking clients to health services, or provide travel-related services linked to their basic banking offerings.

“And if they need to take a small stake in such a company, which is well within the 10 per cent capital funds limit that we’ve set, that’s not a problem.”

OCBC Bank’s head of e-business, business transformation and fintech and innovation, Mr Pranav Seth, said the future of banking is one where banking is “ubiquitously embedded into day-to-day life and day-to-day financial decisions”.

That is, banks have to engage customers on e-commerce platforms and fulfil their banking needs “almost invisibly”, he said.

“For example, by providing a loan for a new refrigerator while they are browsing or comparing different fridge models, this would definitely improve customers’ experience and can potentially create significant opportunities for the bank.”

The MAS’ move is timely, to say the least.

E-commerce giant Amazon has said it plans to set up operations in Singapore this year, although it has not specified a date since a delay earlier this year.

Amazon offers a service called Amazon Pay, a payment gateway solutions for merchants to accept payments from customers using their Amazon accounts.

It is not unthinkable that Amazon’s entry will likely rouse its main competitor, Alibaba, into taking some action.

Alibaba already has a presence in Singapore and South-east Asia through stakes in companies such as SingPost and Lazada, giving it a footprint in the logistics and e-commerce sectors.

South-east Asia, with more than 600 million consumers rapidly moving into the middle class and hungry for e-commerce, is widely seen as a big battleground between Alibaba and Amazon.

A report by Google and Temasek Holdings last year forecast that the South-east Asian e-commerce market will grow at around 32pc a year to be worth $88 billion by 2025.

With these two behemoths coming head to head to win over the South-east Asian market, it will only be a matter of time before each starts offering a gamut of convenient solutions — including financial products and services — to lure customers.

The Straits Times/ANN

Published in Dawn, The Business and Finance Weekly, July 17th, 2017