My Fintech Week 2019: WeBank, CIMB, The Finanser weigh in

During a panel discussion titled, “Digital Bank: Rise of the challenger,” at My 2019, the question of what a digital/virtual bank is, was one of the many questions asked.

In summary, the two panellists came from two ends of the financial services spectrum; Henry Ma is from WeBank, a fintech, while Tengku Zafrul is from , an established and traditional bank. The third panellist, Chris Skinner, is a renowned industry observer from the UK.

And Skinner opined that in essence, a digital bank is born on the Internet and built on the Internet. That said, it is still possible for a traditional bank to move towards a digital model, Skinner had said, adding that the key element is this bank’s fundamental core structure.

’s Tengku Zafrul had shared earlier, “We as a group, recognise we need to be nimble and multi-pronged in what we do,” and even talked about the leap they had taken in 2018 to launch a digital-only bank in the Philippnes, called Octo Bank. This was done with a partnership-heavy alternate model.

The strategy is to blend the best of old and new, to become more like a digital bank by focusing on digitalisating core processes in the bank, and exploring ventures and partnerships.

Fintech: Not all virtual

Even WeBank, the Tencent subsidiary, has to partner heavily to get presence in the physical world. Micro-lending is its flagship product, and when a car platform sells a car, WeBank will present an auto lending service to the customer.

“They can choose to pay in full or draw down a loan from WeBank. Our network could be anywhere and on the Internet,” Henry said.

From the other end of the spectrum, Tengku Zafrul observed a reduction in branches across the country. Ninety-eight percent of transactions are happening outside branches, and the value of mobile banking transactions have doubled from 2017 to 2018, he said.

But he believed also, that the branch is still relevant, although the look, feel and purpose of the branch will change, going forward.

Skinner echoed this as he thinks banks will be around for decades and the branch, “…not going away.”

Fintech vs Banks?

How level is the playing field for incumbents and startups?

There are arguments for both sides.

Tengku Zafrul pointed out banks get regulated five times more than startups this could be viewed as friction; more process and time to spend before something/milestone can be achieved. On the other hand, this is due diligence that customers would expect for banks to be able to gain their trust.

Skinner shared his observation that regulation is adapting with the times. It can take yonks for a bank to get a banking license. One example is Metro Bank in the UK, ten years ago. “It took them 3 years to get their license, and the average cost to launch a bank is double that amount.

“Today, the likes of Monzo are starting with a couple of million. Using flexible capabilities of technology, they are able to do (pass regulation).”

This is further facilitated by staged regulation and smaller amounts (to pay) at each stage.

“If you bring light regulation and lower capital versus heavy regulation and higher capital, there is tension there. I do see more regulators trying to encourage competition, therefore this step licensing and step structures,” Skinner said.

Wishlist for regulator from banks

Tengku Zafrul views that there is room for regulations to improve and help move things along. “Regulation is important, it protects customers, instills confidence, creates trust,” he said. But regulator attitude towards cloud could be better.

“I hope central banks around the region, consider the landscape of how we operate and how challengers operate… because the playing field has to be level,” he concluded.

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