A New State of Technology for FSI

[vc_row][vc_column width=”2/3″][vc_column_text]IDC recently hosted its annual Fintech Innovation Summit on 7th September 2016 in Kuala Lumpur. Titled ‘The New Collaboration-Based Landscape for Financial Services”, this summit explored the opportunities and threats of today’s increasingly open ecosystems for technological and business partnerships.

The convergence of innovation and multi-disciplinary partnerships across industries has created an unprecedented impetus for value co-development, and Malaysia conceived many champions of its own.

Today’s financial services have to innovate further, using early digital victories as a foundation to push the boundaries, while also minimizing the complexity and costs involved.

Digital financial services have become part of what the customers expect from financial institutions, so going beyond current digital strategy is the key to success in the next two years.

For this to happen, financial institutions will need to use a new set of innovation accelerators, foster new partnerships, and embrace concepts of openness and collaboration.

That includes:

  • Building a new ecosystem of partners out of your industry. Financial institutions will have to re-imagine a new value chain for the customers where banking and insurance needs to interface with manufacturing, or retail, transport or telecommunications to offer a whole new proposition of products/services to the customers.
  • Supporting industry-focused developers and create innovation communities that are fundamentally remaking what financial services fundamentally does.
  • Responding to new customer segments that do not separate “banking” from other activities in their everyday lives, so that banking (or insurance) becomes integrated to a customer’s lifestyle.

“Innovative incumbent banks and financial institutions are moving rapidly to embrace digital. They need to go the distance in addressing not just the strategic but also the human challenge. Beyond that, to truly transform, they need to start thinking beyond digitization and incremental improvements”, says Michael Araneta, Associate Vice President, IDC Financial Insights Asia/Pacific.

Fintech Innovation Summit 2016 brought together regional industry leaders and prominent financial experts across verticals in Malaysia. The holistic insights offered at this event are not only oriented towards helping the financial leaders plan their strategy in advance to deliver solutions that meet the challenges of today’s dynamic market conditions, but also in establishing altogether-new standards in the use of IT.

It will also make a stop in Bangkok and Jakarta on September 22nd and October 13th.[/vc_column_text][/vc_column][vc_column width=”1/3″][icon_counter border_size=”2″ border_color=”#a4a4a4″ icon=”Defaults-hand-o-right” icon_size=”32″ block_title_front=”EITN says…..” block_desc_front=”The theme of this year’s IDC Fintech Innovation Summit was “New Collaboration-Based Landscape for Financial Services”. As such, many issues of weighty nature were presented, that are pertinent to the financial landscape of the day.

A topic of interest broached was how banks (or insurance companies) must step up the race to become tightly integrated with each aspect of the customer’s lifestyle. They must look at ways to open up processes and systems and embrace new partners to provide value added services.

A classic example given is where travel agencies are being bought up by banks so that customers can convert their points to travel rewards. It does not end there. Instead of a customer entering a bank’s environment, now, in order to get that customer, the bank must enter the customer’s environment. Same travel example…. bank staff positioning themselves strategically in travel agencies offering funds or credit so that the holiday-maker can have his dream vacation.

Financial technology (aka “Fintech”) companies have already disrupted banks’ traditional way of offering services. Fintechs have limited regulatory oversight, so can act faster. Compare this to a typical bank’s bureaucratic policies/ procedures/compliance and regulatory processes.

In a future closer than you think, “banks may not be here, but banking will still be!”

The number of bank branches across the country has shrunk, and there is a growing recognition of a seismic shift of employment opportunities. Data mining, data analytics, and the psychology to understand how to work that valuable customer profile data to a business’ advantage, is the “make or break”.

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” block_desc_back=”And the topic that grasped our attention the most was hands-down…. that of Blockchain! What would happen if UK issued a digital currency with Digital Pound $, or Bitcoin?

Lon Wong, Founder of Dragonfly Fintech Pte Ltd has this to share.

The Bank of England modeled an economy with a digital currency equal to 30% of GDP. The results suggest a 3% annual increase to GDP. That means an increase of $80 billion to the UK GDP! The simulated digital currency was subjected to typical real world business cycles.

One explanation of the increase was that the central bank’s digital currency reduced both interest rates and the cost of financial transactions.

The study found that digital currencies would give governments another tool to control inflation and interest rates. Payments and record keeping in digital currencies would be decentralised.

Blockchain is the technology behind digital currencies like Bitcoin, allowing broad access to electronic ledgers to process financial transactions. Blockchain allows people to bypass traditional transaction brokers, thereby lowering or eliminating fees.

Blockchain is an enhanced ledger which uses cryptography. Every transaction entry is immutable and irreversible. This all but eliminates and discourages the issue of money laundering and fraud in the financial services sector.

A snapshot of the Blockchain network:
• It is a peer to peer configuration
• Every node has a copy of the same set of blockchain data
• It is based on each node distrusting one another
• It is based on a consensus approach
• Only one node will get to form a new block
• There is no chance of network failure

Blockchain as a Ledger of Records:
• Records are immutable and irreversible
• Transactions are batched periodically
• Transactions are verified and traceable
• Each node has an identical copy of the blockchain
• Need a consensus ; i.e >50% must agree

Banks undoubtedly save on transaction fees. Analysts predict savings of $20 billion annually by 2022. To this end, 50 leading banks have announced blockchain initiatives globally…. and investors have pumped more than $1 billion into these initiatives.

If you think about it, really, more than 90% of money transacted in this world, is actually digital in nature. e.g. ePayment, mobile payment, internet banking….. they are actually numbers in a database.

Well in cognizance of this, Bank of England and Bank of Canada are among the first central banks at the forefront that are now embarking on modeling an economy based on digital currencies.

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