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Looking Back: Top Stories From my Time in Singapore and Hong Kong

After a few great years in Southeast Asia, I recently returned home to Toronto to focus on digital banking at PwC. I split my time between Singapore and Hong Kong where I had the privilege of working with world class colleagues focusing on truly transformative projects.

The highlight of my experience was undoubtedly the build of our virtual bank in Hong Kong. With the small group that shared a cramped WeWork office, we laid the foundation for a full-fledged digital bank in record time.

As I reflect on the journey, I have put together a brief list of the most significant developments I witnessed during my time there as well as how these would play out in Canada.

From Ride-Hailing to Banking

What began as healthy competition between Singapore headquartered Grab and global giant Uber quickly devolved into a war of attrition. Both sides spent heavily on customer acquisition; promotional discounts became so common that full fare rides felt unconventional. Eventually Uber conceded by selling its regional operations to Grab and taking an equity stake in the company. Surprisingly, both sides were supported by the same backer in the Vision Fund, the investment arm of Japanese conglomerate Softbank.

With the distraction of competition aside, Grab turned its focus to diversifying. Banking products became the logical stepping-stone given the large user base and the financially underserved in its geographic footprint. This included populous countries like Indonesia and Vietnam. The company now targets consumers, drivers and merchants with payments, insurance and lending products, to name a few.

A Canadian Perspective: it’s unlikely for this model to be replicated in Canada. First, the ride- hailing apps have shown little interest in serving retail customers with anything beyond their core offering. This may be due to political and industry pushback they have encountered, which has also stymied country-wide deployment. Finally, the incentive to switch to a Grab like “super-app” may be lacking as Canadians wouldn’t be considered underserved. There’s also a slew of financial products offered by incumbents.

Diverging Approaches to Open Banking

Though motivated by similar objectives of encouraging competition and financial innovation, the regulators in Singapore and Hong Kong took different paths towards developing open banking and application programming interfaces (“API”). The latter is a way for systems to communicate and exchange information.

Singapore took a passive role. The Monetary Authority of Singapore (“MAS”), the central bank and de facto banking regulator, chose to let the market grow organically by promoting the concept and playing a supporting role. To this end, it launched an “API Playbook” in collaboration with the Association of Banks highlighting, among other factors, API standards and potential use cases. It also created an online registry cataloguing financial sector APIs.

Hong Kong conversely took a prescriptive approach. The Hong Kong Monetary Authority, the MAS’s counterpart, published a framework following an industry consultation round. This culminated in a mandatory four-phased approach to implementation, with the first two being limited to APIs for providing simple information on products and services as well as subscribing to new ones. The remaining phases delve deeper, allowing retrieval of account information and transaction initiation.

A Canadian Perspective: Canada is currently investigating the merits of open banking. A committee tasked by the Minister of Finance recently released its findings on the issue following a public consultation round which fell short of recommending the need for regulation. Instead, it proposed cooperation between industry and government to establish a way forward. It is therefore unclear if the Minister will take a prescriptive approach akin to Australia, Hong Kong and the European Union or allow the market to set the tone for development.

Digital Banking Upstarts

Hong Kong captured the attention of retail bankers in 2018 with the announcement of guidelines for purely digital branchless banks. The press reported heavy interest, with rumors of global tech giants ready to pounce. When the dust settled in late March 2019, only eight candidates were awarded a license, with almost all forming joint ventures for the endeavor. This was significant for me as I was in charge of Standard Chartered’s application which was one of the first licenses to be granted.

Singapore followed suit by announcing its own regime. The precepts of the approach adopted by the MAS were similar to Hong Kong’s, be it promoting financial inclusion and innovation, demonstrating a sustainable business model, a prohibition against minimum account balances and aggressive business practices. But the guidelines differed, notably with respect to the larger capital requirements.

A Canadian Perspective: licensing in Canada follows a uniform approach, with no distinct mechanism for digital banks. Nevertheless, the country has seen the birth of a few upstarts offering enticing interest rates. The market is only set to grow as some fintechs mature out of simple debit card offerings to full banking services. Alternatively, the entire licensing process can be bypassed via a “banking as a service” partnership where an incumbent provides the back-end pipes while the fintech maintains front-line visibility with the client.

Regulation as a Competitive Advantage

Singapore and Hong Kong did remarkably well in supporting digital innovation in financial services. Having recognized a looming competition for fintech leadership, both set sights on becoming the leading jurisdiction in the field.

Numerous initiatives showed the importance these governments placed on digital. Both were among the first to implement regulatory sandboxes, allowing new ideas to be tested in a controlled environment where certain regulatory requirements were relaxed. Also, in addition to digital banking guidelines and driving API development, cutting-edge payment networks built on real-time gross settlement systems provided the foundations for fintech adoption and development.

A Canadian Perspective: Though Canada trails both these peers, it does have the potential to leap-frog competing jurisdictions. After all, Toronto is home to a developed talent pool and a vibrant tech scene. Fintech startups have demonstrated that existing regulation can be harnessed to bring new services to the market. However, addressing shortcomings in other sectors like open banking and payments should be fast tracked.

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