Author: chingbrenda

5 May 2020

Standard Chartered has unveiled its new banking as a service venture ‘nexus,’ which offers partnership opportunities and allows ecosystem players to enter financial services without having to set up a bank.

• The banking as a service model opens opportunities for new entrants to provide financial services without having to build it from scratch
• Standard Chartered’s first partner for nexus is a major e-commerce platform in Indonesia
• This is the first venture by the bank’s innovation unit SC Ventures that runs innovation labs, fintech investment fund and experiments with new business models

New entrants such as payments, e-commerce, ride hailing and social media companies increasingly seek to expand their offerings in financial services but face several challenges. The banking as a service (BaaS) model empowers such players and integrates banking seamlessly through a white-labelled solution. This business model is what Standard Chartered uses in its recently launched venture called nexus, which brings transformational partnerships between consumer platforms and digital banking.

“Applying for licences, committing capital, building an end-to-end technology solution and bearing the operational costs of running a financial service can be heavy and extremely painful to set up. We offer the ability to move into that space by plugging into our stack, leveraging our balance sheet and liability without having to build it from scratch. This will be far quicker and more efficient to scale,” said Kelvin Tan, venture lead at nexus.

Tan explained that nexus enables ecosystem players to offer financial services, allowing them to design and support their own value proposition while relying on the bank’s balance sheet and licence.

Incubated at its innovation unit

nexus was incubated under the umbrella of SC Ventures, the unit that drives the bank’s innovations and fintech investments.

Sharing the details, SC Ventures head Alex Manson explained, “Firstly, we have innovation labs called eXellerator, which is in the bank, for the bank and by the bank. Here, we run the fintech programs, new proofs of concept and it also has SC Ventures Fintech Bridge, a matching engine between fintech and use cases.

Secondly, we have a $100 million fund set up to invest in relatively early stage companies. We invest only in partners we work with and we help them scale.

Thirdly, we build ventures wherein the idea is to experiment with different business models, aggregating different capabilities and ways of conducting banking. These are startup companies built from the ground up, and then bring in the investment partners to help them scale. nexus is a venture – in fact, our first venture.”

Among other new business models by the bank include a joint venture with Assembly Payments to develop and deliver next-generation payment solutions. In Hong Kong, it is set to launch a standalone digital retail bank, Mox, and the bank has also built a digital open platform, Solv, to help SMEs in India.

How nexus came about

The solution originated with the thought process of understanding how the bank could gain exponential scale and drive the newer order of banking, in which banking gets integrated into the day-to-day lives of consumers and businesses.

“We considered two options: doing this through application programming interface (API) or reinventing the entire technology stack and middleware and ensuring that change management is as seamless as front-end partners like e-commerce or social media players need it to be. This firmed our view of building up nexus as a business model for the bank in terms of gaining exponential scale and also as a technology solution to other banks. We focused on how one can grow banking and balance sheet exponentially without growing proportionate costs accordingly,” Tan expanded.

Manson explained that while building the framework, the bank looked at different possible scenarios.

The first scenario is where banks become the digitised or digital banks themselves, such as those digital banks in Hong Kong or neobanks in the United Kingdom. In the second scenario, banks become platforms with an ecosystem – they have open architecture and could plug in the capabilities but not exclusively, as other people plug in as well. In the third scenario, rather than becoming platforms, banks become an engine for the platform, i.e. they plug into the ecosystem platform.

“We felt this could be a good outcome for banks to leverage the scale of consumer platforms and ecosystems and provide banking services at scale. nexus is this scenario number three,” Manson elaborated.

The venture is set up as a separate legal entity. While it works within the risk appetite of the bank, it also has separate governance, policies and processes. It comprises about 100 people based in three key markets in Asia: Singapore, India and Indonesia.

Future roadmap

Standard Chartered has already acquired its first partner for nexus, a major e-commerce platform in Indonesia. Being a hotbed for e-commerce with one of highest adoption rates in the world, launching nexus in Indonesia will give Standard Chartered the opportunity to reach a significant unbanked population through partners. While the bank refused to share the name of the partner, it expects to co-create and launch products powered by nexus in 2021, subject to regulatory approvals.

The bank is starting nexus with the minimum viable product of retail and CASA products, with plans to add SME and corporate products later on. Future plans include rolling out the service to other promising markets in Asia, Africa and the Middle East.

It will bring a new revenue stream for Standard Chartered, but the bank plans to take a flexible strategic approach in forming partnerships depending on each partner’s needs.

“We are looking at a revenue share model, but we are flexible with regards to how we structure the deal. So, we are open to risk and asset sharing as well. The model will be customised for each partner depending on what they bring to the table. There is no one size that fits all,” explained Manson.

‘Banking as a service’ solutions in the industry

Standard Chartered is among the few early players that have entered in this space in Asia Pacific. In a slightly different approach, Ping An Group’s One Connect offers ‘technology as a service’ to other financial institutions in Asia. Some other players exploring the BaaS model in Europe include solarisBank, Starling Bank and Fidor Bank.

Among the early innovators is Fidor Bank, which provides white-labelled cloud solutions powered by open APIs. They cater mainly to challenger banks and consumer organisations that want to tap the market quickly without regulatory compliance hassles. This provides the organisations with a full set of banking products to be deployed.

In a similar model, German bank and technology company solarisBank offers a completely digital BaaS platform connecting other businesses through APIs to offer financial services.

UK-based mobile-only challenger bank Starling enables banks, fintechs and retailers to develop and scale new, customised products quickly by picking and choosing individual features or components from Starling while taking advantage of its banking licence.

In these end-to-end and shared infrastructure models, customer ownership remains with the ecosystem partners while the bank becomes the provider of banking capabilities at the back end. This provides a win-win relationship for both the partners. It drives new revenue streams for the bank as well as allows them to leverage their banking capabilities with the scale of ecosystem partners who tend to be inherently better and more agile at customer experience. On the other hand, it provides faster products, quicker time to market to ecosystem players and allows them to circumvent regulatory compliance challenges.

Through this venture, Standard Chartered can empower platforms to bring financial services at the fingertips of millions of users. Yet, it is still at an early stage, as the first partner will go live only next year. As the BaaS model gains popularity and matures, there is likely to be greater adoption as well as competition. For long-term success, nexus will need to carve a niche path for itself, stay ahead of the curve and expand its market reach with speed through new partnerships.

21 April 2020

Singapore’s «circuit breaker» – a curb of all non-essential businesses and activities, and heightened social distancing – has dramatically changed the daily routine for professionals in the financial services sector, many of whom are now working from home (WFH). This series takes a look at how they are coping during the city’s lockdown. Singapore’s fight against the Covid-19 pandemic stepped into high gear about two weeks ago, with a partial lockdown and mandatory wearing of masks in public, to curb the spread of the disease. Yet, infection numbers have continued to reach new highs, with 1,426 cases reported on Monday, making it the Southeast Asian country with the highest number of infections. Currently, workplaces have been forced to shut until May 4 in the earliest scenario, and nonessential businesses have had to either cease operations or do what they can to function virtually.

As work-from-home rules are implemented on a wide-scale, the implications of this period are going to be profound, with organizations forced into new ways of working, new tools, and different ways of interacting together, Alex Manson, global head, SC Ventures at Standard Chartered, tells finews.asia in an interview. The business unit within Standard Chartered enables innovation, invests in disruptive financial technology and explores alternative business models. Set up in 2018, it has been a key driver in promoting a culture of innovation within the bank, as well as developing and delivering digital solutions for both the bank and its clients. Alex Manson, Singapore has been at the forefront of Covid-19 prevention. Is the current lockdown a setback of its containment efforts so far?

I don’t see it this way, Singapore did a stellar job of managing the «early outbreak» but could not prevent re-importing the virus as the pandemic became global and other nations were slow to react and manage the situation, while people continued to travel freely with little awareness or precautions.

I find the answer in Singapore has been balanced through the crisis, meaning avoiding extreme pendulum swings and taking measures as a function of the information available at any point in time. This includes the fact that information evolves rapidly in a crisis, and I have in fact seen an element of refreshing humility in leadership with the ability to change your mind once you have new facts.

What are the biggest obstacles you are facing in your work these days?

Some aspects of our work continue almost undisrupted, working from home and using various digital tools, which we were advocating in the first place. Other aspects are really difficult: for example how do 12 people build a prototype around a table and a whiteboard? Well, there are tools for that too but yes it is just a lot more cumbersome.

Personally, I like to walk around, grab somebody for a chat – include another, improvise a quick meeting to solve a problem: that’s a lot harder too. And the most difficult part is to keep a good sense for how everybody is coping, how individuals feel in the current context – I can see anxiety building around the world, our teams are probably no exception and there will be an even more acute need to focus on people’s overall wellness in this environment.

How are you communicate with your clients now?

Remotely! That part is actually almost easy and I expect that in the future people may insist on a lot on face-to-face meetings as all are getting used to working at a distance.

Perhaps a helpful tip is the use of phone or video chat, etc., as opposed to e-mail: e-mail was never a great means of communication (it is good for passing on information, but certainly not for debating things or asking someone for a favor). I used to say when in doubt, pick up the phone. More so today actually.

How long can you ride out such a situation?

As it relates to ways of working, we’ll have to work this way for as long as it takes… I enjoy endurance sports and this situation reminds me of the reflexes of a long-distance effort: find a sustainable pace, don’t waste energy, think of «after» rather than «tomorrow» and importantly, just get used to the fact that it will be uncomfortable!

I am more worried about the long term impact of the crisis for a number of clients in our ecosystem: the longer this goes the more stretched they will be and we can see the first signs of distress with SMEs in particular – they typically represent 60 percent of any nation’s GDP.

Do you think Singapore as a financial center will lose its attractiveness over the Covid-19 crisis?

Quite the contrary actually. Singapore’s crisis management skills have been both effective and noted internationally, especially in comparison to some of the Western markets. I think Singapore may well gain rather than lose on a relative basis.

Alex Manson heads SC Ventures at Standard Chartered, a business unit established in March 2018 to lead innovation across the Group, invest in fintech companies, and promote the testing and implementation of new business models. Alex joined the firm as Group Head, Wholesale Banking Geographies in 2012, and was Global Head of Transaction Banking, between 2014 and 2018. He also spent 12 years at Deutsche Bank, notably as Global Head of Lending and Corporate Banking Coverage, and was at Credit Suisse for 8 years. 

Eight new virtual groups are set to join the territory’s crowded market 

10 December 2019

Hong Kong is not a city obviously in need of more banks. Almost all Hongkongers have at least one banking product and HSBC alone has 100 branches in the territory.

Yet eight new entrants are set to join this crowded market in the next few months. They will be “virtual banks”, with no branches and a digital-first approach to doing business. 

They hope to emulate the success enjoyed by newcomers such as Monzo and Starling in Europe, by tapping into customers’ dissatisfaction with traditional banks.

Deniz Güven, chief executive of an as-yet unnamed virtual bank being launched by a consortium including Standard Chartered, said that Hong Kong is a “very mature market” for banking products, but he added: “when you look at the service level, Hong Kong is still immature.”

With the banking sector so densely populated, virtual banks always faced a challenge. Over the last few months though, the obstacles have multiplied.

When licences were granted between March and May this year, recipients could not have foreseen the chaos which Hong Kong has experienced in the months that followed. Clashes between police and protesters over the past six months have led to death, destruction and a deep recession.

Rolling out a massive marketing campaign in a city preoccupied by protests would be jarring. Launching a bold new bank with no fanfare is also an unattractive option. One corporate lawyer who knows the virtual banks describes them as “cagey” when it comes to confirming a launch date. Any movement in the next quarter, she said, was unlikely. 

The window of opportunity for virtual banks was opened by a lack of innovation and poor customer service among the established players. Across business sectors in Hong Kong, banking “ranked last for customer excellence” in a KPMG consumer survey of 1,999 consumers published last week. 

The expectations of consumers are “constantly evolving” in response to “new digital initiatives and capabilities,” said Isabel Zisselsberger, head of financial management, customer and operations for KPMG in Hong Kong. “The industry needs to catch up quickly,” she added.

Standard Chartered’s virtual bank will focus squarely on experience, said Mr Güven. “My KPI is not getting ‘this’ many customers,” he added.  But the longer virtual banks wait to launch, the more time incumbents have to counter with their own digital initiatives. Citigroup, which was the first bank to roll out internet banking in Hong Kong in 1998, didn’t apply for a licence earlier this year.

That “doesn’t mean [Citi] don’t want to be a virtual bank,” said Angel Ng, Citi’s chief executive in Hong Kong and Macau. “At one point, sooner than people expect, we will become a virtual bank. Today, 50 per cent of our accounts are acquired online…we are pretty much halfway there.” 

HSBC, which alongside its local sister bank Hang Seng, boasts a 40 per cent share of the retail banking market, has been busy bulking out its in-house digital team. It is also creating a spin-off company which will service loans to small and medium-sized businesses — a key target for the new banks.

According to Mr Güven, Standard Chartered opted for a separate entity so it could start from the bottom up. “What we are doing here is creating a future operating model…We are not just building a mobile app, it’s not a facelift.”

Getting into the market fast was important, he said, “but it may not be the best thing. Coming to market with the right value proposition is the most important thing.”

Article: https://www.ft.com/content/3f498e64-1aa6-11ea-97df-cc63de1d73f4