Singapore Postcard: Our Takeaways from Money20/20 Asia 2018

By: Prateek Roongta, Keith Bussey, Diego de Sartiges, Mohammed Badi

Ambition, optimism, speed. Those were the central tenants of Money20/20 Asia this past week in Singapore. Hundreds of executives, entrepreneurs, and investors gathered to exchange ideas, find new opportunities, and get a ground-level view of what’s driving payments in the rapidly evolving Asian payments market.

BCG was there to debate our ideas, learn from others, and to share it all back with you.

1     Financial Institutions and Fintechs: how to collaborate, and when to compete?

The story of Financial Institutions (FIs) being slow to respond to changes in customer expectations, at least vis-à-vis Fintechs, has been told many times. The recent narrative on this topic has FIs almost unanimously claiming to boost their innovation capabilities by collaborating, rather than competing, with Fintechs.

At Money20/20, we heard from a number of FIs following one of three collaboration strategies:

1.  Invest in CVC: China-based companies such as Ping An and CreditEase discussed the large bets they are making on Corporate Venture Capital (CVC) to engage with new technology players;
2. Source the Right Partners: DBS and Citi shared some of the successes they have found in identifying and partnering with best-in-class partners and using their capabilities to improve their product offering;
3. Own the Platform: ING and Starling shared their belief in investing heavily to develop a winning platform – one that attracts the best fintechs looking for opportunities to offer their services. These platform players are increasingly seeking a “compliance advantage”, allowing them to screen and then onboard more partners faster than their competitors.

One significant change in collaboration strategies is where FIs are going to source innovative Fintechs. In particular, Asia has grown from bit player in fintech to a powerhouse. Fintech funding in Asia in 2017 was 36x what it was in 2010 (versus 9x for EMEA and 3x for the US over that same period) – in fact, total Fintech funding for 2016 and 2017 (combined) for the US and China were almost exactly on par.

While we believe collaboration with Fintechs is critical for FIs, the act of collaboration should not mask the overall threat posed by certain technology firms (either Fintechs, or TechFins). 

Technology firms such as Ant Financial have a dangerous (for FIs) combination of incredible ambition, expanding financial service offerings, rapidly growing customer bases, unique data assets, and the technological capabilities to match. At Money20/20, Ant shared some of their technology capabilities including advances in AI, where they are already delivering better customer satisfaction scores than human interactions.

The FI playbook for winning in the increasingly competitive payments space is becoming clear:

• Create frictionless payment experiences
• Personalize and reward payments
• Collaborate to bring a credible response to third parties
• Protect and monetize data

2     In Asia, the non-bank platforms have won the digital wallet race

The stories of AliPay and WeChat and their combined 90%+ share of the Chinese mobile digital payment market has been well documented. While the story in the Americas and Europe continue to unfold in terms of how banks will compete with the tech giants on digital payments, we see tech players rapidly gathering up share across Asia.

In particular, we are seeing a growing number of social media companies moving into banking – WeChat, LINE, Kakao Talk are just a few examples. These companies hold a unique data advantage – with information of their users’ personal profiles, social circles, digital lifestyle, preferences and usage patterns – and are in the best position to provide the personalized banking experience that users are looking for.

Kakao Bank is well known as the breakthrough success story of a social media bank. Launched in July 2017, it has acquired 5 million customers since launch, securing US$4.8B in deposits and issuing US$4.4B in loans. The 3 main factors driving its success are:

1. Convenience – the ability to open a bank account in 5-7 minutes, with no face to face verification required, leveraging information from your Kakao Talk account;
2. Pricing – with the lower costs associated with a fully digital model, Kakao Bank has out-priced its traditional banking competitors on both deposit and loan interest rates; and
3. Trust – 84% of Korea’s population use Kakao Talk daily, making it a well-established brand in the country. By riding on Kakao Talk’s trusted brand and familiar digital interface, Kakao Bank managed to rapidly gain the trust of consumers.

In the face of the threat of new Fintech entrants, trust has been touted as a key reason for the continued importance of banks. For social media players, they may have already gained sufficient trust from their users to smoothly transition into banking.

With the proliferation of payment options at the point-of-sale (POS), the infrastructure players are moving in to help merchants simplify their payment offerings. Just this week Adyen announced their entry into Singapore, touting their ability to cover all of the payment choices with one POS device.

3     “Data is the future”… but how long before the future arrives?

In addition to “trust”, banks also often mention data as a source of advantage. While several banks at Money20/20 discussed pilots regarding their data advantage, most banks we hear from are struggling to scale up efforts to monetize this advantage.

At Money20/20, it was primarily the non-banks that appeared closest to finding opportunities to monetizing their data advantage. For example:

• Air Asia, a Southeast Asian discount airline, officially launched their digital wallet (BigPay) at Money20/20. They claim to have “high resolution data” on 65 million customers, covering travel habits, online behavior, and onboard purchasing. They are leveraging this data to develop new products, improve targeting, and drive usage. They are also seeking to drive more sales via a “cashless” cabin, a unique proposition in some of the cash-heavy countries in which it operates.
• Another interesting use of data came from a tech player. Lazada, a major e-commerce platform in the Philippines which is majority-owned by Alibaba, is using their big data repositories to determine how to improve the success at the POS. A recent example: 90% of Lazada’s sales are cash-on-delivery, and they were experiencing a 30% failed pay rate due to non-delivery of goods. While experimenting with how to improve this C.O.D. challenge, Lazada uncovered that female delivery drivers typically follow different delivery processes than their male counterparts, and experience only half of the failed delivery rate versus males. Lazada is using this data to improve their delivery processes across all of their drivers (a simplified example is in ensure male drivers attempt the same number of deliveries as female drivers) and thereby driving top-line growth.
• Meanwhile, Grab, a major Southeast Asian transportation company with a rapidly growing financial services portfolio, presented an overview of how they will use transport movements, geo-location, and GrabPay (their digital wallet) transaction data as inputs into alternative credit decisioning models. The credit business was launched at Money20/20, so while it is too early to tell whether they will be able to execute against their stated plans, we look forward to observing their performance over the coming months and quarters.

On the banking side, BBVA shared some of the ways it is using data to develop better customer journeys in a provocative presentation titled, “Can banks be the new threat to big tech?” In particular, the functionality in its Bconomy app that compares customer spending patterns to those of their peers provided a glimpse into how banks can leverage their vast data assets to provide a unique and valuable service for customers.

4     QR technology is winning in some Asian markets, but why?

A frequent conversation among payments players in the Americas and Europe is around QR – in particular, will the rapid growth of QR technology in Asia be replicated elsewhere?

Certainly many of the dozens of mobile wallets present at Money20/20 use QR technology to process payments at the POS. Meanwhile, a quick tour of the merchants around Singapore (a country with the seventh highest GDP per capita in the world) revealed that QR technology is virtually unused there. While some merchants do provide payments via QR, reportedly for Chinese tourists expecting to pay with AliPay or WeChat, the QR payments we tried (offered via banking apps) currently provide very poor customer experience. There is little reason to believe that this technology, in its current form will tempt customers who could otherwise use contactless cards or some other form of simplified payment experience.

Representatives from AliPay shared their take on the value proposition for QR, and it was quite clear: QR technology works well when merchants do not have POS terminals and are seeking an extremely low cost means to add additional payment choices to previously cash-intensive customers. This was clearly the case in China and some of the other Asian countries in which QR has taken off. But, QR technology is just one step along AliPay’s payments roadmap. AliPay discussed their vision for the future of payments where customers will pay at the POS using biometrics (e.g., facial recognition) – when that arrives, there will be no need for QR codes – your phone will not even need to leave your pocket.

5     And as always, there were a number of startups present at the conference – here is one that caught our eye

Chekk not only caught our eye, but also that of the judges – it won the Money20/20 Asia startup competition. Chekk is a global provider of API-driven identity authentication systems. Its technology gives FIs a platform to request data for KYC processes, and allows end users the ability to store and share credentials across providers. Chekk is attempting to balance the increasing desire of customers to control their private data while simplifying the process for FIs to gather and update that data. Whether the Chekk solution will be one of the winners in the personal data management and ID authentication landscape remains to be seen. But, the response from Money20/20 attendees made it clear that the industry is crying out for some type of solution to address authentication challenges, both from a KYC perspective, and to address the application fraud challenge faced by many lenders (this has been a running theme across Money20/20 conferences, as covered in our postcards from 2016 and 2017).

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That is a wrap on another Money20/20. If you would like to discuss any of the above, or anything related to payments, please feel free to contact the authors or anyone on our team. We would be delighted to get the right experts together to exchange perspectives.