The Future of Banking & Payment: An Overview 

Sherman Tan 

09 Aug 2011 

The Channel Distribution Dilemma for Banks
1        In a new survey conducted jointly by McKinsey and Efma¹ that covered 3,000 customers from 150 banks in Europe, a complex and fast moving trend is developing in the area of how banks should be implementing their multi-channel efforts to reach their customers. For instance, in 2010, retail bank customers bought their consumer financial products via branches (73%) and e-Channel comprising ATM, Internet & Mobile (12%) but this trend is projected to change by 2015 according to the survey: Branches (32%) and e-Channels (47%); 400% increase over 5 years! The greatest change is expected to occur in the setting up or opening of savings account which is predicted to be carried out via the e-Channel (59%) compared to the current 16%. Correspondingly, savings account opened at branches will drop from 77% (2010) to 38% (2015). See Chart below: 

2        The survey reported that customers and the banks would ultimately expect distribution to become increasingly multi-channel with face-to-face channels focused on sales and complex advices while the bulk of banking transactions on their savings and current account and even basic investment and insurance will be conducted electronically via credit or debit card or through ATMs and mobile devices. Besides the ability to manage multi-channel integration in a seamless manner to service their customers from a wholesome and customer-centric perspective, banks are also facing the dilemma of how to generate sufficient leads for the branches and its mobile sale force while meeting the customers’ desire to use the remote channels.  

Significant Growth in Online Payment
3        In another recent report by Business Insight²; the largest revenue generating segment of the advanced payments industry is the online payment segment, which will increase from US $725B to US$1800B to record a Compound Annual Growth Rate (CAGR) of 19.9%. However, the highest growth rate will be witnessed by the mobile payments segment which will post a CAGR of 101.6% to increase from US$15B in 2010 to US$500B in 2015. 

4        The growth of online payments in particularly internet payment is driven mainly due to the increasing usage of internet arising from higher penetration rates across different region. Business Insight² reported that the total number of internet users increased from 1.093B in 2006 to 2.05B in 2010; a two-fold increase in just 4 years. Internet penetration as a percentage of world population increased from 16.7% in 2006 to nearly 30% in 2010. 

5        Further analysis of the internet penetration rates by regions revealed the following:

• ·         While North America has the highest internet penetration rate of 77.4%; this represents only 13.%% of global internet users

• ·         Asia has an overall internet usage of 42% but registered a 21.5% of the global population of internet users 

6        Although Asia-Pacific accounted for a high number of internet users from a global internet user base, Business Insight² predicted that the trend in mobile payment market share in the Asia-Pacific region will however declined from its current 57.9% (2010) to 45.2% by 2015. The decline is mainly due to the higher adoption of smart phones in markets outside the Asia-Pacific that has seen robust growth in the usage of smart phone applications for social networking, communication, multi-media usage and mobile payment. Other regions are however picking up quickly in the adoption of smart phones and mobile payment applications. 

The Future of Mobile Payments
7        While Business Insight predicted a declined in mobile payment market share for the Asia-Pacific region which comprises mainly emerging economies, the World Payment Report 2010³ provided a more optimistic view of the mobile payment medium for the emerging countries over the next few years. According to the report, the development of e- and mobile payment is driven primarily by country specific economics, technological and social factors that not only shape the penetration and adoption of the different payment methods (see chart below): 

8        The World Payments Report 2010 noted that unlike developed markets that have a well-established banking infrastructure, the general population in emerging markets generally does not have access to traditional banking services. In many of these countries, traditional banking services are also beyond the reach of large segments of the population. However, in many of these countries, mobile phone penetration rates are rather high.  

11      The differences between developed and emerging markets are further illustrated by the way in which banks view telecommunications companies. According to Boston Consulting Group⁴, in developed markets; interactions between participants: banks, network providers, equipment manufacturers and merchants are well-established. Likewise, there is also clear regulatory framework in place for the governance of these various players. In emerging markets, by contrast, telecos have shown that they have a significant value-add proposition for payments ecosystems that are still constrained by limited physical and electronic infrastructures. Moreover, government, central banks, and regulatory bodies often have vested interest to migrate cash to electronic payments and therefore often play key roles in influencing the overall payment infrastructure development and in many cases, the pricing and pricing mechanism.  

12      In general, the mobile payments market has significant potential in the medium to long term, but all stakeholders (network operators, banks, payment-card networks, merchants, and mobile device manufacturers) will need to collaborate to shape and influence economics of mobile payments business models, manage risks and ensure that all parties in the ecosystems benefit from the participation.

Notes:

¹ Face-to-Face: A €15-20B Multi-Channel Opportunity by McKinsey & Company, Apr 2011

² The Future of Online and Mobile Payment by Business Insight, Jun 2011

³ World Payments Report 2010 by Capgemini, RBS & EFMA

⁴ Global Payments 2011:Winning After The Storm by Boston Consulting Group, Feb 2011

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Online Security Breaches 

Sherman Tan 

09 Jul 2011 

Recent security breaches
Since Mar this year, we have witnessed several major cyberattacks on a number of commercial companies (“Security Compromised” dated 08 May 2011 by this author) but in recent months, the targets appeared to have shifted to government or government related websites including South Korea’s presidential Blue House, the Turkish government official websites, the Spanish national Police website, Arizona Police website, the International Monetary Fund website in Jun last month. In response to the Malaysia’s government move to block filesharing sites in Malaysia, the group, which called itself Anonymous, launched an attack codename “Operation Malaysia” on 16 Jun 2011 bringing down 41 government websites after it issued an early warning of its intention. 

Besides government websites, banks were also not spared. For instance, in Apr 2011, Nonghyup, a large commercial bank in South Korea suffered a massive network failure that affected millions of bank users for more than a week when the bank’s ATM network, credit authorization and electronic transfers were disabled. Citigroup also announced that computer hackers have breached the bank’s network on 10 Jun 2011 and accessed data of some 200,000 bank card holders including names of customers, account number and contact information which contained email addresses. 

Singapore banks making preparations
As banks around the world prepare themselves against such cyberattacks, major banks in Singapore are also doing likewise. At Singapore’s DBS, besides putting up several layers of security to protect its customers, it was also the first and only bank in Singapore to offer a Money Safe guarantee to protect customers from unauthorized online transactions conducted via both internet and mobile channels. UOB on the other hand was reported recently to say that the bank would engage actively in assessing new technologies. 

Mr Andrew Wong, head of information security at OCBC said that the bank would continue to strengthen its strategy to guard against evolving security threats. Besides these measures, sources familiar with the banking industry shared that the central bank is in the midst of issuing guidelines for banks to implement transaction signing for some of the critical online banking transactions sometime next year. In the meantime, security trading companies in Singapore have begun offering two-factor trading for their customers. For instance, DBS informed its customers that DBS Vickers Online will be implementing two-factor authentication from 1 Aug 2011 for trading transactions that are executed via DBS internet banking platform. 

eGovernment Plan
As banks are fortifying their security measures, the Singapore government announced the opening of the Gov Global Exchange 2011 late last month. At the event unveiled by Deputy Prime Minister Teo Chee Hean, the government will invest about S$2 Billion to implement eGov2015. The plan calls for the government to use business analytics, which studies huge amount of data to identify trends that will help in decision making as well as social media and mobile services to engage citizens and businesses. As part of this plan, the government will be calling for a tender in the coming months for its private cloud, Central G-Cloud which is expected to be ready by the end of next year. 

Part of the plan is to enhance the eCitizen Portal which is now 11 years old and offer 1,600 e-government related services.  

The current eCitizen Portal provides a number of e-government services to both individuals and businesses. For instance, companies can make monthly Central Provident Fund (CPF) contributions for both employees and employers via the internet or through mobile phone applications. While the actual payment transactions are carried out via secured payment channels such as GIRO or MEPS; submission of staff salaries, CPF deductions are done via a single-factor authentication method; SingPass. Using this same SingPass, citizens can assess a host of government services including application for junior college, university studies, renewal of passport, etc. While there are counter-measures to prevent fraud; e.g. online passport renewal requires the applicant to present himself/herself in person to collect the passport, confidential information such as CPF contribution history, balances, email address, identification number, date of birth, etc could be exposed in the event the single-factor SingPass is compromised. 

Besides enhancing the eCitizen portal, the eGov2015 plans to provide an e-mail inbox (OneInBox) for Singaporeans, permanent residents, employment pass holders and business owners who need to correspond with government agencies such as the HDB, CPF, Inland Revenue and Ministry of Manpower by next year. As such electronic mail box would contain some confidential information just by looking at the types of government agencies that are involved; a single-factor authentication is insufficient.  

Assurity Trusted Solution Pte Ltd, the wholly owned subsidy of the Infocomm Development Authority of Singapore (IDA) which was set up in early this year with the charter to offer a super-token solution for second factor authentication would likely be part of the overall eGovernment game plan to bring the single-factor authentication to the next level.  

Looking at the various online security breaches that have occurred as recent as Mar this year, user authentication is only one aspect of protecting consumer’s confidential data. Denial of services attacks leading to disruption or non-available of critical data or services such as non-access to medical records, inability to make urgent payment services; delay in registration or submission of time-bound contractual obligations; etc could lead to major implications for various eGovernment services. 

The writer is the Principal Consultant & Director at Innovar Pte Ltd (www.innovar.com.sg). He can be contacted at office@innovar.com.sg. 

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Leadership Renewal and Transformation

Sherman Tan 

05 Jun 11 

Watershed Election 2011
The May 2011 general election will go down in Singapore history as a year of political wakening for the ruling party that has won every election since 1959. While the ruling People’s Action Party (PAP) has secured 60.1 percent of the electoral votes; this was 6.5 percent drop from the 66.6 percent in 2006. This is the year that the ruling party lost its first Group Representation Constituencies (GRC) and its foreign minister that represented it. More importantly, during the election campaign period, the ruling party realised that resentments amongst a number of the 2.06 million voters were much stronger and deeper than the party has envisaged. 

Shortly after the dust settled, Prime Minister Lee Hsien Loong took swift actions to address some of the key issues brought up during the election. First, was the announcement of the retirement of Minister Mentor Lee Kuan Yew and Senior Minister Goh Chok Tong from the cabinet followed by the retirement of the Deputy Prime Minister Wong Kan Seng, Minister for National Development Mah Bow Tan and Minister for Transport Raymond Lim. All the three ministers were singled out by the electorate for various issues ranging from ill-planning of the transportation system, escalating housing prices and the poor handling of the escape of Singapore most wanted man. Then, 11 out of the 14 ministries saw a change in their ministers. Shortly after the announcement of the new cabinet, PM Lee also instructed that a committee be formed to review the ministerial pay. 

These actions taken at face value are indeed remarkable steps to restore the confidence of the electorate and the right steps towards transforming the ruling party into one that relates to the people on the ground and in the formulation of national policies. 

Leadership Renewal
In many countries, leadership renewal at the very top is seldom voluntarily. There are just too many examples to name. In Southeast Asia alone, we have seen the forceful removable of ex-President Marcos and ex-President Suharto from the Philippines and Indonesia respectively in the past. More recently over the past four months, the Arab uprising in the Middle East and North Africa region has attracted the parallel comparison of the fall of the Berlin walls in 1989. In many large corporations, there were also fair share of departures of chairmen and CEOs due to internal disputes and disagreements. The most recent one involved Mr Gianfranco Lanci, CEO of Acer. Then other high-profile cases included ex-Chairman Harvey Golub of AIG after feuding with its CEO Robert Benmosche last year, the resignation of Phil Condit, chairman and CEO of Boeing in 2003 and HP CEO Carly Fiorina in 2005.  

Prior to the general election, PM Lee Hsien Loong spoke to students at the National University of Singapore on the topic “Leadership Renewal – the Fourth Generation and Beyond”. In that seminar, PM Lee emphasized the importance of leadership succession; he noted that this was a major issue in the upcoming General Election. "We have to press hard on leadership renewal now, so that by 2020, we will have a younger team ready, not just to maintain our present high standards but take this as foundation to fly even higher and do even better," said PM Lee.  

Best Candidate for the Job?
Leadership renewal is an easy topic to write but not one that is easy to implement. If you made an internet search, you will find some 22 Millions related articles on this topic alone. This is especially so for all top positions be them in the public or private sectors because many of these posts are often highly political in nature. Take the recent contest for the IMF top post that was “vacated” by Dominique Strauss-Kahn after the Frenchman was arrested and charged with sexual assault in New York in Apr 2011. Many countries in particularly those emerging nations are questioning the leadership renewal process at the IMF. Most recently, Sepp Blatter was re-elected the fourth time as President of FIFA although there were many who felt that the international governing body is managed by dinosaurs. Amongst the critics is Diego Maradona, Argentine football legend who branded Blatter as a man “who has never kicked a football”.  

These are but some examples that it is often not the best qualified will get the job. 

Another reason why leadership renewal is never an easy transition could be due to the incumbent unwillingness to give up the power that he has amassed when in the position. According to David McClelland, the late Harvard psychologist who spent much of his career studying motivation; he noted that power motive comes in two forms: “personalized” whereby the leader draws strength from controlling others and making them feel weak; and the next form; “socialized” where the leader’s strength comes from empowering people. For those in power and with “personalized” power motive would be most unlikely to want to give up the position that can influence and control others.  

Moving Forward
The Singapore government has taken many steps to demonstrate its willingness to transform itself and the new cabinet lineup is one major step towards the process. How much the ruling party will truly embrace and deliver on the promised changes will be on the watchful radar of the 2 million voters.

The writer is the Principal Consultant & Director at Innovar Pte Ltd (www.innovar.com.sg). He can be contacted at office@innovar.com.sg. 

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