Yesterday, DigFin profiled a U.S. entrepreneur addressing issues of digital identity and data sovereignty. These are issues that Singapore’s government has been addressing for years – and banks and tech startups say it’s proving to be a good system for commerce.
Instead of assuming that data needs to be “democratized”, that is, distributed so that individuals control their information, Singapore set up a central repository in 2016. The platform initially was for residents to access government services but it has since been extended to business.
And businesses are finding this pool of data a huge benefit.
“For a company, the control of data equals locked revenue,” said a Chinese techfin company’s spokesperson. “No company is willing to share data and it’s extremely difficult for new comers to challenge existing data kings [meaning, corporate holders of user information]. A government initiative is therefore key to ensuring a level playing field and to protect innovation and creativity.”
Hong Kong is following suit in part with a rollout of new digitally tagged identity cards, but it will take time for it to collect enough data and connect users to government services. Singapore in the meantime will continue to roll out new features.
OCBC is one of the four banks that joined MyInfo’s pilot in May 2017; the bank then launched Singapore’s first instant account opening for deposits last year, leveraging MyInfo. Since then, account opening has expanded from instant approval to instant use. For example, a personal loan can be instantly released to a new customer’s account.
“We were the first bank in Singapore to enable the instant approval and use of a new bank account last year”, said Aditya Gupta, OCBC’s head of e-business for Singapore and Malaysia. “Now, we are the first local bank to enable the instant approval and use of credit cards, which are immediately available for use on mobile devices to do e-commerce transactions.”
He said close to 80% of all OCBC digital product applications now are leveraging MyInfo; the average volumes of products opened through digital channels have increased three times after integration with MyInfo; 35% of all current account products are opened through MyInfo.
We have cut the manual approval process from three days to just minutesAditya Gupta, OCBC
Dennis Tan, OCBC’s head of consumer financial services, expects that one in every two OCBC Bank customers to be onboarded digitally by 2020.
For banks onboarding a new customer, there are two levels of checks, Gupta explains: to authenticate the information the customer provides (e.g., income or home address); and verifying the person is who they claim to be.
MyInfo does the first check. Because the information is government-certified, customers don’t need to provide any supporting documentation.
OCBC now only needs to focus on the second level and check the identity of the person, which cuts out a lot of work for both the bank and the customer.
“For consumers, the application process is reduced from 15 mins (to fill in forms) to 60 seconds,” Gupta said. “More importantly, we have cut the manual approval process from three days to just minutes.”
Gupta thinks that MyInfo also enhances data privacy and security. All data access needs customer consent, case by case. And the authentication has the same security standard as when filing data with the government.
MyInfo is essentially a collection of open-sourced APIs that users can integrate with different services. This being a government initiative, it’s open to all residents and companies, large or small, with government technicians available to support integration.
Kristal.AI, a robo-advisory wealth management platform, integrated Myinfo in September 2018. The application procedure took around a month. The MyInfo team from the Singapore government guided Kristal through the process and “resolved all technical issues”. Kristal’s Singaporean spokesperson told DigFin.
Vivek Mohindra, co-founder of the firm, who is based in Hong Kong, says Kristal actually first operated there because Hong Kong’s regulator was quick to grant a retail advisory license. The business then opened in India and Singapore.
But since then, Kristal has added 400 customers in Singapore versus only 200 in Hong Kong. One reason? MyInfo, which enabled onboarding to be compressed from days to minutes.
“We have more than doubled our customers so far this year and will grow even faster now,” the Singaporean spokesperson said.
Youtrip, a Singaporen version of Revolut, is one of the first adaptors of MyInfo, Caecilia Chu, co-founder and CEO told DigFin.
Youtrip runs a multi-currency mobile wallet with a prepaid Mastercard. The firm claims wholesale currency exchange rate with zero fees. The product has recorded 1 million transactions for the first 10 months. It raised US$25.5 million in a pre-Series A funding in May 2019.
It is worth noting that Youtrip is a Hong Kong-based company but Singapore is its main market. Its two founders are from Hong Kong; the company’s technical support centre with some 40 engineers is also located in the Fragrant Harbor.
Chu says the initial reason to open shop in Singapore was to take advantage of a partnership with EZ-Link, a local smart-card company focused on local transport.
But as Youtrip’s business model is based on digitalization, MyInfo has helped speed its growth.
“In the digital space, the key is to move fast,” Arthur Mak, chairman of Youtrip, told DigFin. “Our products get updated almost every two weeks. We focus on the digital side so that we can deliver the value to the customers at very low or no cost.”
Youtrip integrates digitally with both local and regional banks or brokers providing wholesale forex prices, letting the company hedge its positions in real time whenever users spend money on its card.
On the other side, 91% of customers come onboard via MyInfo, which helps Youtrip digitize the whole KYC procedure.
Mak says integrated with MyInfo took a few weeks. The challenge isn’t the tech, he says, but understanding all the compliance around it.
Vox: Pauline Wray & Ian Loh, Expand Research
Vox speaks with Pauline Wray and Ian Loh of BCG’s Expand Research about RegTech and how financial institutions are trying to adopt solutions.
Vox talks with BCG’s Expand Research about RegTech and its use cases. Expand’s Pauline Wray and Ian Loh talk about the worldwide and Asia-focused trends in regulation technology, how financial institutions or tech companies are integrating RegTech solutions, and what has to happen before these solutions become widely adopted. We also get into some of the underlying technology, from biometrics to natural-language processing.
China regulator has 108 ways to save P2P
An arm of the CIRBC has released a detailed list of rules for the survivors of China’s P2P-lending industry.
An arm of the China Banking and Insurance Regulatory Commission has introduced 108 nation-wide compliance criteria for peer-to-peer electronic marketplaces. The P2P Office, officially called the China National Online Lending Regulatory Office, published its rules on Friday.
The extensive regulations follow a broader crackdown on the unruly P2P lending industry in the wake of fraud and bad practices. The P2P industry is consolidating fast.
According to P2P media Wangdaizhijia’s statistics, 247 P2P lenders saw corporate defaults in June and July. Up to July, 2,305 platforms were found to have certain kinds of problems. The number of operating P2P platforms has shrunk from 3383 to 1,645 since 2016, with many succumbing to lack of liquidity, poor risk controls, vague regulation and mass defaults by borrowers.
The P2P Office’s new standards are aimed to give the surviving players a set of tough requirements and best practices, defining how the industry will behave from now on.
Dong Jun, founder of Jimu, one of the bigger P2P platforms in China, says this national version of measures, backed up with clear timeframes, is more practical than previous attempts at regulation, as it prevents rules been misunderstood or reinterpreted by regional governments.
“These principles have always been the bottom lines of our industry,” he said. “These new rules will certainly filter out dodgy actors.”
The shakeout has seen many investors lose money, to such a scale that it has threatened social stability, sparking victims in many cities to stage protests. From a regulatory point of view, a crackdown isn’t enough. The industry has to find a new footing.
“If you ask me what has been missing in P2P, investors’ money is already missing,” said David Yin, vice president at Moody’s Investors Service. “This is the most comprehensive set of queries for P2P so far.”
The new regulations first set out rules for companies to “self-review”, but they’re not leaving regulation to industry players. A matrix of local industry associations and the National Internet Finance Association are being mandated with inspection powers, and the penalty for being caught lying to auditors is the closure of the business.
The second thing these rules do is define more explicitly what P2P platforms can and can’t do, a big contrast to the freewheeling birth of the industry.
Some notable measures include defining P2Ps as intermediaries of information but not of credit. This is intended to ban platforms from using their own goodwill or reputation to enhance the credit profile of borrowers. Platforms may have done this to either get fees from borrowers or to make their investment opportunities look more attractive or safer. Now, however, borrowers must stand on their own, giving lenders a purer view of the business.
In a similar vein, platforms can’t fund the business through separate capital pools – they need to rely on attracting actual investors to buy loans. The new rules also set out platform’s disclosure and reporting duties.
Finally, they are meant to be implemented nationally. “These measures could be important standards for the P2P industry, because a national standard will leave no room for arbitrage,” said Yin.
What about the missing millions?
What the rules don’t clarify: the fate of platforms that have already gone bust, and whether or how to recover some of the lost assets.
There have been rumours that the country’s big asset management companies, created in the wake of the Asian financial crisis to absorb banks’ bad loans, could step in. But their current charters don’t let them acquire personal assets, as P2P networks didn’t exist in the late 1990s.
The AMCs or other entity could perhaps take on a custodial role by taking over companies that still legally exist, in order to dispose of their assets and repay their debts, but this wouldn’t do much for those companies that have completely dissolved.
What the new regulations achieve is create a high bar for any company that wants to do P2P lending – or perhaps a 108-brick wall is a better metaphor. Regulators are no longer willing to tolerate risk in the sector, which is not considered strategic to the government’s view of the economy.
The big players left standing will face high compliance-related costs, but this will also serve as a barrier to new competition, leaving executives ready to accept the new burdens.
“Based on the distinct nature of P2P, a certain amount of compliance cost to guarantee a ‘good money’ market is worthwhile,” said Dong at Jimu.
What the survivors can’t tell yet, though, is the exact impact on a company’s revenue and funding.
“It’s hard to measure how much is the loss,” Dong said.
PBoC: you won’t disintermediate us
The central bank’s in-house lawyer warns against attempts to displace its infrastructure.
Many Chinese banks are working on blockchain projects, but the top lawyer at their regulator downplayed the potential for the technology when it comes to functions that could replicate or disintermediate the role of the state-run banking system.
Sheng Songcheng, counselor to the People’s Bank of China, said on Friday, June 15, that blockchain was better suited to areas other than financial services. Sheng, an economist, has also served as director-general of the central bank’s financial survey and statistics department.
He made his remarks at a China fintech and blockchain conference in Shenzhen organized by an arm of the Ministry of Industry and Information Technology, with an audience of blockchain developers and large tech companies such as Baidu and JD.com.
Sheng acknowledged blockchain tech is useful for authenticating information.
But he says this is no replacement for a bank’s function as a provider of credit. State-owned banks issue credit, guided by the PBoC, to provide capital and influence interest rates.
Distributed-ledger technology cannot replace banks’ roles as providers of credit, or regulators of the economy. “I haven’t seen any good use case so far,” Sheng said.
A provider of efficiency
Proponents of blockchain also site it as a provider of efficiency, by eliminating intermediary functions. But Sheng interpreted this argument as an attempt to replace the government’s existing infrastructure for clearing and settlement.
“The current payment system is safe enough, and can support high transaction volumes,” he said. The same goes for its compliance controls against money laundering and tax evasion.
In accordance with previous PBoC statements about crypto-currencies, Sheng said, “There is no place in currency for blockchain…virtual currency is not real currency” because there is no state credit to back it up. The exception could be if the state issued its own digital currency, in which the government’s credit provides value to an e-renminbi.
Sheng says blockchain is better suited to other economic activities, such as authenticating artworks or validating intellectual property rights.
“A lot of blockchain related conferences and articles stir up speculation,” Sheng said.