On March 12, Standard Chartered Bank announced it had signed up an e-commerce partner for “nexus”, its solution for “banking-as-a-service”. The initiative emerged from SC Ventures, its in-house fintech investment, innovation incubator arm.
Alex Manson, global head of that team, described nexus – and by extension, SC Ventures itself – as “an experiment to provide optionality for the bank.”
Its first big project is Mox Bank, the SC-backed virtual bank that has just gone live in Hong Kong. “Mox was venture one, and nexus is venture two,” Manson said. Smaller in-country initiatives such as Solv, an SME platform in India, have also debuted.
Stepping back to when SC Ventures was put together about two years ago, Manson says digital transformation in finance could go one of three ways.
First is for banks to change themselves into purely digital businesses. That may yet happen, but no bank has managed to evolve beyond its legacy infrastructure and heritage businesses.
Second is to become a platform at the heart of its own ecosystem, built on an open architecture, in which the bank can retain its consumer-facing brand and convince partners to provide services within its app. There are piecemeal efforts at this, such as State Bank of India’s Yona app, but success depends on circumstances that may be difficult to replicate. Going down this route would mean in places like Singapore trying to go head-to-head against the likes of Grab.
Third is to plug into someone else’s customer-facing platform and give it both a banking license as well as access to the bank’s balance sheet.
Nexus is the result of SC Ventures opening door number three. It announced it would be providing its “banking-as-a-service” solution to an e-commerce company operating in Indonesia, which it would not name.
Like a fintech vendor, SC Ventures wants to plug nexus into other consumer-facing companies, including airlines and hotels, and possibly virtual banks or other finance startups. It does not expect to go live with its first e-commerce partner until 2021 but wanted to announce the existence of a deal in order to spur other partnerships.
Kelvin Tan, SC Ventures’ lead on the nexus project, says the agreement with the Indonesian company goes well beyond a memorandum of understanding. “It is very integrated,” he said, noting there are line-by-line details around matters including safe sharing of customer data. “We want to link product design to the partner. It will be the partner that will provide our interest rates to their deposits, for example. It will be the partner that uses our balance sheet to deliver rewards in order to drive user growth.”
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This pits SC Ventures in competition with tech vendors looking to offer “banking in a box” solutions but it also brings with it an actual bank.
Manson likens nexus to Intel’s famous marketing campaign as the microprocessor chip powering personal computers manufactured by consumer-facing brands such as Microsoft and Apple. “We’re like the ‘Intel Inside’ for e-commerce,” he said.
That comment is illustrative of how Standard Chartered is weighing the need to conform to other platforms that control the branding without becoming “dumb pipes”.
Intel faced a similar challenge in that chip manufacturing is commoditized among faceless companies serving consumer-facing behemoths with massive branding power. But outside of tech-minded people, most consumers in the early 1990s had no clue about chips, or even computers.
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Intel began its “Intel Inside” campaign, offering PC makers a rebate if they launched their own advertising that included mention of Intel’s slogan. This fueled lots of ads which not only grew the young PC market but also gave Intel a consumer identity that other chipmakers lacked. This built trust in the Intel brand, which in turn helped PC makers sell products using their chips. In truth there wasn’t a difference between Intel’s chips and others’, but Intel built a brand that could charge a premium while helping raise awareness for PCs generally.
It will take years to know whether nexus has achieved similar success, and DigFin does not know if SC Ventures intends to actually fund partners’ marketing efforts.
Next for nexus
In the meantime it can still make money as a bank, growing its deposit base and providing loans or other products through partners. The team would like to add other services for, say, SME users, such as trade finance and foreign exchange, but first it needs to get the basics right. That includes learning from nexus as well as Mox and other ventures: while Mox has its own front end, it shares some of the back-end operations with SC Ventures, which is to say, with Standard Chartered.
It is also worth noting that nexus is in fact two things. It is Nexco, a technology company that creates the software to plug the bank into a partner’s systems – which makes it analogous to, say, a Ping An OneConnect or other B2B vendors leveraging a parent’s tech stack. The second is Nexus Banking, the business end of the platform – which is to say, a front end of Standard Chartered.
This leads to the question of whether nexus will spur digital transformation within StanChart.
Manson says he doesn’t know. It’s possible that nexus and other manifestations of SC Ventures will outpace the original bank. Or they will coexist by serving different client segments. Or the “mothership” finds its own way and SC Ventures becomes irrelevant or a distraction and gets shut down. What matters, he says, is that SC Ventures gives the bank the flexibility to choose.