This article first appeared in Singapore’s Business Times
THE financial services’ Industry Transformation Map (ITM), launched on Oct 30, aims to create thousands of jobs here in Singapore, as well as raise productivity and growth in the industry, and by extension the wider economy.
Under the ITM, the financial services sector is expected to achieve 4.3 per cent growth in the medium term, almost twice as fast as the overall economy. By 2020, an additional 1,000 jobs are expected to be created in the financial technology (FinTech) sector.
While these numbers have led the headlines, one detail that seems to have been buried is the fact that the ITM also aims to support the development of Asian finance, including expanding cross-border agreements with other FinTech centres.
This is the crux of the issue, Singapore’s financial services sector it immutably tied to that of Asia, and without development in the latter, we will not see the kind of jobs and growth that we would like in Singapore. Luckily, the financial services sector in the City State is in a good position to develop the kind of financial infrastructure needed in the region, and most importantly, develop it in a way that allows Singapore to take a leading position.
There are 10-member states of ASEAN, each with their own rules and regulations when it comes to finance. The compliance burden alone makes cross-border transactions difficult, costly and complicated. Finance is becoming ever more international, and many Asians will now live and work in different Asian states, requiring cross-border financial services. This trend will only grow as the middle class in Asia expands, and we will see greater demand for demand for financial services from consumer credit, and wealth management, to insurance.
The political will for greater financial services integration is there, and as we saw with the (relatively) recent ASEAN Economic Community (AEC), integration can be done. But the biggest obstacles lie in capacity and infrastructure, and harmonising regulatory standards and practices.
This is where technology comes in, and where Singapore can take a leading role.
Finance is already being digitised for a number of reasons, driven by both the end customer and industry professionals. Firstly, there is the simple fact that today’s and tomorrow’s generation grew up in the era of the smartphone and the internet, and so the resistance and lack of trust is not there. We are more comfortable organising our own lives – from purchasing groceries to managing our investments – through an app or website.
Another reason is changing expectations, clients expect more choice and higher returns. The non-discretionary nature of the Asian client (most clients in the region prefer to have a more hands-on approach to their investments, rather than letting their wealth manager handle it alone) means that there is demand for more timely, frequent and relevant advice and updates from bankers and advisors.
Lastly, as alluded to previously, compliance. These are hard times for the financial services industry, especially wealth management, with the cost and complexity of regulations skyrocketing since the Global Financial Crisis (GFC). This has increased costs for banks, and the risk for bankers resulting in a more conservative, risk-averse approach and lost opportunities for clients.
Tech products have emerged to address these challenges and demands. Start-ups have developed Regulatory technology (RegTech) that can automate compliance processes, removing the chance of human error and ensuring bankers are meeting compliance and suitability standards. There are platforms emerging that leverage Artificial Intelligence (AI) to advise on investment strategies and solutions, processing data in real-time, and ensuring every deal or execution is communicated to the banker and his/her client.
The next step, though, has not arrived yet could make or break Singapore’s quest to continue as a regional financial service hub. That step is the creation of a financial services ecosystem in Asia, one that supports the collaboration between clients, their advisors and financial product manufacturers from across the region, enabling smooth cross-border transactions, promoting competition between states and moving capital around to where it is needed efficiently.
Co-Founder and CEO of AGDelta