THIS TINY ISLAND IS SKIPPING GRADES TO BECOME THE WORLD’S TOP FINTECH HUB.

BY JAMIE LEE

SINGAPORE,THE FINTECH

PRODIGY

T wo years ago, Jim Reichbach found himself working his way through a crush of entrepreneurs at a networking do in New York City. It was cocktail hour. Some 60 upstarts from the fintech scene were mingling, likely drunk on a heady mix of gin and contempt for Big Banks. But Mr Reichbach remembers now, that the fintechs –

financial technology firms – only vaguely understood what they were rebelling against. And it wasn’t just the effects of gin. >>>

PHOTO: YEN MENG JIINPHOTO ILLUSTRATION: SIMON ANG

9THE BUSINESS TIMES / WEEKEND / OCTOBER 29-30, 2016

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“They had fundamentally no clue how banks op-

erated,” says Deloitte’s global banking sector

leader. “They didn’t understand the environment

that banks operated in, and what it truly meant to

be a regulated entity.”

Even the fintechs that did want to cosy up to

the banks had no inkling of the kind of

glass-walled bureaucracy they would face. The

contractual relationships. The intellectual prop-

erty pitfalls. Limitations and liabilities. An ava-

lanche of business terms that small shops had

never grappled with, Mr Reichbach says.

Most fintechs have now sobered up and are re-

covering iconoclasts. Once a feared force of dis-

ruption rippling through the financial sector, nine

in 10 fintechs today are likelier to be fixing banks’

problems, instead of creating more of them.

The timing of this new wave of collaboration

suits Singapore just fine, as the city-state has

made a sudden dash to be ahead of several hubs

in this fintech race.

The Monetary Authority of Singapore (MAS)

has been leading the fintech charge, and the

biggest showcase of its resolve will be at the Singa-

pore FinTech Festival in November. The festival

will be the world’s first large-scale gathering of

fintechs, bankers, regulators and investors.

Here, there is no slavish fawning over fintechs

(though there has been a growing number of men

dressing down on Shenton Way). MAS has a clear

strategy: fintechs are welcome, but mainly to help

banks and other financial institutions to survive.

The five-day FinTech Festival is more cram

school, less Coachella. There are conferences

upon conferences, and innovation lab-hopping –

think a teetotaller’s pub crawl. Participants can

choose to wrap up one of the nights over a

fireside chat with a top minister.

MAS has also gathered hundreds of problems

that financial institutions have – big, small, com-

mon and esoteric – and distilled them into a tidy

list of 100 problems. These 100 items are called

problem statements – or one suspects, the first

chapter of a fintech 10-year-series.

They define the banking sector’s problems

such as compliance, financial literacy, credit for

small businesses, customer service, and pay-

ments. Fintechs will compete to solve these prob-

lems, and from there, MAS hopes to play match-

maker among banks with problems to solve,

fintechs with solutions, and investors with

money in their pockets.

This programme promotes a culture of innova-

tion in the financial sector, says an MAS spokes-

man, as Singapore builds a smart financial centre

where “technology is used pervasively in the fin-

ancial industry to increase efficiency, create new

opportunities, manage risks better, and improve

people’s lives”.

The regulator has also set S$225 million aside

over the next few years for fintech experiments,

outlined rules for crowdfunding and cloud com-

puting, and is rejigging strategies to attract ven-

ture capitalists. It has its own chief fintech officer.

If Singapore were a student, she would be the

class monitor, the head prefect, and the top

scorer of the cohort. The governance approach is

pragmatic, studious, and calculated.

This degree of establishment-type involve-

ment is miles away from London’s laissez-faire,

freewheeling landscape, but it has a clear compet-

itive advantage. In September, Singapore tied

with London for pole position as a fintech hub in a

Deloitte report. Both cities scored a 10 – the best

score among all 21 hubs surveyed.

“London happened. London had all the pre-

requisites,” says Neal Cross, chief innovation of-

ficer at DBS.

“The global head of finance in the world.

You’ve got the city, and it’s compacted...The regu-

lators reacted quickly, not so much to drive this

forward, but more to get out of the way, and not

to screw it up, because it had momentum.”

But in Singapore, nothing just “happens”. And

to be sure, that MAS can coax the tight-lipped

firms that it regulates into admitting they have

problems speaks to a hand-on-heart reverence

that bankers have for MAS.

“We are doing it in a very Singaporean way,”

says DBS’s Mr Cross. “It’s (a) very structured, pro-

cess-driven way. Nobody’s done it before.

“Could I email Mark Carney and say, ‘I’ve got an

idea, can I have a chat?’ I can guarantee I won’t get

a response. I could email Ravi (Menon), and I

would get a response,” says Mr Cross. (Mark Car-

ney is the governor of the Bank of England and

Ravi Menon is MAS’s managing director.)

Asked to name another regulator that is like

Singapore’s, Michael Gorriz, group chief informa-

tion officer at Standard Chartered, pauses and

struggles. The London regulators have some sim-

ilar “tendencies”, he says. China and Hong Kong

have fintech clusters.

But Singapore is a far more involved authority.

It doesn’t just try to bring the right people to-

gether, it is also developing education pro-

grammes to meet the talent shortage, he says.

“The fact that (MAS is) methodical – it should de-

liver better results,” says DBS’s Mr Cross. “It relies

on banks’ challenges, and there, at least there are

problems to solve. I’m always amazed at people

who give up their jobs and use their seed funding

to do a start-up that is actually not solving a prob-

lem.”

Darwin is pleasedIt is about time that banks are getting help with

their problems. “Why do fintechs exist? They are

fulfilling voids that we may not have addressed in

the past,” says Susan Hwee, UOB’s group head of

technology and operations.

Banks seem to have lost sight of their custom-

ers’ preferences, she believes. At the same time,

tech firms such as Amazon have greatly raised

the bar for banks’ services.

The city-state is also attracting some mature

fintechs with a disruptive spirit – few as they may

be, today. Remittance company TransferWise is

slated to set up shop here. XTX Markets, one of

the world’s top spot currency traders, is already

in Singapore. US unicorn Stripe, another pay-

ments player, will be coming to town, too.

StanChart’s Dr Gorriz points to a structural

shift in the way consumers interact with banks.

Bankers used to be the affable face of lenders. But

in a post-Lehman world, what counts is institu-

tional reputation. Consumers are used to getting

things done without meeting the person on the

other end of the transaction. “Trust has been

transformed into a series of fulfilled expecta-

tions,” says Dr Gorriz.

Banks have been buying technology services

for decades, and to them, fintechs are an exten-

sion of these services. But the early buzz of dis-

ruption that fintechs created had forced banks to

demystify these new creatures. With free

open-source software, cloud services, and big

data services, banks too could try to redefine

their stodgy approach to service.

It is entirely in MAS’s interest to support banks

that are made stronger by innovation – either

through disruption or with better technology

bought from fintechs and developed from within.

And with the big push from the Singapore govern-

ment, banks have better odds of succeeding. This

also plays into MAS’s looming presence as a regu-

lator. It says it “strives to be close” to develop-

ments in fintech, while staying alert to the poten-

tial risks posed by new technologies and business

models.

The beauty of today’s technology is that a prob-

lem can be tackled in a piecemeal and less costly

way. And for large institutions, that approach can

reduce the risk aversion towards investing in new

ideas. Where the tougher issue lies is in breaking

institutional culture, and in using technology to

crack a puzzle that sounds ridiculously basic:

how to serve customers.

This is where fintechs come in – their pitch is

that they are much better than banks at imagining

customers’ pain points. But at the same time,

banks are learning from fintechs in creating their

own in-house prototypes of solutions in a matter

of hours, and quickly switching to another solu-

tion when one fails.

The ambition is to combine the agility of a

fintech with the balance sheet of a bank. “(Banks)

can pay our employees every month. It’s not too

bad if you need to feed a family,” Dr Gorriz quips.

Darwin would have approved of Singapore’s

banks, which have held their own in the digital

arms race. DBS was crowned world’s best digital

bank by Euromoney this year.

Banks here have also tidied up their backend

systems, so new technology from fintechs can be

plugged into older banking systems. This is done

through application programme interfaces (APIs),

which are forms of computer messaging that let

the banking system communicate with

third-party systems.

MAS, ever the overachiever, is also eager to use

API to disseminate and collect regulatory data.

The pace of revolution in banking will only in-

crease over time. “Many of those who call them-

selves banks today will not survive,” Dr Gorriz

says.

He believes services such as deposits and mort-

gage sales will be digitised in time. “There is no ex-

cuse to say regulation is prohibiting me. This argu-

ment is no longer valid, at least, not (in Singa-

pore),” Dr Gorriz says.

As banks evolve, what then, will become of

fintechs? Already, the Young Turks of fintech

have moved from wanting to annihilate banks, to

simply wanting their business.

The maturity comes as some fintechs’ busi-

ness models are unrealistic. At the same time, the

cost of attracting customers is high. VCs have also

become more sceptical.

In fact, DBS’s Mr Cross has this wry prediction:

“I see VCs moving more towards companies

which could make – and it’s a rare thing among

start-ups – this thing called profit?”

Still, Richard Koh, M-Daq’s founder, wonders if

the proclivity for acquisitions might hurt the fu-

ture of fintechs here. A fintech that is too quickly

absorbed into a bank may not be able to recycle

the capital to create the next fintech.

“The company (might have) hit a mini payday

but it could have been a unicorn,” says Mr Koh,

whose firm helps e-commerce firms profit by

selling in their customers’ home currency. A uni-

corn is a start-up valued at more than US$1 bil-

lion.

Some banks insist they are not bent on taking

out the fintechs, at least not now. “We know that if

we acquire them, we will kill them,” says Pranav

Seth, OCBC’s head of e-business and business

transformation.

“In that creative tension, those guys are not

bound by rules and have the ability to question

everything. Once the bank comes in, that ques-

tioning disappears. So we go to great lengths to

say, we don’t want a stake.”

London calling?In London, the timezone has worked in the city’s

favour, as has its access to the European Union

market, says TransferWise’s head of banking Lu-

kas May.

“Access to the best talent in the world is essen-

tial when you’re building a global company and

the single market for financial services means

that with one licence, companies can operate

across Europe,” Mr May adds.

Even so, Brexit has placed that access in jeop-

ardy. The fintech scene in London had been par-

tially fuelled by happenstance. It remains to be

seen if happenstance continues to help London

more than hinder it.

Now, Brexit angst is fanning interest in Singa-

pore as a fintech hub. As it is, the city-state is an

attractive base for fintechs to access Asian mar-

kets. More Russian, Australian and Israeli

start-ups are reaching out to accelerators and VCs

in Singapore, says Chia Tek Yew, head of financial

services advisory at KPMG Singapore.

Deloitte’s Mr Reichbach says: “There’s abso-

lutely a scenario that says the banks migrate out

of London, and what do the fintechs do behind

that? Singapore is uniquely positioned, because

of the strength of the banking sector here.”

Asean could eventually be to Singapore’s

fintechs what the European Union market had

been to London’s. The region’s explosive growth will work in Singapore’s favour.

For all its endeavour, there is sometimes a point at which Singapore runs up against its own

bespectacled self. The Deloitte report that had crowned Singapore and London joint fintech hub champions also noted that Singapore still lacks en-trepreneurial drive, for example.

“The trouble is, Singaporean companies do not

do well in Silicon Valley,” Mr Cross says. “You’ve got to be a story-teller, an aggressive salesperson who maybe doesn’t tell the truth all the time.”

Even so, OCBC’s Mr Seth says a few good

fintechs from Singapore will find their groove. Already, Singapore has fintech start-ups that have already quietly attracted funding from high-pro-file investors. These include M-Daq and V-Key, a security services firm for e-commerce sales.

“The society already has a view of failure, like all Asian societies. It will take a few success stor-ies. I think we need heroes,” says Mr Seth.

MAS, and all regulators, seem intent on keep-

ing the barriers to entry fair – and high – for ma-ture fintechs, to level the playing field, says Mr Reichbach. At the same time, banks have been forced to reinvent themselves to stave off fintech competition. Both sides have had to grow up.

MAS’s watchfulness, coupled with the con-stant thrum of urgency on this island, means Singapore can be both deliberate and swift.

“It’s that openness, for the common good fo-

cus that the government has, which is not even close in other countries,” DBS’s Mr Cross says.

“Because there are no resources, it’s a small is-land... they have to be very sophisticated in how they think about programmes here. There is no

fallback solution. If they do something wrong, and it’s badly wrong, it will hit five million people very, very, quickly.”

As the tide of fintech disruption turns towards

Singapore, the country will be waiting. And it will have done its homework.

leejamie@sph.com.sg@JamieLeeBT

Hub indicatorsSelf-evaluation of the Hub in six key areas

Index Performance Score

The aggregate rank of the Hub using three renownedbusiness indices

POOR

EXCELLENT

New York

Singapore

London

HIGH RANK

LOW RANK

Silicon Valley

Doing BusinessIndex1

GlobalInnovation Index6

Global Financial Centre3

Government supp

ort

Inno

vati

on

cult

ure

Proximity

to e

xper

tise

Proximity to customersProximity to customers

Foreign startups

Regulation

INDEX SCORE

10

POOR

EXCELLENT

London

HIGH RANK

LOW RANK

Singapore

New York

Doing BusinessIndex

6

GlobalInnovation

Index3

Global Financial Centre

1

INDEX SCORE

Government support

Inno

vati

on

cult

ure

Proximity

to e

xper

tise

Foreign startups

Regulation

10

Source: Deloitte

“Why do fintechs exist? They are fulfilling voids that we may not have addressed in the past.”Susan Hwee, UOB group head of technology and operations

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“There’s absolutelya scenariothat saysthe banks migrate out of London (post Brexit), and what do the fintechs do behind that? Singapore is uniquely positioned, because of the strength of the banking sector here.”Jim Reichbach, Deloitte’s global banking sector leader

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“We are doing it in a very Singaporean way. It’s (a) very structured, process-driven way. Nobody’s done it before. Could I email Mark Carney and say, ‘I’ve got an idea, can I have a chat?’ I can guarantee I won’t get a response. I could email Ravi (Menon), and I would get a response.”Neal Cross, DBS chief innovation officer

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“We know that if we acquire them, we will kill them. In that creative tension, those guys are not bound by rules and have the ability to question everything. Once the bank comes in, that questioning disappears. So we go to great lengths to say, we don’t want a stake.”Pranav Seth, OCBC’s head of e-business and business transformation

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1 0THE BUSINESS TIMES / WEEKEND / OCTOBER 29-30, 2016

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1 1THE BUSINESS TIMES / WEEKEND / OCTOBER 29-30, 2016

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