Economic View

On how conventional banks are integrating digital solutions 

How would you assess the potential of digital banking to boost financial inclusion in developing economies? 

MICHEAL GORRIZ: In Africa, where Standard Chartered opened eight digital banks in 2018-19, the cost to serve is a crucial determining factor when offering banking services. A large part of the continent is underbanked primarily because the cost to serve in Africa is quite high within traditional banking networks, so digital solutions provide the only way to reach the majority of the population. We rolled out digital banks in Africa on the back of our existing licences and tech stack, and partnered with some financial technology (fintech) companies in the region for onboarding and last-mile access. With this model, we were able to offer digital banking solutions for a relatively low investment, providing banking to more customers without the need for a large brick-and-mortar branch network.

To what extent can these digital banking strategies be applied to emerging markets in Asia?

GORRIZ: We entered the African market with an existing tech stack that was enhanced for digital services. However, in Hong Kong we have taken a different strategy by partnering with well-known corporations with large consumer bases – PCCW, HKT and Ctrip. Paired with our knowledge of banking, our Hong Kong partners will help us increase our reach immediately. Another method that can be applied to emerging Asia involves placing the bank behind platforms that already have a large reach, such as e-commerce platforms, and offering financial services as part of their total portfolio. 

Considering the rapid rise of neobanks, how do you foresee the competitive landscape evolving in the digital banking space? 

GORRIZ: Banking is about trust. When you look at the polls, established banks are still preferred by customers when it comes to real money. Therefore, if you offer the convenience of a digital bank but with the longstanding trust provided by conventional institutions, you have a compelling proposal; there is no reason for customers to walk away. Actually, we are seeing quite the opposite with our digital offering. We are rapidly growing the base of digital banking customers because people already know our brand. Customers trust and appreciate the new digital aspects.

What role do you see fintech start-ups playing within the innovation ecosystem of large legacy banks? 

GORRIZ: We are working with fintech companies that have already decided to partner with banks. We integrate these firms into our solutions base and use their tools as part of our tech landscape, including for onboarding, international remittances and short-term lending. We also invest in those who have the potential to scale up. For example, we recently invested in Silent Eight, an artificial intelligence-powered name-screening tool to combat financial crime, which is now used across our businesses in more than 40 markets.

Where do you see the most opportunity for blockchain to improve international trade systems?

GORRIZ: Blockchain, and distributed ledger technology (DLT) in general, is a wonderful tool to disseminate information across a variety of independent partners – that is what DLT was designed for. It is very useful for trade, in particular, because deals typically involve the seller, the buyer, the logistics partner, the Customs authority and the financing partner, and blockchain is the perfect means to disseminate information among these partners. However, the hard work is creating the ecosystem to exchange information in a way that all parties comprehend, as well as drawing up the standards and procedures for how to use it properly. It will take a lot of time – and also some help from government bodies – before these ecosystems are scalable and self-sustained. I predict this will eventually happen, but that it will take a few more years before it really replaces the current method of trading. We actively experiment with blockchain and explore the potential application to our products, services and processes. For example, we have recently completed our first joint deep-tier supply chain financing transaction for Digital Guangdong and its upstream suppliers using Linklogis’ blockchain platform.