‘No shortcuts’ to regulating banking innovations – fintech experts


A “significant wave of innovation” in banking underpinned by cloud technology — including digital currencies, open banking and blockchain disintermediation — must be accompanied by regulation, a forum of publishers says. financial industry organized by IBM on June 1st.

“When dealing with traditional banks, if you’re not licensed and regulated, you won’t have meaningful relationships,” said Calvin Shen, managing director of Hex Trust, a digital asset custodial company in Singapore. . “In addition to security, there is the issue of compliance… Those are the things to think about beyond the technology. There is no shortcut.”

While central bank digital currencies (CBDCs) and cryptocurrencies both live on the blockchain, they are not the same: CBDCs are centralized, cryptocurrencies are not.

“The difference is that it’s [a CBDC] supported by the sovereign. This is a very big difference,” Mr. Shen said. “The fundamental issue – beyond legality and compliance – is security.”

Last April, the Bangko Sentral ng Pilipinas (BSP) said it test the use of the CBDC for high-value financial transactions between selected financial institutions.

Traditional banks invest in open banka system that allows access and control of consumers’ banking and financial accounts to third-party applications.

Although open banking has the potential to reduce costs and improve customer service, it also increases the risk to consumers because more of their data is shared.

“When open banking happens, security issues arise,” said Kunacillan Nallappan, vice president of Asia-Pacific, China and Japan for F5 Networks, a cloud application service provider and security based in Seattle.

“How do we protect customer data? API security is a priority. Banks want customers to access products through them, as this opens up new revenue streams. »

(API, or application programming interface, is software that allows two applications to communicate with each other.)

In January, PASB launched its framework for open finance.

Mr. Nallappan also highlighted how open banking has resulted in collaborations between banks and third-party providers like neobanks or internet-only financial services companies.

“Because consumers trust [traditional banks]they go through them to consume third-party services,” he said.

Established banks can co-exist with neo-banks, according to Juan Madera, IBM Consulting’s ASEAN Financial Services Industry Lead: “The cost of acquiring customers [for the latter] is high even if the cost of the technology is low.

“The most successful neobanks are those that already have a large, solid customer base and then built a bank out of that,” he said.

Decentralized finance (DeFi) presents opportunities for the Philippine market, Madera said.

“It makes some of the underlying business processes more efficient and cost-effective, like, for example, cross-border payments,” he said. “It’s also a matter of needs… If you have a geographically dispersed population and underbanked population, technology can bridge the gap.

By 2023, BSP aims to on board 70% Filipino adults in the financial system and convert 50% digital payments. He said 53% of adults had a basic deposit or e-money account in the first quarter of 2021. — Patricia B. Mirasol

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