“Made in Australia” means safe for many Asians worried by food scandals in their own countries – but how to prove the provenance of goods in a region where counterfeiting is rife?
ANZ has partnered with US technology firm Cisco to help farmers in Australia sell their grain to wary merchants in Asia. Using cutting edge distributed ledger technology, the Australian bank is documenting and guaranteeing every step in the grain supply chain.
By partnering, sharing data, and technology in this manner, ANZ is able to keep abreast of the revolution in financial technology, which otherwise threatens to engulf banks.
“The battleground between Big Tech and banking is how smart are the interactions [with clients],” Shayne Elliott, chief executive officer of Australia and New Zealand Banking Group Limited (ANZ) told FinanceAsia. “If companies are not asking the question today then they will die.”
Some of the largest fintech firms are biting at banks’ heels or in some cases overtaking them. China's Ant Financial, for example, has developed its own blockchain technology to securely import baby milk formula from New Zealand’s Fonterra and vitamins from Australia’s Blackmores into China.
Ant Financial told FinanceAsia that it plans to sell this blockchain application to third parties later this year.
Most of ANZ and ANT Financial’s banking peers are still just talking about blockchain. For Elliott, shareholders stand to lose out because of such inertia.
“There will be some banks that end up being the pipes and the infrastructure plays," Elliott said. "It's not different from the telcos that are the platform,” he added, noting how telecoms providers have been overtaken in the last decade by technological advances and become the network of “dumb pipes” that deliver valuable content created by others.
In retail banking, where products such as payments are largely commoditised, Elliott sees customer experience as a way for banks to differentiate themselves from the pipe providers. “Our intention is to skew towards the customer experience,” said Elliott, who has partnered with ApplePay and hired Maile Carnegie, the former boss of Google Australia, as ANZ's group chief executive, digital.
ETHICAL DILEMMAS
To provide a seamless customer experience data will be key – without intruding into people’s lives in a harmful way.
But who is to judge what is harmful?
James Lloyd, an Asia-Pacific fintech consultant at consultancy EY, said one bank has set up a “creepy committee” to literally check that it is not been doing anything creepy with customers’ data.
ANZ has made a similar move. “We don’t call it the creepy committee – we have the responsible business committee,” Elliott said.
The committee ponders ethical dilemmas such as: just because ANZ knows something about a potential borrower that might make him a worse credit risk, such as regular visits to an oncologist, should the bank reject his loan application?
While it may seem shockingly hard-hearted, one legitimate reason to deny the loan is that the regulator wants banks to lend responsibly – that is, not to potential defaulters.
Elliott has suggested to ANZ senior executives that they use Cambridge Analytica’s improper use of Facebook user data as a case study of what not to do when handling data.
To date, the rules for banks using data are rather loose – but that’s changing as regulators put up a more robust defence of customer rights to privacy.
Australia is already moving to an open banking regime that will give its citizens greater access to, and control, over their banking data. The accumulation of data will no longer be a unique selling point for financial services firms; how smart they are at analysing the available data will be the next battleground.
“If you think the way you win is by holding on to data and building walls around it – you will ultimately lose,” Elliott said.
SPEED OF CHANGE
One fact of modern life is that the average man or woman doesn’t just compare banks to other banks anymore, but to their experience using the slick applications of Uber, Apple, and Airbnb.
“Can we innovate faster than startups can scale up,” Elliott told FinanceAsia in an interview. “Who will win that battle – are those that can partner,” Elliott said.
One of the biggest trends globally in financial services is the creation of platforms of products.
“The days of every institution having its own stack with pretty much the same functionality, customised and configured slightly differently, running on legacy hardware and layers of operating systems – that represent a museum of financial technology – are going away. But it will be a long process,” Jonathan Larsen, chief innovation officer of Ping An Group, said at the Money 20/20 Asia conference mid-March.
As a result banks such as ANZ are looking to disaggregate businesses. Elliott said that China’s recent statement that it is open to raising the foreign ownership cap in banks has marginally peaked interest in its minority stake in Hong Kong-listed Bank of Tianjin but that it is pushing full steam ahead with an initial public offering of shares in its New Zealand-headquartered equipment finance unit UDC Finance.
ANZ sold its life insurance business to Zurich Insurance Group in December for A$2.85 billion ($2.14 billion) but will continue to distribute the products over its platform.
Partnering in itself is a skill. “A lot of big companies in my experience are not good at partnering; they’re good at dominating,” Elliott said, who joined ANZ in 2009 after working at EFG Hermes, the largest investment bank in the Middle East, and at Citigroup.
A major drag on the move to becoming a platform for older banks is their legacy IT systems. Each one has a rats’ nest of wires in their cupboards from defunct devices.
“We don’t have the luxury of starting again,” Elliott said. “If we want to make a change we have to go line by line of code.”
In sharp contrast it takes just three months and $1 million to set up the IT infrastructure of a brand new bank in the cloud with savings and lending products, banking software specialist Temenos’ Asia-Pacific managing director Martin Frick told FinanceAsia.
Frick is talking to at least one telecoms company in Asia about making the leap into financial services, all of which begs the question: Are the dumb pipes finally becoming smarter?
