Author: Ashton Wenborn

Union National Bank is a pillar of the United Arab Emirates economy

Posted on by Ashton Wenborn

The financial services sector is an important part of the UAE economy, one that helps much of the region’s growth. In 2016, according to the Ministry of Economy, this industry contributed 9.8 percent of GDP and 12.8 percent of non-oil sector domestic product.

The UAE’s banks are particularly influential in the sector’s overall performance, with commercial institutions playing a pivotal role. Indeed, loans from commercial banks are responsible for nearly 90 percent of total lending in the financial sector.

Last year was not easy for the financial industry as the UAE was hit by new and challenging market realities. These included low oil prices, China’s economic slowdown and regional conflicts – the latter of which has weighed heavily on local and international indices.

In recent times, such issues have plagued much of the world, but concerns in the UAE were all the more prevalent considering that its economic growth has been on a persistent downturn since 2015.

Fortunately, the sector has proved to be well equipped to deal with conditions of every kind. As a result, forecasts are now increasingly optimistic, and many expect the region to bounce back by 2018.

In a recent IMF note, the institution predicted that the growth of the UAE’s non-oil sector will rise to 3.3 percent in 2017 from 2.7 percent in the previous year, reflecting increased domestic public investment, as well as a pick-up in global trade.

Resilience in times of pressure
In spite of enormous margin pressures, increased impairment pressures and higher funding costs, banks in the UAE have remained immensely resilient. The UAE’s banking sector is expected to experience a slight pick-up in lending growth in 2017, given higher oil prices and an anticipated loan growth of seven percent, compared with six percent in 2016.

Union National Bank (UNB) is one of the most stable banks in the UAE, a fact that is reflected in its consistently strong ratings and performance.

UNB has managed to deliver solid results by maintaining strong liquidity and proactively managing its asset quality. Executives at the bank are aware that the road ahead is paved with both risks and opportunities, and they are responding to potential issues by considering sustainability as a vital part of their business strategy.

UNB’s operating profit as of June 30, 2017 was up by seven percent, while loans and advances went up by three percent, mainly due to an increase in operating income that included both net interest income and non-interest income.

The UAE Government is expected to pursue many of the biggest investments in infrastructure in the coming year, which have been major sources of profit for the banking sector up until now. However, the uptick of this policy could only be small given the impact of higher interest rates and a slowdown in government spending.

UNB recognises the importance of corporate social responsibility and has done its utmost to promote excellence through various initiatives

The government will also continue to encourage credit for SMEs, many of which were forced to fold in 2016 owing to the dearth of affordable financing solutions. That said, banks remain cautious in their lending to this segment.

UNB’s strategic growth plans will continue to play a key role at the heart of the region’s capital and financial markets by offering strategic and efficient access to growth opportunities, the best customer services and innovative products and solutions in the UAE and beyond.

UNB’s business activities are fully aligned with Abu Dhabi’s Economic Vision 2030 guidelines and its prioritisation of the Emirate’s socioeconomic progress. UNB’s vision, mission and strategy provide a clear roadmap to help it achieve its goals.

The bankruptcy law that came into effect in March 2017 will serve as an instrument of stability and risk mitigation, and provide for the creation of a pre-emptive settlement regime under which creditors will actively work with their customers in restructuring debts.

As the courts oversee the whole process, this would mean greater assurance of repayment for lenders, while businesses are saved from the immediate threat of bankruptcy, allowing them to maintain normal operations.

Al Etihad Credit Bureau (AECB) has started to issue credit scores to UAE citizens and residents. Consumers’ credit data has been submitted to the bureau by 59 entities, and 64 institutions have subscribed to the bureau’s services.

Customers are now more prudent in borrowing due to uncertainty in the economic outlook, and banks are cautious in lending as they have more information available from AECB.

The implementation of AECB in the UAE is expected to stabilise bank lending, especially with regards to personal lending. Adoption of the Basel III standards for net stable funding ratio and liquidity coverage ratios (to be implemented by January 2018 and January 2019 respectively) should progress smoothly, as most UAE national banks prepare themselves for the implementation of liquidity guidelines.

Raising the game
These changes require banks to be honest about their performance predictions for the future, and not base them on their figures for previous years. Getting banks to think realistically is good for the overall health of the sector. Where there are weak predictions, banks can try to bolster their potential growth through innovation.

One way in which many have done this is by digitalisation: improving the customer experience through operational efficiencies within branches and internal offices.

By focusing on this area, UNB hopes to achieve sustainable and realistic growth in the core lines of its business, such as retail, corporate, commercial and private banking, as well as Sharia-compliant Islamic financing.

The bank is particularly focused on maintaining sustainable returns on average equity and average assets, increased non-interest income, diversity revenue streams, as well as keeping a close eye on costs.

UNB adopts an integrated and multi-dimensional approach to developing its strategy by understanding the needs and expectations of its stakeholders. The bank is greatly committed to promoting customer care and engagement, which it sees as fundamental to building loyalty and trust, as well as innovating to make banking easier and more accessible.

UNB continually updates its website, expanding offerings through mobile and internet banking solutions, and introducing Apple Pay and Samsung Pay. In addition, it has upgraded some of its ATMs so that customers can update Emirates ID records through them.

Some of the key initiatives under implementation are CRM solutions, voice biometrics at UNB’s call centres, queue management systems in its branches, and a state-of-the-art platform for online banking for corporate customers.

UNB continues to be recognised locally and globally by leading industry bodies for its accomplishments in the areas of business excellence, customer service and product innovation.

UNB’s sustainability framework and implementation of sustainability management principles are based on caring about its stakeholders. UNB will continue to plan ahead to maintain financial solidity and grow shareholder value.

UNB recognises the importance of corporate social responsibility (CSR) and has done its utmost to promote excellence through various initiatives with key stakeholders and the community. The bank has identified several areas that require improvement, including the environment, community, disabilities and Emiratisation.

Last year, the bank took part in numerous CSR activities, becoming a platinum sponsor of Educate a Child and joining Earth Hour, which encourages businesses to turn off non-essential electric lights for one hour. This was done to promote awareness of climate change and the greater need for environmentalism.

A bold expansion
In addition to its CSR activities, UNB has been ambitious about its future, and has recently made the bold move to expand in Shanghai, becoming the first bank from the UAE to open a branch in mainland China.

Using a foreign-currency licence, UNB will provide corporate banking services there, as well as trade finance with Sino-Middle East counterparties that operate within the increasingly important UAE-China corridor.

UNB will also continue to promote bilateral investment opportunities that exist for Chinese companies in the UAE, especially in contracting and project finance.

This latest expansion fulfils the organisation’s decision in 2008 to open a representative office in China, making it one of the most forward-thinking in the region.

Executives at the bank believe that the institution’s success and growth depend on its ability to create value for stakeholders. UNB achieves this through its plethora of well-informed products and services, contribution to economic growth, social initiatives and careful consideration of the environment.

The bank continually endeavours to address the needs of its stakeholders, making it one of the finest institutions in the UAE and beyond.

Garanti Bank remains resilient amid volatile Turkish economy

Posted on by Ashton Wenborn

The second half of 2016 saw a sharp deterioration in risk perception towards emerging economies. At the same time, tumultuous political and geopolitical events led to the Turkish economy shifting away from other emerging economies.

And yet, despite these adverse developments, Turkey’s macroeconomic indicators were largely unscathed: economic growth contracted only slightly during the third quarter of 2016, before quickly bouncing back and exceeding economists’ expectations.

Remarkably, while political events were hitting headlines worldwide, Turkish GDP growth for the year came in at a respectable 2.9 percent. Against this setting, the Turkish banking sector was able to maintain its positive momentum and achieve impressive results.

Across the sector, there was an increase in net profits to TRY 37.53bn ($10.73bn) in 2016, up substantially from TRY 26.05bn ($7.45bn) the previous year, according to the Turkish Banking Regulation and Supervision Agency.

Garanti Bank’s resilience and strategy provides a prime example of how leading banks can remain stable even against a shaky external backdrop. Set apart from the competition with its technology, rich product range and efficient and dynamic process management, Garanti is able to provide its 13.2 million retail customers with a distinctive and quality service.

How did Garanti Bank’s retail performance remain resilient throughout 2016?
Despite the fluctuations in the economic environment and in exchange rates, Garanti was able to accurately assess the market and its customers’ needs in 2016.

The bank was not only able to manage its deposit costs effectively, but also managed to increase its market share in the aggregate measure of its time deposit products, including those in both domestic and foreign currency.

Notably, the bank was also instrumental in instilling savings habits in 356,000 of its customers. It was able to do so through the implementation of sound products such as its NET savings account product.

Also influential was the introduction of the Turkish Government’s incentivised marriage and housing accumulating accounts, which act to encourage citizens to save money.

Over the course of the year, Garanti increased its share in the consumer loans market (excluding consumer credit cards) to 14.6 percent, and thus held onto its position as Turkey’s biggest private bank lender to consumers.

In addition, it disbursed general purpose loans to approximately one million individuals over the course of the year, bringing the total volume to TRY 18bn ($5.15bn) and accounting for 11.52 percent of market share.

Furthermore, the bank was able to preserve its leadership among private banks for its mortgage provision, which accounted for 14.2 percent of total market share.

In April 2015, Garanti launched a new series of SMART funds which offer customers a brand new perspective on their investments. The funds hold investments in a number of commodity market products in both domestic and overseas markets.

By the end of 2016, Garanti had introduced SMART funds to nearly 26,000 retail customers, with the total volume of investment reaching more than TRY 570m ($163.01m).

Not only have the funds grown remarkably quickly over the past year and a half, but they have now become the largest variable fund available in the market.

What infrastructure does Garanti have in place?
Garanti has been operating in the retail banking sector for 29 years. The bank provides a wide range of financial services through an extensive distribution network of 959 domestic branches, with seven branches in Cyprus, one in Luxembourg and one in Malta.

It has three international offices in London, Düsseldorf and Shanghai. It also has a total of 4,825 cashpoints and an award-winning call centre, as well as internet, mobile and social banking platforms, all built on cutting-edge technological infrastructure.

How does Garanti differentiate itself from competitors in terms of market position?
Established in 1946, Garanti Bank is Turkey’s second-largest private bank, with consolidated assets of $88.8bn as of the end of 2016. Garanti is unwavering in its drive to maintain sustainable growth by creating value for all of its stakeholders.

At the core of our strategy is the principle of approaching customers in a transparent, clear and responsible manner, while continually improving the customer experience by offering products and services that are tailored to their needs.

Indeed, the bank owes its leading position in the Turkish banking sector to its competent and dynamic human resources, unique technological infrastructure, customer-centric service approach, innovative products and strict adherence to quality.

Garanti continues to differentiate itself and facilitate the lives of its customers with its dynamic business model and advanced technology, which is integrated with its innovative products and services.

Its custom solutions and wide product variety both played a key role in achieving its current position of holding $73.3bn in cash and non-cash loans. In addition, high asset quality continues to set Garanti apart from others in the sector. This is achieved through advanced risk management systems and established risk culture.

One of Garanti Bank’s core values is sustainability: a commitment to build a strong and successful business for the future, while minimising negative environmental and social impacts and upholding corporate governance.

Garanti’s sustainable approach is reflected in its community investment programmes, with commitments in a broad variety of arenas such as sports, arts, nature, education and the business world.

What can we expect from Garanti Bank in the coming years?
The year ahead will likely see continued volatility in both national and global markets. Despite challenging market conditions, Garanti aims to draw on its differentiated and dynamic business model to sign its name under many new success stories.

Garanti will take several key actions over the coming year. In line with the aims of Banco Bilbao Vizcaya Argentaria (BBVA), Garanti’s new majority shareholder, the bank will ensure that customer satisfaction remains a top priority.

BBVA’s tagline reads: “Creating Opportunities”; Garanti will bring new opportunities to its customers by offering them the best banking solutions, helping them make the best financial decisions and making a true difference in their lives.

In 2017, Garanti Bank’s asset growth is expected to remain loan-driven. Looking ahead, the bank will continue to actively shape its fund mix and optimise its funding costs.

While deposits will make up the larger part of its funding base, the focus for deposit growth will remain on sticky, low-cost mass deposits. Besides deposits, Garanti will continue to use alternative funding resources.

Amid ongoing regulatory compliance requirements in the industry, Garanti will focus on improving efficiency in its business processes, resource utilisation and customer relations in order to reach its sustainable profitability target.

Within these strategies, savings accounts, consumer loans and investment products will remain focal points. Furthermore, Garanti will aim to increase the adoption of payment and loyalty products which are vital to attracting customers’ cash flows to the bank.

In keeping with the constantly growing digital trend in the banking industry, Garanti will continue to offer easily accessible new products and services for customers and keep increasing the share of digital channels in sales.

Garanti is also renovating its service model at branches to provide a more digital and user-friendly experience. By using digital technologies, Garanti will aim to offer better, easier and faster services.

As branches continue to play a significant role in how customers bank, Garanti will continue to invest in its working relationship with customers.

Zenith Bank is leading digital banking in Ghana

Posted on by Ashton Wenborn

The digitalisation of financial services is afoot in Ghana, and Zenith Bank, winner of World Finance’s Best Banking Group award three years in a row (2015 to 2017), is in the vanguard of the trend. The demand for greater convenience and scale, together with lower costs, is currently spurring digitalisation at an exponential rate.

Furthermore, regulators and industry players are now recognising that new, dynamic channels are required to bring formal financial services to the doorsteps of those who have previously been excluded.

Thus, banks, non-bank financial institutions, mobile network operators and third-parties are leveraging mobile phones, the internet and point-of-sale devices to offer more convenient basic financial services to customers. Ultimately, this facilitates financial inclusion for the entire Ghanaian population.

A new way to bank
Perhaps the most popular and transformative instrument of digitalisation in Ghana’s financial sector has been the mobile phone. Mobile banking in Ghana is currently on the rise.

This relates specifically to basic banking services, such as balance checking and fund transfers, which customers can now easily access through their mobile phones.

When mobile phones first arrived on the market and were far less sophisticated than they are now, Zenith Bank released a product called Z-Mobile. This was before other banks had even taken notice of the looming trend.

This platform gave customers access to their bank accounts using the basic handsets that were in vogue at the time. Since the proliferation of smartphones and tablets, the bank has relaunched Z-Mobile as a mobile banking app, making Zenith Bank one of the first in the Ghanaian banking industry to launch a mobile banking app.

Z-Mobile, which is simple to use and extremely secure, enables customers to access their accounts and conveniently carry out banking transactions from any part of the world via their smartphones and tablets.

The app allows customers to check accounts, view transaction history, top up investments (within Zenith and other investment houses like Databank), set up beneficiaries, make instant intrabank and interbank transfers, and pay bills – all on the go.

Mobile Money is a nationwide platform owned by the country’s mobile operators, which uses mobile phones to supplement the financial system’s infrastructure.

In doing so, it provides remote financial services that are less costly, both for users and in terms of physical infrastructure. It is estimated that around 20 percent of adult Ghanaians now have a Mobile Money account, compared with practically zero a few years ago.

These Mobile Money accounts are used to receive or send money, as well as to pay for goods, services and bills. According to the central bank’s data, Mobile Money transaction volumes have virtually doubled each year for the past five years, with the value reaching $9.3bn between January and July 2016.

While some Ghanaian banks bemoan the competition from Mobile Money, Zenith Bank is tapping into the opportunities and possibilities it presents to grow its own business.

This is being done, for instance, through the bank’s Mobile Money Bank2Wallet service. The service enables customers to link their Mobile Money wallets (either MTN or Airtel) to their bank accounts in order to transfer money between their accounts and wallets, and to make payments remotely at any time of the day.

Today, less than a year after the service was launched, well over 12,000 subscribers have signed up, with monthly transaction values reaching beyond GHS 150m ($34m).

Innovative uptrends
Electronic banking was once considered ‘rich-world banking’ in Ghana. Those were the days of poor internet services and limited accessibility. It was a time when the middle class was barely visible.

This narrative has now changed – gradually at first, but dramatically in the last couple of years. This can largely be attributed to Ghana’s fast-growing middle class, which is led by an energetic, entrepreneurial cohort of Millennials who have grown up with mobile technology. It has therefore become clear that transacting financial services over the internet is a credible and cost-effective alternative to face-to-face banking.

Digital channels afford the unbanked an opportunity to leapfrog barriers that have historically excluded them from the financial system

In e-banking, as in other areas, Zenith Bank’s innovations have heralded new milestones, not only for the bank, but for the whole industry. For instance, Zenith GlobalPAY, a secure, web-based collection gateway, which enables merchants to accept online card payments in real time from customers worldwide.

With a one-time integration process, merchants on GlobalPAY can receive payments from a variety of locally and internationally issued cards. This product has proved popular, with transactional volumes hitting GHS 35m ($8m) last year.

As of June, transaction volumes had exceeded those of 2016, and are estimated to reach $70m by the close of 2017. With increasing demand from merchants to sign on to the GlobalPAY platform, future projections could see volumes tripling year-on-year.

Zenith Bank’s continued investments and upgrades have produced a robust digital banking infrastructure for the bank, which is complemented by the best debit, pre-paid and credit cards on the market.

This year, in addition to its suite of Visa cards, the bank has also rolled out MasterCard debit, pre-paid and credit cards, expanding the options for customers to access their funds from more than 33 million locations worldwide.

Card issuance currently stands at over 300,000 and is expected to grow further, with more card products at the final stage of approval. When these new card products are approved, issuance could reach over half a million each year.

The prospects for further growth in e-banking are excellent, with Zenith Bank’s regulator, the Bank of Ghana, encouraging the industry to maintain innovation as it attempts to reform the payments system. These reforms aim to make it more secure and diversified.

The economy’s return to rapid economic growth in 2017 will also restore consumer spending and bolster demand for banking across a broad range of services.

Financial inclusion
Besides enabling the banked to conduct financial services with greater ease, digitalisation is also promoting financial inclusion. Digital channels afford the unbanked an opportunity to leapfrog barriers to brick-and-mortar banking, such as cost and infrastructure, that have historically excluded them from the financial system.

Of the 20 percent of Ghanaian adults who have Mobile Money accounts, half do not actually have a bank account. This proves that Mobile Money does not just enable cheaper and more convenient financial services for those who already have access, but is also spreading its reach to those who were previously excluded.

Having operated as a major financial services provider in the country for more than a decade, Zenith Bank has an approach to financial inclusion that is built on a deep understanding of the reasons for financial exclusion.

Essentially, the causes of low financial inclusion can be explained by both demand and supply constraints: demand constraints limit demand for financial services to those who tend to be excluded, while supply constraints restrict supply from financial institutions to the underserved population.

On the supply side, the high cost of building and maintaining physical bank branches has been a major hurdle in extending financial services to remote communities.

While Zenith Bank has been undertaking strategic physical branch expansions across the country, its frontline role in digitalisation is positively enhancing financial inclusion in Ghana.

On the demand side, Zenith Bank recognises that the kinds of financial products and services offered by providers, as well as their design, availability and how they are marketed, are important determinants of uptake by both bankable and unbanked individuals.

The bank has therefore been prioritising product and service innovation to suit the needs of varied market segments, including those frequently underserved.

Recently, the bank stepped up its engagement with small and medium enterprises (SMEs), which are more likely than other firms to be unbanked, by training special staff whose main responsibility is to cater to SMEs’ specific banking needs.

Zenith Bank believes the momentum that digital finance has gained in Ghana will remain strong for years to come, driven by government and regulatory initiatives, innovation by service providers, increasing financial literacy, and an improving economy.

The bank stands ready to take advantage of both the opportunities and challenges this evolution will present by continually investing in its people and infrastructure, innovating new products and services, exploring strategic partnerships, and putting the customer at the heart of everything it does.

Zenith Bank was recently named the bank that best promotes cashless transactions in Ghana at the 16th Ghana Banking Awards for the third time in a row. This recognition underscores Zenith Bank’s leadership in digital finance in the Ghanaian banking industry.

CB Bank leads Myanmar’s drive for digitalisation

Posted on by Ashton Wenborn

After years of isolation, Myanmar opened up to the global economy in 2010, and its banking sector sprung to life. Consequently, foreign direct investments started to flow, particularly towards the telecommunications sector.

Myanmar’s mobile phone penetration, once at one of the lowest levels in the world, has grown to 90 percent in recent years, with smartphone ownership rising to 80 percent.

This trend has boosted digital evolution, transforming the financial service environment in Myanmar, both online and offline. In recent years, more ATMs have been installed, more credit cards have been issued and new, modern bank branches have been built.

Since its foundation in 1992, CB Bank has been at the forefront of the financial market’s digitalisation. In 2011, the bank introduced the country’s first ATM service.

In the following year, it once again acted as a pioneer, implementing the first core banking system in Myanmar, which has since allowed the bank to introduce new products in the market. What’s more, this has paved the way for further innovation.

Adapting the industry
In 2013, CB Bank launched the first mobile banking app and internet banking platform in the country. As Thein Zaw Tun, Managing Director of CB Bank, put it: “We have changed the customer’s perception of the banking industry in Myanmar. Despite the fact that CB Bank is one of the oldest private banks in the country, it is constantly changing to keep up to date with the challenges and opportunities that new technology brings. For example, our innovation in digital banking has allowed us to engage in partnerships with global tech firms, such as Grab and Uber.”

The adoption of modern tools like digital transactions is expected to take longer as customers are still cautious about the security of the digital environment

CB Bank provides its customers with mobile banking services, both for individuals and businesses. Through the mobile banking app, the former can access 60 different services, including basic banking functions and mobile phone top-ups. They can also make money transfers inside the country with just a valid national identification card and a mobile phone number.

Internet banking allows CB Bank’s corporate clients to access financial services remotely, meaning their needs are met without the need to travel to branch offices.

They largely relate to everyday operations, allowing companies to make payments to vendors and counterparts, administer payroll for employees, send trade documents and employ foreign exchange services, among other facilities.

“All of these functions are accessible online to save clients time by keeping them away from the usual traffic congestions in Yangon, Myanmar’s capital city,” said Thein Zaw Tun. “Our digital business banking platform helps our clients to focus on their business, instead of spending their time on manual banking transactions.”

CB Bank has also worked with large corporations to integrate their enterprise resource planning systems with the bank’s core banking system. This has enabled corporate clients to automate their financial transactions and payment process flows with the bank.

Despite all of the steps made towards digitalisation, Myanmar is still a cash-based society. “This is why we have implemented automatic banking machines such as ATMs, cash deposit and withdrawals machines, and cheque deposit machines, along with foreign exchange terminals, to buy and sell foreign currency notes,” added Thein Zaw Tun. CB Bank’s automatic cash services are available 24/7.

The outcome of this widely expanded technology infrastructure is that, today, 40 percent of the bank’s total transactions are digital. That said, the journey towards the country’s complete transformation is taking time for several good reasons, according to Thein Zaw Tun.

The first is the size of the territory: “Myanmar is the second-largest country in Southeast Asia; there are 330 towns and cities and more than 70,000 villages.”

The second reason is, as mentioned previously, the traditionally high use of cash. But there’s another cause: the banking sector in Myanmar has a difficult history, which has undermined the confidence in the system.

Rebuilding trust in the banking industry is not possible overnight. For that reason, the adoption of modern tools like digital transactions is expected to take longer as customers are still cautious about the security of the digital environment.

“In the transition, therefore, we need to find the balance between the digital presence, mainly in payments, and the physical presence, based on cash points for digital financial services,” said Thein Zaw Tun.

Given the size of the country, digital banking represents a huge opportunity for financial inclusion. With 55 million consumers, banks are limited in their reach to people and businesses across the territory.

Time and strong investments would be needed to expand in the traditional way. Digital tools, however, can be a catalyst for development. Anyone who has a mobile phone can now send and receive money.

Another banking channel aimed at accelerating the pace is the mobile agent banking network, a service introduced to CB Bank’s mobile platform in 2014 to bring financial services to rural areas not covered by bank branches.

“Our agent banking network covers rural areas and carries out basic banking transactions in places where there are no bank branches,” said Thein Zaw Tun.

Moreover, the bank recently partnered with Myanmar’s post offices to introduce mobile banking agents throughout the country, a move that is expected to further support the country’s efforts to boost financial inclusion.

In addition, the bank has opened accounts with Grab and Uber, providing mobile banking services and issuing ATM cards to thousands of taxi drivers in Yangon.

The concept of inclusion is also valid for small and medium enterprises (SMEs), with many of them now using mobile banking facilities. Furthermore, the bank is the largest acquirer and issuer of card payments through POS terminals in Myanmar – merchants being their main users, in addition to SMEs.

“The SMEs have a working relationship with our large corporate clients, with whom we have direct system integration, so that financial processes can be automated and executed on a real-time basis. In this way, we have built a digital banking ecosystem,” Thein Zaw Tun said.

All of these initiatives show how CB Bank is contributing to the development of the digital economy, a process that starts by listening to customers and delivering solutions to them, especially in relation to digital payments.

New targets
Before the country was integrated into the global economy, the bank was functioning as a retail bank without a team dedicated to supporting large corporations.

At the time, no one had ever heard of digital banking in Myanmar. But after 2010, a growing number of foreign corporations entered the country, while local companies crossed the border to expand their reach.

“This has shaped our services, particularly as we continue to learn from our partner banks in other countries in terms of how they serve their corporate clients. This is how we started a technology-based cash management service for our multinational clients,” explained Thein Zaw Tun. For the bank, which now offers cash management services to foreign bank branches in Myanmar, the journey has been as challenging as it has been rewarding.

Throughout this revolution, Millennials have been the catalyst for change. This generation, which grew up in a connected environment with mobile phones and social media serving as their main communication tools, largely refrains from visiting bank branches and prefers digital banking for transactions.

“Today’s youth, the so-called Generation Y, demands basic financial products like credit cards and loans to support their lifestyle. Banks are therefore being challenged to design products and services to meet their needs: simple to understand and user-friendly,” said Thein Zaw Tun.

He continued: “They want to live their lives online, and this is how our strategic focus on digital payments is helping us to reach this group. Partnerships with tech firms like Grab and Uber place us in the right direction to target young customers.”

That said, Millennials are but one group of potential clients in the market. Today, banks in Myanmar are growing from a very low base, as less than 10 percent of the population has access to formal banking services.

This sets particular game rules in the local market, where banks are no longer just competing with other banks; they are also competing with tech firms such as telecoms providers, as well as fintech start-ups.

Amid this increasingly digitalised environment, banks face further changes and challenges as they continue to add value for their customers. Meeting new requirements means moving to an agile and omnichannel model, in which services are in easy reach of any client, in the real or the cyber world. CB Bank is fast approaching this new world, conscious that customers need banking, not just banks.

Private banking disrupts Italy’s wealth management market

Posted on by Ashton Wenborn

The wealth management industry is currently undergoing the most major disruption since the financial crisis, due to the convergence of several major factors.

Technological development is bringing greater digitalisation and automation to financial services in the form of new fintech solutions, such as virtual advisers.

Meanwhile, private banks have begun to offer improved specialisation in wealth management, along with new ways of organising and selling their services. Finally, in the background, government regulations are focusing on customer protection, and demographics are also shifting.

Although ageing populations continue to spur the development of retirement planning and wealth transfer services, Millennials are now changing the landscape, not least because they raise the number of wealth-owners in the younger generation as a whole.

Among this cohort, entrepreneurship significantly overrides inheritance as the major source of wealth, while Millennials also underpin a new emphasis on social impact investing.

Moreover, Millennials tend to demand greater personalisation in customer service, which is partly thanks to the pervasiveness of innovative technologies. In fact, technological change is spurring demand for simple products, customised solutions and the delivery of services through new digital channels.

Unfortunately, amid all of this, loyalty rates are dropping as customers become increasingly self-directed, turning to service providers that can offer the most dynamic solutions. In such unstable times, wealth managers must overcome the difficulties of adapting while managing the pressures of day-to-day operations.

Plotting a course
In response to technological progress, digitalisation brings opportunities for differentiation. Customers are increasingly seeking fully digitalised, omnichannel services in order have an active role in the management of their money.

As such, it is important for the industry to invest in end-to-end digital processes by significantly improving their back-end technology. This, in turn, will provide customers with full-featured client platforms, such as remote advisory and transactional services that are aligned with the platforms used by relationship managers themselves.

More broadly, technology can help wealth managers adapt to the evolving regulatory climate. For example, wealth managers can be more confident that they are both compliant and competitive if they develop new operating models that progressively digitalise processes in line with emerging standards for transparency, customer support and business law.

BNP Paribas hopes to be a leading light in transforming the wealth management industry by 2020, by taking a strategic, innovative approach to all markets

Furthermore, technology can be useful in responding to demographic change, as investment in omnichannel and digital services is quickly becoming a must-have.

That said, wealth managers should also employ more conventional resources, such as brand cultivation and relationship management, to boost customer trust and fulfil the new demand for interactive, personalised and focused service solutions.

The Italian landscape
Italy’s wealth management market offers good examples of how the industry as a whole is starting to change. Like elsewhere, customers are increasingly seeking fully digitalised, omnichannel services.

As such, Italian wealth managers generally structure customer interactions around the ‘ATAWAD’ model (AnyTime, AnyWhere, AnyDevice). International players and cross-industry newcomers, such as fintech developers, drive this competitive landscape.

Change is also spurred by rising costs, unsteady profits and new customer behaviours that are often the result of greater selectivity and a willingness to only pay for things that represent real value.

Meanwhile, existing business models in Italy are coming under further scrutiny as EU regulations continue to evolve. A prominent example is the forthcoming update to the Markets in Financial Instruments Directive, known as MiFID II, which will legislate for greater investor protection and stronger supervisory powers.

In Italy, where wealth is generally distributed across the central and northern regions, the total wealth of households that have financial assets in excess of €500,000 ($587,860) is over €1trn ($1.18trn).

In recent years, this figure has been steadily increasing. Of such households, about 75 percent are run by private facilities that have developed a dedicated business model.

Meanwhile, the remaining 25 percent represent a potential market that still goes unmanaged by private banking. The latter portion, which is known as the aggressive market, comprises €250bn ($293.85bn) of unmanaged wealth, as well as potential customers from large commercial banks without sophisticated services.

Meanwhile, more than 650,000 households comprise medium to high-level entrepreneurs, with a high rate of wealth that is currently being invested in illiquid assets, such as unlisted companies and real estate.

The most important feature of the Italian market is the substantial number of business owners, who mainly control small and medium-sized enterprises (SMEs). Entrepreneurs express a variety of attitudes when choosing wealth managers.

On the one hand, they prefer institutions that have a local presence. On the other, they recognise that solidity, expertise and greater confidentiality can make major international players more desirable.

Most notably, many family-based enterprises consider family offices to be the best at managing the needs of a large client group with extensive financial, real estate and business assets.

In such cases, wealth management must be dedicated and highly personalised, yet this can be difficult for some private banks given the limitations of their existing operating models.

The BNP Paribas paradigm
In light of these various disruptions, BNP Paribas hopes to be a leading light in transforming the wealth management industry by 2020, by taking a strategic, innovative approach to all markets – paying particular attention to Italy.

The firm’s private banking arm has already launched a programme called ‘private banking service models and related customer journeys’, which uses ATAWAD logic to develop new service models for key clients, including private wealth management and relationship managers.

The goal of such models is to make value propositions more attractive by packaging them within a distinctive and consistent customer experience. To maximise the effectiveness of such a plan, the firm will need to make concrete, appealing promises and to present current and future initiatives to clients in an articulate manner.

Underpinning these goals will be digitalisation and personalisation, most notably through the provision of 24-hour services and continued investment in relationship management.

BNP Paribas’ private banking wing intends to increase market share by innovating its service model for private network clients. This will be achieved in three main ways: first, investment in remote digital interactions that will connect multiple instruments to achieve high added value.

Second, the firm will extend its financial and non-financial offerings. New forms of wealth planning, real estate advisory, succession planning and art advisory services will be introduced, all of which are tailored to meet the expectations of younger generations. Finally, BNP Paribas hopes to build innovative key enablers that can connect tools and sustain a multitude of customer journeys.

Examples of such enablers include Youmanist, a new customer journey service that is designed to boost onboarding based on an end-to-end process that spans from customer attraction to customer acquisition.

Youmanist works via mobile apps and conventional websites, and contains lifestyle and work-balance solutions, simulation tools for wealth planning, premium services, and access to peer-to-peer communities.

Similarly, another enabler called Privilege Connect is being established as the private banking wing’s tailor-made service centre, offering extended, 24/7 support via a dedicated phoneline, digital and direct access points, and customer service agents. This will supplement daily banking, which is bookable through the service centre’s ‘pick up–home delivery’ scheme.

King customer
Beyond developing its private network clients, the firm also hopes to cultivate service models in its wealth management segment more generally by creating a dedicated family office and by fully exploiting synergies with the entrepreneur segment.

As with all new services, it is important to emphasise that different models add value in different ways. For example, some customers want strong, personalised interactions with relationship managers that are sustained by innovative methods of advising, such as 24-hour access to services.

The firm’s digital enhance model would cater to such needs adequately, yet it would be ill-suited to the demands of customers that prefer a more dynamic, remote relationship. For the latter, BNP Paribas’ I-Private model, which relies more on digital processes, would come into its own.

To remain relevant in the turbulent world of wealth management, it is crucial to have a centralised, enriched, segmented understanding of customer needs. As such, BNL-BNP Paribas private banking has identified six different customer categories by analysing its clients against various customer personas and archetypes.

From there, it was possible to define customer engagement processes and to offer customised services that follow customer journeys with the support of several high-innovation tools.

In satisfying the customer demands that have emerged in recent years, it is necessary to focus on providing both a highly personalised customer service and on catering for digitalised, international interactions. Ultimately, such developments should expand the firm’s pool of managed assets while nurturing strong, positive relationships within a growing customer base.

Empresta Capital knows that green banking is both profitable and responsible

Posted on by Ashton Wenborn

With most of the developing world suffering from a high degree of social uncertainty and environmental damage, it has never been more important to have real investment opportunities that provide a combination of a good financial return and a positive environmental and social impact. But is it possible to balance such different goals in a single project or investment without being rhetorical, or even theoretical?

It is sometimes suggested that microfinance is a solution to this problem. By focusing on specific niches and providing a different product design and customer approach, it is possible for microfinance players not only to see positive financial returns by appealing to the underserved masses, but also to have a very positive social and environmental impact.

This mutual benefit is being realised worldwide, as can be seen in the growth of microfinance investment vehicles in recent years (see Fig 1).

Brazilian model
Despite having a well-organised and strong financial system, the major players in the Brazilian market have never truly focused on microfinance as a profitable niche. This is, in part, explained by the amounts of money poured into the market by the last three governments, which almost nationalised credit for the masses without any real concerns about risk control or collection procedures.

Furthermore, the amount of customisation available for certain financial offerings, the need to speak a different customer language, and the intrinsic costs involved in reaching certain niches can perhaps explain why there has never been a lot of traction from the major banking players.

Fortunately, given the almost continental size of Brazil – with more than 207 million inhabitants – there are plenty of opportunities for those who really want to focus on the microfinance world.

What’s more, the timing has never been better, given the complete withdrawal of the government from the local microfinance market after a turbulent political and economic period that culminated in an impeached president, a poorly supported new government, and a fragile market. In fact, there is so much opportunity for investment in this area that it’s important to balance one’s efforts and focus in order not to lose control and incur unnecessary risk.

Since 2004, Empresta Capital has been one of the pioneers of microfinance in Brazil. It is a financial institution authorised and regulated by the Brazilian Central Bank to provide microfinance throughout the country.

In 2012, it was named the most innovative microfinance provider in the country by Citibank and, in 2013, it was given the Brazilian Microfinance Association’s highest award.

In 2009, Empresta became the first financial institution to build a specific open microfinance investment vehicle in Brazil. This, in turn, helped the company to stand out from its competitors as well as dissociate itself from the image of a purely social and philanthropic player.

Since then, the fund has consistently paid a higher yield to investors without a single month on a negative or close-to-risk-free rate. In 2014, after a long period of experimentation, Empresta also became the first financial institution in Brazil to offer a fully online, paperless variant of a traditional credit offering, making use of a fintech app.

Microfinance brings complicated regulations, governance and financial solutions to a straight-talking, ‘no frills’ customer base. This creates the need for a sensible and controlled process, intended to maximise customer understanding and balance this with adequate risk control.

By focusing on specific niches, it is easier not only to adapt one’s offerings, language and business DNA to a customer base, but also to understand the risks involved in providing financial solutions, such as credit, to that customer base.

Given the fact that most microfinance initiatives are aimed at an underserved customer base, a positive social response can be expected. Most microfinance customers are located in underprivileged areas, and credit facilities and financial products offer an important boost to local productivity.

As an example, many people in Brazil are employed in residential and commercial condominiums in low-wage jobs. In order to supplement their income, many of these workers have a second job outside their normal working hours.

In cities along the coast, for example, they might sell beverages and refreshments to tourists during weekends and public holidays. The products they sell are themselves bought from small providers in the local community. By extending credit to those providers, it is possible to generate direct and indirect jobs in the community.

Given the considerable cost reduction that a well-implemented energy efficient project can provide, Empresta enjoys a very low default rate from this customer base

Within its niche strategy, Empresta Capital focuses on a very specific customer base: micro and small entrepreneurs serving a long supply chain of local, residential and condominium buildings in different areas of the country.

Given the economic challenges faced by the country, especially since 2014, local condominium operators have tried to scale down costs in order to reduce fees for tenants. New and upcoming environmental technology and energy-efficient projects have played a key role in this respect.

In general, micro and small entrepreneurs are the common service and product providers of those projects, given the small scale of the average condominium.

Empresta Capital has been actively financing these micro and small entrepreneurs to help them develop solutions such as sun panels, green spaces on rooftops, LED lighting, and water efficiency solutions (e.g. rainwater stocking and recycling).

This is what we call ‘green microfinance’. By extending credit to micro and small providers, it is possible to generate a very positive environmental impact on a local cluster, such as a condominium building.

What’s more, given the considerable cost reduction that a well-implemented energy efficient project can provide, Empresta enjoys a very low default rate from this customer base.

Tech revolution
Technology has played a key role in enabling Empresta to reach new frontiers. For traditional banks, there are many costs involved in servicing a small loan, most of which are due to the higher concentration ratio that they tend to operate.

Empresta, on the other hand, has an average loan size of around $1,200, which allows for a much higher number of loans without the associated risk that traditional banks take on.

Internal processes and formalisation also play a key role in enabling access to a larger customer base before incurring unnecessary risk. By implementing new technology, especially mobile apps, not only can Empresta empower customers with a simpler proposition, it can also improve its operational and risk efficiency. All Empresta’s operations are paperless, easily tracked, and contained in a simple and easy-to-use customer interface.

As discussed previously, a well-constructed and implemented microfinance project can be a valuable tool to reduce negative social and environmental impacts, and increase investor profitability; in short – it pays to be green. However, without going too deeply into macroeconomic factors, microfinance operators do face a number of challenges.

One of the main difficulties is how to measure a project’s impact on a community or on the environment. One of the main efforts being made to tackle this issue is the Social Performance Task Force – a joint effort from social investors and microfinance operators to standardise the way impact is measured in specific projects.

It forces operators to monitor and provide feedback on social and environmental factors, both at the strategic stage and in terms of the actual process, as well as providing information on corporate governance and internal policies.

It also encourages microfinance institutions to build specific micro-metrics teams or departments, directly linked to board members and corporate governance policies, so that the data can be put to use in driving the company’s ongoing strategy.

Another issue is local regulations, which are normally politically charged, with big players wielding significant lobbying power, and economic instability exacerbating caution.

When it comes to a broader microfinance project, a long-term approach needs to be considered and constant feedback is necessary to adjust policies in order to provide a business environment that fosters social and environmental impact in a sustainable and profitable way.

Of course, these hurdles are significant, but the benefits of microfinance are important enough that they must be surmounted. The innovative use of technology to plan, monitor and improve the success of projects can allow a dedicated provider to overcome almost any challenge.

Banco Popular Dominicano is boosting financial inclusion with technology

Posted on by Ashton Wenborn

The Dominican Republic’s journey towards becoming the Caribbean’s largest economy has not been an easy one. The early-20th century saw the US agree to reduce the country’s crippling foreign debt, before imposing a military occupation that would last until 1924.

The country then underwent significant economic development during the presidential reign of Rafael Trujillo – however, the regime will be remembered more for its use of coercion, torture and murder than for its fiscal policies.

These hardships, however, only serve to emphasise the swiftness of the Dominican Republic’s economic ascent. It has enjoyed one of the fastest growth rates in the region over the past quarter of a century, and poverty levels continue to fall. GDP now stands at $71.58bn, a rise of more than 30 percent since 2010, and the country is beginning to lessen its reliance on agricultural exports.

One of the ways that the country is broadening its economic base is through the development of its financial services industry. Like the economy itself, banking has developed rapidly in the Dominican Republic, growing from just seven formally regulated financial institutions in 1960 to several hundred today.

One of the country’s most successful organisations, with 199 branches nationwide, is Banco Popular Dominicano. World Finance spoke with René Grullón, Executive VP of Corporate and Investment Banking at Banco Popular Dominicano, to find out how technology is affecting the banking industry in the Dominican Republic, while also making it more accessible.

Building on the present
The banking sector in the Dominican Republic is only in a position to embrace innovation because years of growth have seen it reach a position of relative stability. The financial system currently has a solvency index of 17.8 percent, well above the 10 percent required by regulators, and default rates are low.

The recent implementation of fiscal regulations has strengthened the sector to such an extent that the World Economic Forum and the IMF have praised the competitiveness and stability of the country’s banking system respectively.

The country’s wider economy is also in robust health. With an average growth rate of 7.1 percent between 2014 and 2016, the Dominican Republic was Latin America’s most dynamic economy.

Low oil prices and the improved performance of sectors that generate foreign currency, like tourism, exports and remittances, have strengthened the economy further and improved its ability to withstand external shocks.

According to Grullón: “The burgeoning financial sector has played a key role in economic growth through its broadening credit portfolios and business development solutions.”

With the Dominican finance sector and the broader economy looking strong at present, the country is exploring innovative ways to turn present-day promise into long-term stability.

Banking on a technological revolution
As a result of the country’s historic reliance on agriculture for much of its economic development, the Dominican Republic has not traditionally been viewed as a hotbed of technological innovation.

The banking sector, in combination with the government’s República Digital programme, is spearheading efforts to change this image by introducing innovation on a local and national scale.

Banco Popular Dominicano, for example, is playing its part in the tech revolution through the relaunch of its mobile banking app, which is available for Android and iOS.

The app promises to give customers freedom to bank whenever and wherever is most convenient for them. Users can carry out transactions, conduct automated clearing house bank transfers, and use augmented reality to discover nearby ATMs and special offers.

Part of the application’s success – it was used to carry out 2.7 million transactions last year totalling DOP 31.08bn ($657m) – can be attributed to the consumers’ trust in the software.

The use of the bank’s Touch ID fingerprint recognition, for example, has helped to allay the security fears that can often undermine the adoption of financial technology.

“Banco Popular closed last year with more than 800,000 digital clients and made a total of 129.35 million transactions through digital and electronic channels,” explained Grullón. “This represented 70.6 percent of total registered operations, so consumer trust is clearly present.”

Boosting financial inclusion
The relatively low levels of banking penetration in the Dominican Republic suggest that, even with recent technological advances, financial inclusion could be improved. Rather than viewing this as a challenge, however, Grullón sees this gap in the market as an opportunity.

Banco Popular Dominicano has used its Subagente Popular network – essentially a collection of commercial businesses where customers can carry out financial transactions – to give the people of the Dominican Republic greater access to financial services.

“Banco Popular Dominicano continues to expand its Subagente Popular network, which in 2016 reached 1,698 authorised stores, located in the 32 provinces of the national territory and in 116 of the 155 municipalities,” he said. “Customers made 170,542 transactions through the Subagente Popular network in 2016 alone, showing that financial inclusion is developing in the country.”

Like the economy itself, banking has developed rapidly in the Dominican Republic, growing from just seven formally regulated financial institutions in 1960 to several hundred today

Banco Popular recognises, however, that financial inclusion involves much more than simply having the ability to deposit and withdraw money. It is also about meeting broader consumer demands, many of which are changing at a rapid pace.

Younger customers in particular now expect technology to play a key role in all aspects of their daily lives. Although the country’s government, led by the recently re-elected Danilo Medina, is trying to boost technological usage nationwide, it is also up to Dominican financial institutions to ensure that digital innovation and financial inclusion go hand-in-hand.

While smartphone penetration hovers around 53.7 percent in the Dominican Republic and approximately half of the populace does not have regular internet access, these figures are far from uniform across the country.

Both the government and the banking sector, therefore, have a role to play when it comes to using technology as a means to improving financial access. At Banco Popular Dominicano, this is already underway thanks to the bank’s electronic wallets.

These prepaid bank accounts are accessed via mobile phones, making a number of services available to underbanked Dominicans who can’t access a physical branch.

If government initiatives can continue to boost smartphone and internet access in the country, we will see digital banking become an even greater enabler of financial inclusion.

Supporting innovation
For financial institutions in the Dominican Republic to truly empower the public, they will need to support innovation through methods that extend beyond improving access to finances.

Supporting small businesses is an equally vital strand of the national economy, particularly when you consider that the country’s MSME sector accounts for 97 percent of all Dominican companies.

For Banco Popular Dominicano, support for MSMEs is an essential characteristic of the modern financial institution, as its benefits extend far beyond the particular businesses involved.

“Popular’s SME portfolio reached 56,826 companies by the end of 2016, 68 percent of which produced annual sales of more than DOP6m [$127,000],” continued Grullón. “While the progress made by these businesses is welcomed by the bank, the wider economic growth felt by the country, particularly in terms of job creation, is another reason why supporting business development is so important.”

However, SME support in the Dominican Republic and other developing countries cannot focus entirely on improving access to capital. Grullón highlights that much of the economic assistance supplied by Popular is in terms of training programmes and educational seminars. This approach not only provides entrepreneurs with valuable information, but it also matches well with Banco Popular’s ethos of responsible banking.

“Banco Popular Dominicano feels honoured to have been awarded so many prestigious accolades both locally and globally as the leading bank in the Dominican,” explained Grullón. “One of our proudest achievements is being awarded Best Banking Group in the Dominican Republic by World Finance (2014-16) for our responsible and sustainable banking practices. In order to achieve this, we’ve had to carefully consider our approach to business support, deciding when educational assistance is more beneficial than simply giving SMEs a loan.”

A sustainable future
With the banking sector in the Dominican Republic making great strides in a relatively short space of time, it is important that government bodies and private businesses do not chase growth at the expense of sustainability.

As the economy continues to develop, the aim should be to encourage greater financial inclusion through the use of innovative new technologies and to foster the development of successful homegrown businesses. Both of these tasks can only be achieved sustainably if investment programmes are aligned with financial education projects.

Grullón believes that Banco Popular Dominicano has a key role to play in the country’s economic future. “Our institution is focused on strengthening the sustainability of all business segments. To this end, we will endorse financial education programmes at different levels, as well as allocate strong technological investments in our platforms in order to develop new channels of financial inclusion.”

He concluded: “In 2016 we have been able to deploy several initiatives that complement our goal of being the most innovative institution in the Dominican Republic. Throughout 2017 and beyond we aim to build upon these developments by encouraging the adoption of entirely new digital tools that benefit our company, the wider economy and the Dominican people.”

Discovering the makings of a successful cryptocurrency

Posted on by Ashton Wenborn

If you were to ask 10 different people what makes a cryptocurrency successful, you would get 10 different answers. And yet, today’s wave of crypto-mania makes this a relevant question. Since the start of 2017, cryptocurrency valuations have stuttered their way to giddy new highs. In August, for the first time ever, the total value of cryptocurrencies exceeded $150bn – up from $25bn just five months earlier.

By the beginning of September 2017, the market capitalisation of bitcoin had surged by 500 percent since the beginning of the year. And yet, bitcoin itself is not the main focus of the crypto-boom – this is instead centred on the less-well-known world of ‘altcoins’. In fact, at the time of writing, the two biggest cryptocurrencies following bitcoin – Ripple and Ether – have both seen their market capitalisation rocket by over 2,000 percent since the start of 2017.

As a result, bitcoin is no longer the all-dominating presence it once was. For years it has taken up around 80 percent of the sector, but its market capitalisation has now dipped below that of the combined total of other cryptocoins. This brings its market presence to below 50 percent for the first time ever.

New bids on the block
There are now close to 1,000 cryptocurrencies in existence, and success stories are easy to come by. At the more outrageous end of the spectrum is Dogecoin, a cryptocurrency built around an internet meme. Initially introduced as a joke, the currency’s logo features ‘doge’, the wide-eyed Shiba Inu dog-turned-meme, who is accompanied by meme-inspired font, Comic Sans.

Despite the fact it was more or less invented as a parody cryptocurrency, the coin quickly gained a network of admirers willing to buy in. The concept was popular, and in the world of cryptocurrencies, popularity equals value. Dogecoin recently jumped to a market capitalisation of $189m.

The story of Dogecoin is an excellent reflection of the absurdity of the cryptocurrency market, but this is also just one side of it. The reality is that while it appears as if bubbles are emerging in every corner of the market, cryptocurrencies also have a growing number of more practical uses.

Many crypto success stories consist of those currencies that were created in bitcoin’s image, but with various tweaks to make them function a little better. The result is a scattering of competing currencies with attributes that can be handpicked depending on one’s personal priorities, be it security, privacy, anonymity or speed. For instance, Litecoin was set up in 2011 and is almost technologically identical to bitcoin. However, it boasts certain enhancements, like a more efficient mining protocol and a greater processing speed for transactions.

It reached a market capitalisation of $4bn for the first time in September, and is now the fifth most successful cryptocurrency (by market capitalisation) after bitcoin, Bitcoin Cash, Ripple and Ether. Another example is Monero, which offers a similar function to bitcoin, but with enhanced privacy and improvements in scalability. Working on a similar theme, Anoncoin boasts strict anonymity, while Stablecoin claims to have military-grade encryption.

Many such currencies were able to gain traction by tackling bitcoin’s faults. And yet, the recent excitement behind two of the most successful cryptocurrencies is focused on possible applications beyond those of bitcoin and its lookalikes: According to Hanna Halaburda, author of Beyond Bitcoin: The Economics of Digital Currencies: “While bitcoin is a self-contained cryptocurrency, Ether and [Ripple] are cryptocurrencies supporting broader systems, each with a different functionality.”

Ripple makes waves
Perhaps more than any other, Ripple’s tailor-made currency XRP is the cryptocurrency of the moment. It caught headlines earlier this year after its value increased by 4,000 percent in the first half of 2017.

Ripple itself is a start-up that provides the framework for a cross-border payments system. Its primary motivation is to tackle the very practical problem of the world’s slow and costly payments architecture. Its protocol supports various currencies, including bitcoin, dollars and even units of value like frequent flyer miles.

XRP’s characteristics are determined by its role within the wider framework. According to Daniel Aranda, Managing Director of Ripple’s European division: “That includes a few requirements. One is scalability – the XRP blockchain is already able to handle over 1,000 transactions per second. It also includes speed – you can actually settle on the blockchain within just two to five seconds.”

Ripple’s goal is to build a next-generation cross-border payment system that will allow for any unit of value – whether it’s a dollar, a bitcoin, or even a tenth of a penny – to be moved easily around the world in a matter of seconds.

Part of the momentum behind Ripple is its emphasis on carving out a position in the established financial system. While bitcoin operates largely outside the system, Ripple has now partnered with more than 100 banks, and is developing software that is specifically tailored towards bringing solutions to players in the sector.

Aranda explained: “Our whole goal as a company is to take blockchain and cryptocurrency out of a more experimental and speculative mindset, and have it be driven by the real economic activity, which abides by real use cases.”

While Ripple’s attention is now concentrated on cross-border payment infrastructure, its wider goal is much more ambitious. “We think that these cryptocurrencies and new protocols will be able to create an internet of value,” said Aranda. One protocol currently under development is the interledger, which can connect blockchain ledger technology with traditional centralised ledgers.

This kind of infrastructure, according to Aranda, could enable a whole series of use cases that we can’t even imagine yet, and could provide the basis of a whole new generation of online businesses.

In essence, for Ripple, the XRP currency is simply a tool through which to achieve some very practical goals.

Getting smart
Ethereum has been the subject of a great deal of hype over recent months. Similarly to Ripple, Ethereum is a broader system that provides a new functionality over and above that of bitcoin. The cryptocurrency itself is known as Ether, and it holds many similar characteristics to bitcoin, such as inbuilt incentives for miners to verify transactions.

Ether’s momentum, however, lies in the fact that its broader framework enables smart contracts to be coded directly onto the blockchain. This smart contract functionality has been the subject of intense speculation amid promises of game-changing utility.

Crucially, the technology means that developers can code self-fulfilling contracts using Ether, cutting out the need for a middle man. A transaction can be pre-programmed so that it will only take place when a particular condition is fulfilled, such as if two parties have endorsed it.

For instance, a will or futures contract could move funds automatically based on instructions that had been written in the past.

Ultimately, these kinds of contracts could play a very practical role in the global economy. There are myriad possible applications based around transactions in trade and industry. However, they also have scope to expand beyond traditional contracts and enter the everyday.

One example is that a contract coded into the blockchain through Ethereum could be used to automatically unlock doors when someone transfers a payment to rent an office or flat.

Once again, however, the great promise for Ethereum is that smart contracts have the potential to be applied to purposes that are yet to be invented.

New money’s new appeal
The surge in attention garnered by bitcoin’s alternatives gives rise to the inevitable question of what is driving its value. Bitcoin emerged with the traction of a revolutionary technology that people valued for a range of reasons.

For some people, it was a libertarian triumph providing the hope of a system free of money-printing central banks. To others, it provided a convenient tool with which to evade government detection and engage in the dark economy. To many, anonymity was the essence of its appeal.

The key criticism that can be levied at all cryptocurrencies is that they have no intrinsic value. Unlike gold, which can be used for its physical properties, or dollars, which are given legitimacy by the US Government, they have no value outside of people’s belief in their worth.

And yet, they do exhibit something similar to intrinsic value. “Their usefulness is akin to intrinsic value (akin, because this usefulness does not exist without a network),” said Halaburda.

In this sense, recent developments and the apparent expansion of potential use cases for cryptocurrencies would suggest a positive momentum, especially given that some new altcoins are being directed towards purposes that are (somewhat) more practical and relevant to real life.

“However,” Halaburda continued, “the actual value of a currency comes mostly from expectations that it will be valued by others. These expectations may be unrelated to the intrinsic usefulness.” Indeed, while interesting new possibilities are arising with regard to cryptocurrencies, a speculative frenzy has stolen the show.

Kaiser Partner’s timeless approach to banking sees it through times of turbulence

Posted on by Ashton Wenborn

Together, innovative technology and growing client expectations continue to disrupt the financial industry. Such disruptions require a reaction from industry players – a complete rethinking of how they communicate with clients and the services they provide to them.

Some institutions are reluctant to implement such sweeping changes to their operations, but by considering the bigger picture it is possible to thrive in times of disruption. As a result, change is no longer a threat, but a door to a new world of possibilities.

This is the message that can be gleaned from the strong results achieved at Kaiser Partner Privatbank over the past year. The bank’s sustainable long-term approach – known as Responsible Investing – is carefully designed to protect and nurture its clients’ wealth, even during periods of turbulence.

Notably, despite uncertain conditions over the past 12 months, the bank has not made any fundamental changes to its wealth management strategy. Instead, change is seen as the norm: while certain elements of strategy are adjusted, the basic approach remains the same. Results over the past year have acted to confirm the effectiveness of this strategy, now and for future generations.

World Finance spoke with Marcel Spalinger, Senior Advisor at Kaiser Partner, about the firm’s approach to Responsible Investing, and how technology has been incorporated into it.

How do you ensure a personalised service for all your high-net-worth clients?
Wealth is manifold – and so are our clients’ personalities. As advisors, we have to build an understanding of each client from the start. We have to know about their family situation, their professional background, the source of their wealth and, in a more general way, the questions that matter most to them – regardless of whether these aspects have an obvious link to their finances or not.

We try to form a truly holistic view, so we absolutely rely on the client’s openness. We appreciate that it takes a huge amount of trust for them to disclose such information, and we certainly don’t take their trust for granted. Rather, we believe we are obliged to use this information to develop individual solutions that really set us apart from other providers.

Such solutions are the best foundation for a thriving partnership between client and bank. The personalised service and ongoing communication we aim for makes it easier for us to respond to a client’s personal situation, as well as to changes in external circumstances.

Technology is rapidly transforming banking practices worldwide. How is Kaiser Partner responding to this digital revolution?
Sometimes, I think our industry is too obsessed with the threats arising from digital technologies. There’s no doubt that aspects of security and regulation have to be addressed, but we have to remember that everybody, old and young, is now using these digital technologies more and more naturally; this trend is not going to be reversed.

The bank’s sustainable long-term approach is carefully designed to protect and nurture its clients’ wealth, even during periods of turbulence

If we treat these technologies as an opportunity to strengthen relations with our clients, we can find solutions that are beneficial for both the clients and our company.

Personal contact is appreciated by most of our customers, and we certainly don’t want to change this. But new means of communication and smart new solutions will always come along. These won’t replace our personal contact with clients, but will simply enrich the service we provide.

We’re also strengthening our technological backbone. Migrating to a new banking system was a fundamental step forward. The system gives us the foundation for providing new digital services for our clients, the most obvious being online banking. We are currently working on additional products and services that will enhance the digital experience for our clients.

How does innovative new technology improve flexibility for your clients?
Our clients will benefit from digital technology in different ways. We already provide them with an electronic archive of bank statements for a particular period. This speeds up their access to the relevant data and removes the need for physical filing.

Clients can access information about their personal wealth in other ways as well, and they can contact us more easily. All of this provides greater flexibility.

That said, flexibility is just one way in which our clients will benefit from technological advancements. New technology should also be used to help our clients gain a deeper understanding of their wealth.

Our goal is to present data in ways that help them better understand what their wealth consists of and how it is developing. Everybody feels much more confident about making important decisions with the assurance that they have all the relevant information. We want to use technology to make every client better informed.

Can you tell me more about your ‘Wealth Table’ and how it simplifies private banking for your clients?
We believe that navigating our clients’ wealth through today’s complex world doesn’t need just one specialist, but a few. And to ensure all of these experts are working in the client’s best interests, they need to come together at what we at Kaiser Partner call the ‘Wealth Table’.

To give you an example, I work for Privatbank, but depending on my client’s specific needs I might bring in experts from other parts of our wealth management group. We might also invite our client’s existing advisors to the Wealth Table, as well as advisors selected from our network of external experts.

No matter how complex it gets, Kaiser Partner will coordinate these experts in consultation with the client so they have just one point of contact for all their questions.

How do you help clients diversify their investments across different asset classes, and why is it important to do so?
There’s often a certain passion involved in investing in non-financial assets, whether you’re a long-time collector or just want an investment that provides some fun along the way.

Thanks to the economic environment of recent years, passion and performance go hand in hand with lots of these investments – for example, if you have bought a classic car, you will hopefully have had some fun with it, but also seen its value increase.

At Kaiser Partner, we’re in a very privileged position. Owner and Executive Chairman of the group, Fritz Kaiser, is a long-time collector of modern art, and more recently he has built up a serious collection of classic sports cars from the 1950s and 1960s.

He has realised that lots of collectors have a strong emotional attachment to their collectables, leading them to shy away from managing them in the same way as other assets.

Based on this experience, Kaiser Partner has built up a set of tools and services to help collectors protect and manage their collections. Fritz Kaiser has also founded The Classic Car Trust, a sister company of Kaiser Partner.

This firm describes its services as “aspirin and champagne for the classic car collector”; they take away the headaches, leaving classic car owners to enjoy their treasures.

How are customer demands changing? How are private banks evolving to meet these needs?
We’ve already talked about the digital revolution and the fact that our clients are adapting to these new technologies. As advisors and service providers, we have to continuously adjust, evolve and innovate.

Kaiser Partner has built up long-term relations with lots of its clients, and we have to take into account that these clients’ needs change over time: marriages are celebrated, families are started, professional careers move into a new phase. And then, of course, there’s always the next generation to consider.

Our clients expect us to accompany them and their families, and provide suitable solutions for current and future requirements. We have to ensure that our clients’ financial plans, whether private or professional, can be realised without taking unreasonable risks.

These plans and dreams can be very personal and include fundamental decisions about how people live their lives. This puts a great deal of responsibility on us, so we regard our clients’ trust as both a profound obligation and an incentive.

What sets Kaiser Partner apart from its competitors in the private banking market?
The mutual relationship of trust with our clients and their families makes Kaiser Partner really special. Many of our clients regard our advisors not just as bank employees, but as partners. And we have to live up to this trust every day.

What is your outlook for the private banking market in 2017 and beyond?
The private banking market will face further regulatory changes. Political events will remain a topic of discussion. But change also provides us with new opportunities.

More and more factors are having an impact on the way we structure our clients’ wealth, and in an increasingly complex environment, it is even more important for our clients to have the right experts at the table. In other words, our Wealth Table philosophy is more vital than ever.

Trump presidency prompts unexpected economic upturn in US

Posted on by Ashton Wenborn

In November 2016, economic forecasts were gloomy. Donald Trump had been elected, a market sell-off was predicted, Wall Street was set up for a major crash, and stocks were expected to sink.

However, nearly a year following Trump’s inauguration, no such turmoil has hit. On the contrary, markets were bullish from the moment the Trump administration took office, reaching a peak in August this year.

The upward trajectory was clearly illustrated by the Dow Jones Industrial Average, which reflects movements in the stock prices of the 30 largest American companies listed on the New York Stock Exchange and the Nasdaq Stock Market. Despite political turmoil and high volatility, the index hit a 130-year high.

President Trump anticipated the milestone on Twitter on August 1: “Stock market could hit all-time high 22,000 (again) today. Was 18,000 only six months ago on election day.”

While the president missed his estimate by hours, the following day, the index climbed above the benchmark. It closed at the highest point of what analysts called the ‘Trump bump’, in an attempt to name the unexpected trend.

Records for Dow Jones
The Dow Jones is one of the most followed indexes in the world, along with Wall Street’s broader S&P 500. The Dow is an average of stock prices, and therefore any increase means that firms’ valuations are rising.

But it has limitations: the fact that its components are weighed according to their stock prices makes it sensitive to leading companies’ performances. For example, Boeing, Goldman Sachs, 3M, Apple and McDonald’s are among the firms at top of the list. That said, such shortcomings don’t undermine the index’s importance in monitoring market trends.

Setting new records is not unusual for the Dow Jones: according to Bloomberg data, after the financial crisis in 2008 – when the market indicator collapsed to its lowest level in 13 years – a period of steady growth began.

The index started reaching new highs once the US economy was on track for definitive recovery. In March 2013, the index hit its first milestone after five years of slow growth. From then on, landmarks have come one after the other.

During Barack Obama’s two terms as president, the Dow Jones increased by approximately 150 percent, and continued to climb afterwards. So far, accumulated growth under the Trump administration is around 20 percent.

Politics and policy
While businesses and investors have been more careful in their investments, the US economy has been encouraging, posting three percent growth in the second quarter. Now, the market expects December to bring a forth rate rise. This is in line with an encouraging international environment: global GDP is forecast to rise by 3.5 percent in 2017, according to IMF estimates.

However, markets are looking at the whole picture. A recent JP Morgan report warned: “We have in the past frequently differentiated politics from policy, looking through the first on the ‘it’s just politics’ argument, but paying much attention to the second. However, at some point, politics can interfere with good policy, as the latter requires agreement and leadership.”

In March 2013, the Dow Jones hit its first milestone after five years of slow growth. From then on, landmarks have come one after the other

The report also highlighted an “upside risk on forecasts from improved optimism among companies and households”.

So far, analysts relate the bullish market to big companies’ profits and expectations for a tax reform that would cut corporate burdens from 35 percent to 15 percent. Many firms have also been enthusiastic about investments in infrastructure and increases in military spending.

Boeing’s performance explains most of the Dow Jones’ growth, according to market data. As the ‘heaviest’ in the index, its recent winning streak had a direct impact on the Dow: in July, Boeing’s shares reached an all-time high at $230.58, after the firm posted a robust outcome in the second quarter.

The company also shed around 6,500 jobs this year in order to lower costs. As a result, the giant that also operates in the defence sector turned past losses into a $1.76bn profit.

Another company behind the Dow Jones’ surge is Apple, which became part of the index only two years ago. Since then, Apple has been one of its biggest drivers and, in 2017, became the second contributor to take the index over the 22,000 mark.

This was no coincidence: prior to the Dow’s recent surge, Apple had reported better-than-expected revenues based on strong iPhone sales ahead of its 10th anniversary.

Furthermore, banks’ stocks have driven the Dow Jones for a while; Goldman Sachs was an example of the initial enthusiasm. However, the rally following the US election has been cooling in recent months.

Although the government gave signals towards certain changes, financial institutions are still waiting for the next rates hike and deregulation – a process that appears to be a long way off.

With Trump’s agenda full of controversial ambitions, such as cutting social programmes, the budget and debt ceiling, “the second half of 2017 could be bumpy”, according to a BlackRock report. Meanwhile, companies remain alert to politics and policies.

Macau’s financial sector seeks to out-perform the gaming industry

Posted on by Ashton Wenborn

Since China resumed sovereignty over Macau, the government of the special administrative region (SAR) has fully implemented the basic policy of ‘one country, two systems’, and has administrated as mandated by Chinese law.

Macau’s economy has expanded rapidly, with per capita GDP among the highest in the world at $73,186 in 2016. Having abundant social wealth, Macau maintains political stability and economic prosperity, making it one of the region’s most promising growth prospects.

Macau is, perhaps, most famous for its lavish gaming industry, which brought in $45bn in 2014 – seven times the revenue of gaming heavyweight Las Vegas. Since 2014, however, thanks to global economic fluctuations and a mainland economic slowdown, Macau’s gaming industry has decelerated remarkably and regressed, leading to the biggest economic adjustment in Macau in many years (see Fig 1).

It is becoming more and more crucial for Macau to carry out some form of economic transformation and diversification, and the financial industry will play a vital role in this process.

Financial sector
Macau’s economy is open and free. The SAR has adopted many measures and policies to facilitate businesses, including a market economy, a free-trade port, no foreign exchange controls, efficient and expeditious customs clearance rules, and low taxation levels.

This free flow of people, capital and goods has turned Macau into one of the most liberal trading regimes in the world. What’s more, since Macau’s return to China, the SAR has successfully ensured political stability under the principle of ‘one country, two systems’. Such loose financial conditions and firm political stability are perfect for the development of the financial industry.

Macau’s financial sector, especially the banking sector, has a high degree of internationalisation and rich practical experience. Its customer service, financing and funding extend worldwide.

It covers all features of modern financial services, such as diversified products, manifold businesses and electronic operations, all of which provide a solid foundation on which to develop the financial industry.

In terms of geographical conditions and economic environment, Macau is similar to many regional financial centres, such as Luxembourg, Monaco, Cyprus, the British Virgin Islands and the Cayman Islands.

Luxembourg has a population of 500,000, which is similar to Macau’s, and Monaco is Europe’s tourism and gaming centre – just as Macau fills this role in Asia.

As early as the year 2000, the IMF defined Luxembourg, Monaco, Hong Kong, the Cayman Islands and Macau as global offshore financial centres, putting the SAR in esteemed company.

Developmental necessity
As a typical micro-economy, Macau has a relatively small scale and a fragile economic structure. The monopoly status of the gaming industry, while once economically important, now stands in the way of sustainable development by reducing the SAR’s ability to resist the economic setbacks and limiting its growth.

In 2015, the output decline of both tourism and gambling directly led to Macau’s GDP decreasing by 20.3 percent. In this light, the further development of the financial sector offers a welcome solution to Macau’s problem of a single industrial structure.

Macau is also short of natural resources, with limited land and water. In particular, the scarcity of land means that Macau is only really suitable for the development of capital-intensive industry.

Compared with other non-gambling industries, the financial industry, which is capital-intensive, has little demand for natural resources, and is thus an ideal sector to lead the diversification of Macau’s economy.

In the past five years, the financial industry’s contribution to Macau’s GDP has increased annually, and it has become the second-largest industry in the region, which has already gone some way to boosting Macau’s economic transformation. With all this in mind, accelerating the growth of the financial sector is clearly the most important economic move for Macau.

Economic development
In September 2016, the Macau Government announced the beginning of a long-term policy of ‘steady economic development’ and ‘orderly structural adjustment’. Among other things, this policy will aim to harness China’s Belt and Road national strategy and Macau’s Portuguese trading platform, in order to support the tourism, exhibition and convention industries, as well as the industries supporting Chinese medicine, culture and entertainment.

The monopoly status of Macau’s gaming industry, while once important, now stands in the way of sustainable development

The government also intends to broaden the scope of financial business, and will endeavour to create value in financial leasing, asset management and wealth management. Furthermore, Macau will strive to build an international financing platform and a domestic and overseas cooperation platform.

Companies in the financial industry will sustain these platforms and centres to achieve mutual benefits and win-win results for themselves and the economy of Macau.

Development trends
In terms of financial leasing, Macau has introduced an international infrastructure investment forum, while the government has also brought in a series of preferential measures to attract new businesses, and is trying to enhance industrial activity by amending the law.

Some leasing companies have been in operation since the beginning of last year, and Macau is expected to become a centre for leasing businesses in the future. It is hoped that this will facilitate the development of complementary financial services.

What’s more, the Macau Government and the SAR’s private sector are undoubtedly wealthy. The government holds reserves of more than MOP 400bn ($49.7bn), with per capita GDP of about $70,000, boasting a market with enormous potential for asset management and wealth management.

Government and industry experts are actively planning the development of these two industries and a number of related industries, which will develop Macau into a hotspot for financial innovation over the next few years. The related developments will include government investment in mainland infrastructure, and the development of a free-trade zone.

Finally, Macau’s internet industry is developing rapidly, in tandem with the rise of the mainland internet economy. The Macau Government has launched its ‘Digital City, Smart City’ plan, and financial disintermediation is on the way.

However, internet finance in the SAR is still lagging compared with that on the mainland. There are no major e-business players or third-party payment platforms, and most payment clearing still works through credit card providers.

Due to the relatively small size of the market, mainstream payment enterprise has not yet entered Macau, providing a window period to allow banks to develop internet finance businesses.

Business diversification
ICBC Macau, the largest locally registered bank, shoulders the responsibility of promoting Macau’s developing economic pluralism in order to bolster regional economic prosperity and enhance its own core competitiveness.

ICBC Macau has built multi-pillar product lines, and various other emerging business lines have gradually formed around these, including precious metals trading and asset management.

During 2017 so far, ICBC Macau has assisted the ICBC head office to successfully complete a large acquisition project, fund bond distribution, and complete a number of joint investment and trading projects. Furthermore, ICBC Macau has become a long-term financial consultant for local major institutional investors.

Macau has abundant social wealth and favourable tax and financial conditions, but there are no such capital markets as securities and bonds, giving ICBC Macau something of a clean slate from which to expand new business lines.

At present, ICBC Macau has a full-featured banking licence and two wholly owned subsidiaries – ICBC Pension Fund and ICBC Macau Investment. Currently, it is the only bank in the region to possess both an asset management licence and a custody operations licence.

The bank also intends to set up a special institution to function as a syndicated centre for Hong Kong and Macau, in order to further improve Macau’s global business connections.

Once the Belt and Road Initiative is underway, ICBC Macau will provide financial support to emerging markets and to Portuguese-speaking countries connected to Macau. The bank will also serve as a renminbi clearing platform to advance the internationalisation of the currency.

Economic diversification is the starting point for Macau’s development. In addition to traditional finance, ICBC Macau will continue to concentrate on wealth and asset management, internet finance, Portuguese trade services and clearing, financial leasing, and precious metals trading, in order to reach a state of balanced development between traditional and modern financial services.

China suffers ageing population nearly 40 years after introduction of one-child policy

Posted on by Ashton Wenborn

In 1979, China began what remains the largest demographic experiment in history. The country’s controversial one-child policy was introduced in a bid to slow the explosive birth rate of the world’s most populous country.

Fast-forward to the present, and it’s clear the policy has worked. Ironically, though, it has worked a little too well. China is now struggling with a shrinking labour force, which could spell economic disaster for the global heavyweight.

For decades, Chinese couples were under strict instructions from the government to have just one child – bear more, and the result was a withdrawal of welfare benefits, fiscal penalties or, more drastically, forced abortions, sterilisation, or even abduction by the state.

The result was a drastic reduction in the size of the Generation X and Millennial cohorts that should be providing the workforce of the future, leaving China with a severe labour shortage.

Over the past few years, this problem has come to light, resulting in a softening of the rule. In 2013, the Chinese Government announced that couples would be allowed to have two children if one parent was an only child, sparking a slight rise in the number of new births (see Fig 1).

Then, in 2016, the rule was eradicated entirely in a bid to prompt a birth rate of 20 million. Although 17.86 million births were logged, making 2016 the most fertile year on record since 2000, the rate still fell short of the target replacement level.

Too much nothing
China’s modern economic expansion has been both swift and spectacular. Alongside an astonishing average GDP growth rate of more than nine percent for three decades, the country has also witnessed aggressive industrialisation and urbanisation.

The resultant increase in both the supply and demand of urban jobs has caused a significant shift within the country’s vast population, with a large segment moving into the middle-class demographic. This change has seen the proportion of individuals – particularly women – with demanding careers increase significantly.

“China’s birth rate has been very low in recent years – around 12 per 1,000,” said Ren Yuan, Professor of Demography and Urban Studies at Fudan University. Though China’s one-child policy is the obvious culprit for this low birth rate, its impact has not been as significant as one might assume.

“The one-child policy, together with some earlier initiatives, has impacted China’s fertility, but actually, the one-child policy’s influence on falling fertility has been declining since the 1990s, and socioeconomic factors are having more and more of an impact,” Ren explained. “I believe that the one-child policy has actually had little impact on the macro level of fertility in China. Rather, the low birth rate is an indicator of low fertility in China, which is caused by social and economic factors, including improved employment opportunities for women, and people spending longer in education.”

With more and more couples leaving it late to have children, China’s fertility rate is falling sharply

With more and more couples leaving it later to have children, China’s fertility rate is falling sharply. According to the China Population Association, more than 40 million citizens were infertile in 2013, comprising 12.5 percent of those of childbearing age within the total population.

The factors referred to by Ren are linked to China’s economic development and subsequent urbanisation. With economic growth comes a greater incidence of smoking, alcohol consumption, unhealthy diets and rising stress among the population – all of which have a direct impact on fertility, both for men and women.

Pollution has also had a role to play in Chinese men’s plunging sperm counts, which have fallen continuously since the 1970s. According to the report The Effect of Urbanisation on China’s Fertility, published by the Population Research and Policy Review in 2012, urbanisation was responsible for around 22 percent of the decrease in China’s total fertility between 1982 and 2008, and was especially instrumental from 2001 onwards.

Fertile market
As a result of this trend, China’s IVF industry is booming. According to BIS Research, the market was worth $670m in 2016; by just 2022, it is expected to swell to $1.5bn.

While China’s rapid market expansion has resulted in reduced fertility, greater wealth has enabled more couples to afford the considerable sum needed for the treatment, which starts at around CNY 30,000 ($4,600) in poorer provinces.

Together with many hopeful parents seeking to conceive their first child, there has also been a surge in couples trying to have their second. “As well as a strong cultural impetus to continue family bloodlines, increasing demand is due to the recent relaxation of the one-child policy, the increasing number of late marriages, and women choosing to freeze their eggs,” said Dr Mark Surrey, Medical Director of the Southern California Reproductive Centre (SCRC).

As a result of this demand, state-run hospitals across China are struggling – waiting rooms are packed to the brim, while waiting lists are continually expanding. According to data from China’s Health Ministry, each state-run IVF clinic serves some 3.8 million patients – significantly more than the average 700,000 per clinic in the US.

This has led to the unfortunate rise of unregulated clinics, which are commonly advertised online, particularly through social media platforms. These clinics have become adept at eluding overburdened government watchdogs, with recent crackdowns largely unsuccessful.

In July, China’s Ministry of Health admitted that “routine oversight has been lax, and strikes against illegal behaviour have fallen short”. With private clinics also oversubscribed, demand for partnerships with foreign companies is now surging. That said, few have entered the market so far, due to stringent regulations that make it difficult for foreign entities to obtain a local licence.

In light of this situation, a growing number of couples are seeking treatment outside of China, travelling to countries including Thailand, Australia and the US in the hope of realising their dreams of parenthood.

Fertility clinics abroad are swiftly responding to this rising demand, employing Chinese-speaking medical professionals to liaise with patients, while also having their websites translated into Mandarin to help lure customers.

The average price of treatment is around $15,000, but it’s a sign of China’s exponential growth in recent decades that many middle-class couples are now willing to pay such a sum.

In addition to the comparative ease of getting seen in foreign clinics, part of the attraction is the option to learn the child’s gender – something that is strictly prohibited in China – as well as a generally higher standard of technology.

“Many Chinese patients come to SCRC to take advantage of the newest advancements in reproductive medicine, including genetic testing. This is hugely beneficial to women with genetic health concerns, or those who have had miscarriages,” explained Surrey.

Add to this the ability for single women to freeze their embryos, which China still does not allow, and it’s easy to see the appeal of this type of medical tourism.

Wider implications
A report published by China’s National Development and Reform Commission in January 2017 indicated just how severe China’s demographic problem could soon become. Experts predict that by 2030, a quarter of China’s vast populace will be aged over 60 – around 10 percent higher than the current level.

Consequently, the strain on the state will intensify as retirement funding and healthcare costs spiral. At the same time, the country is also seeing its labour force shrink, with a predicted 80 million fewer individuals aged between 15 and 59 by 2030.

“The best way to combat this demographic challenge is not actually through population policies such as encouraging people to have more babies,” explained Ren. “This method will usually fail to meet the objective, and will always produce some unintended outcomes. Instead, to combat the challenges of demographic change, social and economic institutional reforms are needed.”

Embryos being used for IVF. More and more Chinese couples are looking abroad for fertility treatment, as Chinese clinics are hugely oversubscribed
Embryos being used for IVF. More and more Chinese couples are looking abroad for fertility treatment, as Chinese clinics are hugely oversubscribed

Making matters worse, the problem may be self-exacerbating. As the cost of consumer goods rise, so will the cost of raising children, and so the likelihood of people having several children further diminishes.

According to a report entitled Urbanisation and Fertility Decline from the International Institute for Environment and Development, this effect is enhanced by the desire to achieve a better standard of living, which is a natural tendency born from a country’s economic development.

As such, parents’ desires to improve the health and wealth of their existing offspring will make them less likely to have more children, and more likely to encourage their children to focus on education and work during their most fertile years, further multiplying the problem.

The impact of government campaigns to encourage larger families will, therefore, be limited. What can make a difference, however, is improving the support systems in place for parents.

At present, China has low levels of parental leave – for men, it ranges between nothing and two weeks, while women typically get just four months. A lack of affordable childcare compounds the issue.

Comprehensive strategy
In hindsight, China’s one-child policy was a misjudged and overly extreme precaution. That said, despite its impact on the country’s fertility rate, there are several other factors at play. Eradicating the policy was a clear and positive step in combatting this demographic crisis, but it is by no means definitive.

A lot of work must be done to help drive China’s fertility rate above the necessary threshold. In the short term, this involves the development of the IVF industry, which means increasing the number of both state-run and private clinics to meet soaring demand. To help with this undeniably arduous task, easing restrictions on foreign entities entering the market would be hugely beneficial.

In hindsight, China’s one-child policy was a misjudged and overly extreme precaution

In the meantime, legalising more complex treatments and procedures will help more couples to conceive, particularly those who are unable to afford treatment abroad.

Similarly, making egg-freezing legal for single women – especially given the global trend for women to have children later in life as they devote more time to education and their careers – would also provide a boost. Finally, cracking down on unregulated clinics would improve patient safety and trust in the beleaguered system.

In the longer term, China can introduce policies that are beneficial for young families, such as better maternity and paternity leave, along with provisions for cheaper, more widely available childcare.

Such measures are crucial as China continues on its path of economic development, which will inevitably see the cost of living rise. The task is both great and complex, but its success is absolutely vital if China is to secure the future that it has set out for itself.

With Myanmar’s economic future looking promising, AYA Bank seeks foreign investors

Posted on by Ashton Wenborn

Myanmar’s economy is one of the fastest-growing and most promising in Asia. Its dynamic business environment, along with its strong infrastructure, communications sector and flourishing consumer lifestyle have been key to the country’s development so far.

Although Myanmar’s economic growth has slowed to 6.5 percent in 2016-17 from 7.3 percent in the previous year, projections for the near future are optimistic.

According to the World Bank, the growth rate is expected to remain above 7.1 percent on average until 2020, following a slowdown since its peak in 2013.

What’s more, the global institution highlighted in its latest monitor report on Myanmar that this growth will take place in a context of macroeconomic stability and progress on structural reforms, with private and public investment picking up for both infrastructure services and non-commodity sectors.

In line with such forecasts, the country has become an attractive destination for foreign investments, especially since 2012, when the Foreign Investment Law was enacted. In the eyes of investors, Myanmar is the last economic frontier in Asia with significant growth potential.

Changing to support growth
The figures reflect the market’s enthusiasm. Foreign direct investment hit a record $9.4bn in the year ending March 2016 – however, this foreign investment flow understandably slowed to $5.8bn in 2016-17 due to legislative elections this April and subsequent changes in the administration.

Nonetheless, with Myanmar’s new investment law, it will be easier than ever for foreign companies to benefit from tax incentives, and eventually take advantage of a company law bill that is currently in parliament.

The initiative aims to allow foreign investors to buy up to 35 percent equity in local firms before they are considered foreign-owned. This has been well received in the business community, as local companies can now have foreign shareholders who will be allowed to enter into long-term land leases. None of this had been possible until today.

Key steps have been taken to identify the critical building blocks for a sound financial sector, something that is essential to support the growth and opening of the economy

Indeed, over the past three-to-four years, Myanmar’s banking sector has undergone significant changes, many of which are positive. Key steps have been taken to identify the critical building blocks for a sound financial sector, something that is essential to support the growth and opening of the economy.

During this time, the central bank has gained a fair bit of autonomy and has introduced prudential regulations in line with recommendations from the Bank for International Settlements.

Moreover, it has given licences to foreign bank branches to operate locally, and it is also beginning to work closely with multilateral agencies as part of its sector-wide reforms.

That said, at present the local banking sector remains limited in terms of fully serving the requirements of a rapidly growing economy. In response, we expect to see local and foreign banks working closely together in order to play an increasingly significant role in boosting economic activity, especially in terms of financing large-scale projects and capital requirements.

Together, banks will be able to build a solid foundation for a modern financial sector that is capable of working in collaboration with regional financial markets.

Time to roll up the sleeves
Myanmar’s financial services industry offers mainly short-term financing on a fully collateralised basis. But it is keen to move towards a broader set of financing capabilities in order to assist infrastructure projects and mortgage financing for end-buyers. There is still much work to be done.

Myanmar’s interbank market for foreign exchange is just over a year old. Its continued development is critical to injecting a flow of liquidity into the banking system, and will strengthen alternative sources of funding for banks, which are currently reliant on customer deposits.

As this market evolves, we foresee a robust interplay between the local currency, the kyat, and foreign money markets, paving the way for related hedging and financing options.

Furthermore, the Central Bank of Myanmar’s financial network system and interbank payment and settlement system will be further upgraded to be more robust, and will also act as the foundation for the convergence of traditional banking and fintech for Myanmar’s ‘leapfrog’ technology.

Against this backdrop, AYA Bank is well poised to meet the challenges and opportunities that are set for Myanmar. The seven-year-old institution has become the second-largest in the country, playing a pioneering role in developing and introducing numerous products, services, systems and practices that are now standardised in the local banking industry.

In 2017, it achieved significant milestones, totalling more than 220 branches, more than 8,200 employees, MMK 4trn ($2.94bn) in deposits and MMK 3.5bn ($2.57m) in assets.

In June, AYA Bank upgraded its software solution to the new Tier 1 core banking system from Finastra. This is an omni-channel implementation that will replace the existing branch-focused core banking system. Thus, the bank will maximise digitalisation of its operations and improve front-to-back efficiencies throughout the organisation.

This digitalisation of all manual, non-digital processes will enable AYA Bank to streamline its workflow, and better serve all customer segments and strategic business platforms. In addition, it will allow the bank to provide products and services uniformly across the country.

This comes along with new investments in staff development, branches, ATMs and next-generation technology, and underlines AYA Bank’s commitment to excellence and putting customers at the heart of the business.

Customer retention depends on their satisfaction; happy customers do more business and remain loyal through good times and bad. The bank’s goal is therefore to be regarded by customers as their bank of choice. This is the model for Myanmar’s modern banking future, today.

Foreseeing the future
Banking penetration in Myanmar is estimated to be less than 10 percent, perhaps as a consequence of having the lowest branch density in the world – 3.8 branches per 100,000 adults against a global average of 11.7.

With these indicators in mind, AYA Bank accelerated its branch growth strategy, totalling more than 220 branches in 2017 from 34 in 2014. The expansion has shown good results, as the bank added 900,000 new customers, now serving over 1.3 million. Many of these customers have opened a bank account for the first time, and have therefore helped the bank diversify its customer base.

6.5%

Myanmar’s economic growth in 2016-17

$5.8bn

Foreign direct investment in 2016-17

$2bn

Loan growth across commercial business in 2017

Furthermore, consumers’ interest in supplementary products is high; they are curious and have shown interest in recently introduced technological banking products, like internet and mobile banking, credit card loans and retail loans.

Thus, the large account base secured by AYA Bank is the perfect platform to cross-sell and upsell new products and services to our customers. We are confident that in the near future we will be able to provide customers with a wide range of retail products that will deepen their banking experience.

The development of retail consumer products has shown several successes this year. The bank launched the first 15-year mortgage loan in Myanmar in a bid to better serve the needs of a young mobile workforce.

It then introduced the country’s first web-based consumer credit evaluation programme, and finally
it issued the largest number of credit cards in Myanmar.

SMEs and commercial businesses are the backbone of any economy. As such, AYA Bank’s contribution to the growth and development of SMEs is significant, with a loan portfolio growing by 64 percent per year over the last three years. Loan growth across commercial business was outstanding in 2017, ending the financial year at almost $2bn.

International framework
AYA Bank has also strived to adopt international best practices to demonstrate that they can be implemented in the country. The Voluntary Human Rights Audit, which is the first of its kind in Myanmar, led to the
 implementation of HR policies compliant with International Labour Organisation recommendations.

These include the implementation of non-discrimination policies, the whistle-blower policy and a zero tolerance gender salary gap policy.

Since 2014, three of the eight members of the board of directors have been independent non-executive directors, despite the Financial Institutions Law only being introduced in 2016.

Indeed, AYA Bank is the only International Financial Reporting Standards-compliant bank in Myanmar and also the only one to be audited under the International Standards of Auditing through the guidance of an international big-four firm.

Moreover, AYA Bank has executed significant regulatory and control priorities and is committed to continuing to set standards locally. This progress has allowed the bank to focus on improving processes to deliver better experiences to its clients in many ways. For example, it recently established a dedicated transaction banking team to provide cash management and trade finance solutions.

It has also partnered with foreign banks across key sectors such as hospitality, manufacture, infrastructure, telecoms and real estate by delivering multiple syndications.

Looking forward, AYA Bank will continue to drive innovation by investing in technology, people and its network, all the while strengthening business processes and adhering to international best practices to improve the customer experience.

Investing aggressively, AYA Bank seeks to play a role in building a bright future for Myanmar, one of the most exciting frontier markets in the world.

ActivoBank is keeping up with the demands of the digital age

Posted on by Ashton Wenborn

In an ever-changing financial landscape, the adoption of a coherent digital strategy is crucial to the customer experience. Customers remain loyal to banks that provide easy-to-use digital products, while any negative interactions, whether on an app or a touchscreen in-branch, can motivate clients to take their business elsewhere.

Establishing a digital bank is the simple part – attracting and subsequently keeping customers presents a far greater challenge. In order to satisfy a new generation of tech-savvy consumers who increasingly regard connectivity as a right, not a privilege, banks must formulate a digital strategy capable of adapting to a changing marketplace.

In light of these observations, World Finance spoke to Luís Magro, Marketing Director at ActivoBank, to find out more about the changing needs of the digital customer, and how ActivoBank is adapting its strategy to meet the growing demand for streamlined digital products.

How can banks make better use of social media?
One could almost say that if a brand isn’t present on social media, it doesn’t exist. Research shows more than 60 percent of clients use social media to either seek help or clear up niggling doubts about a service.

As such, many companies use social media to address these very issues, responding to customer queries as quickly as possible to ensure their needs are met.

But, of course, the most obvious use of social media is advertising one’s products. Social media has great influence when it comes to recommending products to consumers; people make decisions based on what they see and read on social media.

Furthermore, engaging with social media gives banks a more intimate knowledge of their customers, providing a priceless insight into the marketplace.

How does ActivoBank’s social media strategy differ from that of other banks?
Our strategy doesn’t diverge much from the options I’ve previously mentioned: we use social media to advertise our products and answer any customer queries that come our way.For example, we have created an app on Facebook – Facebook Ponto Activo – allowing users to converse with client managers in real time.

In order to stay relevant, we also offer information on a broad range of topics, from innovation and entrepreneurship to culture and current affairs. While these subjects may not be bank-related per se, they clearly represent our core values.

Almost everything our competitors post is bank or product-related, with a couple of contests thrown in for good measure

Topics based around social responsibility – whether financially related or not – tend to gain great traction among our followers.

This differs tremendously from what other Portuguese banks are currently doing on social media. Almost everything our competitors post is bank or product-related, with a couple of contests thrown in for good measure.

How do Millennials approach banking differently to previous generations?
From my experience, Millennials don’t appreciate the tricky banking language deployed by most banks. Instead, they tend to gravitate towards banks offering a simpler, more transparent description of their products.

If you want to be successful with Millennials, you must continue to invest in technological solutions and refrain from charging excessive fees for the privilege. Millennials are very digitally independent, and don’t like to pay for services they can conduct themselves.

What’s more, Millennials tend to be far less loyal to banks than previous generations; a bad experience either online or on the app can drive users to look elsewhere for their banking needs. Therefore, banking products must adapt to Millennials, not the other way around.

Does digital banking resonate with Millennials more than other generations?
Yes, I think it does. When you look at what bank branches used to represent to previous generations and how secondary they’ve become to younger generations, the role of digital banking is obvious.

To be fair, a good website can demand the attention of a bank’s entire client base, regardless of age, but apps are a different story – they’re much more likely to be used by younger clients (see Fig 1).

I think this is because Millennials are more curious when it comes to any sort of technological innovation – more curious, and less afraid to explore.

Given the changing marketplace, are financial institutions willing to take suggestions from clients?
While there are some exceptions, most financial institutions aren’t very open to client suggestions. During the financial crisis, people started to openly criticise banks, voicing their distrust more publicly. This, in turn, led banks to make decisions with more secrecy.

Simply put, it is increasingly difficult for customers to have their voices heard. However, ActivoBank believes there is a lot to be gained by listening to what people have to say, and we continue to give our customers a voice.

Interaction with clients is essential – it shows your customers you are transparent and willing to take responsibility for how you operate. Furthermore, client observations can improve your business.

Instead of only using focus groups (which institutions usually pay for), why not engage with clients more directly and gain valuable feedback? By listening to customers, banks can actually redesign products and even create new ones.

Taking this approach gives you confidence that your offering is completely in tune with your clients’ needs. In this vein, Facebook is a great medium for gaining a picture of how your bank is being perceived, as people tend to speak more freely on this platform.

How is ActivoBank’s digital strategy evolving?
We have added some new features to our app and website to make our services more accessible to our customers. For example, we have recently introduced a loan calculator on our app, making it easier for customers to calculate and immediately apply for personal loans online.

We are currently working on introducing mortgages to our app as well. While it is already possible to upload some of the necessary documents digitally, we wish to put the entire mortgage application online – simplifying the process completely. That being said, we will continue to offer mortgage support in person and on the phone too.

On top of this, we will also allow our customers to open accounts online, no matter where they are. This is a relatively new offering in the digital banking sector, and one we are keen to explore in more depth.

In conjunction, we are planning to offer our customers virtual debit and credit cards that can be used in conjunction with near-field communication technology.

As a primarily digital bank, we don’t have plans to open many more branches in the future. Instead, we will seek to make our existing branches more efficient, with the installation of holographic bank assistants in each branch.

This assistance will initially be based upon a multiple-choice, question-and-answer formula, but we hope, in time, to upgrade this service to be more intuitive.

How will these developments help ActivoBank meet the needs of future clients?
Whether answering questions or performing transactions, our clients demand we provide services with agility and transparency. The developments I have outlined are essential components of this.

We understand how valuable our customers’ time is, and how time-consuming buying a house, applying for a loan or opening an account can be. While we still value the contribution of our brick-and-mortar operations, by offering these services online, customers are presented with a clear, time-efficient way of
conducting their business.

How do you think the needs of clients will evolve in the future?
A lot has been said about the importance of adopting an omnichannel approach to meet growing and diversifying customer demands. As mentioned previously, customers expect to be able to start any bank transaction on the website, check its status on a smartphone, and go into any branch for further information.

They don’t want to spend too much time searching for the right product; they want to feel special, and be offered customised products directly. Achieving the balance between simple, easy-to-explain products and customising them to meet clients’ expectations is difficult, but necessary. The data collected by banks can ultimately help financial institutions strike this balance.

Security will also be an issue. Protecting account data and privacy is an obvious requirement of any bank, but clients should be able to trust their bank without having to present an endless number of passwords to access their account.

Therefore, investing in alternative forms of authentication, such as biometrics, will continue to be a prerequisite of success.

As time goes on, clients will continue to demand more and more from their banks. Their needs will become intertwined with their expectations and desires, and they will expect banks to become more active in the community they’re part of.

Clients won’t just be looking for the best products – they’ll choose the most socially responsible, transparent and adaptable bank on the market.