Speaker Interview- Kumaran Selvarajalu

Q- As we are aware, Banking services and Financial Institutions will need to act fast to create a robust framework, to survive in the post COVID-19 era. What is your opinion on investing in a digital future and developing new technological solutions?

There are multiple elements to this question that require unpacking, at a high macro [economic, social, political] level, the move to digitalization is seen as a move to greater prosperity for countries and their citizens inter alia because of the convenience, access to information, ability to make choices and importantly to stay at the same level of productivity as other regions, nations, citizens and companies.

At the same time and at a more pragmatic and ground-level - nations, companies, and people (I believe the foundation of political and national stability is the family unit) must manage the constant transitions to these new states. These challenges will be met differently and will result in unavoidable gap increases. If these gaps are too wide however the very forces of progress may increase inequality and cause social and political instability.

Then, in terms of value-creation and the interplay between public and private sector, I do not support the simple notions that innovation leads regulation or that the market innovates, and the state regulates. The modern world has shown us that simple business logic on investment is often flawed (Consider CelTel in Africa and that it created the mobile network in Africa which is stimulating growth in SME markets at a time when the much more powerful international TelCos saw Africa as simply a bad investment). Value-Creation suggests a much more complex framework of thinking on investment.

I believe therefore that nations need to address these challenges with a policy prerogative that ensures the gap is well managed and that prosperity of all citizens must be the primary objective. Such policy prerogatives will ground the future companies and families. Investment will follow the direction of national policy. In establishing this policy prerogative national policy makers must place universal prosperity at the forefront and embrace the notion of value-creation.

Q-The power of partnerships should never be underestimated, especially in the financial services industry. How can the collaboration within FinTech’s and Traditional Banks be fostered?

Agreed in principle, however…

However again this must be looked at on a case-case basis. Consider Silicon Valley. The tip of the ice-berg that we see are the successful fintechs that develop an idea and either directly or through buyout acquire better funding. This is a great success story however the unseen element of the iceberg (inevitable with time by the way as innovations attract competitors and emulators) is that the vast majority of fintechs in that environ are not unicorns. For fintechs it seems good partnerships are a good way forward (to accommodate for capital and time issues (as I sense many fintechs are led by people who want to take on the next challenge and their challenge is time!).

For large companies like banks it is important the partnership supports the underlying strategies and growth aspirations of the company rather than fragment it. If a large company can emulate or develop its own functionality based on its core competences, there is a powerful argument for not diluting IP and possibly equity but to go it alone. Often a company must make the call between good sustainable profits and broader but shallower market reach. I do not have a favourite but believe in either case agility is crucial.

Q- Why do you think it is important to build and enforce a Cashless Economy where digital lending and online payments would be incorporated?

As indicated the move to digitalisation is important but there are gaps that need to be addressed and I do not agree the simple move to a cashless economy, if this were possible in my lifetime is a simple step or a panacea to improve prosperity and efficiency of markets.

I think it is important to separate lending and payments as the former is moving at a different rate and is largely driven by the same business objective (RoI) than payments which incorporates all money movements.

I am not an expert on credit but observe that new funding and allocation models have arisen that are driven by internet access and communication. This is particularly useful in driving the growth of unsecured lending especially in such environments such as SMEs and SMMEs – value-creation (such as the Grameen Bank models) come to mind. I believe this migration from traditional lenders to more distributed models will continue and be driven by information and cheaply accessible AI to handle the scoring. I am reminded there is a large store of lazy capital in the world that, if safely leveraged, canadd a lot of value.

Bearing in mind what I have said about the continued viability of the cash economy, not all payments will simply move to online quickly – This is desired but must be stimulated by policy and market collaboration. However, for the online economy in terms of payments the drivers seem to be towards essential utility i.e Standardised outcomes, consumer protection and marginal to zero profits. This means in my humble opinion that payments moves to integrate deeper into eCommerce and Data collection models (big data, small data, and importantly real-time transactional/behavioural data)

A move from cash to digital does not offer immediate benefits to all players in the ecosystem and the evidence of the world attempting to eliminate cash supports this. Firstly, digitally advanced countries such as Sweden and New Zealand have indicated there is a threshold beyond which cash cannot be simply removed.

Secondly, cash and digital payments are not substitutable at a practical level. CBDC and/or private crypto currencies may address this but do not have the footprint, legal foundation, or national collaboration needed (consider FX, the reserve currency requirements, foreign holdings etc..) to affect this in the short-term. That said Africa and developing countries may well be able to leap-frog if policy is directed appropriately.

The cash economy/market is evolved and highly effective. Without the payer or payee changing their ecosystem interaction which is more possible in some markets than others – making cash sticky to those that need to be in cash markets, this is a difficult practical challenge.

Q-We are aware that automation simplifies core banking operations. However, does cyber threats hinder this in anyway?

Cyber-threats challenge all digital connected environments. Typically, the human error or accommodating for humans is the greatest source of vulnerability. I would imagine that automation would significantly improve the defenses against cyber-attacks unless of course vulnerabilities are built into the algorithms. Even so, over time continuous improvement should see marked improvements in defense.

Q-Do you think there are any potentials for transforming the overall KYC process in digital banking world?

Certainly – There have been many advances in identification methods since the original ‘Physical world’, KYC processes were introduced. Already we are seeing banks open accounts using biometric verification on central stores, facial recognition, GPS positioning. Often these are layered adding behavioral characteristics to improve accuracy.

It is important to stratify the need for KYC against national, societal and business objectives. On the positive side KYC can be an amazing tool to reduce criminal activities, build trust in digital society, improve customer service, and the applicability of products. If KYC is not geared to these priorities however it could hamper product rollout and inclusion, create a fear of being watched or exposed, increase practices such as rob-calling and generic treatment of customers.

Q-. As it relates to cross border payments – what kind of risks would be involved with new technology?

I am not sure there are any new risks or material changes in risk impact in this space. If one considers the current state of cross-border payments that are (a) too expensive (b) cumbersome (c) largely manually reported, I think the benefits of greater digitalisation, particularly such moves as the Singapore to Thailand mobile-mobile remittance initiative, far outweigh any risk issues.

Q-. In what ways can banks deliver compelling value in this new financial ecosystem

which banks have scaled to accommodate mobile and other mechanisms). Very open to discuss elements of this, and the overall thesis that banking and the homogenous bank is very adaptive directly and learn from what is happening in the market. Feel free to contact me.

Q-. How can a customer’s relationship with the bank be effectively personalised by leveraging technology?

This depends on what the bank vision is in terms of their customer understanding and personalisation strategies. Data will inform these positions but not establish the intent. Similarly, ICT will enable better communication and data access but design the vision of the company.

Q-. As a leader within your company, would you like to highlight some recent challenges you have faced in the course of aligning innovation strategies to meet customer expectations?

Mainly trying to make the different business units of the bank not to work vertically in silos but horizontally and in a collaborative manner to innovate and scale up products for our customers.

Q-. In implementing evolutionary innovation strategies, what are the 3 major points to pay attention to while ensuring they meet customer expectations?

a) Innovative products go to solve pain points of customers
b) Innovative strategies should align to medium and long-term plans of bank
c) Repetitive education be given to customers on bank products

Q-. Being faced with disruption as a result of the pandemic, how is your organisation constantly implementing timely innovation strategies to meet customer expectations?

Innovation strategies are being developed in a modular fashion with teams working on-line from home and physically in shifts within the office.

Q-. As we are aware, Banking services and Financial Institutions will need to act fast to create a robust framework, to survive in the post COVID-19 era. What is your opinion on investing in a digital future and developing new technological solutions?

The Post COVID-19 area will require digital tools and some work to be done on-line. So investment in developing technological solutions will have to be done, though in Tanzania this started even before the COVID-19 pandemic, as we have to reach the unbanked people in the rural areas.