Asia is banking’s battleground for its future

ASIA’s demographics — an average age of 28 compared to 36 in the US and 39 in Europe — will drive its growth in coming decades as youthful dynamism transforms the region, says Piyush Gupta, Chief Executive of Southeast Asia’s largest bank, DBS . . .

Notwithstanding the doubts about the durability of Asia’s growth and the recent slow-down, leading Asian banker Piyush Gupta says that, by 2020, the combined GDP of Asia will be 120 per cent of that of the United States. And although China may be slowing, he says, a US$11-trillion Asian economy growing at 6-7 per cent can still put the equivalent of a Germany on the map every 4.5 years.
In 2000, Asia’s combined GDP was equivalent to 40 per cent of US GDP. By 2010, the number had risen to 70-80 per cent.
Gupta, who is Chief Executive of Southeast Asia’s largest bank, the Singapore-based DBS, dismisses dire predictions from some quarters that Asia has lost its lustre and that China could potentially be facing a “lost decade”.
“The Asian story is alive and well,” he says. “The region is on the cusp of what many refer to as the Asian Century.”
Asia’s demographics — an average age of 28 compared to 36 in the US and 39 in Europe — will drive its growth in coming decades as youthful dynamism transforms the marketplace of the world.
Asia has been through many regional and global crises over the last 35 years. Today, it is more shock-proof than in the past. All Asian countries have a buffer in higher foreign reserves and low debt — a situation that is a far cry from 1997, when the region was engulfed in the Asian Financial Crisis.
Gupta recalls that the crisis came on the back of a decade of budget deficits in Korea, Malaysia, Thailand, and Indonesia. Since then, the region has chalked up 18 years of budget surplus.
Turning to China, Gupta says the nation has a two-speed economy — a slowing industrial economy and a dynamic retail economy that is growing in double digits.
“Apple reported growth of 75 per cent (in
iPhone sales) in China in the first half of 2015 — and for the first time China is now a bigger market for Apple than the US.  In the first six months of this year, Nike recorded 45 per cent growth (in China),” he says.
China is transforming from an export and
investment-led economy into a services economy, says Gupta, pointing out that, over the past five years, China’s economy has shifted by 4-5 per cent in favour of services.
China is moving from an administered economy to a market-driven economy, he says, adding that Beijing has a well-laid plan — and is following that plan — to open its capital
account and to have a more flexible exchange rate and interest rates.
Concerns about China’s bad debts are
unfounded because, from his bank’s own research, the total debt of China’s official and shadow banking systems is “not extraordinarily” large — and there is plenty of fiscal capacity, with US$3.3 trillion in reserves, to deal with emerging problems.
The disruption and technological change that is happening around the world is more
visible and immediate in Asia than anywhere else, Gupta says.
“The reality is that a large part of Asia is made up of digital natives. Fifty per cent of the world’s internet population lives in Asia.
Indonesia is the number one country for twitter and Facebook. India is forecast to move from Number 2 to Number 1 spot by 2017 for
Facebook.”
Asia, in particular China, is leading with
innovation.
Gupta says Alipay, the payment arm of
Chinese e-commerce giant, Alibaba, is now the biggest payment company in the world. It handles merchandise with a gross value of US$300 million, with 80 million transactions every day. “Most of these are low-value transactions. But to step from the low to high-value payments is not such a big step.”
The Chinese money market fund, Yu’e Bao, owned by technology company Tencent, is now the fourth largest mutual fund in the world, having raised US$80 billion in eight months. Today, it has 100 million customers.
The Chinese have started to do algorithm (online) lending to SMEs. One company, Taobao, now has assets valued at US$18 billion and 250 mllion SME customers.
In China, the P2P lending market is now bigger in volume and value than the US and the UK combined.
While banks around the world talk about KYC (know your customer) technology — with voice and facial feature recognition — Gupta says the Chinese went one step ahead of other countries when they started to use electronic KYC.
He sums up: “The battleground for our future is being fought in this part of the world.”
Innovation happening in China — and elsewhere — will continue to have a profound effect on areas once handled exclusively by banks — payments, transfers, lending and fund raising, he says.
DBS Bank, is working on its own forms of
innovation. For example, DBS has integrated its cloud capacity. “One thing that the cloud lets you do is to bring technology on tap and to
aggregate information and data together.”
Eighteen months ago, DBS decided to leverage its internal cloud capacity to speed up money transfers, reducing the time taken from three to six hours to one second.
Gupta says people talk about bitcoins, but to him the most powerful phenomenon is the block chain technology, or distributed ledger, which he says, removes what he calls the hub and spoke notion of account keeping.
He believes the shift online to mobile is profound. “The technology has meant that the bank goes with you. It is in your pocket.
“In our own business, we have noticed that mobile has changed people’s behaviour.
Instead of looking at their balance or incoming payments once a day, they may start looking 10 times a day.”
The social sharing economy will affect banks in the same way as the emergence of capital markets some 30 to 40 years ago, when borrowers were able to go directly to big institutional investors to raise capital, bypassing banks.
The sharing economy — peer-to-peer lending, crowd sourcing and crowd funding — will create further disintermediation in the financial services sector.
As keepers of huge amounts of personal data, banks, says Gupta, will have to work out how best to leverage big data to change product construct and capacity available to clients.
He says the word is not disruption but transformation. And banks are transforming themselves in this new era. At the end of the day, he believes banks still have the trust and faith of the people. “When I ask a young person where he will he put his million dollars, the answer is – in the bank.”