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Andrew Gilder

Welcome to the EY Next Wave Banking in Asia-Pacific podcast. I'm Andrew Gilder, your host and EY Asia-Pacific Banking & Capital Markets Sector Leader. In this series, we'll feature insights and analysis on topics impacting the Asia-Pacific Banking Sector as it reinvents itself to be leaner, more agile and customer centric than ever.

Gilder  

Welcome to the second episode of the EY NextWave Banking in Asia-Pacific podcast. In this episode, we uncover the role of platforms and ecosystems as it relates to the future of banking, the importance of partnerships in a bank strategy, and how these ultimately enhance the customer experience. My guests today are both here with me in Singapore, Aman Narain, HSBC's Global Head of Platforms, and Saurabh Dhingra, a partner in the EY financial services strategy and transactions practice. Hello Aman and Saurabh Dhingra. Thank you for joining me today.

Aman Narain    

Nice to be here, Andrew.

Saurabh Dhingra  

Very exciting to be here.

Gilder

Aman, let me start with you. You started your career in banking, and I've also spent a considerable amount of time in the tech industry working with fintechs startups, but also tech giants. What do you think banks can learn from the tech sector?

Narain  

Andrew, that's a long question or there are lots of things. But if I was to anchor on a couple or three, I'd say the first would be leveraging data to create experiences, not just to create them one time, but to create them and continuously improve and develop them and make them better. I think the tech industry does that phenomenally well. Another one would be focus or sort of monomaniacal focus on the consumer, and sometimes even being opened, and many times being open to competing and intensely collaborating. I'll give you an example. Google search is available on the Apple iPhone, even though Google and Apple intensely compete on devices. And that's really important for the tech industry in terms of just growing massively.

The third piece around this is building for scale. And I think this is a piece which really, I've been thinking really meaningfully about since coming back to financial services. For example, we talk a lot about the tail. In my time in big tech, we'd never talked about the tail, because I think what you have is you have an incredibly effective digitized cost to serve, where you don't have to worry about tail management, but really fattening the tail of growing the customers or growing MA use. So, I think the real focus on building for scale would be the third one.

Dhingra    

Very, very interesting, Aman. Do you want to talk a little bit more about your approach? As you mentioned, these three critical points.

Narain  

Yeah. I think it all starts with having a clean strategy. Not something super elaborate, but something that is comprehensive, clean to understand, and making sure that not just you or your organization understands it, but in an environment that we operate, our partners understand that strategy and approach. But as that adage goes, culture eats strategy for breakfast. And I think it's really fundamentally important about rewiring the DNA of the organization to get the balance right between teams that understand the constraints and control environment we operate in, but yet are able to think creatively and be able to solve for these unique opportunities that I presume we'll talk about in a bit. And then the last piece around this is delivery discipline, right? So you could have a great strategy, everybody on board, but you've got to have that delivery discipline. And going back to that previous question from Andrew, I think that's something you see people don't talk about the tech industry, but the relentless focus on delivery is a huge part of that.

Gilder  

Okay. Okay, before we dive right into the detail of platforms and ecosystems, I want to start with this concept of embedded finance and Aman, you mentioned solving for customer experience. And there's been a lot of discussion about integration and embedded finance to help enhance customer experience. Let's start first off with what's your definition of embedded finance, just to level set.

Narain  

Andrew, financial services have evolved from being someplace you want, like a branch to being somewhere you need it, like in your pocket with a mobile phone. Embedded finance, we believe, is the next phase of this evolution where banking is integrated or embedded into something you're doing. Typically, it's a non-bank or what we call a beyond banking environment. Back-end-as-a-Service (BaaS) is another popular term used interchangeably with embedded finance and is the tool or the infrastructure that enables others to consume banking products on their beyond banking surfaces. These terms are often confused because they are used interchangeably like a chicken and egg nature. But when it comes to embedded financial services, probably the most ubiquitous is the embedded payments landscape. But you could equally embed credit, trade, FX, as we've recently announced with partners Finastra, or even a suite of services, and an example of that is the work we're doing with Oracle NetSuite.

Gilder  

Okay. And Saurabh, how do you think about it?

Dhingra  

Yeah, I mean to add to what sort of Aman was alluding toward, as the name suggests, embedded finance is really integrating your financial services, your solutions into the customer journeys – customer journeys, where they're doing their transaction. So, rather than customer coming to you, you really go to where the customer is doing the transaction, whether it's an individual or a business, and you really integrate yourself into it. Look, the concept is not really new to financial services or banking, but it's been existing for many years, but relevance has become lot more important because of the digital ecosystem evolution, as well as the nature of the transaction that the customers are doing today. Some of the examples I would say, like buy now pay later, is a great example of where we see that the customers are doing the transaction on the point of sales and the banks have actually integrated themselves into two-credit solutions. So, yeah, it's a concept which is becoming a lot more important in the current environment.

Gilder  

Okay. So, you both just imply that in order to deliver this integration, someone else beyond the bank and the customer is going to be involved here. So, this is a good link into this concept of an ecosystem, which, again, is a much used term these days, not just in banking. But it implies that there are others in the system to provide the service, which obviously adds complexity. So, starting with you, Saurabh, what are the key components of an ecosystem strategy for banks who have implemented it successfully? And then, I guess, given that added complexity, what are the pitfalls and risks in the design and adoption of ecosystems?

Dhingra  

Thanks, Andrew. I think I'll probably break the question into two. One is really the critical or the key components of the ecosystem strategy for a bank or the financial institution to be successful, and then I'll come to the what are the key pitfalls and risk. So, maybe starting with what are the key components and what will success look like for the banks to be here, right? I think first and foremost is, as Aman started with, I think really be embedding yourself into the customer commercial journey, really understanding where the customer problems are and really solving for it at scale. That's one. Secondly, I would say, is really thinking of a holistic value proposition and taking a single one-bank approach rather than a bank, product or a segment approach the way some banks have thought about in the past. Thirdly, I would say, partnerships, and that's, as we said, a partnership, it's about ecosystem. It's about bringing together various players who will bring either the customer axis or the bring the right capabilities to help solve those problems.

Fourthly, the technology has to be thought differently. It has to be cloud native, it has to be open architecture, the way which will allow to better integrate various partners as well as the players in the system. And lastly, but not least, is the mindset shift. I think the financial institution that banks have to make a mindset shift of doing it together with their ecosystem partners and solving the problems together, and not about really building the capabilities themselves. So, I think those are the five key components. I would say. Now to answer your second part of your question, which is, what are the some of the pitfalls, the risks that come along with this ecosystem strategy? I think the first and foremost, which some of the financial institutions or banks have thought about is rather the presence of their brand. I mean, historically, banks have actually relied on the brands and to build that trust with the customer. I think now that the strategy has to be thought differently. It's more about your capabilities and solving customer problem, whether do it yourself or with your ecosystem players. So, I think that the brand is a big factor to sort of think about differently.

Secondly, as there is a huge flow of data that's happening between different players, as well as the customers, the data security and the capabilities around it will be very, very important going forward. Thirdly is the whole mindset around the technology. Banks in the past have always thought about building their own IP and technology. Now, you need to rely hugely around your customers, as well as your ecosystem partners to solve it. So, I think that's shift from sort of owning the IP versus sharing the IP. And lastly, I would think about the performance management. Even we're taking a very single ecosystem plus a bank approach, how will you really measure the performance or success of different parts of your bank in terms of products or the segments? So, those are some of the risks or the pitfalls to think about.

Gilder

Okay. And brand is an interesting one, because that, in our research, is still hugely important to the way customers choose their primary financial services provider, and it's something that banks can bring to an ecosystem. So, swinging back to you, Aman, does HSBC feel that you need to be the orchestrator of an ecosystem or be a participant, or what are the roles could HSBC play?

Narain  

Andrew, our purpose in HSBC is anchored on opening up a world of opportunity as we describe it. We feel really strongly about the potential that platforms and ecosystems bring to allow us to do just that, an increase domestic or cross-border trade in business. We have 157 years of experience doing this around the world by bringing together strong product capability. Platforms offer us an opportunity for exponential ROI over time as we cultivate and curate these ecosystems with partners who it's really important that sort of alluded to learn from each other, whether that's as an orchestrator or a participant we feel is less important. What is more important is finding new ways to collaborate, to find like-minded partners, an open operating model, and to bring out the best for the customers with us, as you alluded to just now, as a trusted partner, to both the end consumer as well as our partners.

This doesn't mean that we won't explore being an orchestrator ourselves. There are experiences where we feel we are naturally inclined to be that. But right now, what's more important is to build that muscle to be a great ecosystem partner collaborating on data economics, co-creating products, while maintaining a very high standard of hours on data privacy and regulatory compliance.

Gilder  

And turning to you, Saurabh, just coming to the concept of platforms, and platforms have often been at the center of an ecosystem. So, what's your sense of the role that platforms play in curating ecosystems and creating opportunities for both existing but also new players in that ecosystem?

Dhingra  

Look, as we discussed, I think the platform or participants, like a bank, can play two different roles here. As Aman mentioned, you could be an orchestrator, which is essentially bringing the whole ecosystem together, as well as seamlessly integrating the various capabilities. Secondly, you can play as a banking as a service or a platform as a service role where you are providing your capabilities to enable the various players in the ecosystem. Obviously, it creates a lot of new opportunities for existing financial institutions or banks, plus also the new institutions who will be joining the ecosystem. First and foremost, it's really getting access to a large customer base, right? I mean, by definition, platform is a place where we see large number of players or parties come together, either to access to commerce, or to really do transaction. So therefore, by nature, you have the opportunity to really acquire customer at scale, first and foremost.

Secondly, I would say that it allows you to actually get a much deeper understanding of your customer, in terms of the transactional flow that's going through the platform and the access you are able to get to that data. So, as a financial institution or a bank, you can really leverage that data to really be able to cross sell. As Aman also mentioned, therefore, be able to improve the return, which will help to reduce your cost to serve, it will help reduce your cost of acquisition. So, in summary, I would say there's a huge opportunity that a platform can create, provided it's executed properly.

Gilder  

And Aman?

Narain  

It's a long answer, I apologize. I think a platform enables something to happen that has collective value creation with multiple parties, instead of the classic value exchange of a bilateral relationship. It's like a petri dish within which an ecosystem can develop. And in turn, it creates this flywheel of innovation and value creation that we've talked about. You can look beyond banking, you look at what YouTube did for content creators, or Alibaba did for small manufacturers all around the world. And that was to create this platform that develops an ecosystem. But platforms and ecosystems also create an environment where banking and beyond banking capability providers can collaborate and bring together components. If you'd like LEGO blocks that come together to deliver a uniform experience of multiple experiences, you no longer have to assemble the entire experience, I think what Saurabh was alluding to, and you can focus on your competencies and rely on others to build on theirs.

I think as a second part to this, which is equally important, is that while you're creating value for the end user or customer, it is also really important to create the right value-sharing relationship in the sort of multi-party ecosystem, whether it is distribution players like Software-as-a-Service (SaaS) providers or capability providers, who could be even fintechs that banks sometimes compete with and sometimes collaborate with and increasingly collaborating with. It's really important to set that value-sharing upfront. And lastly, while it's really important for them to be a level-playing field with an appreciation of the contribution of each other, and understanding and resolving problems together, rather than at each other.

Gilder  

And where are you, as HSBC, at on the journey to platform banking?

Narain  

Andrew, we as an industry, I'd like to think, are at the end of the beginning of the embedded finance journey, whether it's a handful of pioneering banks like us or who are committed to this or a group of fintechs that are focused on this. I was in New York on leave last week but took a sidebar and grabbed lunch with a bass leader from a popular FinTech, Decacon, and he remarked to me, he said, "This stuff is hard. We agree." We're not doing this because it's easy, we're doing this because it has an ability to transform the industry. And it has an ability to serve customers, both the flow as well as the stock of our customers and considerably grow that. We've announced a few partnerships. I mentioned Finastra and NetSuite and we have got a couple more we'll be sharing soon. But when you're writing the playbook, you're the first few claiming partners are really important. And we're really being thoughtful around who we partner with in this journey.

The common misconception or oversimplification, if you'd like, of embedded finances is that you externalize what you already do and you're on your way. Of course, we are very focused on API's and have been told we're in a leading back on that, but there's a considerable amount of work to do at the back of the kitchen, Andrew, in terms of onboarding, servicing credit decisioning, where we are relentlessly working and believed our experience as a regulated entity allows us to add significant value to any partner  that joins with us. So, that's where we are on the journey with tracking well, but we've got miles to go before we hang a “mission accomplished” sign.

Gilder  

Okay, yeah, I'm sure that's the case. We spent a lot of time talking about platform strategies for banks. But I think we all, at the end of the day, do what we do because of our customers and our clients. So, let's bring it back to what's in it for the customer. Maybe starting with you, Aman, the customer value here that's going to be created.

Narain  

We talked earlier about sort of the third wave of innovation and financial services with embedded finance, customer behavior and expectation has transformed by the experience in other industries and we're aiming to help serve those customers in a number of meaningful ways, but I'll point the three. It's about instant, insight, and integration. Instant is how customers want their services. In the age of Amazon Prime and same day delivery on the consumer side, it's all about minutes. And on the business side, it's still about days, but we believe that that will change. And so, instant is going to become a really big part of this. The second is about insight, which is really gaining traction. If you're going to be the purveyor of the customers’ data and customers increasingly want you to know them better, and by offering them the right products at the right time and provide meaningful insight to them. So, that insight is really important.

And then the third part of this is the core of what embedded finance – it's about integrated experiences. We talked about where the customer is doing their activity. Rather than being in their pocket, we've all witnessed the move from physical to digital channels. Now we're increasingly seeing the need to be at the surface of choice for the customer, whether it's their favorite SaaS provider or their preferred marketplace. So, that's where we see this heading, and value creation for the end customer business.

Gilder  

Okay, that sounds, as a customer of HSBC myself, that all sounds good. So, we've talked about collaboration and we've talked about partners, and you've described this build as being a journey that you're on. What's your view, or  I guess, the HSBC view of working and collaborating with partners? Can you share a little bit more about how HSBC is approaching that partnering journey?

Narain  

You know, Andrew, there's been a lot of articles written about the need. I read recently to read one by Andreessen Horowitz on why platforms or SaaS players need to work with banks or fintechs. And I think having read them, they addressed the “what”, but the “how”, as you refer to it, is critical. We're doing a number of things differently. And if I touch on them, the first is, we've organized ourselves as the platform team inside HSBC, like a fintech. We are building product and engineering teams who are, if you'd like, bilingual and can talk banking and tech in the same breadth with our partners who increasingly want to do that, or only want to do that. We're also bringing a different DNA, as I referred to earlier, to the strong banking gene pool that we already have. We're hiring folks from tech or startup, as well as introducing new job families in the organization like design thinkers, or service designers, and customer success teams, growth hackers. These are all germane to technology or startup, but new relatively speaking to commercial banking.

The second is our approach to partnerships. We're doing things differently then. We're moving from that classic vendor supplier relationship to one of a co-creator or collaborator. As the largest commercial bank in the world, we have the ability to shape the industry with partners from big tech to fintech and we've been also significantly increasing the sophistication in which how we select partners and go about working with them. Third and last is we are rethinking and rewiring the way in which we build and orchestrate solutions using data, as Saurabh talked about, and third parties in ways that we previously have not. So, I think if I was to sort of boil it down to it our secret sauce, though, is our culture. We are working really hard to create this culture inside our organization that allows for, as I referred to earlier, a continuous innovation while being mindful of the dynamic landscape and regulatory environment we're in.

Gilder  

Okay, let's try and pull a few of these threads together into real life examples, and I'll start with you, Saurabh. What powerful use cases do you see emerging as banks begin to conceive the integration of platforms products and these partnerships?

Dhingra  

Thanks for the question, Andrew. I mean, as you rightly said, this is sort of an evolution, right, or emerging use cases. I mean, we've seen there's a huge evolution that's happening across the banking as well as the financial services space. I mean, initially, we saw payments as one of the strongest use cases that came up on the platforms that was really able to simplify the payments across the whole value chain. But now there are many other use cases that are evolving, maybe I can start with on the retail or the customer or the consumer side of the business. We've seen housing— housing ecosystem has evolved very, very effectively, where the mortgages as well as the insurance solutions have been very well-embedded into the house discovery, agency management, or even the housing buying or as well as renting solutions. So, enable the customer to see a sort of a one-stop shop for their solutions. And we've seen these solutions really effectively emerge in many of the developed markets, including Australia, where the banks have been able to create platforms that the customer can just go on and be able to do sort of get all access to their housing needs.

Now, let's look at the other side in terms of insurance as well, where the insurers are trying to integrate themselves very well with their health and life insurance solutions into the medication and wellness customer journeys. Especially, we've seen that a lot in the emerging markets where the healthcare access is still very limited. And many digital platforms are trying to use those platforms to reach out to the customer, and that's where the insurers as well as the banks are trying to integrate themselves to offer an end-to-end sort of service.

Now, let me see all the talk about a little bit on the business banking or the commercial banking side as well. The first and foremost that comes to my mind is the micro, small and medium-sized enterprises (MSME) platform, where many non-banking as well as the banking players are coming together to offer end-to-end services such as accounting, expense management, legal advisory to really create a one-stop platform for some of the small business players who don't need to necessarily go to many platforms to find those services. And therefore, banks can play a central role to orchestrating that platform. The second use case I see, which has a huge value that can be created around actually supply chain or the value chain for financing, today or historically, we've seen banks have only been able to sort of serve the first year, the second year of the supply chain. But by creating a platform, which brings the visibility across multiple tiers, we'll be able to actually solve a huge industry problem of financing as well as a sort of a single view of the payments and transactions.

Another area where we see huge development is a platform as a service, where some of the financial institutions are really leveraging their technology and the capabilities built over the years, and really trying to commercialize those, and bringing it to the other financial institutions or fintechs. Some examples of it could be credit underwriting, where we have seen banks actually leverage the capability and bring it and commercialize, and also research where especially the discovery of some of the of the debt, as well as the equity solution in the market that can be brought to the other financial institution and really be able to create a new revenue stream for the financial institutions.

Another great example I've seen just going again beyond banking or looking at the insurance side where the healthcare solutions have been really brought in to the medication and the wellness, customer journeys, particularly in the countries in the emerging markets where the healthcare is still an area where the access is quite limited and a lot of digital solutions that are emerging, and therefore the banks as well as the insurers are partnering there. Looking at the commercial side of the banking, I would say SME or MSMEs is one area where we've seen the platform's emerging very well, bringing the various non-banking solutions such as accounting expense management or advisory services under a single platform, and enabling through the credit as well as the payment solutions by the bankers is really creating a one-stop platform for the MSMEs to really solve the end-to-end problem and not just the banking solutions. 

Another great example, I would say, is value chain financing, where there are platforms that are emerging, trying to solve the deep tier financing issue which is historically the banks have only stayed at the first or second tier. But now with the enablement of a platform, you're able to actually go to deep tier of the supply chain, and therefore solve those problems. And lastly, I would say there are solutions as a platform, as a service, particularly on the market side, where the banks are actually leveraging their capabilities and trying to commercialize such as credit underwriting models, as well as some of the research capabilities and enabling other financial institutions in this space. So, I would say still, it's a journey or evolution that we're seeing across different parts of the banking, and the banks are getting a lot more innovative in the way they are able to leverage and create new use cases around it.

Gilder  

Okay, thanks. Well, it's been a fascinating discussion so far and both of you have outlined a really bold vision for collaboration for the benefit of customers. So, let's bring it to a close. But based on the discussion today, what's one piece of advice or takeaway that you'd give to a CEO or a banking business leader today, listening to the podcast? Let's start with you, Saurabh.

Dhingra  

Yeah, I would say, I think the biggest change or the shift that needs to be made here is around the mindset or the DNA of the organization. I mean, moving away from thinking like just being owning the space to actually sharing the space, which is about collaboration and really working with your partners to create value for your customers, as well as the whole ecosystem, which is a huge mindset shift. So, I think that, to me will be the core of it. Obviously, there are enablers that need to happen, the organization to be successful around it.

Gilder  

Okay. And Aman?

Narain  

Andrew, I've given you a lot of long answers, so I'll give you a short one, and this is to anybody leading in financial services. It's a favorite phrase of mine is, "If you want to go fast, go alone. If you want to go further, go together."

Gilder  

Well, what a great way to finish. Let's leave it that. Aman and Saurabh, Thanks again for joining me today and sharing your insights.

Dhingra  

Thank you.

Gilder  

You've listened to the EY Next Wave Banking in Asia-Pacific Podcast. To learn more about EY, our people and our latest thinking, visit us at ey.com/banking. If you would like to have further conversation on what you have just heard, or learn more about joining our team at EY, please contact us via the details found in the description. And finally, don't forget to subscribe to our podcast on Apple podcast, Spotify or wherever you listen.

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