FINANCIAL SERVICES
Compiled by Ayesha Reza Rafiq
A FUTURE DRIVEN BY DATA
Divya Casie Chetty notes the growing importance of fintech digitisation
Q: How important is data governance in the financial services industry?
A: A massive amount of data is generated and stored amid increased digitisation. Data is considered one of the industry’s most valuable assets. Therefore, it’s vital to ensure that data quality and governance are prioritised, and necessary steps taken to ensure proper usage. Due consideration must also be given to information security and privacy.
With the global shift to open banking where customer data is shared with third party providers – in a secure manner with customers’ consent – there’s a growing need for increased regulation.
Q: And what impact will mobile transactions have?
A: Cash transactions continue to dominate the market and are estimated at 95 percent. The shift in the market is taking place albeit slowly. But there’s great potential as mobile penetration and the use of smartphones is high, and growing rapidly in Sri Lanka – there are an estimated six million plus smartphone users. This should be capitalised on and it would drive the shift to a cashless society.
Most local and global banks already operate mobile apps while other fintechs are launching their own applications gearing towards a market takeoff.
Q: How innovative is the financial services industry at present?
A: Sri Lanka was lagging behind other markets until recently. In the last two years however, there’s been a growing interest in this space and its progress has been rapid given the increased participation of fintechs.
I would like to see greater innovation in supporting the SME segment, which faces difficulties when looking to borrow – owing to a lack of adequate financial history. Data analytics through analysis of cash flows and use of ‘decisioning technology’ can be leveraged to expedite the approval of SME loans.
Q: Will disrupters such as blockchain and cognitive systems impact the local landscape in the next decade or so?
A: Blockchain, robotic process automation, AI and cognitive systems will have a definite impact, and drive change across all segments of the industry. Blockchain has already been used to facilitate trade transactions.
This will contribute to minimising risks, optimising trading strategies, reducing costs through automation of repetitive manual tasks, reducing paperwork, and cutting time in the context of trade finance and payments. It will also improve service quality and assist in tailoring solutions.
A tech focussed leadership team and access to the right human resources with the necessary skill sets are important. A greater focus on governance and compliance roles not to mention cybersecurity is also required. It is important to invest in technology that enables increased engagement with clients.
Q: What is the main challenge facing the industry?
A: With regard to financial services, the main medium-term challenge is the need for banks to raise funds to comply with the Basel III additional capital requirement by early next year.
Banks have tapped into the local capital market. Going forward, with the increasing need for additional capital, international markets must be explored. At this point however, smaller institutions may face constraints. Therefore, sector consolidation may be required.
The two main state banks will depend on the Treasury to fund their capital requirements. In the long term, listing these institutions may be necessary.
Q: Which industry segments must be developed further?
A: Capital markets require development. Focussed capital market development initiatives have accelerated economic growth over the years, and contributed to financial sector stability in emerging economies such as Vietnam and India. Locally, market capitalisation as a share of GDP is only 23 percent compared with over 52 percent and 70 percent in Vietnam and India respectively.
From an investor perspective, the market is quite small with limited liquidity and product offerings. To increase investor participation, the introduction of new products, short selling, and security borrowing and lending are important to improve liquidity. Increased participation and engagement with long-term institutional investors – such as provident and pension funds – can contribute to improving stability.
Increased issuer participation is important for both the private sector and state owned enterprises.
In order to encourage global investors, the domestic regulatory framework must be brought in line with international benchmarks.
Increased regulatory strength through a greater emphasis on governance and compliance is also important.
