Part 1: Regulator Perspective
“Today, we want to understand how FinTech is going to work with us rather than compete with us.” – opening statement by Michael Araneta, Associate Vice President, Head of Research & Consulting, IDC Financial Insights APAC. This was the first presentation of the IDC FinTech Innovation Summit 2018, where key stakeholders in the Financial Sector of Thailand and the Region convened to share the roadmap for collaborations and strategies concerning Financial Technology and Innovation.
Mr. Araneta started off by highlighting the main topics of discussion that would be taking place during the day. Those started off with Buncha Manoonkunchai, Senior Director, Financial Technology Department, Bank of Thailand, highlighting the competitive landscape among regulators across the region competing to become more proactive and innovative in the region. Other highlights included an outlook on the market of financial services and strategies, unveiling major researches of IDC, particularly in the APAC region, factors of successes and failures of FinTech ideas over the pass three years, finding the right financial services providers, and exploring new emerging opportunities with open banking and open services.
Open for Business: Thailand is Ready for Collaboration
Opening the summit was Buncha Manoonkunchai, Senior Director, Financial Technology Department, from the Bank of Thailand, who opened the floor by describing the role of the Bank of Thailand in developing FinTech Policies and its achievement so far. Mr. Manoonkunchai highlighted three key drivers for financial development and innovation:
And driving financial development and innovation are six key revolutionary technologies:
1. QR Payment
QR Payment, a form of e-Payment, is now changing the way people pay, especially among small and medium size merchants. Today, QR Payments are showing high penetration rates among local merchants.
2. Blockchain & Distributed Ledgers
While some believe blockchain is still very immature, it is growing very fast. Blockchain has many applications, but in the financial sector, a strong growth is evident in the cross-border commerce sector. In the Bank of Thailand’s Sandbox Environment there are several cases where real applications of Blockchain are being tested in a limited environment.
Biometrics applications are improving the KYC (Know Your Customers) process, converting the process onto a digital platform with high potential use case particularly for developing the e-KYC process for the National Digital ID Project.
4. Big Data/Data Analytics
Data is crucial as it becomes more ubiquitous. Financial Institutes are trying to bring in more data from financial scope to utility data in order to deliver a more personalized product and service to their customers.
5. Machine Learning/AI
With more data, the question comes down to – How do you use it? Machine Learning and Artificial Intelligence (AI) are the keys. Many FinTech companies are trying to bring in AI use cases, and it is clear that Machine Learning and AI will gain more important roles in the future.
6. Standard/Open APIs
While Europe is promoting Open Application Programming Interface (API), Mr. Manoonkunchai at the Bank of Thailand believes that for a developing country like Thailand, developing Standardized APIs would be much easier to adopt.
Driving the Sandbox
Mr. Manoonkunchai described the role of the Bank of Thailand to be that of balancing risks and financial stability, while also fostering innovation. With more technology incoming into the landscape of the Financial Industry, and with more people gaining access to it via increasingly ubiquitous mobile devices, the main question that the Bank of Thailand needs to consider is “How can they access these services in a secured manner?” Mr. Manoonkunchai outlined three main objectives of building a sustainable FinTech Ecosystem:
To achieve these main objectives, it is equally important to have 1. Supportive Regulations 2. Open Infrastructure & Interoperability 3. Accommodative Fintech Ecosystem 4. Adequate Communication and Financial Literacy.
The Bank of Thailand’s Collaboration Frontier
To promote Financial Innovation, the Bank of Thailand is continually collaborating with many FinTech players to push out 5 major innovative Financial Services and Product.
Earlier the Bank of Thailand has pushed for a cross bank e-Payment service, PromptPay. With over 44 million users, the adoption rate of PromptPay is increasing dramatically. As more people are getting onboard, more innovative services such as Cross-Border Payment will be rolled out.
2. Standardized QR Code
From observation, there are several countries adopting QR Code Payment, however, Mr. Manoonkunchai pointed out that there are still some limitations hindering the scalability of QR Code Payment. One is the fact that every company is using different QR Codes. Thus, it is the objective of the Bank of Thailand to push for a standardized QR Code format to allow cross banks and businesses transactions. With this initiative, all banks and non-banks will be using the same QR Code for all kinds of payment, and this could be useful particularly for Cross-Border Commerce. With QR Code Payment, transactions as small as 5 or 10 baht could be possible. In Thailand, QR Code Payment have reached over 2 million merchants, both online and offline, over a short period of time. This also extends into the Government Sector, Schools, and Transportation Vendors.
Mr. Manoonkunchai also pointed out how QR Code payment has also extended to cover online donations, allowing for easier means of charitable fundraising.
4. Digital ID & e-KYC
The goal of the National Digital ID Project is to provide a mechanism to link trusted sources together in order to allow for a more secured authentication and verification process via an online, connected and secured platform. This is where Digital ID and e-KYC collaboratively build the ecosystem and develop digital banking services to enhance competitiveness.
5. Blockchain Community
While Blockchain is still at a very early stage, it is showing high potential to add value to the Financial Service Industry. However, the major challenge with Blockchain is interoperability, that each platform does not communicate with one another. As such, the Bank of Thailand is in search for a use case with more powerful penetration.
In order to push out new technology and innovation in the Financial Industry, Mr. Manoonkunchai stressed the importance of calling for a full collaboration among key players in the industry. Thailand Blockchain Community was set up with an aim to enhance business efficiency and competitiveness by adopting blockchain technology, with the initiative initially implemented via the Letter of Guarantee (L/G) project.
Moving Forward with the Bank of Thailand
The next step for the Bank of Thailand to promote Financial Innovation is to push for more open opportunity and infrastructure through five action plans:
1. Strengthening Oversight – to maintain stability and trust
2. Encouraging the Ecosystem – by adopting new technology, pushing for Digital ID, e-KYC, Biometrics, and promoting more blockchain use cases
3. Increasing Adoption – for a sustainable development
4. Promoting New e-Payment – developing e-Payment product & services for businesses
5. Enhancing Cross-Border Payment Linkage – pushing for Cross-Border QR Codes, and PromptPay Remittance
Thailand’s Insurance Industry on Innovation Acceleration
The second session by Dr. Aryusri Kumbunlue, Senior Director, Policyholder Protection Department from the Office of Insurance Commission (OIC) discusses the efforts of the OIC to accelerate innovation and technology being used in the Insurance Industry. Dr. Kumbunlue raised the issues most CEOs are concerned about, particularly in the Insurance Sector, which revolved around four major issues:
Dr. Kumbunlue then gave some examples of interesting players among Insurance Technology (InsurTech) Startups in the region, including rising trends among InsurTech Startups, such as P2P Insurance, UX design development to meet changing customer behavior, underwriting, blockchain, smart contract, DNA testing, facial recognition, and claim payment. Some examples of notable InsurTech startups in the region are:
1. Cuvva – an on-demand car insurance model where customers can choose to turn on/off their insurance coverage
2. Brolly – managing all insurance accounts a customer hold by collecting information for each account, including an AI algorithm to calculate whether the customer is being over-insured or under-insured
3. Spixii – an insurance chatbot model where inquiries are taken care off promptly
4. Frank – using chatbot to promote insurance literacy by informing and educating customers about insurance including insurance premium calculation
Insurance Industry in the Digital Era
Dr. Kumbunlue highlighted six issues the Insurance Industry is dealing with in the digital era:
1. Automated Car
Autopiloted or automated cars had become a major issue in the past couple of years, with major development ongoing in the automobile industry. Although Thailand has yet to see automated cars surely the technology will be coming in the future, thus, policy makers need to be prepared and a policy is needed to cover the risks associated with automated cars. One of the major issues to consider in this case is, on the incident of an accident occurring, who will be the person liable for the damage. Since the case has yet to exist in Thailand, the most likely alternative is to adopt the best practice from countries who had already implemented their risk management policies on automated cars, for example, the United States. In the US, there are five levels of automation where liabilities can be delegated based on the level of automation involved.
Photo Source: National Highway Traffic Safety Administration
2. Effects on Intermediaries
The main question for intermediaries is – will Artificial Intelligence (AI) be replacing brokers or sales? It is undeniable that technology will augment the level of service for insurance by becoming more interactive with customers. Technological growth will also be forming new products and increase cross-selling opportunities. The digital platform will also allow for more usage of data analytics, a powerful sales tool in the future. As such, agents and brokers should learn to embrace the technology and adapt to the incoming changes.
3. Bank and Insurance
Today, we are starting to see more banks moving into the Insurance Sector as they roll out more and more insurance products. However, there are only a few banks that are really interested in running the insurance business. In most cases banks would prefer to be an insurance marketplace selling different types of products rather than managing the insurance brokerage themselves.
4. Customer Behavior Change
Not only are we dealing with technological changes, but today, we are also dealing with customer behavioral changes. With a more ubiquitous access to the internet and technology, and the fast delivery of data, people are seeking more swift response, more interaction and participation, as well as a more personalized service.
5. Cyberattack Risk
Because insurance products are often associated with personal data and information of the customers, cyber security and dealing with cyberattack risks have become a major issue for the Insurance Industry.
6. The OIC Approach
In tackling the aforementioned issues, the OIC had taken a much proactive role to establish an insurance bureau system in order to integrate the database of insurance data infrastructure for improved security for life insurance. This is part of the fraud prevention initiatives, where the OIC is trying to incentivize insurance companies to provide these data by a cost reduction scheme.
Another requirement for insurance companies is to have an IT audit in order to build trust associated with data privacy. Like the Bank of Thailand, the OIC also offers a Sandbox Policy for InsurTech companies and startups to explore risks within a limited environment, for examples premium calculation, discount of positive insurance for diabetes and premium discount for good driver. This would also allow the OIC to collaborate with these companies in revising any regulations that are currently hindering the development of technology or innovation.
The Center of InsurTech Thailand (CIT) is a major development by the OIC to establish a center for the exchange of knowledge among key players in the InsurTech Industry, as well as to establish an integration and collaboration platform between the insurance industry and technology companies in an effort to nurture innovation.
Ending her session, Dr. Kumbunlue emphasized on the goal for OIC to have clear and simple insurance policies to accelerate the growth of InsurTech Innovation, while also balancing the risks associated with consumer rights.
Source: IDC FinTech Innovation Summit 2018