Future Proof: Digitizing Singapore Banking for Cross-border Payments

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singapore port

Singapore has the world’s second busiest port, just behind Shanghai China. Photo: Randy Tan

Digitizing Singapore’s core banking infrastructure and integrating it with the broader international community for cross-border payments is critical to the Southeast Asian nation’s economic future.

It’s not enough to focus on the consumer-facing portion of the payment stack, said DBS Bank CEO Piyush Gupta at a conference on digital banking and financial inclusion in Singapore on Wednesday.

“A lot of people simplify digital banking to be just apps,” said Gupta, during his keynote speech at the fifth annual Sim Kee Boon Institute (SKBI) for Financial Economics. “[This] is too simple.”

For DBS Bank—the largest bank in Southeast Asia by assets and one of the largest in Asia—figuring out the core infrastructure is what really matters. As Gupta noted during the conference:

“How do banks do the entire back-end process to allow instant digital fulfillment? We are spending billions of dollars in digitizing the bank and 90 percent is digitizing the middle and backend.”

Vivian Balakrishnan, minister-in-charge of Singapore’s Smart Nation Initiative, echoed Gupta’s sentiments, urging banks to find more efficient ways to deliver their services.

Becoming a “Smart Nation”

In Singapore, this sense of urgency for financial innovation isn’t a new or reactionary development. Instead, it’s a continued commitment to technological progress by both the banking industry and policymakers, an ongoing prerogative that was reinforced by Prime Minister Lee Hsien Loong’s speech this past November, which outlined a vision for transforming Singapore into a “Smart Nation”.

Fundamental to this concept is figuring out payments—at both the infrastructure and application level.

Joining the likes of Mexico and the UK, Singapore launched a domestic real-time settlement system in March last year. And the city-state is regularly mentioned in the same breath as London and New York as a major international hub for fintech innovation.

With VC funding in tech eclipsing that of Japan, Hong Kong, and South Korea, it’s little wonder that local officials are betting big on Singapore becoming the Silicon Valley of Southeast Asia, according to a 2014 report by the Wall Street Journal. Constantly in search of fresh ideas, the Monetary Authority of Singapore (MAS)—Singapore’s central bank and financial regulatory authority—made a trip to the Bay Area just last month, visiting a handful of tech firms including Ripple Labs. [Ripple Labs recently opened an office in Sydney, Australia to expand its Asia Pacific footprint.]

These ongoing investments in Singapore’s financial and technological underpinnings set the stage for the Asian Tiger’s ever-expanding economic influence.

According to recent data published by the Bank of International Settlements (BIS), Singapore experienced the largest year-over-year jump in worldwide payments volume in 2011, besting China and Saudi Arabia.

The rise of Southeast Asia

But to fully harness the country’s vast economic potential, Singapore—which boasts a population of 5.5 million and a per capita income of nearly $80,000, the third highest in the world—must look beyond its borders.

During the World Economic Forum in Jakarta three weeks ago, Malaysia’s international trade and industry minister, Mustapa Mohamed, argued that the Association of Southeast Asian Nations (ASEAN)—which also includes Indonesia, the Philippines, and Thailand, among others—could surpass the EU’s economy in as little as a decade.

There’s just one caveat. That kind of economic growth would only be possible through the financial integration of ASEAN countries—similar to Europe’s economic union in the 90s. But unlike the EU, ASEAN nations don’t intend to form a single currency. While the adoption of the euro simplified cross-border payments for the Old Continent—though notably at the expense of monetary sovereignty—Singapore and its neighbors seek an alternative solution.

The EU-ASEAN Business Council (EU-ABC) underscored this point in a proposal sent to the ASEAN Economic Ministers (AEM) in late April, emphasizing the pressing need to financially integrate banking systems and cross-border payments within the region.

A plan of such scope and complexity—involving multiple currencies and disparate payment networks—is admittedly easier said than done.

There is, however, ample incentive to get it right—suggests a recent SWIFT report, presented in conjunction with the BCG’s Global Payments Model at Sibos 2014—whereby international trade growth, particularly in emerging Asian markets, drives record demand for cross-border payments.

In overcoming these challenges then and equipping its banking system for the needs of tomorrow, Singapore, according to the report, could overtake Canada, France, and the Netherlands by 2023 and become one of the top ten trading nations in the world.

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