Corporate Development – Asia School of Business

Unsurprisingly, Malaysia’s unemployment rate grew to 4.8% in June, reversing a downward trend in the first half of the year due to the latest round of pandemic restrictions. Similarly, graduate unemployment is also increasing, resulting in graduates opting for jobs that are below their qualifications. What broader impact will this have on the Malaysian economy, and what policy measures are needed to mitigate the fallout? We discuss these issues with economist Dr. Melati Nungsari.

Listen to the full interview below.

Just as the MBA Class of 2020 gears up for the job hunt, the novel coronavirus (COVID-19) disrupts the global status quo. All around us, we hear news of some industries struggling to make ends meet, while others unexpectedly thrive. No matter the industry, a core resounding message is clear – pivot or face the consequences. This message is timely for MBA graduates too.

Many of us have entered business schools with well-defined career aspirations but find ourselves at a crossroads, deciding whether to pivot or stay true to our original paths. To support the Class of 2020 and soon-to-graduate Class of 2021 to think about the way forward, the Career Development Office at Asia School of Business launched a “Rejuvenation & Reimagination Series,” a series of panels that explore industries that have evolved during the COVID-19 pandemic and the new opportunities that opened up with that change.

The first installment of this series, “The Role of Blockchain in the COVID-19 Crisis and Recovery,” presents two experts – Shi Khai Wei, COO of LongHash Ventures, and Sharad Malhautra, an Independent Consultant of EY with 15+ years of experience in the blockchain domain – who shared their perspectives on the evolution of the industry and what opportunities lie ahead for MBA students. It was also moderated by our very own blockchain explorer and expert, Varun Singhi (MBA Class of 2020).

The Case of Blockchain Supporting Global Supply Chains

The general lack of connectivity and data exchange built into our global supply chains has become painfully clear [1] during this pandemic. Sharad shared that companies are challenged to provide greater “visibility and resilience for the global supply chain,” and that is where digital technologies like blockchain will help. He further broke down this situation by explaining, “When it comes to supply chain, the two [most valuable] aspects of blockchain are visibility and reconciliation.

Even before COVID-19, the majority of companies, both large and small, have struggled with moving assets across cities. That’s predominantly because companies are moving products across different functional, business, or system silos.” Any silo in the supply chain will cause a lack of transparency, and with it, inefficiencies. Companies would have more inventory in some places than others, which necessitates higher working capital.

MBA graduates, who understand how supply chains work and how technology can play a part in breaking down silos, can improve planning and increase visibility. “Ask any logistics manager or supply chain planning manager, ‘Do you have 100% confidence in the inventory and supply data in your system today?’ and he will say, ‘I still have to do a lot of physical counting and verification.’

I think that’s what blockchain helps to alleviate by giving more visibility and real-time accuracy to your data and products. When you have that, you can make better planning decisions,” Sharad explained. Shi Khai chimed in by describing the kind of start-ups that are drawing the attention of VCs during this pandemic: “When we were facing this pandemic, we wanted to see how blockchain could help address some of the most immediate pain points.

We brought together enterprises from China and Singapore. We even had McKinsey as one of our partners, along with the technology arm of MDA and OneConnect, to identify solutions and score them… It’s really about transparency and reconciliation or settlement. The top winner was actually a supply chain solution [for a vaccine], and they are now part of our accelerator program.”

This bears good news for us, MBA students, who want to add value to global supply chains or even start our own businesses. How then, can the Classes of 2020 and 2021 make ourselves relevant?

The Skill of Digital Transformation

Sharad asserted that future MBA students will need the ability to navigate digital transformation. Graduates should understand how different technologies like blockchain, machine learning and AI work separately and together, figure out how new technologies can create accelerated value creation, and then translate them into business impact.

“[As MBA students], you understand supply chain and operations, but do you really understand blockchain enough to know exactly how to use it to generate value? It’s more about understanding digital from a solutions standpoint. What would a blockchain solution, an AI solution, a process automation look like in a large organization?” Sharad said.

IDC predicts that “over 50% of all IT spending will be directly for digital transformation and innovation (up from 31% in 2018)” by 2024. In addition, DXC Technology, an American multinational corporation that provides B2B IT services, adds that “digital transformation initiatives will take large traditional enterprises, on average, twice as long and cost twice as much as anticipated.” [2] This is the opportunity presented to MBA students.

“I don’t think digital transformation in enterprises is going anywhere in another 10 years. It is going to give a majority of graduating MBA students careers, so make sure you have the right skills. We see again and again that most entry-level MBA students going into the workforce are dealing with a lot of new technologies and are responsible for harnessing these technologies in organizations.”

Conclusion

Where there is crisis, there is opportunity. The unprecedented COVID-19 pandemic has exposed the gaps in many industries. This presents us with new opportunities, as long as we are able to see and seize them. As MBA graduates, we have been trained to look for the next opportunity and to position ourselves such that we could catch the megatrend of the next few decades. According to both experts, blockchain is one such opportunity. Shi Khai added:

“There is a lot of room to recreate a better version of the financial infrastructure that we see in the world today. There’s also a lot of room to make the fundamental blockchain infrastructure more mature. There’s so much more work to be done to make sure that security is waterproof, because once it’s on one chain, it’s gets exploited.

“When I came across blockchain, I thought it was something different, as it is the only technology that comes with a movement and a philosophy. The start-up industry for blockchain is [also consistently] different from the start-up industry of other technologies. There’s a lot of talk about decentralization and Web 3.0. Now, what do these mean?

“They represent a future where you no longer need the middleman. You could truly have peer-to-peer interactions. And with their open-source nature, you have a more inclusive and innovative ecosystem where anybody can come in and build on this technology, just like open APIs, by default. So fundamentally, it encourages open and inclusive innovation where everybody can collaborate on blockchain protocols.”

To learn more about blockchain, feel free to reach out to our very own blockchain explorer Varun, who would be more than happy to start a conversation about the opportunities available in this industry.

[1] AlMuhairi, 2020, Why COVID-19 makes a compelling case for the wider integration of blockchain, https://www.weforum.org/agenda/2020/05/why-covid-19-makes-a-compelling-case-for-wider-integration-of-blockchain/

[2] IDG Communications (2020) Key to sustained digital transformation in 2020: People, https://www.cio.com/article/3519273/key-to-sustained-digital-transformation-in-2020-people.html

Dato’ Ariff is a former Chief Information Officer at Standard Chartered Bank Malaysia. There, he oversaw the full spectrum of Technology and Operations and was responsible for systems development, technology support and banking operations for the Bank’s retail and wholesale banking businesses in Malaysia. His 28+ years of experience in the banking industry spanned across multiple countries and geographies.

He is a thought leader and is skilled in innovation, digital transformation, banking operations, digital banking, credit cards, financial technology (fintech) and Open Banking. In March 2019, Standard Chartered was among the first three organizations that received a virtual banking license from the Hong Kong Monetary Authority.

ASB student Saloni Saraogi (MBA Class of 2019) interviewed Dato’ Ariff about his thoughts on the growing trends of digital banking and fintech. Read on to discover insights about where this industry might be headed in the near future.

Why is digital banking a big business opportunity that attracts even non-financial players such as Grab and AirAsia?

The concept of digital banking is not new and has been in existence for many years. For instance, in Europe we have N26, Revolut, and Atom Bank. However, the term has become popular only in the past 5-8 years. Initially, the struggle was regulatory in the sense of acquiring a banking license. Europe has been at the forefront [of this movement] and is moving to Open Banking. This has led to a lot of activity in the virtual banking space in that region.

Asia is catching up. Grab, AirAsia, Paytm and many other non-financial players want to enter into this market. However, most of the success stories have been on the payments side, and this is primarily because cross-border payment costs are lower in digital banks when compared to traditional banks. Digital banking has been a big business opportunity and there has been chatter everywhere that the next banking generation is virtual banking and [brick-and-mortar] banks will be wiped off.

However, in my view, retail banking is the sector that is currently being disrupted the most and no bank will be wiped off. Banks provide services in many other areas such as corporate, trade, and securities, and the disruption in these areas will take time. Customer behaviors and mindsets are changing with respect to digital banking and there is a race to be the first to grab this opportunity.

What are the implications of a digital bank for non-financial players and financial players?

Clearly customer preferences are changing. When we look at the basic rationale as to why customers keep their money in a bank, the underlying and most important reason is trust. People feel that their money will be safe in a bank and can be withdrawn at any time. With trust in mind, more and more people are now using services by non-financial players. Alipay and WeChat offer wallet services which allow customers to keep their money safe.

It is not surprising to see that their penetration rate has been extremely high. Grab has announced its entrance into financial services and I believe that Grab Pay will fly. People want to pay online, and these are small amounts so there is no big risk. If traditional banks have millions of customers, bigger tech giants such as Google and Facebook have billions of customers.

These tech giants are currently in the initial learning phase, but once they enter into the digital banking and payment space, they can give serious challenges to existing traditional banking systems and the competition will then reach a global scale.

What do you think is the biggest challenge traditional banks face in their move to become a digital bank and how can they overcome this?

Standard Chartered recently received a virtual banking license from HKMA in Hong Kong. It is a completely standalone virtual bank with respect to management. Various banks like Standard Chartered are testing the waters now. They want to have a first-mover advantage and be the first ones to overcome challenges and solve problems. Each bank has a different challenge and different experience. For instance, in the US, Mobile Bank is a university bank.

All of its customers are university students. It offers them small loans, deposits and ATM services. It got acquired by a traditional bank, Commerce Bank, for around USD $180 million. Some banks are setting up digital banks as a standalone bank, some are partnering with fintech companies and some are acquiring digital banks. There is no right or wrong or good or bad model out there. It is important to be experimental in nature and to be a quick learner.

For instance, N26 is already present in 19 countries with a very high penetration rate and has been able to expand quickly due to its presence on the cloud. Banks are now watching and learning from these use cases. I believe that the challenges are much more regulatory in nature and less digital. Customers would like to use digital services because of the convenience they offer.

In Hong Kong, it takes about one year to get a banking license. Regulators too are new in the space and are working to ensure that customers’ money is safe.There is a time lag and regulations will evolve. Be it a digital bank or a traditional bank, all banks need to comply with regulations. However, for a digital bank, regulators are trying to make [the process] suitable for both the banks and themselves.

Standard Chartered just received a virtual banking license in Hong Kong. What are the implications for existing bank branches? Does it mean that branches will become obsolete?

In spite of the existence of virtual banks, many banks are opening branches in the US. Bank of America said that it will open 900 more branches. Why are they doing this, especially when there is a popular belief that branch banking will become obsolete? It is important to understand the difference in demographics of a country. Each country is different. India, Pakistan, Bangladesh and African countries have small banked populations.

Singapore and Malaysia, on the other hand, have large banked populations of 95% and 92%, respectively. For countries where the banked population is very high, opening a new branch may add less value in the sense that there will be a smaller number of additional customers that will join. But in countries where financial inclusion has not reached its optimum level, banks will continue to have branches.

One may argue e-money and digital money [will instead dominate], but I believe that they have a long way to go. DBS in India launched Digi money and their services do not use e-KYC. The customer is required to go to a local coffee shop and verify himself/herself to open an account. This may be possible in cities, but in small villages there are no coffee shops. Hence, the process is not 100% digital and there are challenges.

What is the implication of a virtual banking license for the digital banking services of a bank?

A virtual banking license is required in many countries to operate a bank digitally. These license regulations require a sort of discipline in terms of capital requirements. When a small bank or fintech firm wants to offer virtual banking services, they have different capital requirements and restrictions.

Regulators, after years of research and firsthand experience, are now determining what the optimum capital requirements are for a digital bank. They are concerned about people’s money and place more emphasis on deposits than on lending. Banks need to comply with regulators in the sense of how much money can be deposited and how much money can be lent. These requirements are different for traditional and virtual banks.

As an industry expert, what do you think will be the next biggest change we are going to see in banking services in the next 5 years?

Certain banks will be wiped off in the next 10 years. There are banks that are doing a lot such as Standard Chartered, DBS and Yes Bank, and then there are banks that believe that they will be fine and are not doing anything substantial.

It is very clear that banks that are not evolving and are not doing enough in the digital space will be wiped off. When I say wiped off, I mean that the cost of doing business will be high, customer bases will start shrinking and the profit pie will become smaller.

Banks have depended on loyalty to gain generation after generation of customers, but this does not hold true anymore and is being replaced with a focus on service. The loyalty of a customer in today’s world is based on good service.

Banking will evolve. The threat of new entrants to a bank is extremely high. Google and Facebook are developing their own solutions. Countries too are now issuing e-money. In China, e-money and wallets have become so popular that is hard for traditional banks to do what they want. Incumbent banks will have to evolve, and new journeys will be undertaken.

Category: Corporate Development