Thursday, July 31, 2008

Web 2.0 is changing banking in Thailand

PATTAYA : Web 2.0, the new Basel II directive and micro and mobile finance will all have an important role to play in Thailand's banking industry, though technology remains second to trust, according to Sun Microsystems.

Speaking at the Sun Financial Services Industry summit in Pattaya, director of financial services at Sun Microsystems Thailand Chan Kong Hoe said that in Thailand the consumer credit sector was still very much untapped with 81 per cent of banks' portfolios still in corporate banking and corporate loans. This is also true of Indonesia and the Philippines.

The new Basel II directive which continues the Basel accord on credit risk and changes certain processes reinforces this trend. It says banks must set aside more provisions for higher risk loans, but the main change is to give a lower risk factor when lending to consumers as opposed to lending to companies, hence banks will be forced to focus more on consumer loans to balance their portfolios.

Some of the hot trends that banks are now focusing on are business intelligence to provide better customer service, micro finance and Islamic finance. The other major trend is the rise in oil prices, and consequent inflation. Together, this has led to a large number of mergers and acquisitions as larger banks enjoy economies of scale and lower per transaction costs.

Chan said that Sun expected Thailand to slow down a bit as the US was a major export market for the Thai economy, though if the government can stick to a six per cent growth, that would be a decent figure. The announced tax breaks on mortgage transfers would spur the market, he said.

"Vietnam may have 7.7 to 8.0 per cent GDP growth, but their inflation is 10 per cent. You have to think differently when inflation exceeds GDP," he said.

Thai banks are also looking to grow fee-based revenues. Today, every branch generates around $300,000 of fee-based revenue per year, way below the one million dollar benchmark of better banks in the region.

But before banks start to get greedy, Chan warned of how Web 2.0 was rapidly changing the industry.

"Social lending sites like Zorpa.com - if you have money, you post it there and someone who is interested can borrow it based on their credit score. The lending business is now being taken care of without banks. It started in the US and UK, and is now in Japan. You never know when it will come to Thailand," he said.

Another example is Booktour.com, where authors meet with fans and sign copies of books. However, the books are all pre-paid through PayPal, and no money changes hands at the signing.

"I've taken away your lending business. Now I'm taking away your payment business," he pointed out.

Web 2.0 and the blogosphere can have a profound impact on banks' reputations when people start to read blogs about where to bank the same way they read about where to buy things today. Try Googling "I hate HSBC" and see what people are saying about the bank on the Internet. The impact of Web 2.0 is real," he said.

Asked about another Sun favourite, cloud computing, and how the financial services industry was adopting it, Chan admitted that many national regulations prevented data from travelling out of a country. However, the main sticking point was not regulation but trust. Today you bank with the bank because you trust them with your data. Would I be comfortable if my data was protected not by Citi but by a large IT corporation? Maybe not, Chan said, and delivered a similar argument when asked about the future of mobile banking. The technology is not an issue, but trust is. Rather than replacing banks, telcos are now being used as part of two-factor authentication. Some banks today send a code via SMS to a registered mobile phone which has to be entered when logging into e-banking, similar to a one-time password device.

Later, Price Waterhouse Coopers used the event to announce its return to the IT industry now that the non-competition clause with IBM had expired. PWC was talking about identity and role management solutions for organisations.

One important point was that role management was very hard, if not impossible, to retroactively enforce on organisations with lots of legacy IT systems that have evolved over the years, sometimes with key people having too much power in certain areas. PWC advocated that role management should still be implemented, but that rather than forcing these managers to change workflow and disrupt work, a proper role management and ID management regime will help identify potential areas of conflict which should be passed to management and auditors so that they can keep an eye on these individuals.

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