e-Finance Roundtable

FinanceAsia and Sybase hosted a round table in Phuket on October 22 to discuss the impact of, and opportunities presented by, the latest technology in the Asian financial services industry. Elton Cane, writer, FinanceAsia.com, chaired the discussion.

* Pat Fodor, vice president global business development, Financial Fusion
* Mark Wang, senior vice president and general manager Asia Pacific, Sybase
* Dunstan Yap, business development Asia Pacific, Sybase
* Jae S. Lee, vice president e-Business department, Siam Commercial Bank
* Chawal Jittidecharaks, e-business specialist, scbpark.com (Siam Commercial Bank's internet banking arm)
* Gideon B. Sheps, chief technology officer, asiabondportal.com
* Y. Robert Fu, A.V.P, Masterlink Securities
* Deborah Tiffany Chan, first vice president - information technology, Prudential Bache International

FinanceAsia: The concept of e-Finance has dramatically changed the financial services industry over the past two years. Where do you see the industry two years from now with regards to technology and what it will enable?

Gideon Sheps: I think certainly in Asia there's a long way to go to get to where they are in North America. If you take the Asian context and look at the United States now and pick out the pieces that are more likely to be adopted quickly here, obviously we've got a lot of the online equity brokers really beginning to start here now. But they're still not quite where you'd see an E*Trade or TD Waterhouse type of operation. Mostly because the stock exchanges aren't completely ready.

In our particular space, in fixed income, you see a lot of that moving off the telephones and onto the internet. As a result you'll see a lot broader participation. Same as the increased participation in equity markets driven by ease of use. Getting hold of your broker, going through the trade on the phone, looking through trade details and research on paper takes longer. When you get away from the cumbersome aspects more people participate.

That's the basis of what we're doing for example. You make it easier for the brokers to service more people, you see people using a wider range of services. We're becoming individually more sophisticated about it as a result, which will, in turn, drive other services onto the internet, more into their people's homes and more into their everyday decision-making space.

Pat Fodor: The drive I'm looking for is I'm really counting on cellular and satellite technology to get even stronger and more dependable than it is now. Every time a line drops I think to myself, 'What would have happened if I was making a significant financial transaction at this point?' I think the market demand and the incredible pull that the internet is having on all of us will force the stability of the technology to be there, or we'll just all retrench and pull back, lacking confidence. So I'm counting on greater stability in the communications area.

FA: Is anyone else developing their plans counting on this greater stability being delivered?

Deborah Chan: We are launching in less than 20 days our online trading facility based on one of the Sybase products. One of the key items we discovered was that we have very, very smart clients in Asia today, just like North American clients who are very demanding. Today's Asian clients are looking for perhaps research materials, all sorts of online services, convenience plus the ability to trade across Asia and North America. I get so many phone calls on a daily basis asking, 'Can I trade North American stocks through your portal?' I say 'We're building it, just wait a little bit'.

Today, any kind of client that registers with us wants to trade at least eight to nine countries, for example Singapore, Malaysia, Thailand, besides Hong Kong. So clients have become smarter and very demanding like North America.

Y. Robert Fu: Now in Taiwan we are concerned with the Greater Chinese market. At Masterlink, we're the third largest broker in Taiwan, we think we should try to capture the Chinese market. We're setting up with a warehousing studio and Financial Fusion Server to make up our platform. Then we can take the next step forward, offering e-trading. We think Taiwan's market is maybe distanced about five years behind the North American market. That's why if we catch up to North America technologically we can easily capture the Chinese market.

FA: With everyone keeping an eye on the North American market, I've noticed that account aggregation, or screen scraping, is one of the hot topics there at the moment. Can you see this kind of thing working in Asia?

Jae Lee: It is a hot topic, but in the US at the moment it has a 50% failure rate. You can provide a summary of information, but when it becomes useful is when you have a very detailed level. To get the detailed level each of these banks has to co-operate with each other. That touches on what Deborah mentioned - the customer demands more and more availability even through the one portal site instead of having to go to multiple portals. To do that I think it's going to be more important for the exchanges to collaborate with each other.

For example, everything that's not available on asiabondportal soon could be through partnerships. Strategic partnerships mean it's not necessary to go through the traditional merger and acquisitions channel. Banks traditionally, in order to provide cross-selling opportunities, would have had to acquire those new businesses or new products. But virtual mergers can occur through stronger, tighter integration with partner companies.

So in a position such as Thailand where we don't have the ability to dominate throughout Asia, nor are there the regulatory forces that preclude us being taken over by a larger bank or being taken over by a foreign institution, it is vital for us to form tighter strategic alliances with other banks in the region to provide online services because the customers in the end are going to go through one screen and that's really all they want to deal with.

GS: I have to agree, using asiabondportal as an example we've already been approached by retail organisations. Our business is not inherently retail. We deal with the professional investor, but we've been approached by people who've asked, 'Can we aggregate retail and push it through your system?'

On the professional trader side we've been approached by people who make virtual market trading systems that are sold into people like our partners, into the UBS Warburgs and JP Morgans that have invested in us. They're looking at a trader who's got access to three or four different kinds of electronic market and is trying to create a virtual desktop market of his own where he can say, 'Ah, I can sell on asiabondportal and buy elsewhere and make the arbitrage because I can see it on one screen that contains both of those.' They've come to us from both sides for that kind of partnership.

PF: We're taking a very serious position on account aggregation. From Jae's point, it does have a fast and furious reputation. Then as trusted financial institutions started to play with it there were great concerns about just what was available. It's made great press. In the Sydney Morning Herald it's taken up as many as ten columns just over the past two weeks with people talking about account aggregation. But there aren't too many companies involved in the business, interestingly enough. There are notable companies like Yodlee are getting a lot of play in the States.

But when it comes to the security and the concerns of money transfer, we take a very, very conservative view about this and yet still have an account aggregation offering in full use by financial institutions. So it is a very hot technology, but at the same time it can't be a panacea for every business application, not when you're talking about the financial market.

DC: One of our business partners that we're going to launch a service with is Standard Chartered Bank. They have a website with e-banking capability, account information, transactions etc. However, securities executions will be routed in form of messages from their trading engine to Prudential Bache Message Management Gateway. They can access our research reports, terms and conditions online. So in this way the end consumers will have a one-stop at the Standard Chartered Hong Kong site to do all of their financial business.

PF: But would you say that by simply viewing the other website that's enough? Our analysis has been that you really have to allow for money transfer to provide real customer satisfaction.

JL: But what we're saying is instead of the pure hyperlink, which is what's available today, if you had closer collaboration with Standard Chartered the person could say 'I see my bank balance and I want to trade this stock' on the same screen knowing that the two have agreed to a security framework for that.

PF: I'm going to volley that and say - I feel a little bit like a commercial here - that technology is available today that allows for money transfer. It's just that the technology you've been reading about in the news doesn't allow for money transfer. Because these products do exist, there's actually no need for collaboration at all. One would always hope that collaborations would exist, but it doesn't necessarily have to.

FA: How does this new technology address the security concerns that people have raised?

PF: Everything is permission marketing. So if I as a consumer and depositor in a bank provide my password and my login I am giving permission to the entity through whom I'm accessing my financial data to access all of the accounts I've just indicated. Security becomes mine to determine. In the States already this has been tested and the attacks have not held up in the courts because it is permission marketing.

JL: But would there not be defensive technology being developed that could bar a person being able to share their passwords, let's say there was dynamic password generation.

PF: Point taken. I am aware of a couple of them. Traditional screen scraping technology that uses HTML script exclusively will break unquestionably, but when the technology works in combination with such standards as the OFX protocol that was written by Intuit and Microsoft and is used by millions and millions of people, then the issue of the limitations of HTML scripts are overcome by the capabilities of these standards.

There are some scripts that definitely, with Java being what it is, jump around all over the screen and these can be more challenging, I don't deny that. In a couple of cases we're aware of, using your example, the market is saying you should drop the jumping Java login and eventually get with the program, for exactly those reasons of collaboration you mentioned.

FA: What are the major differences in the architecture you need to run services catering to retail and institutional markets?

GS: Scale is obviously one of them. People who have to deal with retail have to begin being able to cater to a larger number of users. On the other hand, the retail user is more tolerant of problems whereas the institutional user is completely intolerant. Institutional users are used to in-house written or purchased sophisticated trading systems or banking systems that do not go down, or at least not very frequently, and when they do there's a help desk and it comes right back up. The issues of ISPs going down somewhere between me and the service I'm using don't exist.

But the retail user is used to it. They surf the net and it falls apart on them from time to time and they go, 'Oh well', restart the browser or reboot their machine and keep going.

Professional traders and professional money managers aren't really going to tolerate that sort of thing.

JL: One architecture to serve both needs would be ideal, but in reality you do have two distinct groups: the higher volume lower value retail and on the business side you've got lower volume higher value. You do need to support two different client groups and hence most banks have made a conscious decision to have retail consumer banking as one type of business focusing on that customer segment alone, and another wholesale or commercial banking unit that serves certain needs.

DC: We do have institutional business as well as retail, and also private high-net worth clients that are very demanding and know computers better than any of us. So in this regard we built in high-availability, 24x7 services. We built in remote access support from our US data centres. We put a lot of money into this technology because you just can't afford to lose even one transaction. If you do that the person won't call you again ever.

FA: Where do you think most Asian financial institutions are in successfully using customer relationship management (CRM) systems?

GS: As for my experiences using other financial institutions, I do two things online in Asia - trade and bank. I trade stocks through one of the large American companies and they're pretty good at it because it's an extension of what they're doing in the US. I know that during US trading hours if I call I'm actually connected to the US. And if I call during Hong Kong time zone I get somebody who's in Hong Kong and can look things up. But if I look at one of the big Hong Kong banks that has put in an e-banking system, I've had problems using it, called them and they don't know what's going on. They write down the information and call you back, or fax you back later. This is one of the largest banks in the world and they don't have it completely together, but you'd expect them to.

DC: Something that we're considering that I don't think is very popular in Asia yet, but it is in the United States, is the 24x7 help desk to add more personal service behind the strong infrastructure.

GS: It's something that companies like ours are building. We currently run from 7am to 11pm Hong Kong time because we trade in the Asian time zone with extensions into the European. We run our internal help desk, systems management and monitoring and customer service from an hour before Tokyo opens through to when London closes. We will extend that to 24 hours as soon as, or actually before, it becomes imperative from a business point of view. I don't think a lot of Asian companies really have clued into the need for 24x7 customer service.

DC: From my experience in Europe and North America I'd agree. In Asia it's growing, and one thing we have to bear in mind is that customers are becoming more demanding.

JL: I think customer service in Thai banking is behind the times in many regards, but specifically I think customer service is one key differentiator for a bank’s success in e-banking. For right or wrong, I think our initial approach has to be: take care of the domestic customer first before going international, because first and foremost if you don’t have a very good call centre on an off-line basis it’s going to be that much more difficult to provide it online.

GS: I think like with most companies in the so-called old economy you'll find that everybody will be able to provide roughly the same level of service when everything's going well. They'll be distinguished by what happens when things don't go well.

FA: Straight-through processing (STP) is a big buzzword in everything from cash management solutions to securities trading. How long do you think it will take before it's taken for granted as the norm, and what will it take to get there?

JL: Straight-through processing is more critical on the corporate side. Whereas if you're a retail customer and are going to do something like transfer money using a mobile phone you'll walk away thinking the transaction is done, but it will be processed maybe later in the day.

PF: We've already seen in the States a failed attempt at delivering straight-through processing because the Securities and Exchange Commission dictated that there would be a reduction in the clearance from T+3 to T+1 by the year 2000 and they've postponed that now to 2001. So presuming the rest of the world will cascade from that I'd say we made an attempt and we found out with our systems and our people and our processes that it was much harder than we thought.

Now as I focus on Asia Pacific specifically I meet customers that will ask about it a lot - what do they need to do, what are other customers doing. Like Gideon and Jae mentioned, the institutional investor is intolerant of anything less because they've been demanding of technology for many years, but the retail customer has, sadly, been given a lower level of expectation.

So I think figuring out when straight-through processing is going to be delivered is going to be a thinking and drinking discussion. I wonder whether or not the mother of all consortiums and committees will actually be ever able to agree on the rules and regulations that would require some institutions to give up some of the competitive advantages they have enjoyed. I think it's going to be a horse race and I wouldn't pick a year considering there's been one aborted attempt already.

DC: Coming from a technology background I should be confident to say, 'Yes we can do straight-through processing, no problems'. But it's people's mindsets that need to be changed. We need to go out and preach and demonstrate the fact that this can really work. But we're still trying.

GS: It's also a question of trust. Not just among the individuals who use the system or the people that build it, but among the regulators and among people who run the banks and financial institutions.

One of the other things I can mention from past experience, I was on a large project at the Jockey Club in Hong Kong. They do a lot without paper and in fact their entire betting system, other than the anonymous tickets, runs without paper. So as a result they spend a lot more time and energy making sure that they don't lose anything. The argument that they make when someone says, 'They don't do that at the banks, why worry about it?' is that the bank has everything on paper. A very valid argument that you can apply to the whole idea of paperless straight-through processing. At the end of the day if something fails, and something will fail inevitably, you've got to be able to go back to something else to find out what happened. People are going to be very very reluctant to give that up.

JL:  If straight-through processing were to occur in a technological sense I think it would happen for only true value transactions. For hundreds of years in banking what we consider value is when you do a true value transaction. A cash transaction at a branch - that’s true value being exchanged, but when you write a cheque or initiate a wire transfer all you’re doing is asking the bank to carry out instructions on your behalf. The value exchange happens later, within the banks’ closed networks. That’s why we have SWIFT, ATM networks, credit card networks, and domestic payment mechanisms.

More and more of what you’ll find is a demand for value transactions to occur outside the banking context. For example a smart card that will actually contain true value. If you and I were to exchange value on a card you’re getting that electronic credit immediately, regardless of the payment system in the background because transfer doesn’t occur there. So if straight-through processing were to occur in banking I see that occurring through new technology, through these types of devices.

Mark Wang: I agree with Deborah, maybe it's not a matter of technology only, but a lot more to do with other surrounding systems. There is a system being written in Taiwan in terms of trading that is actually executing in real time. It works because it's actually very restricted there. All the client accounts are held by the stock exchange, whereas elsewhere everyone else has their own client information. There's a demand for this to happen because the logical end to that is to go to straight-through processing.

GS: One of the complications in addition to that, again bringing in this whole aggregate picture of all financial dealings on one screen, is that when dealing with multiple institutions they have their existing order capture, credit risk, back-end processing and clearing systems. They don't necessarily want to have someone else doing the work for them, because they still have to enter into their own systems, so it's a nuisance. Until a much greater degree of information interchange happens at that level there is still a large technical hurdle as much as a mindset hurdle to face.

You know, if you've been refining your risk management model for many years, if you suddenly don't have your data input into it, your risk management falls apart. Why would you let someone do the job for you, even if it's going to save time and energy in the back office, if it affects the ability to evaluate risk across the enterprise?

PF: Isn't it really that technology is waiting for us mere mortals to catch up? It seems to me that almost anything is possible with technology. There's certainly limitations but it's just a matter of quality and functionality over a period of time that we deliver. Deborah and Mark's point - that it's the mind, it's the behaviour that takes a while to really get itself around when and how this technology can be leveraged.

FA: With that in mind, how do you think increasing mergers acquisitions and agreements between stock exchanges, and particularly also in the banking industry will influence developments? Will we see a couple of competing conglomerates that have that strong collaboration, straight through processing and so on, only within their own group?

GS: Kind of like a One World vs Star Alliance situation? I can very much see that in some of the initiatives going on. The people pushing FIX protocol, which has a specific application in trading, but you've got other groups pushing fpML, which again has specific trading information focus, it's a matter of growing support for yours.

I think a lot of it comes down to what people's priorities are, and their priorities are in differentiating their business, adding new stuff, bringing old stuff into new markets via web technology. Sitting down and saying, 'Let's cooperate behind the scenes', but first it's, 'Once I'm dominant then I can dominate this behind the scenes stuff to my partners'. Or as you say, once you've got three big houses together versus the other three big houses who will be left standing? Right now the race is to be added value within your institution, not necessarily across institutions.

FA: You mentioned something interesting about the various languages and protocols being pushed by various groups. You can't really call them standards if there's so many. Any thoughts on which ones are going to be the most successful?

GS: Standards don't really have the ability to knock each other out, or buy each other out, the way businesses do, they just get built into systems and if they work they're used.

MW: As a technology vendor we would cater to all standards rather than push a particular one. So what we do is have an open architecture that will allow each standard if they become popular and accepted by the industry, to be open to it. It's very much in our financial products, in our database tools and certainly our enterprise portal.

FA: What level of industry acceptance would software companies have to see in a developing standard before they start incorporating that into their products?

MW: If you look at history it's really a competitive edge to differentiate yourself by supporting something new. Once you're differentiated others will get together and push standards and then when that becomes a standard others will go and say, 'No this new one is better'. So it really goes in cycles, and we've certainly been a part of that.

FA: Besides open architecture and scalability, which most people seem to claim they have, what other important factors do you need in your technology infrastructure to differentiate yourself?

PF: From a vendor perspective it's always fun for me to be able to say to customers and partners that we offer them platform neutrality, database neutrality, application server neutrality and client device neutrality. It's something that Financial Fusion and Sybase its parent company have as a design philosophy.

GS: Given that I deal with large institutions that have many man-centuries worth of legacy systems, it's critical for me that I can pick something that will speak to virtually everything that's out there. Someone will say, 'We're looking at FIX, will you be able to support that?', or TIBCO, or MQ Series. They've done their evaluation internally and it has nothing to do with me. Or they've built or bought a system that predates us by a decade. It's important that I can do something reasonably generic that can be delivered across whatever they've chosen.

DC: I'm looking at a vendor as a partner. We're looking for a go-to person, like a tutor relationship or consultant. A second component when I'm looking at a vendor is whether they'll deliver something for tomorrow, not today. A vendor should come and present the trends of tomorrow. Because we're travelling and meeting all day long we might not have that vision, so we need vendors to deliver that to us so we can present it to our business and elevate with the market.

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