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SMBC's innovation efforts underpin wider, bigger goal of building trust

Chan Chao Peh
Chan Chao Peh11/8/2019 05:30 AM GMT+08  • 7 min read
SMBC's innovation efforts underpin wider, bigger goal of building trust
(Nov 11): The financial services industry, like others, is caught up with the need to innovate to stay ahead. Sumitomo Mitsui Banking Corp (SMBC) - one of the largest banks in Japan - has invested in technology in its push to innovate but it is careful
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(Nov 11): The financial services industry, like others, is caught up with the need to innovate to stay ahead. Sumitomo Mitsui Banking Corp (SMBC) - one of the largest banks in Japan - has invested in technology in its push to innovate but it is careful not to equate technology with innovation. Innovation as an activity transcends technology.

“It is about how the whole process comes together, how we can think about new sets of services that can be offered in the marketplace,” says Desmond Lee (left), ­SMBC’s Head of IT, Planning Department, Asia-Pacific division, in an interview with The Edge Singapore.

As technology advances and processes improve, there is a growing trend of different parties coming together to form an ecosystem offering a suite of services to customers. “This is the main driving force we are seeing in the industry, and the main driver in the way banks innovate as well,” says Lee.

SMBC has been rather adventurous — going as far as to set up innovation centres in Silicon Valley, where the world’s best minds in technology and business meet.

Masayuki Nagatomo, SMBC’s Head of Asia Innovation Centre, points out that the bank, with its long history and leading position in the banking industry in Japan and Asia, is no stranger to innovation.

However, there is always room to do more and better. “We still have a lot of space to be more effective in our operations by utilising IT and new technologies. We want to continually improve in these areas, by focusing on innovative activities, and explore better efficiency in business,” says Nagatomo in the same interview.

Working hand in hand

As one of the largest financial institutions in the world, SMBC clearly has plenty of in-house expertise in various fields. However, with the rapid changes in technology, the bank is aware that it can be more effective if it forms partnerships with external parties.

According to Nagatomo, SMBC has a core group of customers to whom it offers traditional commercial banking services. However, it is starting to work with new fintech start-ups as well, so that it can get new ideas and a fresh perspective and deliver a new service experience to those who are receptive.

According to Lee, working with new partners means certain changes in the way SMBC works internally. “The thought process and engineering processes are very different from traditional wholesale banks like ours. We need to obtain a much broader horizontal perspective, be it from the point of view of consumers or business partners, and define together the outcomes we are trying to achieve,” he adds.

In order for SMBC to work more efficiently and productively with external parties, the different departments of the bank have to reach across functions and collaborate. No longer can one business unit go to the IT department and ask for technological support that it thinks it needs to have. “Several business units, each providing different services, have to work together with IT and the bank’s innovation centre, and collaborate with our partners, and we all work hand in hand,” says Lee.

Marco Polo

One prime example is the use of blockchain technology. On Oct 18, SMBC announced that it had completed a proof of concept deployment of a blockchain-based trade finance platform, dubbed Marco Polo — after the 13th-century Italian merchant and explorer. SMBC had collaborated with Mitsui & Co, one of the largest trading houses in Japan.

The platform was developed by international blockchain consortium R3 and TradeIX. The parties involved in the proof of concept include Mitsui’s client, Indorama Ventures, and Bangkok Bank. Purchase orders, invoices, shipping and logistics tracking and so on were all updated and shared with all parties involved.

Lee says that the use of new technologies such as blockchain is not merely aimed at achieving cost savings. Rather, the bigger aim is to enhance trust. “We don’t really look at innovation from a dollar-and-cent perspective; we look at overall efficiency gain.”

It is well known that the underlying process for trade financing is laborious. Stacks of documents have to be read, marked and passed manually from one partner to another, or from one department to another. By using distributed ledger technology to process trade financing, risks — of paperwork going missing, records being tampered with and data entered wrongly— can be better controlled, adds Lee.

He says that the biggest benefit is not that the bank can claim it is using a new technology. Rather, it is that trust among the players in the fragmented business and trading ecosystem can be enhanced. And in turn, they will help SMBC grow in a more sustainable manner over the long term.

“Trust from the customers and the business partners and trust within the ecosystem — this is of utmost importance. By using blockchain technology, trust can be built. And this is the main aim of our efforts in innovation. We want to continue to use technology to build and enhance trust,” Lee notes.

Digital bank licence?

This past year, the Singapore financial services industry has been keyed up after industry regulator Monetary Authority of Singapore announced in August of plans to issue licences for digital banks in 2020. A number of companies, including those in and outside the financial services industry, have indicated their interest in bidding for one of the licences.

Is SMBC keen to team up with other partners to bid for a licence too? The bank’s current presence in Singapore is focused more on corporate banking. A digital bank licence is seen as a way for SMBC to make an inroad into the retail banking market segment. “We are still looking for opportunities in the Singapore market. We are still having discussions and in the exploration phase,” offers Nagatomo.

Lee adds that SMBC has a very strong retail footprint in its home market of Japan. There is plenty of expertise and experience SMBC can bring to the table if it tries to grow its presence in the retail space. Singapore, as the regional headquarters of SMBC, can also function as a jumping-off point for the bank to develop the retail market in neighbouring countries. “We are looking at how we can tap that opportunity in the region,” Lee says.

Jenius in Indonesia

In any case, SMBC has made its mark in driving innovation in the region. SMBC has an Indonesian subsidiary, PT Bank BTPN, which was founded in 1958 to help handle the pensions of retired soldiers. Since then, it has grown and developed to serve the wider Indonesian consumer and commercial market. It has almost 700 branches across the country.

Nagatomo visited Jakarta recently and after interactions with his local colleagues, he came back feeling impressed and excited. The staff at Bank BTPN are young and enthusiastic adopters and users of new technologies.

On top of providing the usual savings accounts and lending services, Bank BTPN has also introduced new digital-based services for the young and tech-savvy population. In 2016, the bank launched “Jenius”, a mobile banking service targeting the middle class. Jenius now serves more than one million customers all over Indonesia.

Jenius, according to Lee and Nagatomo, is also helping customers plan their finances in a more engaging way. The account holders, via the app, can set their own life goals, and deposit funds in dedicated accounts to fulfil them. Such goals include buying their home and financing their children’s education.

The bank has made it easy and convenient for new customers to open accounts. They can use their phone camera to take their picture and send it to the bank to check as part of the digitalised “know-your-customer” process. “The whole intent behind Jenius is to make it seamless,” says Lee.

With its overarching reach, SMBC, unsurprisingly, will not stop at just growing the Indonesian consumer banking market through Bank BTPN. It aims to grow the small and medium-sized enterprise business at the bank as well. Smaller customers, such as individual smallholders, will benefit from microfinancing. As they grow to become bigger companies, the bank will be there too.

“We grow with our customers,” says Lee.

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