SMBC Group embraces digital transformation to achieve sustainable growth
Amid growing geopolitical uncertainties, prolonged higher interest rates and the climate crisis, global corporations are increasingly restructuring their value chain operations to enhance resilience. Keiji Matsunaga, head of the Asia Innovation Centre at Sumitomo Mitsui Banking Corp (SMBC), says corporations are now undergoing a comprehensive digital transformation in response to a more intricate operating environment. This involves leveraging the capabilities of data and analytics technology.
Recognising customers’ need to protect their businesses from headwinds as unprecedented events continue to disrupt demand, supply, transport and logistics networks, SMBC is ramping up its efforts in optimising industrial value chains to safeguard customers from sudden disruptions proactively.
This comes after essential investments in technical capabilities, including real-time visibility. “Additionally, we have seen increased focus from our customers looking to minimise inflationary impact and improve their financial performance indicators such as cash flow and return on invested capital. At SMBC, we are confident in curating a competitive value proposition for customers by harmonising our financial capability as a global financial institution seamlessly with our digital transformation capabilities,” Matsunaga adds.
To do this, SMBC has successfully developed and introduced its embedded financial and digital solution in its customers’ operations by leveraging its Asia partners. The digital service connects multiple stakeholders in a value chain effortlessly, collecting and analysing data for better decision-making. Looking ahead, this data will also be the key to unlock advanced credit offerings from SMBC.
To further present its commitment in contributing towards an advanced and inclusive digital future, SMBC is joining Singapore Fintech Festival 2023 as a platinum sponsor with the vision to deliver on its “SMBC X Tomorrow for Creating Social Value” tagline. This emphasises the bank’s resolute pursuit of achieving its mid-term management goal of creating social impact, economic value, as well as rebuilding corporate infrastructure.
Best-in-class offering
Since early 2022, SMBC has been progressively launching its digital Supply Chain Finance (SCF) platform in Singapore and India. This best-in-class, direct-to-consumer platform is a key capability offered by SMBC to help its corporate customers better manage their financial priorities, aside from improving their operational efficiency and strengthening their supplier base.
Through a strategic partnership with Premium Technology, a US-based product development and information technology consulting firm, the end-to-end SCF platform provides real-time visibility, offering live straight-through processing of all supply finance transactions.
Hosted on a modernised cloud platform in partnership with Microsoft, the platform is scalable and enabled by application programming interfaces. This allows it to be integrated with third-party ecosystems such as Vayana Network, a provider to facilitate trade finance and of working capital, bringing greater access between customers and SMBC.
“Customers have told us they appreciate the speed and efficiency the SCF platform provides. By significantly reducing the financing turnaround time, this allows them to focus on other important factors such as creating a more responsive supply and distribution base. Additionally, they expressed their satisfaction towards SMBC’s suite of holistic digital solutions, which include the analytics dashboard and customer process automation,” says Matsunaga.
The suite of value-added digital solutions helps key decision-makers manage their financial KPIs and enhance internal management systems among a wide variety of subsidiaries, banks and currencies, as well as dispersed internal systems. The data analytics dashboard includes KPIs such as cash conversion cycle and foreign exchange exposure, empowering their customers with access to data-driven insights, and providing them with the tools to optimise and enhance their financial outcomes.
Value of partnerships to build an ecosystem
As cutting-edge technologies such as artificial intelligence (AI) continue to advance and create new possibilities, SMBC is also exploring various emerging innovations that can be leveraged as digital tools for its stakeholders.
As part of its multi-year digitalisation programme, SMBC has implemented an AI-enabled smart trade processing platform via a tie-up with fintech start-up TraydStream. This allows for automation of trade document processing using Optical Character Recognition and AI technologies, enabling experienced trade processing specialists to focus on key value-adding tasks.
With a built-in algorithm to constantly learn on the job, the AI-enabled digital tool has reduced the processing time of documents by more than 30% in key locations, thereby increasing the ability to manage high client volumes of trade finance transactions.
In the same vein to optimise efficiency, SMBC also collaborates with other fintech providers such as Serrala and Esker to develop
Concept of SMBC’s embedded solution AI-based process automation solutions of account receivable and payable reconciliation for corporate customers.
Partnership expansion
According to Masaki Adachi, vice president of SMBC’s Digital Strategy department, the bank’s partnership with fintech companies augments its customer engagement channel, increases the breadth of customer segments served, future-proofs its technology needs, as well as materialises its agile solutions development. “When facilitated meaningfully, targeted fintech expertise can holistically address customers’ digital needs and wants across SMBC Group,” Adachi adds.
SMBC has been working on various initiatives such as establishing new subsidiaries to provide non-financial digital solutions to customers. The firm also explores new business models in the cyber economics and digital assets domain, aside from running startup incubation spaces and programmes.
Earlier this year, SMBC launched the SMBC Asia Rising Fund, a US$200 million ($273.8 million) corporate venture capital fund, in partnership with Incubate Fund. The latter is a leading Japanese venture capital firm with a robust network in Asia, having invested more than JPY98.3 billion ($899 million) in over 450 start-ups.
With an investment period of 10 years, the fund targets promising start-ups in Southeast Asia that have the potential to contribute to SMBC Group’s business through collaborations in areas such as lending technology, payment, supply chain finance, banking-asa-service and digital assets.
Adachi explains that the fund was launched as it is evident that the economic growth and government initiative on digital advances within the region are accelerating the fintech ecosystem. “Investments from the fund will capitalise the momentum in the market, to create new platforms for growth for SMBC Group, including the local financial institutions through our Asia Multi-Franchise Strategy and our customers,” he adds.
SMBC’s Asia Multi-Franchise Strategy aims to open new growth opportunities over the medium to long term in Asia’s emerging markets. SMBC has been expanding its Asia businesses through investments and acquisitions of local financial institutions, aside from enhancing its existing businesses in the region.
This includes Indonesia’s Bank BTPN, India’s SMFG India Credit (formerly known as Fullerton India), the Philippines’ Rizal Commercial Banking Corp and Vietnam’s VPBank. Aligned to the newly-established fund’s goals, it will also pursue fintech startups with a potential to tie up with SMBC’s affiliated entities.
Thriving through strategic collaboration, SMBC remains committed to forming alliances as a key part of its innovation strategy. While once viewed as disruptive threats, fintechs have swiftly become the firm’s collaborators. SMBC is positioned to strengthen its presence in the Asian fintech market by partnering promising start-ups, addressing customer needs, tackling strategic challenges, and staying pertinent in an evolving world. Moreover, SMBC has expanded its partnerships to other major financial institutions, aiming to revolutionise banking and offer appealing propositions throughout the region.
AI for good?
Indeed, the fintech ecosystem, being constantly challenged to meet the ever-higher expectations of users, is always on the lookout for new technologies it can adopt.
AI, a concept that has been around for decades, gained popularity over the past year as newer self-generative capabilities open up a new world of applications once thought impossible.
Both UOB and DBS are using AI and machine learning (ML). UOB TMRW uses various AI programs to nudge customers to perform certain activities and for credit assessment. DBS uses 100 AI and ML algorithms to analyse some 15,000 customer data points to generate seven types of “nudges” in the form of personalised product recommendations for its 3.5 million retail and wealth customers.
AI typically goes hand in hand with ML. AI enables the computer to “think” independently
for hacking and scams,” he warns.
In June, MAS launched Project MindForge to explore the risks and opportunities of GenAI for the financial sector. In Phase 1 of the project, the MindForge team is developing a comprehensive GenAI risk and governance framework and more details will be announced at the SFF, MAS says.
Fintech, digital assets and regulations
The approach towards AI is but another indication of the constant balance MAS strikes as a regulator. MAS has broadly adopted the position that regulations should not front-run innovation. Therefore, its trials and pilots often involve multi-disciplinary teams including those from compliance and risk management. “It is with this deep involvement of multiple stakeholders that allows for the understanding of opportunities and risks, and the development of appropriate rules to ensure that there is a good balance between reaping the benefits while mitigating the risks,” Leong says.
For example, Bitcoin was created in 2008, before SFF. Bitcoin, in turn, led to a plethora of blockchain-enabled crypto assets including crypto coins, crypto funds and NFTs or non-fungible tokens. Blockchain, a form of distributed ledger technology (DLT) is also the backbone of exchanges such as DBS Digital Exchange (DDEX), MarketNode and ADDX.
Digital assets is a wide term. It encompasses a bank’s banking app, a digital bank, APIs, AI, ML and so on. In particular, tokenised assets on a blockchain such as DDEX or MarketNode enable accredited investors to hold assets such as fractionalised properties or bonds. MAS’s regulatory frameworks are designed to encourage experimentation in tokenisation and the growth of tokenised assets.
More often than not though, digital assets have come to refer to blockchain-enabled assets
such as “crypto coins”. Cryptocurrencies are not treated as a medium of exchange (money) in Singapore.
Because blockchains and DLT represent decentralisation, crypto assets are decentralised. Hence, they are often exploited for money laundering and terrorism financing (ML/TF) activities.
Cryptos and digital payment tokens (DPTs) are regulated under the Payment Services Act (PSA) and the Digital Token Payments Act. The PSA is a flexible framework for the regulation of payment systems and payment service providers in Singapore. It requires a business providing a payment service to obtain a payment licence. Seven payment services are defined in the PSA, namely: account issuance service; e-money issuance service; cross-border money transfer service; domestic money transfer service; merchant acquisition service; DPT service; and money-changing service.
Under PSA, DPT service providers need to be licensed by MAS. They must comply with anti-money laundering requirements and are obliged to perform customer due diligence and to file reports of suspicious transactions with the Commercial Affairs Department.
“One regulatory aspect of fintech we’ve been focusing on is digital assets. We are watchful of risks in five key areas — money laundering and terrorism financing (ML/TF), consumer protection, market conduct, financial stability, tech and cyber risk,” Leong says. “When we first designed our regulatory framework for digital assets, the focus of our regulations was on addressing ML/TF risks.”
Over time, as the digital asset ecosystem grew and evolved to include more participants and activities, market conduct and consumer protection risks became more prominent. This necessitated firm action from regulators globally.
Last October, MAS consulted on a set of regulatory measures to reduce the risk of consumer
harm from speculative trading in cryptocurrencies. The proposed measures covered business conduct, consumer access, technology and cyber risk management. MAS quickened its policy response on segregation and custody requirements in July with a new consultation to address market integrity risk and unfair trading practices in cryptocurrencies. “Together, these measures will help raise the standard of business conduct and consumer protection in this space,” Leong says.
MAS is not wielding its regulatory stick at the entire crypto space. Stablecoins, a form of DPTs designed to maintain a constant value against one or more specific fiat currencies, are increasingly emerging as a separate class of digital assets. MAS sees good potential for them to perform the role of a credible medium of exchange in the digital asset ecosystem, provided they are well regulated to have a high degree of value stability. MAS finalised its stablecoin regulatory approach in August this year.
By doing so, MAS hopes to further support the healthy development of the digital asset ecosystem. “Our priority is to foster a high-quality fintech as well as digital asset ecosystem. This is one where the players understand the need to achieve high standards, which in turn generates trust and confidence amongst market participants, customers and clients. This is aligned with how MAS has promoted growth of the financial sector over the last few decades, by striking a good balance between growth and regulation, because that is the only way to generate high quality, sound and sustainable growth,” he adds.