Singapore's fintech drive arcs towards financial inclusion

Singapore

THE fintech wave will cast a wider net to capture smaller corporates cut off from financing, in a push by the Monetary Authority of Singapore (MAS) for small and medium-sized enterprises (SMEs) at home and in the region to give improved access to technology services and to credit.

And to prevent technology from creating fault lines that hurt the drive for financial inclusion, the regulator has also set out the world's first set of principles to guide the responsible use of data in financial services.

These guidelines call for boards of financial institutions to be made aware of the use of data to make financing decisions, and to ensure that individuals are not systematically disadvantaged through data-driven decisions, unless these decisions can be justified.

At the third run of the Singapore FinTech Festival that began on Monday, MAS managing director Ravi Menon emphasised that the use of fintech goes beyond the technology, and beyond dollars and cents.

"Everything we do in fintech must always have a larger purpose - to improve the lives of individuals, to build a more dynamic economy, (and) to promote a more inclusive society."

In the area of financial inclusion for smaller corporates, MAS will facilitate financial institutions' credit assessment of SMEs using trusted government data; three banks will run a pilot on this in the first half of next year.

Mr Menon noted that young SMEs seeking bank financing may face difficulties because of their lack of credit history. MAS will thus help to pool data from government sources on the business and the key individuals associated with the SMEs, and so enable a more informed credit assessment.

MAS will also work with other government authorities to create a cross-border innovation platform for SMEs. To be known as Business sans Borders, it will connect SMEs a global services marketplace, driven in part by an artificial intelligence (AI) engine that matches SME suppliers with buyers for products and services across Asean and in other overseas markets.

The project will start with a proof-of-concept next year.

In keeping with the financial inclusion theme, MAS will this week launch the world's first cross-border, open architecture platform to boost financial inclusion. Known as the API Exchange, this platform will help financial institutions and fintechs across Asean to collaborate and deepen financial inclusion.

Speaking to reporters on the sidelines of the Singapore FinTech Festival, Singapore's Minister for Finance Heng Swee Keat said fintech can extend financial inclusion globally by building up more cross-border systems in payments, trade financing and logistics.

He added that the opportunity for growth from the use of fintech goes beyond the financial sector. In particular, it supports new business models such as e-commerce, by connecting the flow of capital to that of data and ideas.

"By putting these elements together, we can create a lot of value across the whole value chain and bring different sectors together," said Mr Heng.

Amid the attention on financial institutions' use of AI, the guidelines unveiled by the MAS are aimed at promoting responsible use of data in financial services, and also of the use of AI and data analytics.

"We cannot hide behind the black box," said Mr Menon, adding that people are responsible for data-driven decisions, and should ensure that the decisions are ethical and free from bias.

The 15-page document sets out illustrations through which data-driven decisions are examined. For example, it suggests that when a financial firm uses data for customer segmentation, the use of age may be justified if it is used in the context of selling retirement-related financial services.

The set of principles add that a customer who is charged a higher premium for car insurance should be able to approach the insurer for a "meaningful explanation" on the reasons for the increase.

Broadly, the guidelines call for proactive disclosure of the increasing use of AI and the impact of data analytics on the services that consumers use.

Meanwhile, Mr Menon called for greater data connectivity for the digital age, observing that data localisation measures are on the rise globally.

He warned that a good part of data localisation - that is, the practice of keeping data locked within legal borders - is due to "misguided notions of cyber security or data privacy, or worse still, old-fashioned protectionism".

"We need common data standards across countries so that data can move freely in the environment of trust and security," he said.

"In the digital economy of the future, data-connectivity agreements among countries will become as important as today's free-trade agreements."

As it is, Singapore's central bank is working on more cross-border projects; it has tied up with the Bank of Canada to link their respective blockchain platforms. The aim is to make cross-border payments faster, cheaper and more efficient, as both parties look at developing instant and round-the-clock settlement of cross-border payments transactions.

Mr Menon also admitted that the MAS had "failed" at cracking a know-your customer (KYC) utility due to the unexpectedly high costs of the project, which will be shelved for now.

The KYC utility was meant to be a shared service among banks, to make it easier for financial institutions to get customer verification done more seamlessly.

"The economics did not work out: our proposed solution was going to cost more than the savings that banks would get out of it," he said, noting that the corporate KYC verification is far more complex than that for personal use.

"We tried, we failed, we will learn, and we will do better next time," he added. "Just as we showcase our successes, let us also be open about our setbacks. This is the spirit of enterprise we need in the financial sector and in Singapore."

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