Singapore's fintech dive now delves for proof beyond concept

Singapore

FINTECH (financial technology) is starting to be plugged into Singapore for real economic value, as the city-state seizes technology such as blockchain and goes international with its fintech approach.

While fintech spans many applications, it makes most sense when it crosses borders, and Singapore is taking bold steps to have this trend realised beyond the hype that has bubbled up in the last two years.

Of the numerous announcements made by the Monetary Authority of Singapore (MAS) during the Singapore FinTech Festival, one of the most significant is the partnership between Singapore and Hong Kong to build a blockchain-powered trade network.

The latest global trade connectivity network (GTCN) could set new global standards for the trillion-dollar industry, with MAS already setting a roll-out target of early 2019.

To understand why this is a big deal, consider the ancient history of trade finance. The first letters of credit were said to have been carved on Babylonian clay tablets dated around 3000 BC. Fast forward to 2017, and the process of trade financing is still largely paper-based.

A shipment from Singapore to Jakarta takes about a day, but to send a document related to that very trade takes about a week, said Tan Kah Chye, founder of Tin Hill Capital and former vice-chairman of Barclays corporate banking, during one of the festival's panel sessions.

"Knowing your transaction is something banks need to manage every day of the year, and the quantity of paper and data does not help. What's important is in capturing the data that is contained in those pieces of paper," said Mr Tan.

"If we are able to capture the data significantly, I believe we will be able to manage the risks ... (but) without a strong regulatory push, I fear that adoption will not be moving at the pace that we would like."

Indeed, the paper-based nature of trade finance opens up the risk of fraud, as a 2014 case at Qingdao showed. At the world's sixth-largest port, traders were churning for loans from multiple banks using the same 400,000 tonnes of metals as collateral.

GTCN is an ace in hand for two top trading hubs in Asia, with Bernard Wee, head of MAS' financial markets development department and payments and technology solutions, noting that for fintech to be applied to trade finance, it has to be done on a cross-border basis. "The message is that when you work with one of us, you work with both of us," he told panel participants at the festival.

His Hong Kong counterpart, Li Shu-Pui, executive director (financial infrastructure) of the Hong Kong Monetary Authority (HKMA), said HKMA had spoken to many other central banks, but MAS was the only one that understood the direction of blockchain technology.

"These guys are ready," said Mr Li at the panel, adding that the two agencies have been in talks since the middle of this year. Both central bankers indicated China, Asean, and Japan as key trading markets they are targeting.

Banks that have, on their own, experimented with blockchain include DBS, Standard Chartered, HSBC and Bank of America, but MAS' Mr Wee said there is yet to be a test embedded into actual production.

There is widespread interest in blockchain technology, which uses a distributed ledger - shared among financial institutions and regulators - to digitise documents and potentially bring about significant savings for the industry and corporates.

At an investor matchmaking session organised during the Singapore FinTech Festival, the second-biggest area of interest for the pool of participating investors was on blockchain, ranking just after data analytics.

The event can be seen as a benchmark for global interest, given that it is now the world's largest fintech event, attracting some 30,000 participants this year from over 100 countries.

MAS also plans to expand on an inter-bank payments pilot with the Bank of Canada to create a cross-border payments system between two countries that is powered by blockchain technology. The "killer app" is to go cross-border, according to MAS managing director Ravi Menon.

As pioneers in applying blockchain technology, both MAS and HKMA are aware of the risks involved - and that they will have to figure out how to coordinate regulations.

Still, Mr Menon said, it could take years before blockchain in global trade finance is widely applied - even if the experiments prove successful.

But the wheels have been set in motion and, as HKMA's Mr Li indicated, the showcase deal between Singapore and Hong Kong may set the standard for other jurisdictions to follow.

"The timeline has been announced; we cannot change it," he said. "We can only deliver it earlier."