We truly appreciated the opportunity to speak to Sopnendu Mohanty, Chief FinTech Officer at the Monetary Authority of Singapore, during his most recent visit to Japan, covering the FinTech ecosystems in Singapore, ASEAN and Japan, the upcoming Singapore FinTech Festival, APIX as an open innovation platform, and possible regulatory responses to the decentralized finance movement.
NG: Welcome to the Tokyo FinTech Podcast, Sopnendu. Singapore is a fantastic story, so successful in driving financial innovation across the board. What are your personal highlights from last twelve months?
SM: Over the last 12 months, we have seen a convergence of all the different initiatives we started four years back, when we had started our policy redefining journey, where we looked at different ways to make our policy effective. We are seeing the results now.
As an example, take the Open Banking, or API (Application Programming Interface) policies we chose. Now every bank publishes hundreds of APIs, as a natural way of doing business. We also focused on building platforms to bring people together, and to make finance simpler through collaborations and connections, such as payments as a platform.
We established a platform called PayNow, which now has millions of transactions going through the platform at zero cost. People are transferring money to each other. We also built a platform for people to innovate together, called API Exchange, or APIX. That is a platform that transcends beyond Singapore. It covers ASEAN, and allows FinTech companies from different parts of the world to collaborate with regional banks to digitize faster.
And the last piece is consumer behavior. Consumers have become far more digital savvy, far more technology literate as they are adopting FinTech and the FinTech way of doing things better. Consumers are more educated, more conscious about all digital matters, and how to protect themselves from cybercrime, which is a good sign that the industry is moving forward in a very safe and secure way.
NG: Last time I checked, I counted 42 payment applications in Singapore. Obviously, as a regulator, you are not taking sides, you are focused on providing a level playing field and a competitive marketplace. However, 42 payment apps seem a lot for anybody to keep track of, and to try out. How do you see that part of the industry in the future?
SM: 42 obviously looks like a big number, but in the FinTech world, you think differently. In this whole new world of financial services, what used to be a single payment regulation is now decomposed into seven smaller modular regulations. And if I take these 42 payment apps and map them against the new regulatory framework, then they do not seem to be a lot because each of them will be regulated for a certain function they are performing. Each of these FinTechs in the payment space is solving a piece of the puzzle, it is solving a piece of the payment ecosystem and making it better. That is what unbundling is all about.
NG: You are also going to issue virtual banking licenses…
SM: Yes, absolutely. So that is another big initiative. The virtual bank license is designed around supporting the new way of running banks completely on a cloud platform. We are looking at digital platforms that apply new technology to serve consumers in a different way.
NG: You also spent some time in Japan earlier in your career. When you compare Japan and Singapore with regards to the change in consumer behavior, in becoming more digital, what is your perception of the Japanese market at this point? And what is your advice to the to the Japanese regulators and economy in order to drive innovation in this market?
SM: Japanese regulators have been doing really interesting work in the FinTech space, especially with regards to blockchain. Tokyo has been the market leader in some sense, the way they have grown that market. A lot of learnings are coming out of Tokyo for the whole world of crypto and blockchain, we also seeing a lot of learnings from Japan in the use of AI, how to mine data better. So a lot of those learnings have come from the Tokyo market, the regulators here have put together some very forward looking thoughts.
Then there is the experiment run by Bank of Japan on using distributed ledger technology (DLT) for payments, Project Stella. So I think that the ecosystem is moving in the right direction. Can we do more? Yes, of course, we can do more. More does not necessarily come from doing more inside of Japan, but from collaborating more. What you will see more and more is that Japan will collaborate with other markets to build various cross border products and services.
NG: So what is the the opportunity for the regulators themselves, by applying SupTech (Supervisory Tech) for innovation and creating a more real-time and seamless system for market participants?
SM: SupTech and RegTech are perhaps the most exciting space when it comes to the world of FinTech. When you speak to any bank, the bulk of the budget is allocated to compliance-related changes. SupTech and RegTech can unbundle thes issues into common components and build a cheaper, faster and better solution. So that is a huge market.
Today, between 50 to 60% of each bank’s technology budget is allocated to regulatory changes. Globally, that amounts to roughly $300 billion or $400 billion. So that amount of money is out there to be given to smart RegTech and SupTech companies. It is a significant market opportunity.
NG: Obviously, the next Singapore FinTech Festival is coming up soon. You had an incredible number of attendees last year. What can we expect this year? What will be the highlights and how much attendance do you expect?
SM: We do not predict our attendance, but people expect definitely an even bigger attendance this year, maybe in the high 60,000s. But that is not the important part. The festival brings different ideas, different set of ecosystems together. It is a celebration of innovation, successes, failures and lessons learned throughout the year. Novmeber is a great time to discuss these things before you go on a vacation at the year-end. Holding the Festival in November helps us being a global platform, helps being a country which encourages global thought leadership. That is what the FinTech Festival is all about. It brings a whole set of ecosystems together in a collaborative way, with no particular bias or agenda to pursue.
NG: And at the same time, the deal numbers were also incredible, bringing together investors, venture capital and private equity.
SM: That will be something to watch out for. We are going to release some numbers soon. We have had record investment in the Singapore FinTech space this year. These numbers coming up will signify how much things have moved forward in Singapore.
NG: Let us talk a few minutes about APIX and the ASEAN Financial Innovation Network (AFIN), which you have also personally led. AFIN was announced at last year’s Singapore FinTech Festival, and the teams have been executing diligently. Please explain in a little more detail what APIX will provide.
SM: APIX is an API Exchange. It is a platform which allows banks to innovate faster, cheaper, safer. In fact, we promise we can deliver the whole Innovation Lab experience at five percent of any bank’s expense. If you are spending a million dollars, we can deliver the same results with less than five percent of cost. That is the number we are looking for in terms of impact.
Your have the ability to scout FinTech startups around the world from your desktop. Further, if you want to test their APIs, you take the next step and test the APIs right or the APIX platform. If we want to bring together your bank’s systems and the FinTech’s APIs and cook up a new product, we are providing that functionality.
Imagine all this being done within the physical world in a data center. It will take three years and a lot of money. APIX is cheaper, faster, highly efficient, and you can build a prototype, make the commercial choice and rapidly digitize. So we can realize new ideas at a fraction of a cost and in a fraction of the time, for both small & medium-sized banks, but also larger banks.
NG: There are a lot of people who are talking about decentralized finance (DeFi) and working various implementations. Obviously, DeFi implies that these companies do not reside in a specific jurisdiction. What are your thoughts around decentralized exchanges, for example, or decentralized finance overall? What would be required from the regulatory side to actually still protect the retail investor?
SM: DeFi is still quite an evolving space. My sense is that it is too early to judge. There will be experiments, especially in the private capital space, you will find applications for creating a decentralized market. But be assured that the regulators will not negotiate on three things. They will not negotiate on consumer protection, that is not something going to be given away. They are also not going to negotiate on AML & CFT (Anti-Money Laundering & Combating the Financing of Terrorism). Third, they will ensure that there is a level playing field and there is fairness and trust in the system, thus ensuring financial stability. So these three things will drive the regulators’ response.
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