SINGAPORE: Minister for Education (Higher Education and Skills) and Monetary Authority of Singapore board member Ong Ye Kung unveiled the Industry Transformation Map (ITM) for the financial services sector on Monday (Oct 30).
Despite being Asia’s top performing and the world’s third most competitive financial centre, Singapore faces emerging competition and significant headwinds.
While emerging financial centres such as Shenzhen and Abu Dhabi are rapidly increasing their share of the global financial markets, technological disruptions such as FinTech and crypto-currency may result in the obsolescence of traditional banking and finance activities, including front-facing roles such as portfolio management and customer advisory, or back-end processes like the processing of transactions and data analytics.
Indeed, the rules and modus operandi of our global financial system will soon bear witness to vast changes.
Blockchain as a globally distributed ledger for instance shows huge potential in enabling business transactions to be performed without relying on financial intermediaries. However, many of these technological innovations, such as Blockchain, remain seriously underestimated due to a lack of familiarity.
For these reasons, the ITM will prove crucial for guiding financial sector development and ensuring Singapore’s competitiveness and global financial centre standing.
LEVERAGING TECHNOLOGICAL ADVANCEMENTS
The ITM outlines key growth strategies for the financial sector that aim to generate greater productivity, attain higher growth rates, and create 4,000 jobs each year up to 2020.
These growth strategies include supporting Asia’s development, introducing programmes to upgrade skills and leveraging technological advancements.
With the growing prevalence of FinTech, the Monetary Authority of Singapore (MAS) seems to see this last strategy of facilitating technological advancement as a key focus of the ITM.
Strategies to encourage the adoption of technological tools include co-creating common utilities for electronic payments and digital ID, equipping financial sector professionals with IT skills, and investing in research and development to develop new solutions, such as distributed ledger inter-bank payment systems.
Aside from technological advancement and adoption, the ITM also aims to develop Singapore into a leading hub for wealth management, forex, fund management and domiciliation, infrastructural finance and Asian insurance.
However, while the ITM provides a broad view of the potential opportunities that can drive Singapore’s financial services sector for the coming years, it is not immediately clear how it aims to drive industry transformation.
After all, Singapore has long been a leading centre for wealth management, forex, and fund management. Its position as the most developed financial centre in Southeast Asia also makes it a natural source of infrastructural financing.
Furthermore, efforts to reskill and retrain financial sector professionals do not necessarily drive industry transformation, if the direction of the sector’s growth is not clear.
How then will the ITM spark off industry transformation? As with most things, the devil is in the details.
NEW PRACTICES AND SKILLS
First of all, it is important to note that the ITM functions much like a master plan. It outlines broad policy goals and directions, and lays out some of the policy frameworks that can lead towards the attainment of these goals.
For a better sense of the direction the sector is heading towards, we should turn our attention to the MAS and examine its stated priorities and initiatives to shape the sector.
In February, the MAS highlighted various measures to be implemented in support of the recommendations of the Committee on the Future Economy.
These include strengthening financing channels for small- and medium-sized enterprises (SMEs), simplifying the regulatory framework for venture capital managers, introducing dual class share structures for high-tech companies, and encouraging other sources of private sector financing for start-ups and entrepreneurs.
The MAS also emphasised its desire to develop and expand Singapore’s technology infrastructure, through the establishment of an electronic marketplace for trade finance assets, electronic trading platforms for forex, data infrastructure for natural catastrophe, cyber risk insurance and electronic payments platforms.
At a fundamental level, both the ITM and the MAS’s raft of policy measures emphasise the growing prevalence of technology in financial transactions and services. These can range from cashless payments to the use of data analytics to ensure a closer fit between consumers and financial products.
Seen from this perspective, Singapore’s roadmap for financial sector transformation emphasises potentially disruptive shifts in the ways and processes through which financial services and products are bought and traded.
Hence in the medium to long term, existing financial markets such as wealth management, forex, and fund management will continue to factor heavily in Singapore’s financial services landscape.
However, it is within these markets that disruptions are occurring, giving rise to deep-seated shifts in the practices and processes that underpin financial transactions.
In order to address these shifts, financial sector professionals must be equipped with the skills and competencies necessary for navigating an increasingly data-driven and technologically mediated financial sector.
An important element of such efforts involves preparing for changes in the nature of jobs in the financial sector.
For instance, the growing prevalence of robo-advisory services in wealth management may render the services of human wealth managers obsolete.
Through the use of automated algorithm-based portfolio management software, robo-advisors are capable of managing clients’ investments portfolios more efficiently and at lower cost.
More importantly, this means that wealth management firms will prioritise new skillsets like coding and algorithm-building over traditional networking skills.
In other words, wealth managers and other asset management firms will require more coders and data analysts, while relationship managers will need to take on a more strategic advisory, rather than client-facing, role.
More broadly speaking, the ITM alludes to potential shifts in the make-up of Singapore’s financial services sector. While the ITM emphasises areas such as wealth management, forex, infrastructural finance and FinTech, it places less emphasis on lending.
There are several possible reasons for this.
First, Singapore has already reached a peak in lending activities. According to a Deutsche Bank report released last year, debt burdens have risen from less than 240 per cent of GDP in 2009 to 265 per cent in 2015. This is largely due to Singapore’s high levels of private sector leverage, for which there are limits to greater growth.
Second, the growing role of FinTech and tech-based start-ups in providing financial loans and capitals suggest that the source and nature of lending activities may be shifting away from traditional banks and lenders towards new technologically-driven firms and start-ups.
New peer-to-peer lending and crowdsourcing portals are springing up in developed markets like the US for instance.
The ITM therefore foresees an increasingly technologically driven financial services sector that favours subsectors capable of leveraging new technologies to augment their business models.
These include wealth management, forex and FinTech, where robo-advisors, algorithms, and online trading platforms allow firms to provide financial services through real-time and automated platforms.
The future of Singapore’s financial services sector, and the nature of the subsectors that it comprises, will therefore be driven by technological advancements. This means that the financial sector of tomorrow will increasingly by dominated by FinTech and select subsectors or firms that are capable of adapting FinTech to their existing businesses.
Third, where Singaporeans are smart and English-speaking, with the rule of law and anti-corruption culture strong, it makes sense to strengthen financial advisory as a core competency in an area we have a natural advantage in.
TRANSFORMING SINGAPORE’S ECONOMY
While the financial services ITM has provided a clear policy direction for the financial sector, its impact may extend far beyond financial services. Indeed, where sectors are interdependent, it is unsurprising that the government takes a central, strategic approach in planning out and implementing ITMs across all sectors.
For instance, the retail ITM emphasises expanding e-commerce and providing retailers with e-channels to expand their markets locally and internationally. Similarly, the wholesale trade ITM plans to build trade connectivity through digital marketplaces and platforms.
For these strategies to materialise, there needs to be an efficient and reliable infrastructure for online payments and transactions, along with the necessary skills and capabilities to operate and regulate this infrastructure, as well as platforms that will make up this infrastructure.
In short, the strategies introduced in the financial services ITM will contribute toward and complement digitalisation strategies in other ITMs.
This mirrors the key role that Singapore’s financial infrastructure plays in supporting the payments platforms used by retailers and wholesalers, such as NETS, credit card payments, or even funds transfers.
There is therefore a need to understand the recently released financial services ITM within this broader context and appreciate the linkages between the various ITMs, and the way they support and reinforce each other in Singapore’s ongoing economic transformation.
At the heart of this economic transformation lies technological disruption.
More specifically, our ability to transform our economy hinges on our willingness and ability to leverage on potentially disruptive technologies.
For the financial services ITM, technology is its biggest enabler for success; yet it is also its biggest obstacle.
Whether Singapore can successfully transform its financial sector for the future depends on our willingness to accept these new and technologically driven ways of managing our finances.
Woo Jun Jie is assistant professor in the Public Policy & Global Affairs Programme at Nanyang Technological University. He is also the author of “3-in-1: Governing a Global Financial Centre”.