Noor Menai, President and Chief Executive, CTBC Bank USA
Please give us a bit of background on yourself, and how your company and career have been connected to FinTech.
I’ve worked in all areas of the banking business, including the back office where all of the financial technology comes together, for almost 25 years. Most people don’t realize that banks are technology companies that happen to sell financial products. They are heavily focused on information and process management, and making sure that there aren’t mistakes made because they’re dealing with actual money.
I started my career in a bank where we invented the precursor to modern day online banking with a dial up service called Pronto. It was way before its time. However, it became successful as Prodigy when we merged with Chase Manhattan. Later, when I joined Citi I was head of the global online portals for Citi.com and then MyCiti.com, both of which at the time were ranked the number one websites for financial services in the world. Eventually we did a $100 million dollar deal with AOL and became a top three preferred provider in the world.
During my tenure in the industry, I have been fascinated with the evolution of ideas that revolve around a simple concept, which is how to help people do things faster, on their terms and to improve their lives.
At CTBC, we provide our commercial and retail customers with a real financial bridge to the next stage of their lives and businesses. As part of this, we’re focused on the emerging space called RegTech (regulation technology), where a lot of technology around AML (anti-money laundering) and the associated laws require manual processes, which are subjective due to human judgment. The more we can apply machine learning and process automation to those sorts of things, the more we can free up banks to do what they’re good at, which is serving customers.
How well are financial companies adapting to the rapid pace of FinTech development? What fields are furthest ahead of the game, and what sectors are being left behind?
While banks are usually quite conservative, I’ve been pleasantly surprised to see that the financial industry’s adoption of FinTech has been moving relatively fast. Payment services such as Square that aid the movement of money were the first to leverage FinTech and they are the furthest ahead. They have the least friction when partnering with banks because banks see them as either the first or the last step of a series of hand offs whether you’re using a credit card, check or cash. Banks will always be part of that value chain because some financial intermediary is needed for funding.
Slightly behind are the so-called robo advisors that have turned what used to be a manual process to manage investors’ portfolios into an automated system without expensive transaction costs. Brokerage firms and wealth management divisions of banks are adopting this method and saving human interaction for when an investor has a specific question or goal to set.
There’s an emerging theme around the synergy and even symbiosis of FinTech and banks needing each other. They’re not exactly falling into each other’s arms just yet, but there is the growing realization in the FinTech world that they need the banks for both their knowhow and for the last step in a transaction.
What opportunities do you see for FinTech development and disruption, particularly from a regulatory standpoint?
The penetration of FinTech products is still very low compared to the total size of the market. One area that’s being neglected that I referred to earlier is RegTech, which is around reducing the cost of regulation. When Sarbanes Oxley was passed, it had two pieces: one was the GLB (Gramm-Leach-Bliley) Act, which was the privacy of consumer information. The second part mandated that there would now be personal liability for C-Suite executives and boards of directors for any mistakes in sharing or processing financial information. Therefore, there’s a critically important and inherent fear in the industry around compliance.
A couple of companies stepped up and they have automated the process, which took a lot of the pain away. However, there are many more dragons to be slayed. We need the best minds around the world to draw their attention to the automation and application of these new technologies.
Can technology help the regulatory issues, which seems to be just a never-ending issue for the financial services industry?
Yes, technology can help the regulatory issues. We report a lot of activity to the government, especially around money laundering. The rate of false positives (data that looks like a problem but isn’t) is much larger than it should be. If you could use machine learning and pattern recognition and learn over time by doing full scans of previous cases, which computers are good at, you could reduce the false positive rate by a huge amount.
The savings flows right to the bottom line of banks because you’re paying an employee with an annual salary of $80,000 - $90,000 to look at just one transaction at a time and do research to see where it’s coming from, where it’s going, who’s the beneficial owner, what have they done in the past, what did they say they were going to do, and so on. All of that takes a whole day or longer. There are large banks that have 10-year backlogs in processing some of this information because it depends on human beings to sort through these things.
What is the biggest challenge for big banking and financial companies to win the FinTech race?
The biggest challenge for big banking and financial companies to win the FinTech race is the sunk cost fallacy. Banks are large organizations, and they tend to invest huge amounts of money to automate processes. By the time they’re done they’re already a generation behind. They may have seven years to write off the cost but they can’t do that unless they’re doing some restructuring. In turn, that becomes a real barrier to innovation because someone whose job depends on running a billion dollars’ worth of infrastructure across the country can be jeopardized by a technology that can do the same thing on a smartphone for 50 cents.
Furthermore, how does a CEO of a Fortune 50 company stand in front of his shareholders and say, “I didn’t have a crystal ball; I couldn’t tell you then that I just sunk a billion dollars in this brand-new technology that’s turned out to be what the fax machine was to email.”
How does the FinTech war change the talent equation at banks?
It’s definitely harder to attract talent to banking than it used to be before the financial crisis of 2008, but it’s not that bad. It’s no secret that banks usually aren’t the first innovators. Just one year ago, people were saying that FinTech was going to kill the “traditional” financial industry and that machine learning would take away all of the important jobs.
Today what’s being said is that there’s more regulation here than what was previously understood. For example, the bottom fell out of market place lending because apparently they didn’t really understand funding or digitization, or the fact that regulation actually does encourage smart, responsible behavior.
Additionally, there is a better recognition now that banks hold a lot of proprietary knowledge. There is a mutual dependency and partnership between the financial services and technology industries. If you want to come up with a holistic business proposition that actually solves a real world problem such as how to get a mortgage, save for retirement, or send money to your mom in a faraway country, then you have to tap into the knowledge in banking.
Why is the US a front runner in the global FinTech stakes?
CTBC Bank is one of the first Asian American banks to operate both in the Eastern and Western United States, and I believe the US market is a front runner in the global FinTech stakes because it’s extremely mature. For a FinTech product to become the standard here, it has to be bulletproof and adopted by a mainstream audience. That’s because of the infrastructure that we have created, and the understanding of how end-to-end technology solutions and the regulatory space works. It’s a less naïve undertaking in the U.S. whereas in other countries someone might say, “I have this great idea and I’m going to sort of ignore the realities of the real world when this may or may not work. I’m just going to see if I can give this away.”
This approach can lead to a little bit of false comfort. For example, you have to ask yourself, “Is this really solving a problem or am I just looking at how many people are using my app? Can this survive the realities of a real business model? Does this thing make money, are people willing to pay for it, and is this more than just a toy?” Those questions happen much faster in the United States than they do in other countries, such as China.
Secondly, the adoption cycles, user interfaces and actual value proposition of what you’re developing in a specific part of the world are closely defined to that part of the world. When you look at apps that are popular outside of the United States, they would be confusing for North American users because they are so different.
For example, many of us use Google several times a day. It’s a clean white slate with negative space even when you land on the content you’ve searched. If Americans were to watch TV in Asia, a news anchor would be trying to speak to them on the main TV screen but there would be five popup windows around her that are on completely different topics. Asians are actually paying attention to those popup windows instead of the anchor. But that model doesn’t work here. People have trouble adjusting to the ribbon tape that goes across the screen on certain financial news outlets.
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