Regional Insurance Survey: What Strategies are Practitioners Championing?

Tags: insurance, survey, business strategy, congress

IDC Financial Insights holds an annual Asian Insurance Congress (AIC) every August on the premise of providing insurance executives from across Asia/Pacific a platform to discuss the core business, operational, risk and technology issues that they were championing. This year's event, our 4^th Congress, took place on 25^th August in Singapore and saw overwhelming success as usual.

Strategic Areas and Initiatives

With a catchment of more than 180 insurance executives in the room, we obviously seized the opportunity to poll the delegates on the strategic areas and technology initiatives they were advocating, emerging trends they were keeping a close watch on, and conversely, the core challenges they were tackling.

Herein, on a question on the areas strategically astute insurers across ASEAN were gravitating towards in the coming 12 months, it seems that - with a score of 4.03 out of the maximum possible 5 - they continue to drive efforts in customer-centric undertakings to cater to an increasingly mature and demanding pool of clientele with the preference for individualized attention, products, services, and pricing (See Figure 1).

Corresponding closely to this is a focus on 'data integration and analytics', illustrating the need to further bank on having sufficiently clean but consolidated customer data and the availability of analytical tools. These allow for insurers to refine customer experiences through more granular segmentation, differentiated customer service, and provide additional points of reference such as a better understanding of policyholders' life-cycle orientation and the impact of recent events on their insurance requirements. Insurers in more developed nations such as Singapore are finding it especially crucial to articulate and deliver successful customer-centric projects given that it is more cost effective to focus on existing policyholder retention and in increasing their wallet share of these than it is to capture brand-new customers.

Such a concerted focus on data, analytics and customer centricity has the insurers channeling monies into CRM software tools and applications, and employing external consultants and systems integrators to supplement internal resources. We anticipate technology and services for business or consumer analytics continuing to be adopted at a vigorous pace amongst insurers here in the region.

Meanwhile, 'compliance and risk management' also continues to hover at the top of the strategy list, despite – or perhaps because of – the current uncertain economic climate, coupled with the fact that our global markets have grown increasingly entwined and riskier by the year. A focus on regulatory compliance, risk assessment, and risk mitigation would be reflected in risk-savvy insurers demonstrating proactive risk stewardship, conducting internal risk trainings, and making selective investments in fraud management systems.

And finally, coming in at a close forth in terms of strategic areas of focus is the 'alternative distribution channels' which superseded the scores of traditional agency network and bancassurance. This is indeed in line with our prediction earlier this year on insurers' top 10 strategic initiatives where we mentioned that "The advent of electronic channels and the emergence of a technologically savvy consumer generation are radically changing the distribution strategies of insurers. Efforts around channel innovation and alternative distribution outreach, such as the Internet, mobile, and direct marketing, are extremely relevant in the context of reducing distribution costs and enabling insurers to provide affordable insurance to the masses."

For instance, using high-technology interactive touch-points including Web 2.0 applications such as social tools including social networking sites (Facebook and LinkedIn) and blogs to promote products to the Gen Y clientele appears to be the hottest flavor of the season, with the session on social media at AIC 2011 garnering one of the most positive feedback.

About Asian Insurance Congress (AIC) 2011

The agenda of this year's AIC revolves around the theme “Ascension of Asian Insurers up the Global Order” which we think is very apt, given that our regional peers are holding their own and no longer playing second fiddle to their international counterparts, and have been expanding aggressively in their home continents and abroad. This full day knowledge-centric and networking conference for insurers across this region witnessed in excess of over 200 managerial to C-level insurance executives and technology vendors in attendance. The presentation sessions were both informative and thought-provoking, featuring sessions such as: the ascendance of emerging Asia, return of an emphasis on customer centricity, the new risks but conversely additional opportunities being engendered by innovative technologies, and on the role of social media in insurance.

Presenters also spoke on themes revolving round alternative delivery models and new growth hotspots, technological innovation, and issues and concerns over regulations, risk management and security. I likewise took the opportunity to take to stage to share our in-house analysis of the insurance landscape in 2011 and beyond.

I personally enjoyed and learnt a great deal from the almost two dozen visionary practitioners who spoke at AIC 2011 and several of their pointers continued to resonate in my mind after the sessions. As with all IDC Financial Insights' events, feedback from the delegates have been overwhelmingly positive, as evident from the event feedback we have collated and post-event commentary I have received.

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Thank you once again for those who attended and I look forward to welcoming you back to AIC 2012 in August next year! For those of you who could not be at AIC 2011, have a peek at http://www.idc.com.sg/insurecongress/2011/ to see what you missed out on.

Note: Do look out for our forthcoming report entitled: "Business Strategy: Regional Insurance Survey - Taking Stock of ASEAN Trends at Mid-point". This survey document contains the full results and correlated implications around the 89 respondents' strategic areas of focus and technology initiatives, IT spending directions, emerging trends of interest, and pain-points specific to their roles and responsibilities.

Operational Risk Management: Have appropriate vendor management strategies

Tags: operational risk, vendor management, risk solution vendors

As incidences of operational risk intensify, their substantial cost and ramifications bring to light the undeniable correlation between operational risk management and sound business practice. There is thus an analogous need for Asian bankers to accelerate their implementation of operational risk management solutions.

As such, I analyzed the principal operational risk solution vendors participating in the Asian market and the solutions they provide in a recent report, with the intent to equip banks with useful information to assist them in narrowing down their search for the most appropriate operational risk solution vendor.

In that document, I suggested the following vendor management pointers:

• Investigate the vendors' current offerings and future expansion path: Examine the future plans of vendors to ensure that they offer tools that effectively cover an institution’s existing portfolio and also accommodate further updates. This is crucial to ensure that the organization does not inadvertently select a solution that caters to the current risk management situation, but fails to grow with the bank in the future.
• Explore vendors' footprint of reference clients; gravitate towards those dedicated to the market via continuous commitments in research and development (R&D): For instance, a substantial clientele list implies a risk management solution that is tried and tested and hence, less risky.
• Consider the size of the vendor, turnover, market share and financial stability: These factors serve as indicators of their ability to remain in operations, invest funds for innovation and research, and withstand financial catastrophes.
• Take note of rankings that demonstrate end-user confidence in their risk solutions: Industry accolades and awards won by the vendor could be a barometer for innovation. However, these need to be recognition given to vendors based on objective, unbiased end-user polls. On the contrary, rankings given in lieu of advertising space in publications are not necessarily objective and should not carry the same weightage.

Big Data: A Banking Perspective

Tags: banks, asia/pacific,

Insurance Executives' Survey: Issues and Initiatives of Regional Insurers

Tags:

While on their quest for growth and profitability, the ability of insurers to, among others - craft sustainable business models, take on operational and business process improvement initiatives, ensure compliance and prudent risk management practices, embrace innovation, and leverage off technology to create a more dynamic business framework - while, on the same vein, becoming more customer centric than ever will ensure that they stay a step ahead of competition and keep on a growth trajectory.

But which initiatives are the Asian insurers specifically spending most of their time and resources on? To answer that question, there is no better way than to poll these executives themselves to understand the core business, operational, risk, and technology issues that they are championing. We thus conducted a survey in May to feel the firsthand industry pulse regarding a couple of important strategic and technology-related questions.

Herein, we uncovered that the regional insurers' business goals are now infused with an even more distinct technology flavor, with 9 in 10 surveyed planning to increase IT spending for 2011. The majority projects a 10–20% rise, with two-thirds of these funds being channeled into vertical insurance-specific solutions or services such as distribution channel management systems or core insurance applications like policy administration, underwriting, claims, and billing.

The survey also affirmed the role that insurance agents play -- the traditional way of selling insurance through agents appears to remain the predominant distribution channel with a priority score of 4.2/5.   

However, it would be intriguing to note that social media is becoming an increasingly distinct contributor to customer outreach programs and insurers are exploring ways to integrate this into their sales and marketing efforts. Specifically, we feel that the insurance CEOs are beginning to comprehend that the ubiquity of social media means that if they do not have an e-enablement strategy, they would likely find themselves behind the curve. They do however, need to address a series of issues such as how to integrate social media with other delivery channels; how to assess and mitigate risk from such channels; how to deal with the open nature of this medium; and ultimately, how to translate what may seem like extravagant and 'fluffy' social media investments to bottomline benefits.  

Meanwhile, as insurers attempt to get leaner operations-wise, they are focusing on weeding out infrastructure inefficiencies via business process reengineering (BPR) projects and are putting in place strategic road maps for the replacement or enhancements of legacy systems to deal with increased customer demands, as well as regulatory or tactical changes.  Interestingly, it appears that they are becoming more inclined to outsource technology now than historically - possibly driven by the need to increase organizational flexibility, reduce capital expenditure and access operational best practices and new emerging technologies. As a carry-over of tighter expense controls from the global financial crisis, we are also seeing more institutions focusing attention on creating/enabling a more flexible, dynamic IT infrastructure through the adoption of software-as-a-service (SaaS), Platform-as-a Service(PaaS) or Service-oriented architecture (SOA) so as to reduce capital expense (CapEx).   

We reckon that these IT delivery/consumption models resonate with insurers as they are able to break the shackles of traditional technology purchasing methods by leveraging on the concept of shared infrastructure and services, leading to lower costs, higher flexibility, and better business agility. In fact, when it comes to such adoption, Japan seems to be blazing the trail in cloud computing within the Asian insurance space with institutions like Sompo Japan Insurance, Sumitomo Life Insurance, and Nippon Life Insurance leading the pack.  

For detailed survey findings covering the fundamental issues around strategies for premium expansions, cost management and risk mitigation, and technology planning - Please refer to: "Business Strategy: Issues and Initiatives of Regional Insurers – A 2011 Executive Survey" (Doc # FIN228125, May 2011).

Further on the role of social media as a distribution channel, also look out for my upcoming report entitled: "Social Media: Time for Asian Banks to Engage in Social CRM?" This document covers the social networking habits across Asia/Pacific, benefits and challenges in utilizing social media for business, and how the social business movement at organizations is evolving.  

Security Survey: How Focused are Asian Financial Institutions on Information Security?

Tags: it security, information security, security survey

Notes from a Beijing Conference: A Vision for Chinese Insurers

Tags: insurance, chinese insurers, circ, limra, loma, strategic issues conference

I attended the LIMRA-LOMA's 19th annual Strategic Issues Conference held in Beijing, China last week. (As you already know, LIMRA-LOMA is the world’s largest association of life insurance and financial services companies with over 1,200 institutions as member organizations from across 70 countries). The two-day session explored the fundamental realignment of the insurance industry, and the new game, new rules, and new reality within which the Asia/Pacific carriers are competing in.

An interesting segment that caught my attention at the meet was the executive panel entitled "A Vision for China", which featured the senior management from two of China's domestic insurance behemoths - Chao Yang (Chairman, China Life Insurance, the country's largest life insurer with a market share of 41.5% in 2009) and Ronglu Zheng (General Manager, Taiping Life Insurance), together with international peers – Eric Chang (President, Aviva-COFCO Life Insurance) and Renzo Isler (General Manager, Generali China Life Insurance).

In the one hour discussion, these gentlemen covered a plethora of topics ranging from the primary growth drivers for the Chinese market, to core expansion challenges (and specifically those pertaining to foreign-funded carriers).

On the first issue – the panelist were in unison that China's insurance sector has been at the receiving end of an excellent streak of economic growth (China's average annual gross domestic product (GDP) grew 9.3% between 1989 and 2010), expanding a multiple of 2-3 times the GDP growth. Nonetheless, life and non-life insurance penetrations remain a mere fraction of that for global markets and amongst the lowest in Asia/Pacific. As such, continued economic expansion, commendable structural changes, increased household wealth, rising educational standards and consumer awareness, urbanization and increased demand for privately owned properties and vehicles, and the influence of regulatory transformations such as healthcare reforms will stimulate immense growth opportunities within China's insurance sector.

Herein, Renzo from Generali China Life directed attention to China's insurance regulator's (CIRC's) implementation of healthcare reforms that are due to be rolled out this year, and how these would encourage an expansion in the role of commercial health insurance in the national healthcare system and influence individuals and enterprises to meet needs not covered by the national basic healthcare system though health insurance.

On the question of immediate issues facing the sector, an obvious concern noted by all panelists was that from intensifying market competition being triggered by the entrance of foreign and private sector insurers and these denting the monopoly of China's big insurance groups to some extent. (Note: CIRC has been supporting the development of a more diverse marketplace by offering preferential policies to smaller and foreign firms to encourage greater competition, a more diverse market, efficient price competition and innovative offerings.)

Even then, foreign-funded carriers have not seen quick traction - domestic insurers remained dominant in both the life and the property segments, with local insurers capturing 96% of premiums from the life and 99% from the property markets, respectively. And why is this the case?

The panelists pointed to the fact that when it comes to operating a joint venture with a domestic financial institution, shareholders and management team are sometimes not unified in crafting strategies and aligning the goals of the insurers. New entrants also have to tackle encumbrances such as the lack of data and underwriting track records, cultural and language barriers, differences in corporate governance and accounting issues (for instance, Eric from Aviva-COFCO Life Insurance mentioned having to be compliant with Solvency II and being disadvantaged when local peers in China are not required to do likewise), and being restrained by a much smaller channel distribution reach in comparison to local players that have the backing of (literally) an army of hundreds of thousands of insurance salespeople. 

Being unable and impractical to compete on distribution strategies and pricing, foreign-based insurers have been circumventing these impediments by exploiting competitive differentiation that sets them apart from local incumbents. These include stressing their expertise in specific market segments and deliberately distinguish themselves via more targeted, personalized distribution networks, excellent customer service, and sophisticated product designs.

To find out what else transpired during the rest of the sessions at the conference, and to read my discussion notes from one-to-one time with the President and CEO of LIMRA-LOMA, have a look at the Perspective document: "Insights from the LIMRA-LOMA Strategic Issues Conference for Asia/Pacific Insurers" at http://www.idc-fi.com/getdoc.jsp?containerId=FIN227902

Do also look out for another forthcoming report entitled: "Business Strategy: Issues and Initiatives of Regional Insurers – A 2011 Executive Survey". This piece illuminates the findings from our executive survey conducted onsite at this conference, pulling together submissions from a diverse range of senior level participants across Asia/Pacific. The survey covers the fundamental issues around strategies for premium expansions, cost management and risk mitigation, and technologic planning.

Asia/Pacific Financial Services: Megatrends to Watch in 2011

Tags: asia/pacific, financial services, it priorities

IDC Financial Insights' activities across thirteen markets in the Asia/Pacific point to several notable trends in 2011. Banks and technology vendors alike will have to make sense of the macro-level drivers of the 2011 scenario, ultimately deciding which strategies and investment priorities of the past years need to be intensified and which need to be discarded in light of a drastically different marketplace. 

1. Super-regionals continue to emerge. In several of our reports last year, we discussed the emergence of what we called super-regional institutions, institutions that stepped up their acquisitive activities in several markets in the region and in a short period of time created their own regional franchise. There are 10 or so super-regionals that made their mark in 2010, these banks will continue to build traction in their markets of choice in 2011. There are four others that will become super-regionals by the end of this year.  Other than Australia, super-regional stories will come out of Indonesia and China. Banks in other countries, specifically Thailand, South Korea, and the Philippines will have to address why their super-regional strategies have been slow in the making.
2. The road map to One ASEAN. A new angle to the super-regional story is the industry's increasingly serious consideration of the ASEAN Economic Community (AEC), which will, if everything happens as planned, come to fruition by 2015. Among other things, the AEC is expected to liberalize financial services in the 10-member Association of Southeast Asian Nations, allowing more and newer players to compete with domestic incumbents. The region's banks will have to seriously consider the prospects of a 700-million-strong market and anticipate the unique trade finance and corporate banking opportunities therein. Alongside the creation of the AEC is the continued expansion of trade and economic cooperation with ASEAN partners like China, Japan, South Korea, Australia, New Zealand, and India — effectively made up of the major economies of the Asia/Pacific. Furthermore, banks will continue to urge the region's central banks to establish a regional banking framework to support this economic integration and to standardize financial regulation. There will be a push to allow more centralization of IT and operations, enabling organizations to reap the benefits of technological innovations like cloud computing.
3. The race for cheap deposits continues. Three trends serve to make funding even tighter for banks in 2011 — an increasing interest rate environment that has already led to higher costs in the wholesale market, more aggressive competition domestically for customer deposits, and more stringent regulation governing reserve ratios and liquidity coverage. Banks with significant CASA bases (ratio of deposits in the form of Current Account and Savings Account to the total deposits) continue to hold significant competitive advantage. The battle for retail deposits, frenetically fought in 2010, will persist in the coming year.
4. Loan growth targets back to normal. While a few markets like Singapore and Indonesia will see their banks accelerate lending even further, we expect banks in general to moderate their loan growth targets in 2011. This "scaling back" does not portend lackluster lending activity in the next 12 months but rather underscores how exceptional the past years have been, in terms of credit provisioning, huge stimulus programs, and hypergrowth in bank lending. In some cases, this scaling back is also crucial to prevent overheating. In China, the government will likely further push up reserve ratios and more strictly enforce that loan growth targets are not breached. These measures will accompany a continued increase in interest rates that are meant to prevent overheating of the economy. Meanwhile, Indian banks are scaling down previous loan growth targets as they are not seeing robust demand for loans outside of the infrastructure sector (a sector boosted by huge government infrastructure programs).
5. Disruption in fee income. A rethink of banks' fee income strategies is needed, in light of how current sources of fee revenue are being eliminated or capped or put under question. This is not specific to the Asia/Pacific region, caps in debit card merchant fees (thanks to the Dodd-Frank Act) and the continued effort by Elizabeth Warren's Bureau of Consumer Financial Protection against the "tricks and traps" of the U.S. banking industry, all point to how this is indeed an industrywide undertaking. In Australia, new measures to cut exit fees on mortgages (although this was more to foster competition) and deposit account transaction fees (also seen in New Zealand) are already being implemented.  And in the Philippines, banks will be able to take advantage of the new one-day central clearing system but will stand to lose a key source of fee income in returned checks and draws on insufficient funds. We believe that banks will offset fee revenue they will not be able to see out of their retail business by expanding fee generation from commercial and corporate banking, investigating opportunities not only in trade finance and transaction banking but also in advisory and consulting services. Other institutions will be looking at entirely new business models — debt recovery services and cloud computing provisioning are two of the most frequently cited alternatives.
6. Midsize institutions fight back. The highest loan growth targets that we are seeing at the onset of 2011 come from ambitious midsize banks in several markets across the region. To some extent, they continue a trend we saw in 2010 of midsize players competing aggressively in the deposits business, most of the time to the detriment of margins. This aggressive drive is also seen in IT plans — if one were to look at the growth in bank IT spending for 2011, most of the highest growth rates would come from tier 2 players. These institutions will be spending on technology capabilities that will allow them to handle greater transaction throughput, bring on board many new customers, and support the expansion of their product offerings. Their aggressive spending plans belie a conviction that their best chance to make it to the big leagues is during this period of economic revival.

Green Products: Coming to Your Bank in 2011?

Tags: green banking, green financial offerings, eco-friendly, environmentally sustainable banking

We are now in an era where emphasis on environmental risks and sustainability has never been stronger. The information age has brought about unprecedented knowledge of the severity and implication of environmental degradation, while massive media coverage and proactive governmental policies have generated a high degree of environmental awareness among the masses in developed nations across Asia such as in Japan, South Korea, and Australia.

Consequently, financial institutions are starting to jump onto the green bandwagon, identifying and evaluating environmental market opportunities and offering green financial products. This not only allows them to play the corporate social responsibility card via the reconciliation of environmental issues with product offerings and raises their corporate image - but simultaneously crafts revolutionary ideas for eco-friendly ways to increase growth and competitiveness in the marketplace.

These green offerings provide banking customers the option to reduce the indirect negative impact their banking activities have on the environment, and range from green credit cards and auto loans to pro-ecology mortgages and sustainability-backed investment funds. The strongest advocates in Asia/Pacific for green financing arrangements are regional-brand names like HSBC (with their HSBC Green Credit Card), and financial institutions based out of Australia. As a matter of fact, Australia has witnessed the introduction of green financial offerings such as:

• GE Money eco MasterCard, the first credit card Down Under with a reward program that provides cardholders with an automatic method to purchase carbon offsets;

•  mecu's goGreen car loan, where interest rates are positively correlated according to how green a vehicle is based on greenhouse gas (GHG) rating associated with the vehicle type. Since inception of its goGreen auto loan in 2008, this credit union has seen a 45% increase in car loans; and

•  Bendigo Bank's Generation Green Home Loan, which offers a 0.50% p.a. reduction over its current residential variable rate and no monthly service fee when retail customers build or buy a green home.

While IDC Financial Insights does expect demand for green products to expand in tandem with enhanced environmental understanding and awareness, many remain within nascent stage of implementation or even at development phases, and we would need to continue watching this space. Nonetheless, variation and innovation behind such green developments indicate that banks are genuine in wanting to integrate green financial products into mainstream banking.

Meanwhile, giving these eco-friendly initiatives a boost are government schemes like a newly minted one in South Korea that will offer "green credits" for consumers who embrace a low-carbon lifestyle. According to a new policy plan announced by the Ministry of Environment in January 2011, citizens who use green credit cards to buy eco-friendly products, or live green in ways like taking public transport would be rewarded with credits that can be redeemed for cash or used to lower utility bills. South Korea's national government advocating a green lifestyle can only mean that more of their domestic banks would get into the act.

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What are your thoughts on the success of banks in integrating green incentives into mainstream banking?  Are these mere flash-in-the-pan, or sustainable propositions? How can these environmentally-themed financial products remain financially viable in the long run?

To find out what else we have to say about this topic, have a quick read of our Perspective document: "New Frontiers in Green Revenue Generation" at: http://www.idc-fi.com/getdoc.jsp?containerId=FIN226459.

Cloud Computing in Financial Services: Sentiments from the Ground

Tags: asia/pacific, cloud computing, banks, it priorities

From our conversations with banking executives in the past month, we note their observation that the industry has over time repositioned outsourcing as cloud computing, even though technology has advanced well enough to differentiate both. The rebranding of the politically contentious outsourcing to cloud computing continues, not only in financial services but in other sectors as well. Relative to outsourcing, cloud computing is a new term, and is less defined, confusing critics in the meantime. The initial feedback on cloud computing, however, shows less openness by the industry toward cloud computing in general but more toward private cloud — so there is a mad scramble to talk about private cloud too, never mind the notions of application service provisioning, or virtualization, or hosted services that may be accurate descriptions of what is actually being undertaken.

All these attempts to come up with something new to talk about belie a profound transformation in how banks prefer to consume and pay for technology. As purse strings tightened amid the down cycle, IT executives found that a modular approach to the consumption of IT was more easily justifiable to the board. However, even as economic pressures have eased, we still see continued interest in utility-based consumption of technology — the model has proven to be not just a stopgap measure, it is increasingly becoming the norm.

From a business case standpoint, the on-demand model (i.e., elimination of significant upfront costs, and expenditures more closely aligned with operational usage) has created strong interests in shared, utility-style service provisioning options, especially among the smaller players. Interestingly, small-tier institutions in Australia, Indonesia, and the Philippines have pressed for cloud computing–style solutions, even for their core systems and processes. The attraction stems from a desire to avail of broader and deeper technology capabilities in line with the needs of the organization, without having to incur the hefty price points of proprietary solution offerings.

In essence, financial institutions are taking to results-based principles in IT spending: "I pay for what I need and require." We see this not only in time- and materials-based pricing, SLA-based and performance-based contracts, but also in other pricing permutations to account for risks taken (by either the bank or the third party, or both) or business objectives met. So, whatever the term that is being pushed — whether it be cloud computing, or utility processing, or "new outsourcing" — it should align with the pay-as-you-go, use-as-you-please, and results-based principles that have gained ground.

Still, the debate over the relevance of cloud computing in financial services is yet to be resolved. Just when there were signs the industry was starting to buy into the business case for cloud adoption, high-profile incidences of service failures and operational outages that involved third parties have proved damaging to confidence in innovative delivery of IT. In characteristically reactive and high-handed fashion, the regulatory response has served to diminish appetite for risks associated with third-party management of sensitive data, operating infrastructure, and technology assets, regardless of underlying benefits. The recent notice from the Australian Prudential Regulation Authority (APRA) hit the nail on the head — cloud computing has to be managed similar to outsourcing and offshoring. From the notice, the industry benefitted from a clearer definition of the regulatory framework vis-à-vis cloud computing, including considerations and contingency plans required when banks take on innovative IT delivery.

As regulatory positions gain more clarity, internal guidelines on cloud computing are expected from super-regionals and international players that aim to build cross-country technology platforms. These too will give further momentum to the take-up innovative IT delivery models. They will present best practices and critical decision factors to the industry at large. Banks, especially those from less developed markets, will also look to greater availability of bandwidth and improvement of network infrastructure to push discussions on cloud computing along.

Welcome the Super-Regional Banks

Tags: financial services, banks

A bright light in the Asia/Pacific region's financial services industry is the emergence of super-regional institutions, which we define as Asia/Pacific-based organizations that have made aggressive moves to acquire operations across the region. Their regionalization objectives are intentionally more paced, however, and they have chosen to manage regional units that are close in proximity, and limited to one part of the region. We have tracked ten super-regionals closely this year, namely: ANZ Bank (Australia), Commonwealth Bank of Australia, DBS Bank (Singapore), OCBC Bank (Singapore), UOB Bank (Singapore), Maybank (Malaysia), CIMB Bank (Malaysia), Mitsui Sumitomo Insurance (Japan), Sumitumo Mitsui Banking Corporation (Japan) and Tokio Marine (Japan).

In the recent ASEAN Bankers Association forum which I spoke at, this super-regional theme captured a lot of attention, primarily because the bank presidents wanted to find out what their peers were up to in the Asian-wide M&A space. I also spoke of the lack of a credible super-regional story out of banks in Thailand and Indonesia – from where super-regionals should have emerged by now.

From the global realignment forced by the recent crisis, it also appears that there have also been super-regional strategies being launched out of banks in Latin America. Also, the super-regional story is apparently not just in financial services, because Asian-based companies from other industries have also made moves to go beyond their home markets, especially as the recent downturn resulted in global incumbents focusing more on their home markets in the US and Europe. It can be said that although super-regionals are filling in some of the vacuum left by retreating global players, we believe that super-regionals themselves are creating their own unique propositions as truly Asia-centric powerhouses.

What implications does the emergence of super-regionals have on technology decision-making?

The super-regionals' technology strategies are understandably distinct from domestic-focused institutions. These will be brought to life in region-wide platforms that are more than likely standardized applications and assets that will be used across the organization's various operations in the region. There will be country- or market-specific overlays, but the real and ultimate drive would be toward a common platform.

In the core banking space, a few super-regionals have just recently made decisions on their core banking vendors, and a few more decisions are tipped to be made within a year. Super-regional core banking will be a key theme in this area in the years to come. These deals will be handed to a wider number of vendors than expected, preventing an oligopoly of super-regional references for just a few core banking vendors.