ENABLING FINANCIAL INCLUSION IN APAC THROUGH THE CLOUD 2 omfif.org

About amazon web services This paper was produced in partnership with the AWS Institute. The AWS Institute convenes and engages global leaders who share an interest in solving public sector challenges using technology. For more information about the AWS Institute, please visit: aws.amazon.com/ institute/ If you would like to offer feedback on this paper, please email [email protected]

About OMFIF With a presence in London, Singapore, Washington and New York, OMFIF is an independent forum for central banking, economic policy and public investment — a neutral platform for best practice in worldwide public-private sector exchanges. For more information visit omfif.org or email [email protected]

Report authors Bhavin Patel, Senior Economist & Head of Fintech Research, Kat Usita, Deputy Head of Research, Brandon Chye, Economist, Levine Thio, Research Assistant Production Simon Hadley, Director, Production, Fergus McKeown , Julie Levy-Abegnoli, Subeditors aws.amazon.com 3

CONTENTS

Forewords 4 SECTION 3: 20 Cloud computing can drive economic Digital footprints mark the road and social change to better financial infrastructure Melissa Ingber, Senior Global Manager, AWS Institute and Michael Punke, Vice- President of Global Public Policy, AWS SECTION 4: 27 Flexible, accessible, safe technology Which way next for cloud needed more than ever technology? Tamara Singh, Head of Asia Pacific, OMFIF

Preface 5 SECTION 5: 34 Why Asia’s unbanked can look to Executive Summary 6 a brighter future Asia wakes up to the power of the cloud

SECTION 1: 8 APAC’s financial inclusion imperative

SECTION 2: 14 Central banks and the policy priorities 4 omfif.org

FOREWORDS

CLOUD COMPUTING CAN FLEXIBLE, ACCESSIBLE, DRIVE ECONOMIC AND SAFE TECHNOLOGY SOCIAL CHANGE NEEDED MORE THAN EVER

THE global financial services industry is IN September 2019, at a gathering of blockchain undergoing a digital revolution, triggered by the specialists in Singapore, I first heard about innovative advent of new technologies, changing consumer solutions designed to enable the furthest-flung behaviour, and competition from disruptive rural communities in India, Vietnam and Indonesia fintechs. Cloud computing is at the heart of this to access digital payments. These solutions allowed shift. The Covid-19 pandemic and the ensuing farmers to make and receive payments without a push towards further digitisation have accelerated dependency on continuous internet access, reducing cloud adoption in the industry. Cloud provides payment cycles and risk. Far more ‘real’ for these financial institutions with flexibility, scalability and farmers, was their ability to travel back to their operational resilience. It enables them to deliver villages with a diminished fear of robbery on their cost-effective digital financial services such as journeys. remittances, lending and insurance to underserved Until that moment, the everyday value of financial and unbanked communities. Around 1.7bn adults inclusion hadn’t sunk in. The 290m unbanked in are unbanked globally. Of these, nearly 40% are in Southeast Asia presented an untapped opportunity Asia Pacific. According to the Asian Development for bankers and traders, my professional capacity Bank, the effect of banking the unbanked could at the time. Here there was a chance to increase boost gross domestic product by 2-6% in many participation and accelerate economic progress. Southeast Asian markets. By enabling more Yet, there was a second perspective. These farmers innovation, cloud computing can support financial were unfamiliar with internet technology. They lacked inclusion and drive economic and social change. financial and digital literacy, and did not always Amazon Web Services is working with understand how vulnerable they might be in a more fintechs across the region to support them connected world. It was clear that they required with their infrastructure requirements. Some protection, but how could this be developed in a offer innovative payment solutions. Others manner that didn’t deprive them of access to life- are empowering small and medium enterprises changing opportunity? through digitisation and technology, reducing 2020 has been a year of change and opportunity. bureaucratic barriers, and creating new growth The acceleration of cloud adoption has enabled many models. to continue to participate in a widely distributed To further support innovation in digital finance, workforce. In countries with less stable internet policy-makers across Asia Pacific are introducing availability, workers found themselves using mobile forward-looking policies. Regulators in some phones to access the tools that their organisations countries have implemented principles-based employed. Bandwidth-light mobile applications, outsourcing frameworks to enable cloud service hosted on cloud, enabled operations for many providers to offer innovative infrastructure organisations to continue. services. AWS is a strong advocate and Flexible, accessible, safe technology is needed supporter of pragmatic forward-looking policies. now more than ever. Corporations and their providers We continue to engage with policy-makers must work with policy-makers to build a future and regulators, helping them develop policy that enables the participation of urban and rural frameworks that support innovation and inclusive dwellers alike. By taking a shared responsibility for finance. the development and deployment of emerging This report highlights the potential of cloud technologies, corporations and governments will in improving financial inclusion. With guidance advance the inclusion of all people. from policy-makers and regulators, it identifies In this report, OMFIF and the AWS Institute have key policies to bolster financial inclusion through come together with this shared responsibility in mind. digital finance.  Working with 18 decision-making bodies, we outline Melissa Ingber, Senior Global Manager, AWS key considerations for furthering cloud adoption and Institute and Michael Punke, Vice-President of financial inclusion. Global Public Policy, AWS Tamara Singh, Head of Asia Pacific, OMFIF aws.amazon.com 5

PREFACE

IN this paper, OMFIF and the AWS Institute throughout to give an overview of where look at the state of financial inclusion work remains to be done to ensure cloud in Asia Pacific and the role of cloud acts as a catalyst for financial inclusion. computing in supporting more accessible, In writing this report, the team cost-effective and flexible delivery of surveyed and consulted 18 policy-makers, fintech. People and small businesses regulators and officials from central banks, throughout the region struggle to quickly supervisory authorities and international access financing and transfer money organisations. Of these institutions, 16 safely and securely. The accelerating were from East, South and Southeast Asia. shift of financial services to digital, Although some participants and prompted by Covid-19, presents promising institutions requested anonymity, we would opportunities. like to thank the following organisations, Central banks and regulators individuals and their respective teams for acknowledge that cloud computing will their contributions: be an important technological enabler in Djauhari Sitorus, Head of Project extending accessibility to underserved Management, National Council for communities. However, applications Financial Inclusion of Indonesia of cloud computing must address the Heng Bomakara, Deputy Director specific challenges and characteristics General, National Bank of Cambodia of developing markets in the region. Expanding access to appropriate digital Ippei Shimizu, Deputy Director, Japan financial services will entail applying cloud Financial Services Agency to key fintech applications, alongside Emmanuel San Andres, Analyst, Asia complementary policies. In particular, Pacific Economic Co-operation Policy cloud’s ability to deliver streamlined and Support Unit agile data processing will benefit digital Jisoo Park, Economist, Bank of Korea payments and the development of digital Lotte Schou-Zibell, Regional Director, identity frameworks. Asian Development Bank Cloud implementation will require regulatory reform. The public and private We would also like to thank individuals from sectors must work together to navigate the following institutions: cloud’s opportunities and perceived Bank of Thailand threats to the financial sector. This report Reserve Bank of India distils views from multiple regulatory bodies charged with pushing responsible Myanmar Financial Regulatory financial innovation and ensuring the Department integrity of financial infrastructures. Bangko Sentral Ng Pilipinas Contributors’ insights are reflected Monetary Authority of Singapore 6 omfif.org

EXECUTIVE SUMMARY ASIA WAKES UP TO THE POWER OF THE CLOUD

Covid-19 has accelerated the digitisation of financial services. In Asia Pacific, policy- makers are becoming increasingly switched on to the benefits of cloud technology. This may have a profound and positive impact on the development of innovative solutions for financial inclusion.

DECADES of almost unbroken economic growth expanding financial inclusion in the Asia Pacific as well have made many Asian nations the envy of the rest as the underlying policy areas in which cheaper, more of the world. Highly sophisticated financial systems, streamlined access to financial services can drive the from capital markets to banking and payments, have potential for economic development and empowerment developed rapidly in these new centres of prosperity. among individuals and businesses. But that financial infrastructure has often failed to In infrastructure-constrained rural areas, and among pick up poorer sections of society or smaller businesses. small, innovative financial service firms, migration Financial inclusion – or more accurately, the provision of workloads to the cloud can greatly optimise IT of financial services to those excluded from them – has operational costs, benefiting both firms and end-users. become a key issue for politicians, banks, payment In particular, cloud policies that complement fintech providers and policy-makers in Asia. applications and government initiatives in basic areas Among the latter group, it is certainly one they take such as digital payments and secure digital identity will seriously. In an OMFIF survey of central banks and be key foundations to catalyse cheaper, more efficient financial regulators analysed in detail in this report, 73% means of providing accounts, transactions, loans and of respondents identified financial inclusion as an explicit savings to the unbanked. target or objective for their institution. As these new technologies and business models According to the same policy-makers, 90% of for financial services emerge, regulatory institutions respondents believe that digital payments will be the and central banks will correspondingly need to attain core competency in extending basic financial inclusion. a better understanding of the benefits and challenges Providing the underbanked with financial services of cloud platforms and their utility as inclusive financial is therefore intertwined with policies related to service infrastructures. Although cloud can help deliver digital infrastructure reliability and conducive fintech customised, effective and profitable financial services ecosystems. Data management costs, processing and with tailored products to specific demographics, there storage issues, and reliability of digital infrastructure are also concerns over data management, exchange and are all ubiquitous fundamentals associated with the operational resilience linked to regulatory mandates for development of digital financial services. However, consumer protection and financial stability. legacy infrastructures have offered little to avert the Despite the challenges from cloud and other rising barriers for smaller fintechs and new entrants new technologies, many central bank and regulator that could potentially provide meaningful solutions respondents to the survey are confident that improving to improve financial inclusion, leading to suboptimal awareness and promoting effective governance and risk outcomes. management capabilities will enable central banks and Advances in the cloud could provide the impetus financial institutions to enjoy the advantages of cloud, which has so far been lacking. Cloud computing can while minimising its risks. help facilitate the digital shift of incumbent financial In line with this, rather than taking a passive approach institutions and the market entry of new challenger to cloud regulation, several jurisdictions in Asia Pacific fintechs alike by providing the high-volume, high- have developed, or are in the process of actively intensity computing power that supports digital developing, guidelines and rules that clarify regulatory financial services. It also enables scalability at a lower requirements and expectations for compliance and risk cost, aligning the provision of affordable products and management in the adoption of cloud services. As cloud services to significant populations of underbanked migration and implementation eases and supervisory individuals and small businesses. safeguards improve, the contributions of cloud to This report lays out the progress made towards financial inclusion in Asia will only increase.  aws.amazon.com 7

KEY REPORT FINDINGS

Financial inclusion is a prominent regional policy • Central banks and regulators in Asia Pacific priority among governments, regulators and emphasise the cardinal role of digital identity and central banks in Asia Pacific electronic know-your-customer mechanisms in • Although Asia Pacific has made significant progress scaling up a secure digital financial system. Among on financial inclusion, progress remains uneven across respondents, 69% selected this as an essential feature advanced and developing economies. to increase financial inclusion and migrate customers to digital financial inclusion. • Of the 27% of central banks and financial regulators that did not identify financial inclusion as an explicit Reliable mobile infrastructure and network target or objective, all respondents identified financial connectivity is needed to process data and ensure inclusion as an implicit goal. provision of digital financial services Financial inclusion strategies must holistically • 75% of respondents identified mobile network account for usage, literacy and trust as well as infrastructure as an important foundation for financial basic access inclusion. • Due to low levels of understanding and trust of Cloud can be a catalyst for developing countries new technologies, underbanked and unbanked to leapfrog and be the IT backbone for inclusive communities may be reluctant to adopt novel fintech financial services innovations. Financial education and literacy policies • Cloud allows computing demands and data play a critical role in enhancing awareness of fintech processing requirements to be distributed across innovations and promote their usage. borders, thereby allowing consumers and businesses • Advanced economies will have to grapple with similar to circumvent domestic digital bottlenecks via cross- issues as developing counterparts, to ensure that border data flows with advanced economies’ data financial innovation is inclusive and can connect with infrastructures. the needs of older consumers. • The lack of reliance or path dependency on legacy • Policies that promote awareness, skills improvement IT solutions can work to the advantage of developing and cost-reduction in digital financial services will be country financial institutions and fintechs. These increasingly important to reduce the disproportionate entities can be more receptive to policies incentivising vulnerability of the elderly to being left behind amid them to leapfrog to potentially cheaper, more advancements in fintech innovations. effective technologies like cloud. The capacity for digitisation in transactions • According to 80% of survey respondents, the cost and identities will be an intrinsic aspect of safe, savings of IT investment and the resultant increase convenient, and affordable financial services and in market competition were the primary benefits of products cloud services to financial inclusion. • Digital payments will be a core foundation for Central banks and regulators gaining familiarity extending basic financial inclusion. More than 90% with supervising cloud-based financial activities of respondents consider that innovations in digital • Several jurisdictions in Asia Pacific have developed, payments processes were among the most significant or are in the process of developing, guidelines areas in which fintech was improving financial inclusion and rules that clarify regulatory requirements and objectives within their own jurisdiction. expectations for compliance and risk management in • A well-functioning and inclusive digital payments the adoption of cloud services. system will serve as the foundation to provide further • Large-scale cloud service providers and private access, and gradually build consumer confidence in business adoptees of cloud are engaging with more sophisticated products and services. regulatory concerns over data management • Creating or mandating inter-functionality among and operational resilience by developing internal heterogenous payment infrastructures and mobile precautions, infrastructure redundancies and money wallets will protect consumers against higher accountability frameworks delegating shared transaction costs, delays or impracticality. responsibility between providers and customers. 8 omfif.org

SECTION 1: APAC’S FINANCIAL INCLUSION IMPERATIVE

While financial inclusion THERE is wide recognition that traditional modes of transaction have is improving, stark financial inclusion is necessary for struggled with. Fintech solutions inclusive and sustainable growth, and provide cheaper access through disparities remain that technology could play a pivotal products better tailored to the needs across the region. By role in accelerating its progress. With of excluded individuals. Flexible and providing cheaper and 1.7bn people still unbanked globally, decentralised service delivery through easier access to financial financial inclusion remains a major tech-based platforms expands services, technology challenge for policy-makers and coverage beyond what physical, brick- financial institutions. and-mortar institutions can reach. could help bridge these Financial inclusion is often defined Digital solutions can also enable a gaps. as access to financial services, but a more inclusive approach to credit and more meaningful view of it should insurance provision. Advanced data go beyond access. Exclusion can analytics, using artificial intelligence be voluntary, where an individual and machine learning algorithms, or business chooses not to use the can help financial services firms serve service, or involuntary, where the individuals with no formal credit cost to use features of the service – histories. Alternative data, such as such as transaction fees – is too high. mobile usage or social media patterns, The quality of services offered and can be used to assess the eligibility of substantive use of these should also previously unbanked or underbanked be considered. applicants. Broadening societal Advancing financial inclusion access to credit enables people to can boost economic growth by invest in long-term goals that uplift encouraging saving behaviour, quality of life, such as personal promoting entrepreneurial activities health, education and business and helping households manage expansion. Similarly, wider delivery risks. Technology-enabled financial of insurance products protects innovations, or fintech, can transcend vulnerable households and businesses barriers to financial inclusion that from financial risks stemming from 9

1. Uneven 100 40 Pacific on the number of accounts, progress 90 35 their use and physical means to access 80 30 for financial 70 them (Figure 1). Advanced economies 25 inclusion in Asia 60 such as South Korea, Singapore, Pacific 50 20 40 15 Japan and Australia have high 30 Source: World 10 levels of account ownership, digital Bank Global Findex 20 10 5 payments activity, and physical 2017, IMF Financial 0 0 Access Survey access to brick-and-mortar financial 2018, OMFIF services. However, there are wide analysis South gulfs between account ownership, poor physical bank branch presence, Account ownership, % of adults and lower levels of digital payments Made or received digital payments, % of adults activity in developing economies. In Number of commerical bank branches per 100,000 adults (RHS) Myanmar, for instance, only 26% of working adults have an account, while 7.7% are engaged in digital payments emergencies and other adverse 2017 from 51% in 2011. Progress is activity. This suggests innovation and events. largely due to policies emphasising technology could leapfrog traditional Cost effectiveness and financial inclusion, as well as infrastructure. optimisation in the delivery of wider use of mobile phones and the India is an interesting case, with digital financial services are critical internet. Nonetheless, considerable a high number of accounts, but to their widespread adoption barriers remain in many parts of the low levels of use. This exemplifies and, ultimately, greater financial world. Out of the 1.7bn unbanked dormant account and inactivity inclusion. Cloud computing is an population, nearly 40% are in issues, where conventional financial important technological innovation Southeast Asia and India, home inclusion targets have not been that can reshape digital finance. By to rapidly growing and urbanising effective in enhancing financial allowing more flexibility, scalability societies. activity. This could be due to demand and operational resilience than There are pronounced disparities and supply problems (see p.11). traditional information technology across Asia Pacific. South Korea has The private sector has led much of infrastructure, it is an ideal more than 200 ATM machines per the development of digital financial computing resource for fintech 100,000 adults, significantly higher services in some countries, especially solutions that need to respond to than the global average of under in places where in-app payments growing demand. Cloud services can 50. In stark contrast, Myanmar has services took off. China is a prime enable data processing and storage less than six. Notably, the disparity example of the mobile payments on an as-needed basis, minimising in formal account ownership and boom. A projected 32.7% of point- upfront and expansion costs. digital payments activity in countries of-sale payments are made via A joint study between Boston such as India, Myanmar and Laos mobile, double the figure in the UK Consulting Group and Amazon Web demonstrates that there is potential (15.3%) and US (15.0%) (Figure 2). Services estimates that spending for greater expansion of digital The People’s Bank of China reported on the cloud and related services is financial services in the region. a 36-fold increase in the volume of growing at a compound annual rate There is uneven progress in Asia mobile transactions to 61bn in 2018 of 25% across Asia Pacific. Cloud adoption will only grow further as businesses reconfigure operations 2. China leads China 32.7 in mobile to cope with the challenges and South Korea 24.4 payments restrictions of Covid-19. In this period adoption of transition, there is an opportunity Vietnam 23.8 Projected user to use accelerated digitalisation Denmark 21.1 penetration as a means of expanding financial rates of mobile India 15.7 inclusion. payments UK 15.3 applications, by country PRONOUNCED DISPARITIES US 15.0 Source: World ACROSS ASIA PACIFIC Spain 14.4 Economic Forum, Financial inclusion has been on Statista Digital an upward trend globally. Bank Germany 7.7 Market Outlook and OMFIF analysis account ownership rose to 69% in France 7.6 10 omfif.org

fast-growing, smartphone-wielding populations. The digital transformation in these countries, pushed by organic demand for specific digital service platforms, created an ideal landscape for exploring digital financial services. Their progress in developing digital solutions reflects populations’ preference for technology, convenience and digitalisation of services. Countries with a greater affinity for technology and mobile solutions could provide models for others in the region.

PANDEMIC-DRIVEN DIGITALISATION The Covid-19 crisis has placed sharper focus on the importance of digitalisation and financial inclusion. The Bank for International Settlements has noted a precipitous 200 rise of interest in more inclusive, lower South Korea has cost payment services as new financial more than 200 technologies align with public ATM machines per health concerns and the efficient 100,000 adults, disbursement of government relief to households. significantly higher One respondent to the OMFIF than the global survey said, ‘Part of our response average of under to Covid-19 and natural disasters 50. In stark contrast, has been providing fiscal response Myanmar has less packages to governments. Quite a few of these comprise cash transfers, but than six. it is difficult to make sure that these cash transfers reach the end users because the basic infrastructure is not in place, such as the basic payment from 1.7bn in 2013. The country’s two payments for e-commerce giant rails. How do you get money, vouchers dominant mobile payments platforms, Alibaba. WeChat Pay facilitated and cash transfers to these people in Alipay and WeChat Pay, account for transfers between contacts on a an efficient and cost-effective way? 93% of these transactions. Their messaging app. GrabPay and GoPay Covid-19 has helped facilitate the ubiquity, ease of use and convenience, are offshoots of ride-hailing services increased traction of these goals as coupled with their integration with Grab and Gojek. well.’ other in-app services, have established Uptake of digital payments and One Southeast Asian central them as key players in the Chinese services has accelerated in the last bank commented: ‘With various payments system. decade alongside improvements in public sector initiatives to onboard Both Alipay and WeChat Pay have telecommunications infrastructure. all segments of the population into sought to expand in neighbouring China, Japan, Singapore and the digital economy, the general Southeast Asia, but face stiff South Korea, global leaders in 5G population is implicitly being prepared competition from local players like deployment, have high-quality digital for an online banking disruption. GrabPay and GoPay. Mobile wallets infrastructure that encourages use These initiatives include personal succeeded in part because they of mobile wallets and other digital income tax-refund and various social originated from separate digital services. Southeast Asian countries welfare payments including those for services for which there was already like Indonesia, Malaysia, the seniors, child support, and Covid-19 a high volume of transactions, Philippines, Thailand and Vietnam relief that are being made available providing a natural incentive for are not far behind, having had to scale through digital wallets.’ adoption. Alipay enabled mobile up telecom infrastructure to connect Inclusive access to financial 11

3. Covid-19 80 data infrastructure, platform changing interoperability and cybersecurity. 70 consumer Governments must take action payments 60 to prepare for the new risks that preferences 50 financial innovation brings. Policy Share of needs include strengthening respondents, % 40 consumer protection, enhancing Source: Mastercard 30 financial and digital literacy, Impact Studies (2020), OMFIF 20 upgrading and expanding access to analysis 10 digital infrastructure, and mitigating potential data biases. 0 SingaporeMalaysiaThailandPhilippines CHALLENGES TO INCLUSION Significant decrease in cash usage More use of contactless credit cards Supply- and demand-side factors constrain financial inclusion. Supply-side barriers represent the services can shape the social and in how they pay, save and transfer limitations on the financial sector’s economic resilience of households and value. The survey revealed that non- capacity to provide financial services, communities. It plays an important cash payment methods were now the while demand-side barriers reflect role in the success of public health preferred choice for 72% of consumers challenges that users face. measures. Online and mobile money in Asia Pacific. This preference was On the supply side, high upfront platforms have enabled continued strongest in Singapore (76%) and costs, limited credit data and lack payment and receipt of wages despite Australia (67%). of convenient access points are restrictions on physical movement. Overall, 75% of respondents in examples of market-side constraints. Contactless transactions help the region want to forgo cash in the Physical and economic connectivity minimise exposure to the virus and future. challenges are prominent in smaller reduce risk of community spread. Incumbent financial institutions of states in Asia Pacific, especially if Digital financial services have all sizes are being forced to embark on they are geographically isolated. played an important role in previous or accelerate digital transformations. Even for bigger countries, delivery public health crises. During the As one respondent explained, for of financial services to rural or 2014-16 Ebola outbreak in West Southeast Asian banks, ‘Covid has, far-flung towns can be problematic, Africa, mobile cash transfers allowed in the most unintended way, pushed more so in archipelagic settings. frontline workers to continue financial institutions to go digital, These factors are exacerbated by the receiving their correct wages without because there were banks that region’s proximity to the Pacific ring physical contact. The Bank of couldn’t acquire a single new customer of fire, which is prone to frequent Sierra Leone issued mobile money for three, four months, because there natural disasters. These physical and guidelines to promote cash transfers were no branches or agents going on geographical constraints make clear to frontline workers. In China, the ground to collect instalments from the importance of digital financial the 2003 Sars epidemic was partly people and recover costs.’ services that can bridge the distance responsible for the rise of digital The accelerated digitalisation of and help facilitate post-disaster payments and e-commerce. Retail financial services has highlighted response. companies started to transact online the need for regulatory policy Market players also face regulatory when consumers refused to leave frameworks supporting adequate challenges, particularly when their homes. Understandably, cash use has declined significantly in Asia Pacific 4. Lack of since the start of the Covid-19 funds and Insufficient funds pandemic. According to a Mastercard documentation survey in April, cash payments fell prevent Documentation 67% in Singapore, 64% in Malaysia individuals from and the Philippines, and 59% in opening bank Distance Thailand. This was mirrored by an accounts increase in the use of contactless Major barriers Cost to account payment methods as Malaysia, the ownership, share of Philippines and Thailand saw an respondents, % Trust in financial institutions increase in card, mobile and digital Source: World Bank wallet transactions (Figure 3). 0 5 10 15 20 25 30 35 40 Global Findex 2017, The pandemic is altering OMFIF analysis Southeast Asia India China consumers’ long-term preferences 12 omfif.org

5. Wide 100 significant disparities in the degree of disparity 90 financial inclusion between the rich in account 80 and poor, urban and rural dwellers, ownership 70 and men and women in Asia. For and digital 60 instance, only around 10% of adults payments 50 in Indonesia’s poorest quintile have across 40 a formal bank account, compared Southeast Asia 30 to an estimated 60% in the richest Rates of account 20 ownership and 10 quintile. Without access to financial digital payments 0 services, the poor and unbanked Source: World Bank segment of the population misses out Global Findex 2017, on opportunities for socio-economic OMFIF analysis Account ownership, % of adults Digital payments activity, % of adults mobility. Asean average for account ownership Asean average for digital payments activity Despite the global increase in bank account ownership, some countries still lag. In Southeast Asia, only they need to comply with capital ‘Cloud adoption will Singapore, Malaysia and Thailand adequacy and supervisory rules only grow further as are above the regional average that apply to traditional banking businesses reconfigure percentages for account ownership services. Fintech firms that cater to operations to cope (51%) and digital payments activity low-income individuals and small with the challenges and (38%) (Figure 5). In other countries businesses do not have the same level in the region, as well as India, most restrictions of Covid-19.’ of capital as larger institutions, nor workers still receive wages in cash are they always able to implement (Figure 6). conventional know-your-customer Social and cultural factors can processes. Lotte Schou-Zibell, hinder financial inclusion. Of the regional director at the Asian world’s 1.7bn unbanked people, 56% Development Bank, said, ‘Remote are women. Familial obligations areas in Asia Pacific have issues with and caring duties that often fall on connectivity and electricity, and women limit their ability to physically people do not always have IDs, which access financial services. In societies results in them being financially and where women have restricted access socially excluded.’ to education and resources, they are The latter directly relates unlikely to be able to utilise financial to a demand-side challenge. services even when digital platforms Excluded individuals often face are available. Schou-Zibell mentioned identification and documentation harnessing gender-based impacts and requirements that are difficult to data as important next steps to better obtain due to lack of resources, target financial inclusion programmes geographic distance, illiteracy, or in Asia Pacific. ‘There is often not a some combination of these. Small lot of gender disaggregated financial and medium-sized enterprises, inclusion data in many places.’ Fintech especially microbusinesses and solutions can be useful in addressing microentrepreneurs, face similar problems.

Among Southeast Asia’s Myanmar 6. Cash usage unbanked, other demand-side factors Cambodia remains prominent for contributing to financial exclusion Laos daily financial include lack of funds, physical Indonesia needs distance, high transaction costs and Philippines Methods of wage distrust of financial institutions. Vietnam receipt, share of There is considerable opportunity India respondents, % for digital financial services that Thailand Source: World Bank offer affordable, secure and flexibly China Global Findex 2017, adjusted services tailored to low- Malaysia OMFIF analysis income communities. As Emmanuel Singapore

San Andres, analyst in the Asia- 0 20 40 60 80 100 Pacific Economic Co-operation policy Received wages in cash Received wages into an account support unit, explained, ‘There are 13

at least some, if not all, of the constraints that women typically face.

MEASURING SUCCESS Although digital tools are increasingly integrated in financial inclusion strategies, existing metrics typically focus on conventional indicators linked to physical access, such as concentration levels of bank branches and automated teller Of the world’s 1.7bn machines. Measuring progress in unbanked people, financial inclusion should account for technological innovations and 56% are women. their benefits. For instance, while 56% Indonesia’s population might not have a high percentage of account ownership, it is home to many fintech firms – second only to Singapore in households, the elderly, women and leverage their capital, trust, customer the region (Figure 7). Combined with first-time users. Irrespective of being bases and brands to quickly absorb the effects of the Covid -19 pandemic digital or brick-and-mortar based, previously unbanked individuals. impelling deeper digitalisation financial services must be customised Fintech companies, in turn, can of economic activities, success in to the specific needs of different innovate and modernise banks’ financial inclusion will increasingly segments of the population. products and processes to better be tied to policies related to digital Encouraging supply-side serve the needs of the financially infrastructure reliability and competition is an effective way to excluded. The heightened demand conducive fintech ecosystems. create market-specific solutions. Local for digital services has prompted The rapid spread of mobile phones vendors and businesses can benefit interest in technologies that could can help to realise the economic significantly from digital financial streamline data management and benefits of digital finance. Globally, services, especially in economies processing. Although the expansion almost 90% of people own a mobile where account holders are more likely of digital finance and mobile phone, while 58% have access to to have mobile phones than debit banking has reduced many of the the internet in addition to owning a cards. As more and more retail outlets associated physical infrastructure mobile phone. More should be done to begin to accept digital payments, challenges, there are corresponding utilise these online networks. consumers benefit from positive new ones. Data management costs, Targeted solutions that consider network externalities, and the utility processing and storage issues, and individuals’ specific needs are of joining the network increases. reliability of digital infrastructure required. Blanket solutions are On the demand side, the uptake of are all ubiquitous concerns in digital ineffectual, and a key reason why digital banking services can grow by financial services. so many accounts remain inactive. improving access quality and service Even though this is a constantly A better approach is customised affordability. Partnerships between and rapidly evolving space, there products tailored to disadvantaged existing banks and fintech companies are already technological solutions demographics: low-income could prove fruitful. Banks can that help digitalise traditional financial services. Cloud computing allows for the high-volume, high- 7. Singapore intensity computing that digital and Indonesia financial services need. It also Singapore have greatest 18 enables scalability at a lower cost, concentration Indonesia 29 aligning it with financial inclusion of fintech firms Malaysia goals. New actors, financial products Fintech firms, by 1 3 Thailand and technology systems can bring country, % 4 Philippines novel opportunities and risks for Source: Cambridge policy-makers and market players. Centre for Cambodia Alternative 7 The next sections explore specific Vietnam Finance, OMFIF policy implications and technological analysis Myanmar solutions, including the potentially 17 10 Others game-changing role that cloud-based 11 services could play in accelerating financial inclusion. • 14 omfif.org

SECTION 2: CENTRAL BANKS AND THE POLICY PRIORITIES

Financial inclusion can FINANCIAL inclusion can have underbanked and unbanked boost small businesses a positive impact on policy areas communities may be reluctant to directly linked to economic growth, adopt fintech innovations. Financial and contribute to higher financial stability and social progress. education plays a critical role in economic growth, In the OMFIF survey of central banks enhancing their awareness of fintech making it a priority for and financial regulators carried out innovation and promote their usage.’ many Asian central for this report, 79% of respondents There is a pronounced gap between banks and governments. identified financial inclusion as an account ownership and digital usage explicit target or objective for their of accounts in developing Asia (Figure To ensure policies are institution. 1). Awareness is one issue, with a successful, widespread Fintech advances have created survey respondent stating that, financial literacy is promising opportunities to expand ‘Realising the availability of digital essential. financial inclusion, empowering financial services and their ease of disadvantaged individuals and access is a challenge.’ Digital financial small businesses. However, the services and tools will have little transition from cash-based processes impact if financially underserved to digital can be overwhelming. As communities and businesses lack regulators explore new technologies the necessary skills and knowledge to increase financial inclusion, to exploit them. Policy-makers and there is a corresponding impetus payment providers need to integrate to improve financial and digital literacy and education in the roll-out literacy. Educating the population of digital systems. For one central on basic financial concepts and the bank, ‘financial literacy, especially use of digital platforms is essential digital financial literacy, must go to widespread and effective adoption hand-in-hand’ with progress in of digital financial services. One fintech. The central bank is closely Southeast Asian central bank involved with an awareness campaign noted that ‘given the low level of on mobile banking cybersecurity in understanding of new technologies, order to ‘promote the readiness and 15

1. Significant 100 digital technology can help ‘assess gap between 90 or verify cognitive and decision- account 80 70 making abilities of elderly customers ownership and 60 in the process of buying or selling use of digital 50 financial products or services’. This tools in Asia 40 30 is important in economies with aging Share of 20 societies, such as Japan, which scores population 10 poorly on financial literacy (Figure Source: World Bank 0 Global Findex 2017, 2) despite having a high share of OMFIF analysis bank account ownership. A relatively small share of its population has Owns an account, % of adults Used a mobile phone or the internet to access an account, % of adults used digital means to access accounts Southeast Asia average for using mobile phone or the internet to access account (Figure 1). In Japan and elsewhere, the disproportionate vulnerability of the elderly to Covid-19 has reinforced the importance of financial and digital financial immunity of the general brought into the formal banking inclusion across demographics. public in adopting digital financial system, the skills they gain provide On the upside, the pandemic has services.’ allow them to handle new financial demonstrated how quickly firms Digital financial services expose activities and navigate digital systems and consumers can adapt when consumers to IT risks and could elsewhere. Inclusive considerations compelled to. Even governments, be a source of financial system must extend to the core user design forced to find non-physical means vulnerability. That is why the Bank of principles of fintech applications and of distributing cash relief and other Thailand’s strategic plan for 2020-22 services. One South Asian central support mechanisms, have tapped focuses on advancing digital financial bank emphasised the importance digital platforms to deploy fiscal literacy. The BoT has been heavily of ‘services provided in the native measures. Policy-makers, financial involved in promoting financial language and/or with simple codes/ firms, fintechs and other stakeholders literacy among specific demographics features’ as an essential prerequisite can use strategies – and momentum such as vocational students and for digital financial service adoption. – from the Covid-19 crisis in their first-time workers, collaborating with Similarly, policy-makers and wider financial and digital literacy organisations including the Asian payment service providers promoting initiatives. Development Bank. financial inclusion should ensure The Reserve Bank of India has also that other vulnerable and at-risk SME FINANCING AND worked to improve financial literacy demographics are not left behind in INVESTMENT and education among underserved the digital transition. One financial An important aspect of financial communities. Since 2009, the regulator noted that financial inclusion in Asia Pacific is providing RBI has been closely involved in inclusion policies sought ‘to enable small- and medium-sized enterprises running financial literacy and credit the elderly to enjoy appropriate with better access to appropriate counselling centres catered to rural financial services against the financial services, especially credit. farmer debt. This scheme was further backdrop of an aging society’. The A survey respondent underlined the extended to commercial banks in same respondent highlighted how importance of ‘widening the scope of 2012. More recently, as part of its five- year national strategy for financial 75 education, the RBI plans to target 2. Japan scores below regional both young school children and adults 70 average using modern tools such as social 65 financial media and mobile applications. literacy Banks and payment platforms 60 Financial literacy introducing digital-based services scores by country have a clear incentive to help educate 55 Source: Mastercard the financially excluded. In 2018, Index of Financial 50 India’s Paytm partnered with the Literacy, OMFIF analysis Grameen Foundation for Social Impact to train women in rural areas through literacy camps and livelihood programmes. As these women are Financial literacy score Asia Pacific average 16 omfif.org

Asian Nations recognises the regional 3. SMEs 100 play crucial 90 importance of SMEs. Asean’s strategic role in Asian 80 action plan for SME development economies 70 aims to introduce policy reforms % share of 60 and enhance small companies’ employment and 50 technological competencies and GDP 40 access to financial services. Governor Source: ADB, 30 UNESCAP, APEC, 20 Santiprabhob noted, ‘Fintech would OMFIF analysis 10 be very helpful in improving financial *No data on SME 0 access and inclusion. For instance, it share of GDP for Laos would allow SMEs to access financing and Myanmar for working capital, through supply chain financing or factoring. SMEs Employment GDP would benefit substantially from technology advances by lowering transaction costs from invoice 4. SMEs struggle Singapore processing and ensuring that Taiwan to access finance, even those invoices are authentic and Japan in advanced transferable.’ Vietnam economies In Vietnam, the national strategy Indonesia ‘Does your business for financial inclusion approved Thailand have a line of credit this year lays out targets to expand Malaysia or a loan from a cashless transactions by 20-25% financial institution Philippines annually, with at least 250,000 or bank?’, share of India respondents, % Vietnamese SMEs having access to South Korea Source: World credit lines for business loans by Bank, OECD and 2025. The State Bank of Vietnam 0 10 20 30 40 50 60 70 80 90 Facebook Future has partnered with the World Bank No Yes Don't know or prefer not to respond of Business survey, Group on a comprehensive approach OMFIF analysis to improving financial inclusion that focuses on digital finance, financial banking services to capture as many access suitable financial services, even service provision to rural and individuals and [SMEs] as possible, in advanced economies like Singapore agricultural and ethnic communities especially women and the rural or Japan. The World Bank estimates and strengthening consumer population’. that the credit gap for SMEs globally protection and financial education. SMEs contribute significantly to is $2.6tn. With SMEs contributing Several fintech innovations have economic growth and employment significantly to the economy, their been breaking down the barriers (Figure 3), but considerable borrowing financial exclusion is a missed for financial inclusion for SMEs. constraints limit their ability to opportunity for more inclusive growth Instead of lengthy and uncertain access capital, develop their business in many countries. loan application processes, potential and participate in wider Limited access to credit hinders alternative financing solutions like trade. Overall, SMEs in Asia Pacific SMEs’ participation to national and crowdfunding could channel capital make up more than 95% of all regional trade. Cultivating a more to promising enterprises without enterprises and employ approximately inclusive environment for small formal credit records. According to half of the workforce. They contribute businesses could bring greater socio- the International Monetary Fund, to around 20% of low-income economic progress and development, digital lending to SMEs increased in countries’ GDP while accounting for especially in lower-income countries 2019 to $166bn from $96bn in 2017. 50% of economic activity in high- and developing regions. Veerathai In Indonesia, peer-to-peer lending income countries. Santiprabhob, governor of the Bank of provides an opportunity to small Despite their importance to Thailand, stated, ‘Financial inclusion firms that are unable to secure credit the regional economy, SMEs face is not only about access to credit. With lines from banks and conventional credit challenges due to their size. rapid developments in e-commerce financial institutions. Entities such as They struggle with accessing other platforms, access to electronic the Malaysian Securities Commission financial products and services for payment infrastructure is equally and Indonesia’s Financial Services their business operating needs, such important. E-commerce platforms Authority have updated their as payments, cash flow, inventory and would broaden SMEs’ markets from regulatory frameworks to support the customer relationship management their local community or province to responsible development of equity systems. the global level.’ crowd funding and lending platforms SMEs in Asia Pacific struggle to The Association of Southeast for businesses. 17

Case study Case study AMARTHA, Indonesia WARUNG PINTAR, Indonesia

Amartha is a peer-to-peer lending platform Warung Pintar, which translates to ‘smart kiosks’, serving entrepreneurs in rural areas of is a fintech startup in Indonesia aiming to use Indonesia. It focuses on extending financial technology to bolster the capabilities of traditional services to small and microbusinesses, micro-businesses. As of 2019, Warung Pintar had mainly targeting working-age mothers with 1,150 kiosks in Jakarta, with plans to grow to 5,000. dependents. Through their kiosks, vendors are able to sell food Substantial data analytics and processing and daily essentials in accessible locations. workloads are needed to identify potential In addition to providing kiosks to vendors, non-performing loans in its customer base. Warung Pintar uses cloud technology to manage Amartha had to restructure its database for POS transactions and analyse supply chain detailed analytics, but could not do so without performance. On the AWS Cloud, this backend it impeding the performance of its loan infrastructure allows micro-enterprises to record application system. Building an on-premises sales, analyse their data and monitor their business analytics infrastructure was too expensive, so performance. The use of innovative technology has the company opted for a cloud-based solution. helped boost vendors’ average monthly revenue by By using AWS Cloud Services, Amartha’s 41%. Around 22% of vendor kiosks have recorded infrastructure costs were reduced by 20% at least 10% monthly growth. The adoption of compared to on-premises infrastructure. The cloud technology aligns with Warung Pintar’s aim increased data analytic capacity enabled it to of spreading financial and technology literacy to keep its NPL ratio below 3%. promote economic independence and mobility.

Apart from broadening loan the operations of up to 10m small accessibility, IT tools that help firms by year’s end, Bank Indonesia manage data can enhance SME has eliminated transaction fees for competitiveness. As a recent World the country’s QR-code payment Bank, Organisation for Economic gateway, QRIS, and supported digital Co-operation and Development, and education via door-to-door initiatives Facebook survey showed, SMEs across instructing small businesses on its Asian economies lack sophisticated ‘Financial instruments usage. digital competencies and literacy tied to remittances, such SMEs are often at the losing end (Figure 5). as diaspora bonds or of the digital divide, but their lack of Nonetheless, in the light of the diaspora funds, help reliance on legacy technology systems pandemic, regulators in several maximise economic gains can work to their advantage. It can countries are prioritising helping from migrant wages while make them more receptive to policies SMEs acquire digital skills. For incentivising them to leapfrog to bringing workers into the instance, in line with the Indonesian potentially cheaper, more effective government’s objective to digitise formal financial system.’ technologies. Several policies and technology options can help boost financial 5. Many SMEs inclusion. The simplicity Thailand lack skills to take and customisability of cloud advantage of Japan infrastructure make it particularly digital tools and Vietnam well-suited for driving digital applications innovation, productivity, and ‘How would you rate Philippines competitiveness among SMEs. The your level of knowledge South Korea inherent flexibility offered by cloud of managing information digitally Indonesia computing allows smaller businesses (incl. data storage, using to avoid high upfront costs. With Malaysia cloud solutions)?’, share cloud infrastructure, they can start of respondents, % India small and progressively expand Source: World Bank, their operations on a pay-per-use OECD and Facebook 0 20 40 60 80 100 Future of Business basis mirroring the volume of their Basic/No knowledge Expert/advanced knowledge Don't know survey, OMFIF analysis business activities. 18 omfif.org

The case of Indonesian fintech 10 6. Remittance startup Warung Pintar illustrates 9 flows significant to many Asian how traditional SMEs could pivot to 8 economies cloud-based systems and enhance 7 Personal their business processes. Employing 6 remittances as % cloud-based infrastructure helps 5 of GDP traditional shopfront merchants 4 Source: World quickly establish mobile point-of- 3 Bank, OMFIF sale systems that provide valuable 2 analysis analytics and inventory management 1 services. The technology enables 0 small businesses to create customised, effective and profitable financial services with tailored products they usually do not have access to, such as working-capital 7. Steady lines, merchant and e-commerce 180 increase in 160 finance, invoice discounting, supply remittance chain finance and trade finance. inflows to 140 Governments and regulators Southeast Asia 120 could support SMEs by implementing and India 100 regulatory reforms and co-funding Migrant remittance 80 inflows, $bn schemes to promote financial 60 Source: World inclusion and technology-driven 40 business models. As a South Asian Bank, OMFIF analysis 20 central bank detailed, improving 0 SME competitiveness depends on numerous factors such as ‘physical 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 infrastructure, tax frameworks, Southeast Asia India technology adoption, capacity building, backward and forward linkages, and availability of skilled ‘The simplicity and money than those from other regions. manpower’. Central banks could customisability of cloud Remittances to India and Southeast focus on ‘framing credit policies Asia have also grown rapidly in recent infrastructure make it to ensure timely and smooth years (Figure 7). flow of credit to such enterprises, particularly well-suited for Lowering transaction costs in minimising the incidence of stress driving digital innovation, cross-border remittance and payment and enhancing the competitiveness’ productivity, and processes can help international of SMEs. However, incentives and competitiveness among payment inflows to developing subsidies for digital adoption are SMEs. ’ communities further reduce poverty. not enough. There is a need to Promoting financial inclusion, improve small businesses’ financial especially in rural areas, ensures that and digital literacy, so that they can hard-earned wages are channelled fully reap the benefits of new fintech to their intended recipients in the applications and cloud computing quickest and most cost-efficient infrastructure. manner. Research by the World Bank and IMF found positive correlations REMITTANCE FLOWS AND between remittance flows, financial CROSS-BORDER PAYMENTS inclusion and poverty reduction. Remittances from migrant workers Traditional methods of remitting are an important part of economic income or payments for trade growth, especially in developing transactions are often costly and Asia (Figure 6). The ADB reports inefficient. Correspondent banking that remittance flows to Asia in processes relying on nostro-vostro 2018 were $302.1bn, 44% of the accounts are generally more global figure. Migrant labour from cumbersome and expensive than the region represents 20.4% of the domestic payments due to the world total, suggesting that Asian number of financial intermediaries overseas workers transmit more involved in the process. Smaller 19

down costs while maintaining the Case study necessary regulatory accountability RAPYD, UK and transparency in financial services. Rapyd is a fintech startup operating as a ‘fintech as a service’. Starting The benefits from remittance and off as a mobile payments company, Rapyd built an e-wallet that allows payments reform are considerable. consumers to withdraw cash from any ATM in any country without a The ADB estimates that a 5% decline bank account. The Rapyd Global Payment Network gives businesses in remittance costs could generate access to the world’s largest local payment network with over 900 locally $15bn in additional savings in Asia. preferred payment methods in more than 100 countries, reaching more Innovations to payment processes than 2bn people. from fintech and cloud computing Operating fully on AWS Cloud Services, Rapyd’s financial can help address opaque remittance management, payment and money movement services function on a business models and reduce IT single, global, scalable application programming interface. With a single costs. For instance, the Unique centralised platform, they are able to adopt a user-centric approach Identification Authority of India and while eliminating the need to invest in traditional back end infrastructure. National Payments Corporation of India have collaborated to launch an Aadhaar-based remittance service. Financial instruments tied to financial institutions in developing inclusion is to ensure that consumers remittances, such as diaspora bonds countries that have not established can afford the services offered. [We] or diaspora funds, help maximise correspondent relationships with envisage payments services to be not economic gains from migrant wages foreign counterparts may be only accessible but also affordable. while bringing workers into the disadvantaged as major international To this end, service providers formal financial system. Tax and banks de-risk and shrink their should set up pricing structures credit-linked remittance relief can international payment corridors. that are transparent, affordable likewise help channel funds to more While the cost of remittance and do not restrict the public from productive uses. services sending money to the accessing payment system services.’ Remittance flows present another East Asia and Pacific region has Innovations in fintech and digital promising use case for cloud moderately declined to 7.0% in payments can be one avenue to help technologies to reduce costs and 2020 from 8.1% in 2015, this is still streamline payment rails. The value promote interoperability across higher than the global average of of digital remittances in Asia Pacific different payment rails. The UK- 6.7% (Figure 8). In comparison, was estimated to be $49.85bn in 2018 based fintech startup Rapyd recently while remittance corridors to and is projected to reach $269.78bn obtained a remittance license from South Asia are less costly than by 2026. the Monetary Authority of Singapore the global average, their average Financial regulators and central to scale its digital remittance costs have remained largely stable. banks require adequate know-your- services in Asia Pacific. The cloud- These show that there is plenty of customer and anti-money laundering based platform covers all stages of room for improving the payments processes for international money remittance flow, eliminating the need infrastructure in Asian economies. transfers. Innovative technologies for serviced businesses to build their Reflecting this, one South Asian and tailored policies that complement own remittance infrastructure. central bank shared its view that communal practices linked to savings Investing resources and effort in ‘one of the most important aspects of and remittances could help bring financial inclusion will have a lasting impact on other policy areas that contribute to strengthening economic

8. Workers 9 fundamentals and promoting remitting to inclusive growth. Digital tools East Asia still 8 can help improve literacy, support face higher SME growth and lower the cost of transfer 7 remittance payments. These policy costs despite areas interact with each other, as downward 6 greater financial and digital literacy trend are necessary to harness the benefits Cost by region, 5 % of remittance of using technology in SME financing amount 4 and remittance payment flows. The Source: World next section sets out in greater detail Bank, OMFIF how technology facilitates financial analysis Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 inclusion and provides an overview of East Asia and the Pacific South Asia Global average different fintech approaches. • 20 omfif.org

SECTION 3: DIGITAL FOOTPRINTS MARK THE ROAD TO BETTER FINANCIAL INFRASTRUCTURE

FINTECH innovations are ‘Cloud computing can enable Fintechs and financial transforming the ways in which financial institutions to procure institutions operating financial services can reach system resources in a low-cost, in developing countries underserved communities. As a flexible manner, expedite the often face resource central bank noted to OMFIF, ‘Fintech development of new IT infrastructure constraints and a lack firms have contributed to financial and facilitate access to the latest inclusion objectives by the way they technology provided through the of appropriate digital run their businesses, utilising new software-as-a-service model. This infrastructure. Cloud technologies and innovating new will deliver a competitive advantage computing could help business models, to capture the in providing more effective and break down barriers to deeper markets of unserved and competitive customer service if used innovation and services. underserved people.’ appropriately.’ Many central banks are adjusting As financial institutions their regulatory frameworks to better increasingly migrate to cloud integrate emerging foundational platforms, several central banks technologies into financial services. are noticing opportunity for lower Among these is cloud computing, operational costs and greater which central banks and regulators customisability of product offerings. believe could ‘improve operational Cloud technology offers modularity, efficiency, particularly in terms ease of integration and flexible of data storage and processing, data management, which can help eventually reducing the cost of digital companies offer cheaper and more financial services’. adaptable financial services. As one respondent elaborated, cloud CLOUD-ENABLED computing could ‘allow financial TRANSFORMATION institutions greater flexibility and According to a respondent from agility to explore and test new a Southeast Asian central bank, products and services as compared 21

to using their legacy in-house IT 1. Cloud unlocks 90 infrastructure. They could launch payments new products more quickly and adapt 80 provision them to better suit their customers’. 70 market ‘What role does 60 LEGACY IT COSTS cloud play in 50 facilitating financial Traditionally, financial institutions inclusion?’, share of 40 have provided their services respondents, % via proprietary or internal IT 30 Source: OMFIF- infrastructures, such as in- 20 AWS Financial house mainframes. However, the Inclusion Survey 10 proliferation of innovative digital 0 financial services has coincided with a Democratises access to technology Reduces upfront costs and barriers surge in data collection, analysis and for payment service providers of all sizes to entry for new providers storage generated by activities such as account openings, credit assessments and transactions. Having adequate ‘Cloud computing Stimulating improvements in IT infrastructure to manage these can enable financial traditional financial institutions and computationally intensive processes banking services requires effective institutions to procure can make it prohibitively costly for partnerships with new fintechs smaller firms to provide affordable system resources in a pioneering innovative tools and financial services at scale. low-cost, flexible manner, services. In the case of challenger Critical infrastructures are usually expedite the development fintechs, cloud computing can be a made up of complex IT systems and of new IT infrastructure powerful tool allowing new financial hardware that are expensive for and facilitate access to service providers to field more nimble financial institutions to maintain. the latest technology and adaptable business models than These must be capable of comfortably provided through incumbents. For instance, the Thai- supporting large data volumes. Cloud- SaaS. This will deliver a based insurance technology firm, based infrastructures could solve this competitive advantage Sunday Insurance, uses machine issue. learning algorithms to provide highly in providing more For 80% of respondents, the main tailored premiums. This allows it to benefits of cloud are the cost-savings effective and competitive better customise cheaper and fairer and enhanced market competition it customer service if used insurance products to specific lower- could bring, as the technology would appropriately.’ risk demographics. Using the AWS allow more fintech actors to service Southeast Asian central bank infrastructure has allowed Sunday to end-users at a reduced price. avoid the fixed-costs of a data centre. A lower number of respondents Instead, it uses an asset-lite business (47%) identified increased levels of model enabling it to prioritise innovation and technology upgrading research and investment on its core as an immediate benefit of cloud to machine learning technologies and financial inclusion. Several felt that customer services. while cloud permits a greater variety of financial actors, products and CHEAPER AND SCALABLE services, further policies or incentives SERVICES are needed to ensure cost-savings A central bank official stated, ‘As for consumers and lower market and service upgrading rather than cloud makes the [financial services] barriers to digital financial services. a goal in and of itself. They noted, market more competitive and vibrant, To have the most impact on financial ‘Currently, there is not much service providers are bound to serve inclusion, cloud adoption must difference in terms of competitiveness the poor people at the lowest cost.’ ‘translate to greater access to and or innovativeness on incumbent Another central bank concurred, affordability of financial services’, said traditional financial institutions saying, ‘Improvements in back-end one respondent. whether they use cloud or in-house IT technology will bring down costs and One central bank participant infrastructure. It is their willingness improve the operations of financial argued that migrations to the to further develop their internal service providers. This will give cloud should be seen as a catalyst capabilities that is more likely to drive providers a stronger business case to facilitating broader internal capability competition and innovation.’ continue offering financial services 22 omfif.org

in remote areas and increase their 2. The three- ability to offer more bespoke products. tiered fintech End-users can enjoy lower transaction environment Source: Bank costs and more relevant services.’ Robo-advice for International Digital payment Zerodha, India’s largest retail Equity services Settlements stock brokerage, has benefited from crowd-funding e-money cloud migration with AWS to provide competitive, low-cost trading in Capital raising Asset Insurtech management business Payments, capital markets for more than 1m models clearing, Loan crowd settlement investors. The company’s accounting Fintech balance funding and settlement services have become sheet lending Insurance Financial activites swifter as post-trade processing has Deposit and related to lending Crypto-assets crypto-assets been reduced to minutes from several Digital Financial banking hours. activities Pooled, flexible systems offer small businesses the infrastructure and Enabling computational resources they might technologies not otherwise be able to afford while operating independently. This helps extend financial services to under- or Policy enablers unbanked individuals. Some digital Digital ID Data protection Cybersecurity infrastructures, such as data servers, Open banking Innovation facilitators which might be expensive or time consuming to develop locally in developing countries, can thus be and fintechs in developing countries swiftly to changing business demands provided on a remote and pay-per-use the means to overcome infrastructure and process sophisticated analytics basis, adapting to changing demand. limitations to support wider in real time. This would result in The Indian payments fintech digitalisation of financial services. a cheaper, more competitive and Easy Pay, which operates in six These businesses may struggle to ultimately, more inclusive, fintech cities, allows its 6m customers to meet prohibitive IT and labour costs. ecosystem. Respondents identified settle payments to more than 60 These include ensuring redundant several policy initiatives that would service providers and retailers at servers, networking gear, internet maximise the technology’s impact on a single point-of-sale terminal connections, uninterruptible power financial inclusion. Most said there in neighbourhood shops. Using supplies, server cooling as well as the was a need to establish an affordable Amazon Elastic Compute Cloud, the need to maintain backup locations. and interoperable digital payments company is able to process more retail The off-site, distributed nature of infrastructure. Participants also payments data and reduce transaction cloud computing can solve several of cited the development of secure times. these local limitations as it facilitates digital identities for on-boarding greater versatility for financial customers and verifying transactions MANAGING LOCAL institutions’ and fintechs’ business as important measures. BOTTLENECKS models. Cloud technology can serve as Several central banks identified an important tool to ensure policy access to shared infrastructure as FOSTERING COMPETITION AND changes lead to the creation of another benefit of cloud services. OTHER BENEFITS useful systems for inclusive fintech One respondent explained, ‘Cloud For traditional banks in developing products and services. The Bank for computing can increase the countries, one of the main barriers International Settlements compares a competitiveness of our smaller banks, to providing reliable and affordable fintech ecosystem to a tree with three especially those that lack the capital digital financial services is inadequate tiers: fintech activities like digital needed to invest in expensive IT local digital infrastructure, such as banking, robo-advisory and peer-to- systems such as data servers and data centres. Another issue is the lack peer lending; enabling technologies related infrastructure. Through of local expertise to integrate up-to- such as cloud computing, artificial cloud computing, smaller banks can date analytics into their business intelligence and machine learning; maintain accurate data and improve decisions. and finally, policy enablers or operations, at potentially lower cost As new fintech players complement measures that support the two other for the bank and its customers. This the traditional banking and insurance elements (Figure 2). is especially helpful for banks serving activities of incumbent financial Several survey respondents remote areas as it would make it institutions, the use of cloud emphasised the important role of easier to operate in these regions.’ technology could make more room fintech in allowing financial services Cloud offers smaller companies for innovation and help firms adapt firms to better cater to low-income 23

3. Digital Several respondents felt that a well- payments stand Digital payments functioning and inclusive digital to benefit from Micro-finance/borrowing payments system would serve as fintech the the foundation to provide further most Financial literacy education access, and gradually build consumer ‘In which area does confidence in more sophisticated Access to basic insurance fintech have the products and services. One fintech greatest impact services eg.agriculture, health professional shared, ‘The closest on financial Savings inclusion in your that you come to digital banking [in country?’, share of P2P lending developing communities], is in terms respondents, % of digitising a transaction. Payments Source: OMFIF- Other in many parts of the world are still AWS Financial Inclusion Survey 020406080 100 cash-driven. If we are able to move some of the 10 to five transactions that an average person carries out in a day from cash to digital, that will groups, who tend to make frequent, ‘Survey respondents demonstrate what digital payments small transactions. One central bank emphasised the important can bring in the overall ecosystem of said, ‘Fintechs – the innovative role of fintech in allowing digitising financial services.’ business models, players, and financial services firms The BIS notes that payments technologies – have made serving to better cater to low- systems can be improved through the traditionally ignored low- industry or central bank-driven income groups, who tend income markets more viable, if not initiatives, or a combination of compelling. We now see products to make frequent, small the two. However, to prevent that are inherently designed for small transactions.’ fragmentation of payment gateways transactors.’ among specialised entities, several Most central banks and regulators developing country central banks in the survey highlighted digital and regulators see compelling payments as the best practical reasons to be closely involved in illustration of fintech’s ability to coordinating policies that promote drive financial inclusion. A central innovation in financial and payment bank respondent noted, ‘Digital infrastructures. For several survey payments are the first transactional respondents, creating or mandating frontier that brings customers to inter-functionality among different digital finance and many fintechs payment infrastructures and mobile are penetrating this market. Other money wallets will protect consumers products like lending are also being developed.’ A Southeast Asian central bank noted that within its jurisdiction, ‘fintech has been Case study: Digital payments observed mainly in payments and TRUEMONEY, THAILAND remittance’. A recent study on the fintech landscape in Southeast TrueMoney operates in six Asia Pacific countries, Thailand, Myanmar, Asia found that 26% of the region’s Cambodia, Vietnam, Indonesia and the Philippines, providing digital fintech firms were engaged in digital payments services. Its digital smart wallet allows consumers to store payments activities. value and spend on e-commerce and digital products. TrueMoney Digital payments are central reaches out to individuals without bank accounts and equips them with to basic financial inclusion. More full access to financial services to undertake transactions such as bill than 90% of respondents agreed payments. that innovation in digital payments TrueMoney runs on a hybrid cloud infrastructure due to the different processes was one of the key banking regulations across its countries of operation. To offer cost- ways in which fintech has helped effective, quicker and more adaptable customer service, the company advance financial inclusion in their uses AWS Cloud to set up an e-wallet engine and bill payment systems jurisdiction. that run on a physical infrastructure in an on-premises data centre. Digital payments are an entry TrueMoney’s websites, e-wallet web application and payment gateways point for digital financial services. function on a single AWS platform. This centralised infrastructure allows Payments and transactions are TrueMoney to continuously expand to other markets in Southeast Asia ubiquitous, daily activities for people and reach out to more underbanked individuals. who have access to financial services. 24 omfif.org

4. Digital 120 Central bankers and regulators financial note that ‘in other sectors like credit services in non- 100 and insurance, fintech adoption is payment areas still limited’. Nonetheless, as digital projected to 80 multiply financial services take further root 60 in Southeast Asia and the fintech Estimated growth in digital financial ecosystem matures, other fintech services, $bn 40 applications are expected to grow Source: Google, rapidly. In 2019, joint research from 20 Bain, Temasek, Google, Temasek and Bain projected OMFIF analysis 0 that by 2025, the loan book for Digital insuranceDigital investmentsDigital remittances Digital lending digital lending will expand to $110bn

2019 2025 (Figure 4). Already, many fintechs and consumer technology platforms that initially provided digital payment and e-wallet services are widening against higher transaction costs, their offering by applying for delays or impracticality. This is digital banking licenses in different especially important for people in jurisdictions, often partnering with rural areas who may only be served established financial institutions. As by a limited range of payment service fintechs accumulate more data on providers and financial institutions. spending habits and through the use One Southeast Asian central bank 75% of analytical tools such as machine mentioned that ‘an interoperable learning, payments services can retail payment system is also evolve into lending, insurance and important so funds can be transferred investment via new ways of analysing among different accounts in an credit worthiness. efficient and less costly manner.’ However, access to credit, The National Bank of Cambodia, insurance and other more for instance, is developing the sophisticated forms of financial Bakong system, a retail payments services is highly contingent on infrastructure based on blockchain having secure and trustworthy technology to facilitate interbank Among survey markers of digital identity. As one transactions with real-time fund central banker noted, the potential transfer, and enable individuals respondents, to ‘generate customers’ digital to transact with businesses 75% identified footprints’ would be an invaluable via a universal application and mobile network facet to the financial inclusion of standardised QR codes. infrastructure customers from both the retail TrueMoney, a subsidiary of the as an important and SME sectors into the digital Thailand-based communications ecosystem. Collecting, storing and conglomerate, True Corporation, is foundation for analysing data related to digital ID an example of an industry-driven financial inclusion markers and spending habits requires effort to provide digital payments a robust digital infrastructure to services. As the company expands to handle significant volumes of data, as other Southeast Asian markets, the migration to cloud computing services has allowed it to overcome several 180 100 5. Uneven mobile 160 90 and digital 80 of the expenses and challenges 140 70 penetration in 120 associated with digital infrastructure 60 100 the Asia Pacific constraints in developing Asian 50 80 40 User statistics countries. Cloud migration could 60 30 Source: OMFIF allow cross-border and regional 40 20 20 10 analysis, payments service providers to allocate 0 0 International computing resources, IT expertise Telecommunications and digital infrastructure from more Union World Telecoms/ICT advanced Asia Pacific countries, and Indicators 2018 have tangible benefits for financial Mobile celluar subscriptions/100 inhabitants inclusion when deployed for financial Fixed broadband subscriptions/100 inhabitants services across the region. Population using internet, % (RHS) 25

700 6. Concentrated well as the ability to interface with data centre 600 secure national ID systems.’ expansion in the 500 Asia Pacific TECHNOLOGICAL Data centre 400 PREREQUISITES capacity, 300 megawatts Most central bank and regulator 200 Source: CBRE respondents noted that for fintechs 2020, OMFIF to further bolster financial inclusion 100 analysis in developing countries, these 0 must have robust foundational technologies or infrastructures. As financial services increasingly rely on data to function properly, Total capacity, 2020 (MW) Forthcoming capacity, 2020-22 (MW) digital infrastructure systems that permit secure storage and sharing are essential. One respondent stated that, ‘Infrastructure needs 7. Infrastructure to be developed to address the and e-identity Mobile network infrastructure systems are causes of financial exclusion. In a needed to scale Digital identity situation where financial services are digital financial increasingly being offered, combined inclusion Access to mobile phone technology with the widespread use of application ‘What are the programming interface technology, Micro-finance/borrowing technological the infrastructure to secure access prerequisites/ POS systems accepting digital payments for points to those services is crucial complements needed goods and services to facilitate adoption for ensuring financial inclusion.’ As of digital financial Cloud infrastructure and service availability central banks and regulators push services?’, share of forward with competitive open respondents, % Other banking regimes, interoperability and Source: OMFIF-AWS 01020304050607080 scalability in data processing between Financial Inclusion survey banks and third-party fintechs will be key. This could be achieved through the provision of API access, and cloud-native services and products. In developing countries, another central bank highlighted that Case study: Financing and credit the quality of ‘mobile network NIRA, INDIA infrastructure and access to mobile phone technology are important NIRA is a consumer finance start-up that provides small loans elements as digital financial services to lower-income groups across large metropolitan (Tier 1) and are largely processed on mobile rapidly developing (Tier 2) cities in India. The company targets devices’. Another Southeast Asian an underserved market segment, individuals who struggle to central bank pointed out that thanks obtain loans for urgent personal and family needs. Many of to increased mobile penetration, them lack the proper identification documents required to there had been an uptick in mobile obtain lines of finance. NIRA provides pre-approved credit banking and digital payments. limits, free of any fees, and requests less documentation than Digital infrastructure gaps can other players in the market. constrain the scalability of different NIRA uses Amazon Rekognition services to verify images fintech solutions (Figure 5). As one and customers’ Aadhaar cards (government-issued ID). The Southeast Asian central bank stated, start-up reduces costs by taking traditional banking processes ‘There is a need to establish physical online using AWS Cloud Services. This has allowed NIRA to and virtual facilities to ensure grow its customer base to 200,000 monthly active users connectivity across the country. without the need for any major infrastructure or configuration This can be in the form of additional changes. By adopting cloud technology, NIRA can monitor telecommunication towers and the applications, respond to system-wide performance changes, use of technologies such as cloud and optimise resource utilisation and store data in highly secured satellites.’ Fintech solutions, which servers. are designed for resilient operation in rural areas with low density of digital 26 omfif.org

The establishment of a trustworthy INTEGRATING DIGITAL ID WITH digital ID system is likely to be a long-term effort spearheaded by INCLUSIVE FINTECH governments. As one respondent explained, the development of As part of its Smart Nation initiative, the Singapore government digital ID invariably ‘requires a lot of has introduced several regulations and schemes to help the country stakeholders to come together and transition to a digital economy. One of these was the creation of find value in doing something at such an inclusive national digital identity system. Singapore Personal large scale. For it to percolate into Access, known as SingPass, allows Singaporeans and permanent the economic and financial system residents to access more than 300 digital services. Along with MyInfo, is a drawn-out process, unless the SingPass pre-fills digital forms with users’ personal data. Singapore’s government decides that it must Government Technology Agency built MyInfo on a developer platform happen quickly.’ In Singapore, the using AWS Cloud Services. government introduced MyInfo, MyInfo came into operation this year. UK-based fintech a platform that automatically fills TransferWise, which allows its customers to store and remit money of out official forms online. This helps different currencies overseas, was one of the first international money fintechs and financial institutions transfer companies to adopt MyInfo. The platform enhances and streamline KYC processes. speeds up personal verification processes, taking only two minutes to complete a transaction. STRENGTHENING FINANCIAL INCLUSION WITH CLOUD This section has shown how many central banks and regulators in Asia infrastructure, can be powerful order to insure increased adoption of Pacific recognise cloud technology’s enablers for financial inclusion. For fintech and digital financial services. potential to develop a more inclusive instance, UBX, the fintech arm of the financial system. While the provision Union Bank of the Philippines, has DIGITAL IDENTITY CREATION of sophisticated digital financial crafted mobile banking applications Digital financial transactions require services is still limited, cheaper and that can operate even with only 2G proper identification systems. Digital greater ease of data sharing and network coverage. identity and know-your-customer interoperability can help basic digital Cloud technology can help mechanisms are key to scaling up a payment platforms provide a wider overcome local infrastructure secure digital finance system. Among range of products and services. At the constraints. While many developing central banks in developing Asia, 69% same time, digital ID systems being countries lack sufficient digital selected this as an essential feature developed by various governments infrastructure and fixed broadband to increase financial inclusion. will unlock further confidence and capacity to support domestic data One central bank mentioned that versatility in the fintech landscape. centres, cloud allows computing digital identity was among ‘the Cloud infrastructure will be an demands and data processing most important technological important bridging technology requirements to be distributed across prerequisites’ due to its role in allowing for the seamless exchange borders. This way, consumers and facilitating customer registration and sharing of data and computing businesses can circumvent domestic and account opening without the power. Many fintechs and financial digital bottlenecks via cross-border need for costly and complex physical institutions in developing Asia Pacific data flows with advanced economies’ verification processes. countries lack resources. Cloud-based data infrastructures. For instance, A digital identity system would services can deliver affordable and CBRE views Singapore, the second also enhance the ability of payment simplified yet highly customisable largest data centre market in the providers to meet compliance and adaptable IT infrastructures. Asia Pacific, as an ideal base to scale requirements while catering to a While these technological regional cloud deployment thanks wider customer base. As one regulator innovations bolster financial inclusion, to its strong connectivity, reliable noted, ‘The development of a digital central banks and other regulators face power network and stable business identity system will refine and distinct challenges to execute their environment (Figure 6). improve the efficiency of KYC, anti- mandates in a fast-moving and complex Among survey respondents, money laundering and combating landscape. New actors, financial 75% identified mobile network the financing of terrorism measures, products and services and technology infrastructure as an important making it possible to provide financial systems can bring novel opportunities foundation for financial inclusion. services to people, companies, and and risks. The next section looks at Apart from the fundamental communities that have so far been how central banks and regulators are infrastructures to exchange and excluded from financial services due crafting effective regulations and store data, other technological to excessive risk aversion taken by risk mitigation guidelines for cloud prerequisites need to be in place in financial institutions.’ adoption in the financial sector.  aws.amazon.com 27

SECTION 4: WHICH WAY NEXT FOR CLOUD TECHNOLOGY?

To make the most of the POLICY-MAKERS recognise One central bank stated that while innovation ‘plays a very important cloud, regulators must the potential of cloud and other technological innovations to support role in supporting financial inclusion’, constructively engage financial inclusion goals, but stress it ‘brings new risks that could impact with the private sector the need to mitigate risks. ‘Fintech the stability and sustainability of the and develop policies innovation is an effective tool for financial system. Thus, balancing that cultivate innovation accelerating financial inclusion. innovation and financial stability is critical’. New technologies should while protecting However, it should be adopted with caution as it could bring new risks if ‘serve financial inclusion with consumer interests and not well-regulated and supervised,’ minimal consequence’ on other policy financial integrity. said one central banker. Fintech can objectives. Another regulator said, strengthen financial development and ‘The evolution of technology could inclusion. But it can also jeopardise be harmful to financial institutions if financial stability and integrity, they are not able to mitigate the risks as well as consumer and investor effectively.’ Managing these threats protection. To reap maximum benefits requires supervisors and regulators and minimise risks, financial systems to ‘assess financial institutions’ and regulators must be well-prepared readiness in terms of controls and to manage technological change oversight’. without hampering innovation and competition. Countries have different TECHNOLOGY RISK, RESILIENCY approaches to fintech regulation. AND CYBERSECURITY Some prioritise traditional prudential As the financial industry moves and conduct objectives. Others give towards cloud adoption, central more weight to innovation, inclusion, banks and regulators must take into competition and development. account important financial stability Respondents to OMFIF’s survey and operational considerations. stressed the need to ensure consumer Among these, most respondents protection, privacy and cybersecurity. identified cross-border data control, 28 omfif.org

integrity and systemic operational to avoid regulatory ambiguities or including meeting all compliance and vulnerabilities arising from financial contradictions. One South Asian regulatory obligations. institutions’ dependence on third- regulator noted the importance of In cases where cloud computing party providers. establishing clear parameters and involves cross-border data exchange, Cloud services entail a global, procedures for responsibility over the other central bank respondents multi-tenant business model, with management of IT infrastructure, highlighted that financial institutions computing infrastructure and data security and potential data loss should consider how the location of customers across multiple countries. between cloud service providers and data storage servers could impact Regulatory divergence could lead customers. In the AWS model of cloud regulations and privacy. Data flows to uncertainty and lack of clarity, provision, customers are responsible across multiple locations may hindering cloud adoption. for operational resilience in the encounter overlapping compliance Central banks stressed that cloud environment and managing requirements. Consolidating guidelines on outsourcing, risks. They understand that financial jurisdictions’ data regulations to clarifying legal responsibility for institutions control and own the data streamline cross-border data flows data management, are essential under a shared responsibility model, will be an important aspect of creating an enabling environment for cloud. One method is via bottom-up, principles-based regimes such as the Asia Pacific Economic Co-operation OPERATIONAL RESILIENCE AND SHARED cross-border privacy rules system, a RESPONSIBILITY IN THE AWS CLOUD set of internationally recognised data protection standards. For cloud service providers, ensuring operational resilience should Central banks caution that cloud be a real-time, execution-oriented practice. It differs from traditional usage could create ‘a risk that the approaches in business continuity, disaster recovery and crisis stability of a financial institution’s management. These rely primarily on centralised, hierarchical operations may be compromised programmes focused on documentation development and maintenance. due to a cloud computing system Large-scale CSPs supply financial institutions with a variety of tools failure’. The industry is becoming to help test business continuity plans and deliver critical operations more interconnected and more through disruption. financial institutions are embracing AWS provides a secure and resilient cloud infrastructure, as well as hyperscale cloud – including for guidance on the interdependencies of the shared responsibility model mission critical workloads. Financial of cloud computing. By using AWS, financial institutions can boost their services regulators are paying capacity to support increasing transaction volumes. They can track and attention to how this transformation manage changes to maintain all their deployments with the same, up-to- may affect the operational resiliency date capacity and architecture. Additionally, they can maintain backups of individual institutions as well as on the cloud. financial systems as a whole. Shared responsibility means that an application’s security relies on There is a growing concern both AWS and its customers. The former manages the cloud’s security, among regulators about potential protecting its infrastructure and services, upholding operational overreliance on technology performance, and complying with legal and regulatory requirements. providers, though at this stage it is Customers must manage the security of their content, applications, largely theoretical. The Financial systems and networks. Stability Board report, ‘Third party dependencies in cloud services’, notes that cloud adoption (in particular used for mission critical systems), is Customer data still in its nascency. The FSB points Platform, applications, identity and access management Customer out the security and resiliency Operating system, network and firewall configuration Responsibility benefits of cloud services, adding for security in Client-side data Server-side encryption Networking traffic protection the cloud encryption and data integrity (file system (encryption, integrity, that financial institutions and authentication and/or data) identity) communications service providers

Software have effective controls and risk management procedures in place. AWS Compute Storage Database Networking Cloud offers better operational Responsibility Hardware/AWS Global Infrastructure for security of resilience than legacy IT systems. By the cloud Regions Availability zonesEdge locations helping reduce individual financial institutions’ operational risk and address and manage potential threats, it could contribute to the stability of aws.amazon.com 29

the financial system. These zones consist of one or more measures for cloud-based fintech As one respondent noted, ‘All data centres, each with power, services, will help to gradually financial institutions should fully networking facility and connectivity, increase regulatory confidence understand the inherent risks of housed in separate autonomous in cloud reliability. The Asian adopting cloud services and their facilities. They help businesses Development Bank’s Lotte Schou- responsibility in managing these comply with local data usage and Zibell noted that the regulatory risks in order to protect customers storage regulations, by ensuring that landscape was defined by ‘many and themselves from any financial data reside only in pre-determined countries that prefer data to be loss arising from [service disruption] geographical regions. hosted domestically’. As such, there incidents or threats.’ New technologies and cross- is a clear opportunity to improve Some regulators raised concerns border IT infrastructures in financial ‘understanding of what cloud is and that if a cloud service provider served services present legitimate concerns. how it can be much safer and more several major financial institutions, it However, the regulatory response secure than a server’. could lead to potential systemic risks to cloud should be well-balanced, These precautions are important of service outage. Recognising the risk-based and outcome-oriented. to promote wider usage of fintech importance of operational resilience Imposing rigid data requirements products and services. As one South and service consistency for key and limiting cloud systems to specific Asian central bank respondent economic activities such as financial countries or regions could result in explained, ‘With appropriate digital services, cloud service providers higher costs. It could inadvertently literacy campaigns, the underbanked have constructed their cloud generate concentrated points of and unbanked communities are architecture based on mechanisms vulnerability that make it more receptive to new fintech innovations. that ensure wider availability, difficult for cloud users to meet However, the safety and security more fault tolerance, and swifter risk management and compliance of the innovations are of prime scalability than would be possible protocols. Regulators, cloud service importance as any news/incidence from a single data centre. The AWS providers and end-users must work of fraud has a negative impact on global infrastructure, for instance, together so that all sides are aware of adoption of such innovations.’ minimises the risk of service outages the technology’s benefits and risks. or disruption risk contagion through Overall, survey respondents RESPONSIBLE INNOVATION its expanding system of 77 availability believed that greater knowledge of Several Asia Pacific central banks zones across 24 geographic regions. cloud, as well as in-built security and financial regulators placed great

1. AWS builds a worldwide footprint Source: AWS 30 omfif.org

emphasis on ensuring that new ‘Central banks stressed balance development of fintech and fintech innovations were sufficiently that guidelines on financial stability by putting in place robust from a market conduct and technical standard requirements in outsourcing, clarifying consumer protection standpoint. One new services that fintech companies central bank noted that ‘ensuring legal responsibility provide’. consumer protection is important in for data management, Another official shared, ‘Financial balancing innovation and financial are essential to avoid institutions need to consider various stability as consumers’ best interest regulatory ambiguities or issues before moving to using cloud is a key priority when developing new contradictions.’ service to make sure it provides products and services’. positive outcomes to the institution. Central banks and regulators A quick move to cloud migration are carefully studying the risks may cause unsecured operations and opportunities arising from resulting in operational risk in terms cloud technology in order to set of cybersecurity, technical issues, loss appropriate common standards for of control and legal risk.’ new financial service providers. One central bank shared that the CENTRAL BANKS REALISE CLOUD main regulatory approach ‘tries to BENEFITS Many respondents were confident that effective governance and risk management would help central Case study banks and financial institutions CANTILAN BANK AND UNION BANK, PHILIPPINES overcome the challenges that cloud and other new technologies pose. Almost 77% of the Philippines population do not own a bank account. To As one central bank shared, ‘There reach out to unbanked and underbanked communities, Union Bank and will always be risks to outsourcing Cantilan Bank have migrated their operations to cloud services. Both are such as data privacy, availability, working with Bangko Sentral ng Pilipinas to promote financial inclusion cybersecurity and other operational and digital banks. issues and concerns, including In 2019, Cantilan Bank became the first rural bank in the Philippines legal and compliance and counter- to adopt cloud technology to promote financial inclusion. Regulated by party or vendor management risks. BSP and with the financial support of the Asian Development Bank, it Nonetheless, financial institutions digitised all of its operations using Oradian’s SaaS cloud services. This can always find the right balance improved its security, reduced costs, and helped it expand its outreach between risks and benefits when across 12 provinces. migrating to the cloud environment. The transition to a cloud-based core banking technology occurred in Risk management capabilities could four stages between 2017-19. First, pilot branches migrated to the cloud. play a vital role in identifying these Second, mobile applications linked to the cloud platform were used for risks and assessing whether financial transactions made by account officers in remote areas. Third, Cantilan institutions can effectively manage Bank’s network of ATMs, remittance and mobile money were integrated them.’ into the new system. Finally, customers were given direct digital access Another supervisor added, to Cantilan Bank’s services using mobile phones. ‘In some situations, promoting Alongside this process, the central bank provided a regulatory innovative fintech development and sandbox for companies to test new technology, innovation and services. financial inclusion may lead to the This way, BSP created a controlled environment that encouraged enhancement of financial stability. innovation while maintaining oversight over the overall financial system. We are not to be trapped in a fixed Like Cantilan Bank, Union Bank has embarked on a digital concept, but will remain open and transformation, launching its own technology entity, UBX. It has adopted flexible in considering positive and several strategies to improve ‘prosperity inclusion’, to attract 50m appropriate approaches to address customers by 2020. The bank plans to continue migrating its operations issues respectively.’ to cloud services in the next two to three years. Some central banks were Using Amazon’s Simple Storage Service, Union Bank has transferred unconvinced that cloud computing 15 terabytes of data to cloud and eliminated tap storage, saving up to could enhance their regulatory and Php20m ($380,500) annually. Migrating to cloud services has reduced supervisory function. One respondent processing times to two hours from eight. said the technology could instead Union Bank has partnered with Microsoft and Temenos to integrate prove useful for reporting and data its core banking software on a cloud computing platform, with the similar management. In particular, cloud aim of improving financial inclusion and innovation in the Philippines. ‘may allow for greater flexibility in storage and mobility capacity and aws.amazon.com 31

gain from the ease in processing ‘Rather than taking a passive approach to cloud regulation, large data volumes. Considering this, several jurisdictions in Asia Pacific have developed, or are cloud computing could be a low-cost in the process of actively developing, guidelines and rules option which increases the storage that clarify regulatory requirements and expectations for capacity and data processing ability of supervisory agencies.’ compliance and risk management.’ Another central bank noted, ‘It may be premature to render an assessment on whether the perceived for more efficient and cheaper data requirements and expectations for advantages of cloud can truly be management, concerns remain over compliance and risk management. realised, particularly in the context cloud data security and the question Effective regulation often involves of [enhancing] regulatory capacities.’ of legal responsibility for outsourced close collaboration between However, they recognised that cloud services. Many organisations and regulators, financial institutions and computing could help the financial regulators are seeking to clarify cloud service providers. Regulatory sector better meet compliance accountability over data and frameworks have established clear requirements. It could afford resources stored on shared systems. channels for dynamically adapting financial institutions the ability Regulatory approaches differ across to changing business models, to ‘simplify controls, streamline financial sector activities. One South opportunities and risks from cloud reporting, scale securely, and stay Asian monetary authority explained, migration and outsourcing. ahead of developing standards and ‘From an organisational perspective, Policy-makers must develop regulations’. Nonetheless, this was the type of data that can be hosted measures that support innovation contingent on the financial industry on cloud may vary across different while protecting consumer interests. conducting the ‘necessary due organisations or regulators. In terms To promote cloud adoption, they diligence and having robust risk of assessing the risks associated with should take a principles- and risk- management and security controls’ migrating these different types of based approach that allows financial in place. data to cloud – such as public data, institutions to manage risks A South Asian central bank private data, confidential data – the effectively. They should support cautioned that it was too early to willingness of different organisations initiatives for cross-border data flows reach a conclusion on cloud. Still, it to host these data on cloud may well for all types of data. There is need for saw potential via ‘some improvement be dependent on their respective risk clearly defined audit requirements in data collection and analytics and appetite.’ appropriate for cloud, based on further research’. One example the For some respondents, cloud global standards and certifications. central bank suggested was in the technology and the emergence Regulators should pro-actively raise case of multi-tenant cloud adoption. of cloud-native financial service awareness, promote cloud and clarify ‘If multiple entities adopt a common providers will probably require a misconceptions in the industry. They cloud infrastructure, then, to that fundamental evolution in regulatory should also develop supervisory extent, the supervisory capacity frameworks. Lotte Schou-Zibell said, frameworks and internal expertise requirements would be optimised.’ ‘Wider adoption of cloud requires to empirically assess potential Regulators would need to be equipped changes in people’s mindset and concentration risks that could to oversee these new arrangements behaviour, as well as a cultural emerge. Finally, there is a need to as ‘the risk, complexity and nuances shift among staff. Many existing account for internal risk mitigation of cloud computing would require mentalities are compliance- rather systems that cloud service providers strengthened supervisory and that risk-based.’ Despite the need already have in place to ensure regulatory capacities’. Regulatory to adjust outdated regulations to operational resilience and continuity. approaches to cloud should be based new cloud-based services, some Positive regulatory outcomes require on risk considerations rather than central banks emphasised that this a diverse, layered compliance strategy. tailored to specific technologies. should be technology-neutral. One To maintain oversight, regulators One Southeast Asian central bank respondent noted, ‘Our assessment must engage with cloud service noted that a radically different or of risk management capabilities providers and customers throughout separate regulatory approach would or compliance with regulations the outsourcing process. Public-private be unwarranted, as ‘the types of risks should be the same whether or not dialogue is essential to developing in cloud services are not distinct from a particular activity or function is sound regulatory and risk management that of other forms of outsourcing outsourced.’ frameworks for cloud in the financial arrangements’. Rather than taking a passive sector. One respondent pointed out approach to cloud regulation, several the importance of central banks and APPROACHES TO CLOUD jurisdictions in Asia Pacific have regulators collaborating with industry REGULATION developed, or are in the process associations on implementation guides As established financial institutions of actively developing, guidelines for financial institutions entering into and new fintechs turn to the cloud and rules that clarify regulatory cloud outsourcing arrangements.  32 omfif.org

REGULATORY OVERVIEW BY JURISDICTION

SINGAPORE should be in place when transitioning to cloud Several respondents identified the Monetary computing services. This includes rules in relation Authority of Singapore as one of the most to risk assessment, security, disaster recovery progressive financial regulators promoting the and contingency planning, data audit and access adoption of novel technologies such as cloud rights. computing. It adheres to a risk-based, outcome- oriented approach to manage risk. MAS and the Association of Banks in Singapore co-created an implementation guide for financial institutions NEW ZEALAND to use when entering into cloud outsourcing The Reserve Bank of New Zealand has adopted arrangements. The ABS cloud computing a largely cloud-friendly policy framework in line implementation guide 2.0 is an updated version with the government’s ‘cloud-first’ strategy. of a framework released in 2016 to support In February 2017, the RBNZ released a revised greater integration of material workloads on outsourcing policy for local banks that reduced cloud. regulatory ambiguities by introducing a formal The new guide aims to further strengthen definition of outsourcing. This was further the technology and operations resilience of amended in September that year to strengthen individual institutions as demand for cloud the contractual provisions for outsourcing infrastructure grows. It includes frameworks arrangements. The updated policy outlined a for governing, designing, securing and running formal engagement process with the central cloud services. It also contains guidelines for bank on new areas that can be affected via categorising material and non-material cloud outsourcing arrangements. outsourcing arrangements. In addition, it outlines procedures for cloud service providers to follow alongside due diligence for cloud outsourcing arrangements. Separately, the MAS’ outsourcing JAPAN guidelines and technology risk management The Japan Financial Services Agency, Centre guidelines set out principles and best practices on for Financial Industry Information Systems managing risk in outsourcing arrangements. and Bank of Japan have jointly established FISC security guidelines on computer systems for banking and related financial institutions. These provide specific requirements regarding AUSTRALIA termination of cloud services. FISC guidelines Although the Australian Prudential Regulatory mandate that outsourcing contracts must Authority expressed reservations over the risks address exit procedures and responsibilities for and safety of cloud computing services in 2015, its data management and allocate the costs of data regulatory approach has since changed. APRA transfer in different scenarios. has published several prudential standards, practice guidelines and information papers on the requirements and supervisory expectations that financial institutions should be aware of when SOUTH KOREA using cloud services. In October 2016, the Financial Security Institute APRA’s September 2018 guide adopts a more issued guidelines on the use of cloud services open stance to cloud usage. It provides financial in the financial industry which allowed financial institutions with materiality assessments and institutions to adopt cloud computing only for risk classification on cloud outsourcing, helping non-critical processing systems. This banned the institutions identify the level of risks associated use of cloud for handling unique identification with cloud outsourcing. The framework lays out information and personal credit information. the management and mitigation procedures that Prior to that, guidelines were released in June aws.amazon.com 33

2015 aimed to relax conditions placed on financial PHILIPPINES institutions when outsourcing their IT and data Financial institutions must seek approval from processing services. Bangko Sentral ng Pilipinas before adopting cloud Since January 2019, the Korea Financial services. BSP has introduced several regulations Services Commission’s amended regulation on to support the use of cloud and a ‘cash-light’ supervision of electronic financial transactions economy. In particular, circular 808 guides all allows financial institutions to use cloud services banks and other BSP-supervised institutions on for all workloads. However, services processing IT risk management, and opens up the adoption data deemed to carry unique identity and of cloud-based technical solutions for the personal credit information must be stored financial sector. Examples of cloud-favourable in-country. Financial institutions using cloud for policies include regulatory frameworks such as workloads that are internally deemed significant the revised outsourcing framework for banks (BSP in nature must notify regulators before using the 899), guidelines on information technology risk cloud service. management (BSP 808), and enhanced guidelines on information security management (BSP 982). These frameworks promote cloud computing MALAYSIA as the preferred ICT deployment strategy. They The Bank Negara Malaysia has issued guidelines allow banks to store customer data in private to reflect technological advances in the financial clouds abroad. industry and the need for financial institutions to fully understand the inherent risks of adopting cloud services. These are stipulated in the country’s outsourcing and risk management in INDIA technology guidelines, which were updated in No prior approval from the Reserve Bank of India 2019 and 2020 respectively. The former set out is needed for the use cloud services. However, the requirements on managing outsourcing financial institutions under the RBI’s jurisdiction processes and risks. Both documents mandate may be required to store certain forms of data, that financial institutions must seek the central such as payment-related information, in-country. bank’s written approval prior to using cloud The RBI has laid out frameworks for the for material outsourcing arrangements and for outsourcing of financial services such as the critical systems. guidelines on managing risks and code of conduct The BNM released the financial technology in outsourcing of financial services by banks regulatory sandbox framework in October 2016. (2006), guidelines on information security, Future plans for the BNM include regulations for electronic banking, technology risk management virtual bank licenses in hopes to expand and bring and cyber fraud (2011) and cybersecurity in new market entrants and innovative products frameworks in banks (2016). The Institute for the financial industry. for Development and Research in Banking However, forthcoming regulations could Technology, an arm of RBI, released a document hinder efforts to promote the use of innovative technologies in the financial industry. BNM’s on cloud adoption for Indian banks in 2017 that new outsourcing draft presents more stringent lists the benefits of cloud and sets out a guide to standards of governance and outsourcing risk help financial institutions adopt the technology. management measures. It imposes restrictive Addressing cybersecurity and other risks, measures such as the need for financial the RBI set up the Reserve Bank Information institutions to seek prior regulatory approval on Technology Private Limited. The RBI issued basic all outsourcing arrangements, data locations and and comprehensive cybersecurity frameworks the rights to conduct audits on their data centre for urban co-operative banks in 2018 and 2020, facilities. respectively. 34 omfif.org

SECTION 5: WHY ASIA’S UNBANKED CAN LOOK TO A BRIGHTER FUTURE

Countries across CLOUD computing can be a powerful scores countries on cloud readiness Asia Pacific have catalyst for financial inclusion. based on quantitative and qualitative As regulators and central banks indicators that assess connectivity, an opportunity to develop their understanding of cloud infrastructure quality, regulatory bolster financial platforms and implement appropriate environment and business sector inclusion through the safeguards, the benefits to financial sophistication. High marks for cloud. But to reap the inclusion will only grow. Singapore, Japan, South Korea and benefits of innovative Asia Pacific economies with Australia imply that countries with high levels of financial inclusion, robust and inclusive financial sectors finance, policy-makers as measured by account ownership are better prepared for widespread must ensure the (Figure 1), are best prepared for cloud migration. appropriate regulatory widespread cloud adoption. The By developing a cloud-ready frameworks and digital Asia Cloud Computing Association regulatory environment alongside infrastructures are in place. 1. Financial 100 inclusion and 90 Singapore cloud readiness 80 New Zealand

e goals align r

o South Korea Japan c

S 70 Thailand

*Size of bubbles x Malaysia e

d 60 Australia represent n I Philippines India

s Indonesia

s population size

e 50 n i Vietnam d Source: Asia a 40 e R China Cloud Computing d

u 30

o Association 2020, l C 20 World Bank Global 10 Findex 2017, OMFIF analysis 0 0102030405060708090 100 % of adult popoluation with a bank account 35

reliable, high-quality digital infrastructures, policy-makers Case study: Digital payments can ensure that the financially CLIK, CAMBODIA underserved can access cheaper, customisable digital financial Expanding financial inclusion in Southeast Asia increasingly depends services. on fintechs leveraging the rising rates of smartphone ownership This report highlights the main across the region. Clik is a Cambodia-based payments aggregator that areas in which digital financial facilitates mobile consumer payments linked from cards, e-wallets and services can improve financial bank accounts. It acts as a mobile and software point of sale merchant inclusion in Asia Pacific. While acquirer. Almost 2,500 merchants and five financial institutions use developing economies face basic Clik. The firm is developing integrated capabilities with the National physical and digital infrastructure Bank of Cambodia’s blockchain-powered digital currency system, issues, the Covid-19 pandemic Bakong, which went live in October 2020. has created new opportunities for Cambodia’s payments infrastructure is fragmented and made fintechs to provide safe and affordable up of numerous licensed payment service providers and banks. Clik financial services. The use of mobile aims to harmonise the payments landscape and provide convenient, devices in low-income and unbanked interoperable ways for users to transact. Clik has collaborated with communities in Southeast Asia, India both commercial banks and the National Bank of Cambodia to develop and elsewhere is accelerating. This interoperability and use its eKYC capabilities to help underbanked offers great promise for the provision Cambodians open bank accounts. Clik’s eKYC processes use machine of digital inclusive financial services learning and biometrics to ensure they meet regulatory standards and and products. reduce risks of identity fraud, AML and CFT. Individuals and small businesses Clik’s use of cloud infrastructure has enabled it to provide reliable with limited credit histories stand to and consistent services. At the same time, it can quickly and cost- benefit from alternative services and efficiently scale IT capacity as it expands its user base. products tailored to their needs. This also applies to those with constrained access to affordable funding, cross- payments and remittances. ‘While developing power. Most central banks and A fintech ecosystem that economies face basic regulators agree that cloud services can service these underbanked are transforming work and business physical and digital communities must be built upon models in the financial sector, and several key foundations. First, in infrastructure issues, the supporting a vibrant industry in Asia Pacific, governments must Covid-19 pandemic has developing countries. push forward the development of created new opportunities For incumbent banks servicing biometric identification systems, with for fintechs to provide customers in rural areas, cloud support from private enterprises and safe and affordable migration can substantially fintechs. Establishing a quick and financial services.’ reduce fixed operating costs efficient means of ascribing identity and configuration and system and ownership will be a fundamental administration delays. Nimble enabler for virtual administrative start-ups providing digital financial processes and financial transactions. services that migrate or are cloud Second, progressively onboarding less natives can easily and rapidly scale digitally-literate communities will their operations to serve more require familiarising communities people without being constrained by with intuitive digital financial prohibitive up-front investments in IT services, such as digital payments infrastructure. infrastructure permitting everyday For the technology to contribute transactions for basic goods and most effectively to financial inclusion services. in developing economies, there must Cloud services are increasingly be clearly defined and harmonised becoming a core back-end regulatory frameworks on cloud infrastructure to support massive service usage. Because the technology data generation, advances operates across borders and between in computer algorithms, and businesses, individual regulations improvements in computer processing and laws may diverge. Cloud service 36 omfif.org

‘Establishing a quick and efficient means ANNEX: of ascribing identity and ownership will be a fundamental enabler for virtual administrative FINANCIAL processes and financial transactions.’ INCLUSION AND FINTECH FOR AGING providers, end-users and financial POPULATIONS regulators must find ways to balance emerging regulatory risks and legal ambiguities with opportunities for improved efficiency and lower IT costs. As cloud becomes a critical component of financial market infrastructures, the need for a balanced approach to the technology will grow. Central banks, in adapting compliance and risk management requirements, should determine which aspects of financial institutions’ activities can be securely migrated or developed on the cloud. Many jurisdictions are still exploring the opportunities that the technology presents. As central banks and regulators learn more about it, they may decide that it is possible to realise the supervisory, regulatory and financial inclusion benefits of cloud without sacrificing security, resilience and data privacy. Cloud fintechs could complement central bank efforts to upgrade and expand the inclusiveness of payment infrastructures. Clik, a Cambodian payments aggregator operating on the cloud, for instance, will integrate with the National Bank of Cambodia’s own innovations in retail payments. Developing economies in Asia Pacific have a major opportunity to replace path-dependent legacy technology infrastructures with more flexible cloud-based models. Creating the appropriate regulatory frameworks, strengthening basic digital infrastructures, and fostering inclusive fintech solutions can serve as the technological foundation for businesses and individuals in these countries to be financially resilient.  37

ADVANCED economies face above 65 years old by 2030, rising their own set of financial to 40% by 2050. inclusion challenges due to As life expectancy increases, aging populations. While the so do financial pressures arising financial services industry has from insufficient savings and broadly adapted to technology higher expenditures on healthcare by changing the way it delivers and insurance. This calls for more products and services to suit services suited to elderly financial younger, tech-savvy customers, planning. It may be difficult for the same agility is necessary to these customers to travel to ensure that innovation is inclusive bank branches, and they may and can connect with the needs struggle to understand and use of older consumers. Policy- financial services, particularly makers, financial institutions online banking. They are also more and fintechs must anticipate and vulnerable to fraud. plan for future technological and In South Korea, the effects demographic transitions that of an age-based digital divide in could fundamentally alter the way accessing financial services are consumers access and use financial apparent in several areas. products. According to the Korea In 2000, 7% of South Korea’s Internet and Security Agency, population was aged above 65. A use of mobile internet and quarter of South Koreans will be smartphone technology among

60 20 1. South Korean 50 population 15 aging rapidly 40 Population by age group, millions 30 10 Source: UN World Population 20 Prospects, OMFIF 5 analysis 10

0 0 1950 1955 1960 1965 1970 1975 1980 19851990 1995 2000 2005 2010 2015 2020 0-14 15-29 30-49 50-64 65+ Proportion of elderly to population, % (RHS)

2. Older South 100 Koreans trail 90 behind in online 80 banking 70 ICT and digital 60 financial service 50 usage by age 40 group, % 30 Source: Korea Internet and 20 Security Agency 10 2017 Survey on 0 Internet Usage, 10s 20s 30s 40s 50s 60s 70s + OMFIF analysis Mobile internet usage Smartphone usage rate Internet banking usage rate (12 and over) 38 omfif.org

aging populations, including 3. Awareness, 80 literacy and strengthening digital and financial 70 cost are major literacy, lifetime financial planning, barriers to 60 customising services to the diverse internet use 50 needs of older people and creating Reasons for safeguards against financial not using the 40 abuse and fraud. Various fintech internet, share of 30 respondents, % solutions could be versatile means 20 Source: Korea of addressing these challenges. Internet and 10 The Japan FSA noted its keen Security Agency 0 interest in ‘offering easily accessible 2017 Survey on Lack of Lack of High usage Lack of Concern Lack of time Security Privacy financial services using digital Internet Usage, interest or confidence, fees equipment about concerns concerns OMFIF analysis need knowledge, harmful technologies which will further skills contents enable, for example, a flexible (and swift) response to service the needs of elderly users depending South Koreans aged 60 and over with the Covid-19 pandemic, daily on their respective cognitive is very low compared to the rest economic activities and transactions decision-making abilities, and detect of the population. The Bank of are increasingly based on the inappropriate transactions based on Korea says, ‘There is certainly a concept on ‘untact’ – an economy each individual situation.’ need for financial inclusion for in which face-to-face interactions Cloud-enabled fintech the elderly in Korea, as Korea’s are unnecessary. Online and remote applications such as robo-advisers technological changes are one of technologies are embedded across are examples of how new digital the fastest in the world. The ratio manufacturing, logistics and technologies could enhance the of online banking service usage payments. Elderly South Koreans financial resilience of customers in is 74% for transactions, 47% for who are unable to adapt risk being aging societies. Highly customisable deposits and 59% for loans for all left out of the new contact-free financial services and products customers, however for the elderly economy. The Bank of Korea can help bridge the digital divide. who are more than 80 years old, the observed that brick-and-mortar In Southeast Asia, StashAway, numbers are much lower (42% for financial services and banks were a digital wealth management transactions, 3% for deposits and 2% ‘closing down their branches due to platform launched in 2017, provides for loans).’ increased online banking’. automated algorithm-driven When KISA asked respondents In Japan, the Financial Services investment and financial planning why they did not use the internet, Agency said that Covid-19 had services. It offers personalised the most commonly cited reasons ‘caused an increase in the number data-driven portfolios according were lack of interest, insufficient of customers, especially the elderly, to customers’ assets, time horizons digital literacy and expensive usage who want to avoid face-to-face and risk preferences. StashAway’s fees (Figure 3). meetings that are traditionally products include a retirement plan In 2013, South Korea launched practiced in marketing or sales to promote greater financial health the financial education activation consultative activities’. In its view, for their clients. By January 2020, plan. Led by the Financial Services digitisation and contactless financial StashAway had processed over Commission, the plan initially services will ‘become available on 2.5m buy/sell transactions, 80,000 focused on mapping financial many more occasions in the future’. deposit verifications, 30,000 bank literacy via student and household In May 2020, the FSC announced records, and created 25,000 savings surveys, as well as partnerships that it would lead research on the goals for its clients. with public organisations, financial digital banking and financial services By using AWS cloud industry associations, and needs and demands of seniors. The infrastructure, StashAway is able other private and not-for-profit FSC is establishing guidelines for to keep costs down and ensure organisations. This sought to banks on helping elderly customers its service runs smoothly. AWS improve the provision of financial access mobile and internet services. facilitated StashAway’s expansion education, lay the foundations for Policy-makers in other advanced into Malaysia, particularly in terms customised financial education economies and international of compliance with data privacy programmes and establish a follow- organisations are also recognising and regulatory requirements. The up management and evaluation the importance of crafting services provided by AWS, such as system. dedicated technological solutions Amazon Elastic Kubernetes Services, There is growing recognition of for the elderly. In 2019, the G20 has helped the fintech bolster its the need to promote senior-friendly Fukuoka policy priorities on aging cybersecurity arrangements to financial services and education and financial inclusion outlined protect against external intrusions initiatives. As South Korea grapples policy priorities associated with and unauthorised access.  aws.amazon.com 39 Official Monetary and Financial Institutions Forum aws.amazon.com/institute/ 30 Crown Place London EC2A 4EB T: +44 (0)20 3008 5262 F: +44 (0)20 7965 4489 [email protected] omfif.org