Banco Popular Dominicano is boosting financial inclusion with technology

The Dominican Republic’s journey towards becoming the Caribbean’s largest economy has not been an easy one. The early-20th century saw the US agree to reduce the country’s crippling foreign debt, before imposing a military occupation that would last until 1924.

The country then underwent significant economic development during the presidential reign of Rafael Trujillo – however, the regime will be remembered more for its use of coercion, torture and murder than for its fiscal policies.

These hardships, however, only serve to emphasise the swiftness of the Dominican Republic’s economic ascent. It has enjoyed one of the fastest growth rates in the region over the past quarter of a century, and poverty levels continue to fall. GDP now stands at $71.58bn, a rise of more than 30 percent since 2010, and the country is beginning to lessen its reliance on agricultural exports.

One of the ways that the country is broadening its economic base is through the development of its financial services industry. Like the economy itself, banking has developed rapidly in the Dominican Republic, growing from just seven formally regulated financial institutions in 1960 to several hundred today.

One of the country’s most successful organisations, with 199 branches nationwide, is Banco Popular Dominicano. World Finance spoke with René Grullón, Executive VP of Corporate and Investment Banking at Banco Popular Dominicano, to find out how technology is affecting the banking industry in the Dominican Republic, while also making it more accessible.

Building on the present
The banking sector in the Dominican Republic is only in a position to embrace innovation because years of growth have seen it reach a position of relative stability. The financial system currently has a solvency index of 17.8 percent, well above the 10 percent required by regulators, and default rates are low.

The recent implementation of fiscal regulations has strengthened the sector to such an extent that the World Economic Forum and the IMF have praised the competitiveness and stability of the country’s banking system respectively.

The country’s wider economy is also in robust health. With an average growth rate of 7.1 percent between 2014 and 2016, the Dominican Republic was Latin America’s most dynamic economy.

Low oil prices and the improved performance of sectors that generate foreign currency, like tourism, exports and remittances, have strengthened the economy further and improved its ability to withstand external shocks.

According to Grullón: “The burgeoning financial sector has played a key role in economic growth through its broadening credit portfolios and business development solutions.”

With the Dominican finance sector and the broader economy looking strong at present, the country is exploring innovative ways to turn present-day promise into long-term stability.

Banking on a technological revolution
As a result of the country’s historic reliance on agriculture for much of its economic development, the Dominican Republic has not traditionally been viewed as a hotbed of technological innovation.

The banking sector, in combination with the government’s República Digital programme, is spearheading efforts to change this image by introducing innovation on a local and national scale.

Banco Popular Dominicano, for example, is playing its part in the tech revolution through the relaunch of its mobile banking app, which is available for Android and iOS.

The app promises to give customers freedom to bank whenever and wherever is most convenient for them. Users can carry out transactions, conduct automated clearing house bank transfers, and use augmented reality to discover nearby ATMs and special offers.

Part of the application’s success – it was used to carry out 2.7 million transactions last year totalling DOP 31.08bn ($657m) – can be attributed to the consumers’ trust in the software.

The use of the bank’s Touch ID fingerprint recognition, for example, has helped to allay the security fears that can often undermine the adoption of financial technology.

“Banco Popular closed last year with more than 800,000 digital clients and made a total of 129.35 million transactions through digital and electronic channels,” explained Grullón. “This represented 70.6 percent of total registered operations, so consumer trust is clearly present.”

Boosting financial inclusion
The relatively low levels of banking penetration in the Dominican Republic suggest that, even with recent technological advances, financial inclusion could be improved. Rather than viewing this as a challenge, however, Grullón sees this gap in the market as an opportunity.

Banco Popular Dominicano has used its Subagente Popular network – essentially a collection of commercial businesses where customers can carry out financial transactions – to give the people of the Dominican Republic greater access to financial services.

“Banco Popular Dominicano continues to expand its Subagente Popular network, which in 2016 reached 1,698 authorised stores, located in the 32 provinces of the national territory and in 116 of the 155 municipalities,” he said. “Customers made 170,542 transactions through the Subagente Popular network in 2016 alone, showing that financial inclusion is developing in the country.”

Like the economy itself, banking has developed rapidly in the Dominican Republic, growing from just seven formally regulated financial institutions in 1960 to several hundred today

Banco Popular recognises, however, that financial inclusion involves much more than simply having the ability to deposit and withdraw money. It is also about meeting broader consumer demands, many of which are changing at a rapid pace.

Younger customers in particular now expect technology to play a key role in all aspects of their daily lives. Although the country’s government, led by the recently re-elected Danilo Medina, is trying to boost technological usage nationwide, it is also up to Dominican financial institutions to ensure that digital innovation and financial inclusion go hand-in-hand.

While smartphone penetration hovers around 53.7 percent in the Dominican Republic and approximately half of the populace does not have regular internet access, these figures are far from uniform across the country.

Both the government and the banking sector, therefore, have a role to play when it comes to using technology as a means to improving financial access. At Banco Popular Dominicano, this is already underway thanks to the bank’s electronic wallets.

These prepaid bank accounts are accessed via mobile phones, making a number of services available to underbanked Dominicans who can’t access a physical branch.

If government initiatives can continue to boost smartphone and internet access in the country, we will see digital banking become an even greater enabler of financial inclusion.

Supporting innovation
For financial institutions in the Dominican Republic to truly empower the public, they will need to support innovation through methods that extend beyond improving access to finances.

Supporting small businesses is an equally vital strand of the national economy, particularly when you consider that the country’s MSME sector accounts for 97 percent of all Dominican companies.

For Banco Popular Dominicano, support for MSMEs is an essential characteristic of the modern financial institution, as its benefits extend far beyond the particular businesses involved.

“Popular’s SME portfolio reached 56,826 companies by the end of 2016, 68 percent of which produced annual sales of more than DOP6m [$127,000],” continued Grullón. “While the progress made by these businesses is welcomed by the bank, the wider economic growth felt by the country, particularly in terms of job creation, is another reason why supporting business development is so important.”

However, SME support in the Dominican Republic and other developing countries cannot focus entirely on improving access to capital. Grullón highlights that much of the economic assistance supplied by Popular is in terms of training programmes and educational seminars. This approach not only provides entrepreneurs with valuable information, but it also matches well with Banco Popular’s ethos of responsible banking.

“Banco Popular Dominicano feels honoured to have been awarded so many prestigious accolades both locally and globally as the leading bank in the Dominican,” explained Grullón. “One of our proudest achievements is being awarded Best Banking Group in the Dominican Republic by World Finance (2014-16) for our responsible and sustainable banking practices. In order to achieve this, we’ve had to carefully consider our approach to business support, deciding when educational assistance is more beneficial than simply giving SMEs a loan.”

A sustainable future
With the banking sector in the Dominican Republic making great strides in a relatively short space of time, it is important that government bodies and private businesses do not chase growth at the expense of sustainability.

As the economy continues to develop, the aim should be to encourage greater financial inclusion through the use of innovative new technologies and to foster the development of successful homegrown businesses. Both of these tasks can only be achieved sustainably if investment programmes are aligned with financial education projects.

Grullón believes that Banco Popular Dominicano has a key role to play in the country’s economic future. “Our institution is focused on strengthening the sustainability of all business segments. To this end, we will endorse financial education programmes at different levels, as well as allocate strong technological investments in our platforms in order to develop new channels of financial inclusion.”

He concluded: “In 2016 we have been able to deploy several initiatives that complement our goal of being the most innovative institution in the Dominican Republic. Throughout 2017 and beyond we aim to build upon these developments by encouraging the adoption of entirely new digital tools that benefit our company, the wider economy and the Dominican people.”

Discovering the makings of a successful cryptocurrency

If you were to ask 10 different people what makes a cryptocurrency successful, you would get 10 different answers. And yet, today’s wave of crypto-mania makes this a relevant question. Since the start of 2017, cryptocurrency valuations have stuttered their way to giddy new highs. In August, for the first time ever, the total value of cryptocurrencies exceeded $150bn – up from $25bn just five months earlier.

By the beginning of September 2017, the market capitalisation of bitcoin had surged by 500 percent since the beginning of the year. And yet, bitcoin itself is not the main focus of the crypto-boom – this is instead centred on the less-well-known world of ‘altcoins’. In fact, at the time of writing, the two biggest cryptocurrencies following bitcoin – Ripple and Ether – have both seen their market capitalisation rocket by over 2,000 percent since the start of 2017.

As a result, bitcoin is no longer the all-dominating presence it once was. For years it has taken up around 80 percent of the sector, but its market capitalisation has now dipped below that of the combined total of other cryptocoins. This brings its market presence to below 50 percent for the first time ever.

New bids on the block
There are now close to 1,000 cryptocurrencies in existence, and success stories are easy to come by. At the more outrageous end of the spectrum is Dogecoin, a cryptocurrency built around an internet meme. Initially introduced as a joke, the currency’s logo features ‘doge’, the wide-eyed Shiba Inu dog-turned-meme, who is accompanied by meme-inspired font, Comic Sans.

Despite the fact it was more or less invented as a parody cryptocurrency, the coin quickly gained a network of admirers willing to buy in. The concept was popular, and in the world of cryptocurrencies, popularity equals value. Dogecoin recently jumped to a market capitalisation of $189m.

The story of Dogecoin is an excellent reflection of the absurdity of the cryptocurrency market, but this is also just one side of it. The reality is that while it appears as if bubbles are emerging in every corner of the market, cryptocurrencies also have a growing number of more practical uses.

Many crypto success stories consist of those currencies that were created in bitcoin’s image, but with various tweaks to make them function a little better. The result is a scattering of competing currencies with attributes that can be handpicked depending on one’s personal priorities, be it security, privacy, anonymity or speed. For instance, Litecoin was set up in 2011 and is almost technologically identical to bitcoin. However, it boasts certain enhancements, like a more efficient mining protocol and a greater processing speed for transactions.

It reached a market capitalisation of $4bn for the first time in September, and is now the fifth most successful cryptocurrency (by market capitalisation) after bitcoin, Bitcoin Cash, Ripple and Ether. Another example is Monero, which offers a similar function to bitcoin, but with enhanced privacy and improvements in scalability. Working on a similar theme, Anoncoin boasts strict anonymity, while Stablecoin claims to have military-grade encryption.

Many such currencies were able to gain traction by tackling bitcoin’s faults. And yet, the recent excitement behind two of the most successful cryptocurrencies is focused on possible applications beyond those of bitcoin and its lookalikes: According to Hanna Halaburda, author of Beyond Bitcoin: The Economics of Digital Currencies: “While bitcoin is a self-contained cryptocurrency, Ether and [Ripple] are cryptocurrencies supporting broader systems, each with a different functionality.”

Ripple makes waves
Perhaps more than any other, Ripple’s tailor-made currency XRP is the cryptocurrency of the moment. It caught headlines earlier this year after its value increased by 4,000 percent in the first half of 2017.

Ripple itself is a start-up that provides the framework for a cross-border payments system. Its primary motivation is to tackle the very practical problem of the world’s slow and costly payments architecture. Its protocol supports various currencies, including bitcoin, dollars and even units of value like frequent flyer miles.

XRP’s characteristics are determined by its role within the wider framework. According to Daniel Aranda, Managing Director of Ripple’s European division: “That includes a few requirements. One is scalability – the XRP blockchain is already able to handle over 1,000 transactions per second. It also includes speed – you can actually settle on the blockchain within just two to five seconds.”

Ripple’s goal is to build a next-generation cross-border payment system that will allow for any unit of value – whether it’s a dollar, a bitcoin, or even a tenth of a penny – to be moved easily around the world in a matter of seconds.

Part of the momentum behind Ripple is its emphasis on carving out a position in the established financial system. While bitcoin operates largely outside the system, Ripple has now partnered with more than 100 banks, and is developing software that is specifically tailored towards bringing solutions to players in the sector.

Aranda explained: “Our whole goal as a company is to take blockchain and cryptocurrency out of a more experimental and speculative mindset, and have it be driven by the real economic activity, which abides by real use cases.”

While Ripple’s attention is now concentrated on cross-border payment infrastructure, its wider goal is much more ambitious. “We think that these cryptocurrencies and new protocols will be able to create an internet of value,” said Aranda. One protocol currently under development is the interledger, which can connect blockchain ledger technology with traditional centralised ledgers.

This kind of infrastructure, according to Aranda, could enable a whole series of use cases that we can’t even imagine yet, and could provide the basis of a whole new generation of online businesses.

In essence, for Ripple, the XRP currency is simply a tool through which to achieve some very practical goals.

Getting smart
Ethereum has been the subject of a great deal of hype over recent months. Similarly to Ripple, Ethereum is a broader system that provides a new functionality over and above that of bitcoin. The cryptocurrency itself is known as Ether, and it holds many similar characteristics to bitcoin, such as inbuilt incentives for miners to verify transactions.

Ether’s momentum, however, lies in the fact that its broader framework enables smart contracts to be coded directly onto the blockchain. This smart contract functionality has been the subject of intense speculation amid promises of game-changing utility.

Crucially, the technology means that developers can code self-fulfilling contracts using Ether, cutting out the need for a middle man. A transaction can be pre-programmed so that it will only take place when a particular condition is fulfilled, such as if two parties have endorsed it.

For instance, a will or futures contract could move funds automatically based on instructions that had been written in the past.

Ultimately, these kinds of contracts could play a very practical role in the global economy. There are myriad possible applications based around transactions in trade and industry. However, they also have scope to expand beyond traditional contracts and enter the everyday.

One example is that a contract coded into the blockchain through Ethereum could be used to automatically unlock doors when someone transfers a payment to rent an office or flat.

Once again, however, the great promise for Ethereum is that smart contracts have the potential to be applied to purposes that are yet to be invented.

New money’s new appeal
The surge in attention garnered by bitcoin’s alternatives gives rise to the inevitable question of what is driving its value. Bitcoin emerged with the traction of a revolutionary technology that people valued for a range of reasons.

For some people, it was a libertarian triumph providing the hope of a system free of money-printing central banks. To others, it provided a convenient tool with which to evade government detection and engage in the dark economy. To many, anonymity was the essence of its appeal.

The key criticism that can be levied at all cryptocurrencies is that they have no intrinsic value. Unlike gold, which can be used for its physical properties, or dollars, which are given legitimacy by the US Government, they have no value outside of people’s belief in their worth.

And yet, they do exhibit something similar to intrinsic value. “Their usefulness is akin to intrinsic value (akin, because this usefulness does not exist without a network),” said Halaburda.

In this sense, recent developments and the apparent expansion of potential use cases for cryptocurrencies would suggest a positive momentum, especially given that some new altcoins are being directed towards purposes that are (somewhat) more practical and relevant to real life.

“However,” Halaburda continued, “the actual value of a currency comes mostly from expectations that it will be valued by others. These expectations may be unrelated to the intrinsic usefulness.” Indeed, while interesting new possibilities are arising with regard to cryptocurrencies, a speculative frenzy has stolen the show.

Kaiser Partner’s timeless approach to banking sees it through times of turbulence

Together, innovative technology and growing client expectations continue to disrupt the financial industry. Such disruptions require a reaction from industry players – a complete rethinking of how they communicate with clients and the services they provide to them.

Some institutions are reluctant to implement such sweeping changes to their operations, but by considering the bigger picture it is possible to thrive in times of disruption. As a result, change is no longer a threat, but a door to a new world of possibilities.

This is the message that can be gleaned from the strong results achieved at Kaiser Partner Privatbank over the past year. The bank’s sustainable long-term approach – known as Responsible Investing – is carefully designed to protect and nurture its clients’ wealth, even during periods of turbulence.

Notably, despite uncertain conditions over the past 12 months, the bank has not made any fundamental changes to its wealth management strategy. Instead, change is seen as the norm: while certain elements of strategy are adjusted, the basic approach remains the same. Results over the past year have acted to confirm the effectiveness of this strategy, now and for future generations.

World Finance spoke with Marcel Spalinger, Senior Advisor at Kaiser Partner, about the firm’s approach to Responsible Investing, and how technology has been incorporated into it.

How do you ensure a personalised service for all your high-net-worth clients?
Wealth is manifold – and so are our clients’ personalities. As advisors, we have to build an understanding of each client from the start. We have to know about their family situation, their professional background, the source of their wealth and, in a more general way, the questions that matter most to them – regardless of whether these aspects have an obvious link to their finances or not.

We try to form a truly holistic view, so we absolutely rely on the client’s openness. We appreciate that it takes a huge amount of trust for them to disclose such information, and we certainly don’t take their trust for granted. Rather, we believe we are obliged to use this information to develop individual solutions that really set us apart from other providers.

Such solutions are the best foundation for a thriving partnership between client and bank. The personalised service and ongoing communication we aim for makes it easier for us to respond to a client’s personal situation, as well as to changes in external circumstances.

Technology is rapidly transforming banking practices worldwide. How is Kaiser Partner responding to this digital revolution?
Sometimes, I think our industry is too obsessed with the threats arising from digital technologies. There’s no doubt that aspects of security and regulation have to be addressed, but we have to remember that everybody, old and young, is now using these digital technologies more and more naturally; this trend is not going to be reversed.

The bank’s sustainable long-term approach is carefully designed to protect and nurture its clients’ wealth, even during periods of turbulence

If we treat these technologies as an opportunity to strengthen relations with our clients, we can find solutions that are beneficial for both the clients and our company.

Personal contact is appreciated by most of our customers, and we certainly don’t want to change this. But new means of communication and smart new solutions will always come along. These won’t replace our personal contact with clients, but will simply enrich the service we provide.

We’re also strengthening our technological backbone. Migrating to a new banking system was a fundamental step forward. The system gives us the foundation for providing new digital services for our clients, the most obvious being online banking. We are currently working on additional products and services that will enhance the digital experience for our clients.

How does innovative new technology improve flexibility for your clients?
Our clients will benefit from digital technology in different ways. We already provide them with an electronic archive of bank statements for a particular period. This speeds up their access to the relevant data and removes the need for physical filing.

Clients can access information about their personal wealth in other ways as well, and they can contact us more easily. All of this provides greater flexibility.

That said, flexibility is just one way in which our clients will benefit from technological advancements. New technology should also be used to help our clients gain a deeper understanding of their wealth.

Our goal is to present data in ways that help them better understand what their wealth consists of and how it is developing. Everybody feels much more confident about making important decisions with the assurance that they have all the relevant information. We want to use technology to make every client better informed.

Can you tell me more about your ‘Wealth Table’ and how it simplifies private banking for your clients?
We believe that navigating our clients’ wealth through today’s complex world doesn’t need just one specialist, but a few. And to ensure all of these experts are working in the client’s best interests, they need to come together at what we at Kaiser Partner call the ‘Wealth Table’.

To give you an example, I work for Privatbank, but depending on my client’s specific needs I might bring in experts from other parts of our wealth management group. We might also invite our client’s existing advisors to the Wealth Table, as well as advisors selected from our network of external experts.

No matter how complex it gets, Kaiser Partner will coordinate these experts in consultation with the client so they have just one point of contact for all their questions.

How do you help clients diversify their investments across different asset classes, and why is it important to do so?
There’s often a certain passion involved in investing in non-financial assets, whether you’re a long-time collector or just want an investment that provides some fun along the way.

Thanks to the economic environment of recent years, passion and performance go hand in hand with lots of these investments – for example, if you have bought a classic car, you will hopefully have had some fun with it, but also seen its value increase.

At Kaiser Partner, we’re in a very privileged position. Owner and Executive Chairman of the group, Fritz Kaiser, is a long-time collector of modern art, and more recently he has built up a serious collection of classic sports cars from the 1950s and 1960s.

He has realised that lots of collectors have a strong emotional attachment to their collectables, leading them to shy away from managing them in the same way as other assets.

Based on this experience, Kaiser Partner has built up a set of tools and services to help collectors protect and manage their collections. Fritz Kaiser has also founded The Classic Car Trust, a sister company of Kaiser Partner.

This firm describes its services as “aspirin and champagne for the classic car collector”; they take away the headaches, leaving classic car owners to enjoy their treasures.

How are customer demands changing? How are private banks evolving to meet these needs?
We’ve already talked about the digital revolution and the fact that our clients are adapting to these new technologies. As advisors and service providers, we have to continuously adjust, evolve and innovate.

Kaiser Partner has built up long-term relations with lots of its clients, and we have to take into account that these clients’ needs change over time: marriages are celebrated, families are started, professional careers move into a new phase. And then, of course, there’s always the next generation to consider.

Our clients expect us to accompany them and their families, and provide suitable solutions for current and future requirements. We have to ensure that our clients’ financial plans, whether private or professional, can be realised without taking unreasonable risks.

These plans and dreams can be very personal and include fundamental decisions about how people live their lives. This puts a great deal of responsibility on us, so we regard our clients’ trust as both a profound obligation and an incentive.

What sets Kaiser Partner apart from its competitors in the private banking market?
The mutual relationship of trust with our clients and their families makes Kaiser Partner really special. Many of our clients regard our advisors not just as bank employees, but as partners. And we have to live up to this trust every day.

What is your outlook for the private banking market in 2017 and beyond?
The private banking market will face further regulatory changes. Political events will remain a topic of discussion. But change also provides us with new opportunities.

More and more factors are having an impact on the way we structure our clients’ wealth, and in an increasingly complex environment, it is even more important for our clients to have the right experts at the table. In other words, our Wealth Table philosophy is more vital than ever.

Trump presidency prompts unexpected economic upturn in US

In November 2016, economic forecasts were gloomy. Donald Trump had been elected, a market sell-off was predicted, Wall Street was set up for a major crash, and stocks were expected to sink.

However, nearly a year following Trump’s inauguration, no such turmoil has hit. On the contrary, markets were bullish from the moment the Trump administration took office, reaching a peak in August this year.

The upward trajectory was clearly illustrated by the Dow Jones Industrial Average, which reflects movements in the stock prices of the 30 largest American companies listed on the New York Stock Exchange and the Nasdaq Stock Market. Despite political turmoil and high volatility, the index hit a 130-year high.

President Trump anticipated the milestone on Twitter on August 1: “Stock market could hit all-time high 22,000 (again) today. Was 18,000 only six months ago on election day.”

While the president missed his estimate by hours, the following day, the index climbed above the benchmark. It closed at the highest point of what analysts called the ‘Trump bump’, in an attempt to name the unexpected trend.

Records for Dow Jones
The Dow Jones is one of the most followed indexes in the world, along with Wall Street’s broader S&P 500. The Dow is an average of stock prices, and therefore any increase means that firms’ valuations are rising.

But it has limitations: the fact that its components are weighed according to their stock prices makes it sensitive to leading companies’ performances. For example, Boeing, Goldman Sachs, 3M, Apple and McDonald’s are among the firms at top of the list. That said, such shortcomings don’t undermine the index’s importance in monitoring market trends.

Setting new records is not unusual for the Dow Jones: according to Bloomberg data, after the financial crisis in 2008 – when the market indicator collapsed to its lowest level in 13 years – a period of steady growth began.

The index started reaching new highs once the US economy was on track for definitive recovery. In March 2013, the index hit its first milestone after five years of slow growth. From then on, landmarks have come one after the other.

During Barack Obama’s two terms as president, the Dow Jones increased by approximately 150 percent, and continued to climb afterwards. So far, accumulated growth under the Trump administration is around 20 percent.

Politics and policy
While businesses and investors have been more careful in their investments, the US economy has been encouraging, posting three percent growth in the second quarter. Now, the market expects December to bring a forth rate rise. This is in line with an encouraging international environment: global GDP is forecast to rise by 3.5 percent in 2017, according to IMF estimates.

However, markets are looking at the whole picture. A recent JP Morgan report warned: “We have in the past frequently differentiated politics from policy, looking through the first on the ‘it’s just politics’ argument, but paying much attention to the second. However, at some point, politics can interfere with good policy, as the latter requires agreement and leadership.”

In March 2013, the Dow Jones hit its first milestone after five years of slow growth. From then on, landmarks have come one after the other

The report also highlighted an “upside risk on forecasts from improved optimism among companies and households”.

So far, analysts relate the bullish market to big companies’ profits and expectations for a tax reform that would cut corporate burdens from 35 percent to 15 percent. Many firms have also been enthusiastic about investments in infrastructure and increases in military spending.

Boeing’s performance explains most of the Dow Jones’ growth, according to market data. As the ‘heaviest’ in the index, its recent winning streak had a direct impact on the Dow: in July, Boeing’s shares reached an all-time high at $230.58, after the firm posted a robust outcome in the second quarter.

The company also shed around 6,500 jobs this year in order to lower costs. As a result, the giant that also operates in the defence sector turned past losses into a $1.76bn profit.

Another company behind the Dow Jones’ surge is Apple, which became part of the index only two years ago. Since then, Apple has been one of its biggest drivers and, in 2017, became the second contributor to take the index over the 22,000 mark.

This was no coincidence: prior to the Dow’s recent surge, Apple had reported better-than-expected revenues based on strong iPhone sales ahead of its 10th anniversary.

Furthermore, banks’ stocks have driven the Dow Jones for a while; Goldman Sachs was an example of the initial enthusiasm. However, the rally following the US election has been cooling in recent months.

Although the government gave signals towards certain changes, financial institutions are still waiting for the next rates hike and deregulation – a process that appears to be a long way off.

With Trump’s agenda full of controversial ambitions, such as cutting social programmes, the budget and debt ceiling, “the second half of 2017 could be bumpy”, according to a BlackRock report. Meanwhile, companies remain alert to politics and policies.

Macau’s financial sector seeks to out-perform the gaming industry

Since China resumed sovereignty over Macau, the government of the special administrative region (SAR) has fully implemented the basic policy of ‘one country, two systems’, and has administrated as mandated by Chinese law.

Macau’s economy has expanded rapidly, with per capita GDP among the highest in the world at $73,186 in 2016. Having abundant social wealth, Macau maintains political stability and economic prosperity, making it one of the region’s most promising growth prospects.

Macau is, perhaps, most famous for its lavish gaming industry, which brought in $45bn in 2014 – seven times the revenue of gaming heavyweight Las Vegas. Since 2014, however, thanks to global economic fluctuations and a mainland economic slowdown, Macau’s gaming industry has decelerated remarkably and regressed, leading to the biggest economic adjustment in Macau in many years (see Fig 1).

It is becoming more and more crucial for Macau to carry out some form of economic transformation and diversification, and the financial industry will play a vital role in this process.

Financial sector
Macau’s economy is open and free. The SAR has adopted many measures and policies to facilitate businesses, including a market economy, a free-trade port, no foreign exchange controls, efficient and expeditious customs clearance rules, and low taxation levels.

This free flow of people, capital and goods has turned Macau into one of the most liberal trading regimes in the world. What’s more, since Macau’s return to China, the SAR has successfully ensured political stability under the principle of ‘one country, two systems’. Such loose financial conditions and firm political stability are perfect for the development of the financial industry.

Macau’s financial sector, especially the banking sector, has a high degree of internationalisation and rich practical experience. Its customer service, financing and funding extend worldwide.

It covers all features of modern financial services, such as diversified products, manifold businesses and electronic operations, all of which provide a solid foundation on which to develop the financial industry.

In terms of geographical conditions and economic environment, Macau is similar to many regional financial centres, such as Luxembourg, Monaco, Cyprus, the British Virgin Islands and the Cayman Islands.

Luxembourg has a population of 500,000, which is similar to Macau’s, and Monaco is Europe’s tourism and gaming centre – just as Macau fills this role in Asia.

As early as the year 2000, the IMF defined Luxembourg, Monaco, Hong Kong, the Cayman Islands and Macau as global offshore financial centres, putting the SAR in esteemed company.

Developmental necessity
As a typical micro-economy, Macau has a relatively small scale and a fragile economic structure. The monopoly status of the gaming industry, while once economically important, now stands in the way of sustainable development by reducing the SAR’s ability to resist the economic setbacks and limiting its growth.

In 2015, the output decline of both tourism and gambling directly led to Macau’s GDP decreasing by 20.3 percent. In this light, the further development of the financial sector offers a welcome solution to Macau’s problem of a single industrial structure.

Macau is also short of natural resources, with limited land and water. In particular, the scarcity of land means that Macau is only really suitable for the development of capital-intensive industry.

Compared with other non-gambling industries, the financial industry, which is capital-intensive, has little demand for natural resources, and is thus an ideal sector to lead the diversification of Macau’s economy.

In the past five years, the financial industry’s contribution to Macau’s GDP has increased annually, and it has become the second-largest industry in the region, which has already gone some way to boosting Macau’s economic transformation. With all this in mind, accelerating the growth of the financial sector is clearly the most important economic move for Macau.

Economic development
In September 2016, the Macau Government announced the beginning of a long-term policy of ‘steady economic development’ and ‘orderly structural adjustment’. Among other things, this policy will aim to harness China’s Belt and Road national strategy and Macau’s Portuguese trading platform, in order to support the tourism, exhibition and convention industries, as well as the industries supporting Chinese medicine, culture and entertainment.

The monopoly status of Macau’s gaming industry, while once important, now stands in the way of sustainable development

The government also intends to broaden the scope of financial business, and will endeavour to create value in financial leasing, asset management and wealth management. Furthermore, Macau will strive to build an international financing platform and a domestic and overseas cooperation platform.

Companies in the financial industry will sustain these platforms and centres to achieve mutual benefits and win-win results for themselves and the economy of Macau.

Development trends
In terms of financial leasing, Macau has introduced an international infrastructure investment forum, while the government has also brought in a series of preferential measures to attract new businesses, and is trying to enhance industrial activity by amending the law.

Some leasing companies have been in operation since the beginning of last year, and Macau is expected to become a centre for leasing businesses in the future. It is hoped that this will facilitate the development of complementary financial services.

What’s more, the Macau Government and the SAR’s private sector are undoubtedly wealthy. The government holds reserves of more than MOP 400bn ($49.7bn), with per capita GDP of about $70,000, boasting a market with enormous potential for asset management and wealth management.

Government and industry experts are actively planning the development of these two industries and a number of related industries, which will develop Macau into a hotspot for financial innovation over the next few years. The related developments will include government investment in mainland infrastructure, and the development of a free-trade zone.

Finally, Macau’s internet industry is developing rapidly, in tandem with the rise of the mainland internet economy. The Macau Government has launched its ‘Digital City, Smart City’ plan, and financial disintermediation is on the way.

However, internet finance in the SAR is still lagging compared with that on the mainland. There are no major e-business players or third-party payment platforms, and most payment clearing still works through credit card providers.

Due to the relatively small size of the market, mainstream payment enterprise has not yet entered Macau, providing a window period to allow banks to develop internet finance businesses.

Business diversification
ICBC Macau, the largest locally registered bank, shoulders the responsibility of promoting Macau’s developing economic pluralism in order to bolster regional economic prosperity and enhance its own core competitiveness.

ICBC Macau has built multi-pillar product lines, and various other emerging business lines have gradually formed around these, including precious metals trading and asset management.

During 2017 so far, ICBC Macau has assisted the ICBC head office to successfully complete a large acquisition project, fund bond distribution, and complete a number of joint investment and trading projects. Furthermore, ICBC Macau has become a long-term financial consultant for local major institutional investors.

Macau has abundant social wealth and favourable tax and financial conditions, but there are no such capital markets as securities and bonds, giving ICBC Macau something of a clean slate from which to expand new business lines.

At present, ICBC Macau has a full-featured banking licence and two wholly owned subsidiaries – ICBC Pension Fund and ICBC Macau Investment. Currently, it is the only bank in the region to possess both an asset management licence and a custody operations licence.

The bank also intends to set up a special institution to function as a syndicated centre for Hong Kong and Macau, in order to further improve Macau’s global business connections.

Once the Belt and Road Initiative is underway, ICBC Macau will provide financial support to emerging markets and to Portuguese-speaking countries connected to Macau. The bank will also serve as a renminbi clearing platform to advance the internationalisation of the currency.

Economic diversification is the starting point for Macau’s development. In addition to traditional finance, ICBC Macau will continue to concentrate on wealth and asset management, internet finance, Portuguese trade services and clearing, financial leasing, and precious metals trading, in order to reach a state of balanced development between traditional and modern financial services.

China suffers ageing population nearly 40 years after introduction of one-child policy

In 1979, China began what remains the largest demographic experiment in history. The country’s controversial one-child policy was introduced in a bid to slow the explosive birth rate of the world’s most populous country.

Fast-forward to the present, and it’s clear the policy has worked. Ironically, though, it has worked a little too well. China is now struggling with a shrinking labour force, which could spell economic disaster for the global heavyweight.

For decades, Chinese couples were under strict instructions from the government to have just one child – bear more, and the result was a withdrawal of welfare benefits, fiscal penalties or, more drastically, forced abortions, sterilisation, or even abduction by the state.

The result was a drastic reduction in the size of the Generation X and Millennial cohorts that should be providing the workforce of the future, leaving China with a severe labour shortage.

Over the past few years, this problem has come to light, resulting in a softening of the rule. In 2013, the Chinese Government announced that couples would be allowed to have two children if one parent was an only child, sparking a slight rise in the number of new births (see Fig 1).

Then, in 2016, the rule was eradicated entirely in a bid to prompt a birth rate of 20 million. Although 17.86 million births were logged, making 2016 the most fertile year on record since 2000, the rate still fell short of the target replacement level.

Too much nothing
China’s modern economic expansion has been both swift and spectacular. Alongside an astonishing average GDP growth rate of more than nine percent for three decades, the country has also witnessed aggressive industrialisation and urbanisation.

The resultant increase in both the supply and demand of urban jobs has caused a significant shift within the country’s vast population, with a large segment moving into the middle-class demographic. This change has seen the proportion of individuals – particularly women – with demanding careers increase significantly.

“China’s birth rate has been very low in recent years – around 12 per 1,000,” said Ren Yuan, Professor of Demography and Urban Studies at Fudan University. Though China’s one-child policy is the obvious culprit for this low birth rate, its impact has not been as significant as one might assume.

“The one-child policy, together with some earlier initiatives, has impacted China’s fertility, but actually, the one-child policy’s influence on falling fertility has been declining since the 1990s, and socioeconomic factors are having more and more of an impact,” Ren explained. “I believe that the one-child policy has actually had little impact on the macro level of fertility in China. Rather, the low birth rate is an indicator of low fertility in China, which is caused by social and economic factors, including improved employment opportunities for women, and people spending longer in education.”

With more and more couples leaving it late to have children, China’s fertility rate is falling sharply

With more and more couples leaving it later to have children, China’s fertility rate is falling sharply. According to the China Population Association, more than 40 million citizens were infertile in 2013, comprising 12.5 percent of those of childbearing age within the total population.

The factors referred to by Ren are linked to China’s economic development and subsequent urbanisation. With economic growth comes a greater incidence of smoking, alcohol consumption, unhealthy diets and rising stress among the population – all of which have a direct impact on fertility, both for men and women.

Pollution has also had a role to play in Chinese men’s plunging sperm counts, which have fallen continuously since the 1970s. According to the report The Effect of Urbanisation on China’s Fertility, published by the Population Research and Policy Review in 2012, urbanisation was responsible for around 22 percent of the decrease in China’s total fertility between 1982 and 2008, and was especially instrumental from 2001 onwards.

Fertile market
As a result of this trend, China’s IVF industry is booming. According to BIS Research, the market was worth $670m in 2016; by just 2022, it is expected to swell to $1.5bn.

While China’s rapid market expansion has resulted in reduced fertility, greater wealth has enabled more couples to afford the considerable sum needed for the treatment, which starts at around CNY 30,000 ($4,600) in poorer provinces.

Together with many hopeful parents seeking to conceive their first child, there has also been a surge in couples trying to have their second. “As well as a strong cultural impetus to continue family bloodlines, increasing demand is due to the recent relaxation of the one-child policy, the increasing number of late marriages, and women choosing to freeze their eggs,” said Dr Mark Surrey, Medical Director of the Southern California Reproductive Centre (SCRC).

As a result of this demand, state-run hospitals across China are struggling – waiting rooms are packed to the brim, while waiting lists are continually expanding. According to data from China’s Health Ministry, each state-run IVF clinic serves some 3.8 million patients – significantly more than the average 700,000 per clinic in the US.

This has led to the unfortunate rise of unregulated clinics, which are commonly advertised online, particularly through social media platforms. These clinics have become adept at eluding overburdened government watchdogs, with recent crackdowns largely unsuccessful.

In July, China’s Ministry of Health admitted that “routine oversight has been lax, and strikes against illegal behaviour have fallen short”. With private clinics also oversubscribed, demand for partnerships with foreign companies is now surging. That said, few have entered the market so far, due to stringent regulations that make it difficult for foreign entities to obtain a local licence.

In light of this situation, a growing number of couples are seeking treatment outside of China, travelling to countries including Thailand, Australia and the US in the hope of realising their dreams of parenthood.

Fertility clinics abroad are swiftly responding to this rising demand, employing Chinese-speaking medical professionals to liaise with patients, while also having their websites translated into Mandarin to help lure customers.

The average price of treatment is around $15,000, but it’s a sign of China’s exponential growth in recent decades that many middle-class couples are now willing to pay such a sum.

In addition to the comparative ease of getting seen in foreign clinics, part of the attraction is the option to learn the child’s gender – something that is strictly prohibited in China – as well as a generally higher standard of technology.

“Many Chinese patients come to SCRC to take advantage of the newest advancements in reproductive medicine, including genetic testing. This is hugely beneficial to women with genetic health concerns, or those who have had miscarriages,” explained Surrey.

Add to this the ability for single women to freeze their embryos, which China still does not allow, and it’s easy to see the appeal of this type of medical tourism.

Wider implications
A report published by China’s National Development and Reform Commission in January 2017 indicated just how severe China’s demographic problem could soon become. Experts predict that by 2030, a quarter of China’s vast populace will be aged over 60 – around 10 percent higher than the current level.

Consequently, the strain on the state will intensify as retirement funding and healthcare costs spiral. At the same time, the country is also seeing its labour force shrink, with a predicted 80 million fewer individuals aged between 15 and 59 by 2030.

“The best way to combat this demographic challenge is not actually through population policies such as encouraging people to have more babies,” explained Ren. “This method will usually fail to meet the objective, and will always produce some unintended outcomes. Instead, to combat the challenges of demographic change, social and economic institutional reforms are needed.”

Embryos being used for IVF. More and more Chinese couples are looking abroad for fertility treatment, as Chinese clinics are hugely oversubscribed
Embryos being used for IVF. More and more Chinese couples are looking abroad for fertility treatment, as Chinese clinics are hugely oversubscribed

Making matters worse, the problem may be self-exacerbating. As the cost of consumer goods rise, so will the cost of raising children, and so the likelihood of people having several children further diminishes.

According to a report entitled Urbanisation and Fertility Decline from the International Institute for Environment and Development, this effect is enhanced by the desire to achieve a better standard of living, which is a natural tendency born from a country’s economic development.

As such, parents’ desires to improve the health and wealth of their existing offspring will make them less likely to have more children, and more likely to encourage their children to focus on education and work during their most fertile years, further multiplying the problem.

The impact of government campaigns to encourage larger families will, therefore, be limited. What can make a difference, however, is improving the support systems in place for parents.

At present, China has low levels of parental leave – for men, it ranges between nothing and two weeks, while women typically get just four months. A lack of affordable childcare compounds the issue.

Comprehensive strategy
In hindsight, China’s one-child policy was a misjudged and overly extreme precaution. That said, despite its impact on the country’s fertility rate, there are several other factors at play. Eradicating the policy was a clear and positive step in combatting this demographic crisis, but it is by no means definitive.

A lot of work must be done to help drive China’s fertility rate above the necessary threshold. In the short term, this involves the development of the IVF industry, which means increasing the number of both state-run and private clinics to meet soaring demand. To help with this undeniably arduous task, easing restrictions on foreign entities entering the market would be hugely beneficial.

In hindsight, China’s one-child policy was a misjudged and overly extreme precaution

In the meantime, legalising more complex treatments and procedures will help more couples to conceive, particularly those who are unable to afford treatment abroad.

Similarly, making egg-freezing legal for single women – especially given the global trend for women to have children later in life as they devote more time to education and their careers – would also provide a boost. Finally, cracking down on unregulated clinics would improve patient safety and trust in the beleaguered system.

In the longer term, China can introduce policies that are beneficial for young families, such as better maternity and paternity leave, along with provisions for cheaper, more widely available childcare.

Such measures are crucial as China continues on its path of economic development, which will inevitably see the cost of living rise. The task is both great and complex, but its success is absolutely vital if China is to secure the future that it has set out for itself.

With Myanmar’s economic future looking promising, AYA Bank seeks foreign investors

Myanmar’s economy is one of the fastest-growing and most promising in Asia. Its dynamic business environment, along with its strong infrastructure, communications sector and flourishing consumer lifestyle have been key to the country’s development so far.

Although Myanmar’s economic growth has slowed to 6.5 percent in 2016-17 from 7.3 percent in the previous year, projections for the near future are optimistic.

According to the World Bank, the growth rate is expected to remain above 7.1 percent on average until 2020, following a slowdown since its peak in 2013.

What’s more, the global institution highlighted in its latest monitor report on Myanmar that this growth will take place in a context of macroeconomic stability and progress on structural reforms, with private and public investment picking up for both infrastructure services and non-commodity sectors.

In line with such forecasts, the country has become an attractive destination for foreign investments, especially since 2012, when the Foreign Investment Law was enacted. In the eyes of investors, Myanmar is the last economic frontier in Asia with significant growth potential.

Changing to support growth
The figures reflect the market’s enthusiasm. Foreign direct investment hit a record $9.4bn in the year ending March 2016 – however, this foreign investment flow understandably slowed to $5.8bn in 2016-17 due to legislative elections this April and subsequent changes in the administration.

Nonetheless, with Myanmar’s new investment law, it will be easier than ever for foreign companies to benefit from tax incentives, and eventually take advantage of a company law bill that is currently in parliament.

The initiative aims to allow foreign investors to buy up to 35 percent equity in local firms before they are considered foreign-owned. This has been well received in the business community, as local companies can now have foreign shareholders who will be allowed to enter into long-term land leases. None of this had been possible until today.

Key steps have been taken to identify the critical building blocks for a sound financial sector, something that is essential to support the growth and opening of the economy

Indeed, over the past three-to-four years, Myanmar’s banking sector has undergone significant changes, many of which are positive. Key steps have been taken to identify the critical building blocks for a sound financial sector, something that is essential to support the growth and opening of the economy.

During this time, the central bank has gained a fair bit of autonomy and has introduced prudential regulations in line with recommendations from the Bank for International Settlements.

Moreover, it has given licences to foreign bank branches to operate locally, and it is also beginning to work closely with multilateral agencies as part of its sector-wide reforms.

That said, at present the local banking sector remains limited in terms of fully serving the requirements of a rapidly growing economy. In response, we expect to see local and foreign banks working closely together in order to play an increasingly significant role in boosting economic activity, especially in terms of financing large-scale projects and capital requirements.

Together, banks will be able to build a solid foundation for a modern financial sector that is capable of working in collaboration with regional financial markets.

Time to roll up the sleeves
Myanmar’s financial services industry offers mainly short-term financing on a fully collateralised basis. But it is keen to move towards a broader set of financing capabilities in order to assist infrastructure projects and mortgage financing for end-buyers. There is still much work to be done.

Myanmar’s interbank market for foreign exchange is just over a year old. Its continued development is critical to injecting a flow of liquidity into the banking system, and will strengthen alternative sources of funding for banks, which are currently reliant on customer deposits.

As this market evolves, we foresee a robust interplay between the local currency, the kyat, and foreign money markets, paving the way for related hedging and financing options.

Furthermore, the Central Bank of Myanmar’s financial network system and interbank payment and settlement system will be further upgraded to be more robust, and will also act as the foundation for the convergence of traditional banking and fintech for Myanmar’s ‘leapfrog’ technology.

Against this backdrop, AYA Bank is well poised to meet the challenges and opportunities that are set for Myanmar. The seven-year-old institution has become the second-largest in the country, playing a pioneering role in developing and introducing numerous products, services, systems and practices that are now standardised in the local banking industry.

In 2017, it achieved significant milestones, totalling more than 220 branches, more than 8,200 employees, MMK 4trn ($2.94bn) in deposits and MMK 3.5bn ($2.57m) in assets.

In June, AYA Bank upgraded its software solution to the new Tier 1 core banking system from Finastra. This is an omni-channel implementation that will replace the existing branch-focused core banking system. Thus, the bank will maximise digitalisation of its operations and improve front-to-back efficiencies throughout the organisation.

This digitalisation of all manual, non-digital processes will enable AYA Bank to streamline its workflow, and better serve all customer segments and strategic business platforms. In addition, it will allow the bank to provide products and services uniformly across the country.

This comes along with new investments in staff development, branches, ATMs and next-generation technology, and underlines AYA Bank’s commitment to excellence and putting customers at the heart of the business.

Customer retention depends on their satisfaction; happy customers do more business and remain loyal through good times and bad. The bank’s goal is therefore to be regarded by customers as their bank of choice. This is the model for Myanmar’s modern banking future, today.

Foreseeing the future
Banking penetration in Myanmar is estimated to be less than 10 percent, perhaps as a consequence of having the lowest branch density in the world – 3.8 branches per 100,000 adults against a global average of 11.7.

With these indicators in mind, AYA Bank accelerated its branch growth strategy, totalling more than 220 branches in 2017 from 34 in 2014. The expansion has shown good results, as the bank added 900,000 new customers, now serving over 1.3 million. Many of these customers have opened a bank account for the first time, and have therefore helped the bank diversify its customer base.


Myanmar’s economic growth in 2016-17


Foreign direct investment in 2016-17


Loan growth across commercial business in 2017

Furthermore, consumers’ interest in supplementary products is high; they are curious and have shown interest in recently introduced technological banking products, like internet and mobile banking, credit card loans and retail loans.

Thus, the large account base secured by AYA Bank is the perfect platform to cross-sell and upsell new products and services to our customers. We are confident that in the near future we will be able to provide customers with a wide range of retail products that will deepen their banking experience.

The development of retail consumer products has shown several successes this year. The bank launched the first 15-year mortgage loan in Myanmar in a bid to better serve the needs of a young mobile workforce.

It then introduced the country’s first web-based consumer credit evaluation programme, and finally
it issued the largest number of credit cards in Myanmar.

SMEs and commercial businesses are the backbone of any economy. As such, AYA Bank’s contribution to the growth and development of SMEs is significant, with a loan portfolio growing by 64 percent per year over the last three years. Loan growth across commercial business was outstanding in 2017, ending the financial year at almost $2bn.

International framework
AYA Bank has also strived to adopt international best practices to demonstrate that they can be implemented in the country. The Voluntary Human Rights Audit, which is the first of its kind in Myanmar, led to the
 implementation of HR policies compliant with International Labour Organisation recommendations.

These include the implementation of non-discrimination policies, the whistle-blower policy and a zero tolerance gender salary gap policy.

Since 2014, three of the eight members of the board of directors have been independent non-executive directors, despite the Financial Institutions Law only being introduced in 2016.

Indeed, AYA Bank is the only International Financial Reporting Standards-compliant bank in Myanmar and also the only one to be audited under the International Standards of Auditing through the guidance of an international big-four firm.

Moreover, AYA Bank has executed significant regulatory and control priorities and is committed to continuing to set standards locally. This progress has allowed the bank to focus on improving processes to deliver better experiences to its clients in many ways. For example, it recently established a dedicated transaction banking team to provide cash management and trade finance solutions.

It has also partnered with foreign banks across key sectors such as hospitality, manufacture, infrastructure, telecoms and real estate by delivering multiple syndications.

Looking forward, AYA Bank will continue to drive innovation by investing in technology, people and its network, all the while strengthening business processes and adhering to international best practices to improve the customer experience.

Investing aggressively, AYA Bank seeks to play a role in building a bright future for Myanmar, one of the most exciting frontier markets in the world.

Blockchain is unlocking the future of banking

The first link in the blockchain transaction log, after the now-notorious bitcoin, contains a text message. It reads: ‘The Times 3 January 2009 – Chancellor on brink of second bailout for banks,’ referring to the headline of a front-page article in the British newspaper.

This short but evocative statement encapsulates the turmoil faced by citizens and governments in the wake of the global financial crisis. It was included to prove the date of birth of the world’s first bitcoins, but also to explain what drove the mysterious Satoshi Nakamoto to invent Bitcoin in the first place.

In 2008, Nakamoto published a paper outlining his hopes that this new currency would release the digital world from the shackles of central banks and financial institutions.

Previous attempts to create an entirely online currency had been hampered by the ‘double spending’ problem: with no tangible material being exchanged, digital tokens could be duplicated and spent again and again.

To get around this, a trusted third party, usually a financial institution, was required to process online payments in the same way as physical ones.

Nakamoto’s genius innovation was the application of an algorithm, now known as the blockchain, which acts as a permanent ledger of all bitcoin transactions.

Unlike an opaque central bank, the blockchain is maintained by, and visible to, anyone who trades bitcoins. The blockchain was the missing piece of the puzzle of creating a decentralised digital currency.

Revolutionising financial services
Since 2009, bitcoin’s rise has been stratospheric, with a single coin trading for a record $4,616 in August this year. However, design features – such as a 21 million cap on the number of bitcoins that can be mined – limit its potential to be adopted as a mainstream currency.

Hence, as a tool to dismantle centralised financial systems, the reach of bitcoin is limited, but the potential of the blockchain seems boundless.

Professor Michael Mainelli was an early advocate of the blockchain’s potential; his consultancy Z/Yen developed an early version of the technology almost two decades ago.

In an interview with World Finance, he stated that he expects the blockchain to upend many of the record-keeping processes the financial industry is built on. “In financial services, it can really do four things: identity documentation and agreement exchanges, and possibly tokens and cryptocurrencies,” he added.

According to Mainelli, while bankers initially greeted bitcoin with scepticism and fears of hacking, this had dissipated by 2014 as cryptocurrencies proved surprisingly robust.

Since then, industry interest has turned to the underlying ledger: “Around 2016, people started saying ‘no you idiot, it’s the blockchain’, as everybody sees that this currency they thought would fall over technically hasn’t.”

Nakamoto’s genius innovation was the application of an algorithm, now known as the blockchain, which acts as a permanent ledger of all bitcoin transactions

Furthermore, Mainelli sees cryptocurrencies as a sideshow to the fundamental changes the blockchain will bring: “Even if it is the future for payments, the big money savings are going to be in paperwork. There are lots of areas where banks have got enormous vaults full of paper, and that’s where I see a lot of this having a huge effect.”

The future of the blockchain
There is a danger, however, of expecting too much too soon from the blockchain; like the infrastructure behind the internet, the blockchain is a foundational technology.

Where disruptive technologies such as autonomous cars cause rapid change in one industry, foundational technologies lay the groundwork for entirely new products and industries.

This brings genuine economic upheaval, but can take decades: for example, it took about 30 years for the likes of Google and Amazon to emerge from the technological developments that made the internet possible.

In an interview with World Finance, Professor Tim Watson, Director of the WMG Cyber Security Centre at the University of Warwick, described how some firms are so determined to lead the blockchain revolution, they haven’t stopped to consider how to use it.

“Blockchain technology is like a package holiday, and often when people try to use the blockchain, they actually only need parts of it… There’s lots of talk about the mechanics and not enough stepping back to understand ‘what is this stuff?’,” he said.

Even when the long-term benefits of the blockchain are considered properly, the uprooting brought about by foundational technologies is often met with resistance, as Mainelli pointed out: “8,000 years ago the Sumerians were acting as a central third party. This is trying to change a very old structure.
“There are a lot of vested interests who are going to fight this tooth and nail. I don’t think they’ll win ultimately, but they could make what should be a two-to-five-year process a 20-year process.”

There is also the fact that embedding technology into social structures requires more than clever programming, as Watson stressed: “We need people who can understand how to build well-governed societies. We’ve got lots of experience and we need to translate it into this new cyber-physical cognitive realm.”

Ultimately though, he added that, despite the complex long-term issues and the frenzied short-term hype, the blockchain may eventually realise Nakamoto’s ambitions: “Some very serious people are working on this – not because it’s flavour of the month, but because they can see that this is going to transform society.”

ActivoBank is keeping up with the demands of the digital age

In an ever-changing financial landscape, the adoption of a coherent digital strategy is crucial to the customer experience. Customers remain loyal to banks that provide easy-to-use digital products, while any negative interactions, whether on an app or a touchscreen in-branch, can motivate clients to take their business elsewhere.

Establishing a digital bank is the simple part – attracting and subsequently keeping customers presents a far greater challenge. In order to satisfy a new generation of tech-savvy consumers who increasingly regard connectivity as a right, not a privilege, banks must formulate a digital strategy capable of adapting to a changing marketplace.

In light of these observations, World Finance spoke to Luís Magro, Marketing Director at ActivoBank, to find out more about the changing needs of the digital customer, and how ActivoBank is adapting its strategy to meet the growing demand for streamlined digital products.

How can banks make better use of social media?
One could almost say that if a brand isn’t present on social media, it doesn’t exist. Research shows more than 60 percent of clients use social media to either seek help or clear up niggling doubts about a service.

As such, many companies use social media to address these very issues, responding to customer queries as quickly as possible to ensure their needs are met.

But, of course, the most obvious use of social media is advertising one’s products. Social media has great influence when it comes to recommending products to consumers; people make decisions based on what they see and read on social media.

Furthermore, engaging with social media gives banks a more intimate knowledge of their customers, providing a priceless insight into the marketplace.

How does ActivoBank’s social media strategy differ from that of other banks?
Our strategy doesn’t diverge much from the options I’ve previously mentioned: we use social media to advertise our products and answer any customer queries that come our way.For example, we have created an app on Facebook – Facebook Ponto Activo – allowing users to converse with client managers in real time.

In order to stay relevant, we also offer information on a broad range of topics, from innovation and entrepreneurship to culture and current affairs. While these subjects may not be bank-related per se, they clearly represent our core values.

Almost everything our competitors post is bank or product-related, with a couple of contests thrown in for good measure

Topics based around social responsibility – whether financially related or not – tend to gain great traction among our followers.

This differs tremendously from what other Portuguese banks are currently doing on social media. Almost everything our competitors post is bank or product-related, with a couple of contests thrown in for good measure.

How do Millennials approach banking differently to previous generations?
From my experience, Millennials don’t appreciate the tricky banking language deployed by most banks. Instead, they tend to gravitate towards banks offering a simpler, more transparent description of their products.

If you want to be successful with Millennials, you must continue to invest in technological solutions and refrain from charging excessive fees for the privilege. Millennials are very digitally independent, and don’t like to pay for services they can conduct themselves.

What’s more, Millennials tend to be far less loyal to banks than previous generations; a bad experience either online or on the app can drive users to look elsewhere for their banking needs. Therefore, banking products must adapt to Millennials, not the other way around.

Does digital banking resonate with Millennials more than other generations?
Yes, I think it does. When you look at what bank branches used to represent to previous generations and how secondary they’ve become to younger generations, the role of digital banking is obvious.

To be fair, a good website can demand the attention of a bank’s entire client base, regardless of age, but apps are a different story – they’re much more likely to be used by younger clients (see Fig 1).

I think this is because Millennials are more curious when it comes to any sort of technological innovation – more curious, and less afraid to explore.

Given the changing marketplace, are financial institutions willing to take suggestions from clients?
While there are some exceptions, most financial institutions aren’t very open to client suggestions. During the financial crisis, people started to openly criticise banks, voicing their distrust more publicly. This, in turn, led banks to make decisions with more secrecy.

Simply put, it is increasingly difficult for customers to have their voices heard. However, ActivoBank believes there is a lot to be gained by listening to what people have to say, and we continue to give our customers a voice.

Interaction with clients is essential – it shows your customers you are transparent and willing to take responsibility for how you operate. Furthermore, client observations can improve your business.

Instead of only using focus groups (which institutions usually pay for), why not engage with clients more directly and gain valuable feedback? By listening to customers, banks can actually redesign products and even create new ones.

Taking this approach gives you confidence that your offering is completely in tune with your clients’ needs. In this vein, Facebook is a great medium for gaining a picture of how your bank is being perceived, as people tend to speak more freely on this platform.

How is ActivoBank’s digital strategy evolving?
We have added some new features to our app and website to make our services more accessible to our customers. For example, we have recently introduced a loan calculator on our app, making it easier for customers to calculate and immediately apply for personal loans online.

We are currently working on introducing mortgages to our app as well. While it is already possible to upload some of the necessary documents digitally, we wish to put the entire mortgage application online – simplifying the process completely. That being said, we will continue to offer mortgage support in person and on the phone too.

On top of this, we will also allow our customers to open accounts online, no matter where they are. This is a relatively new offering in the digital banking sector, and one we are keen to explore in more depth.

In conjunction, we are planning to offer our customers virtual debit and credit cards that can be used in conjunction with near-field communication technology.

As a primarily digital bank, we don’t have plans to open many more branches in the future. Instead, we will seek to make our existing branches more efficient, with the installation of holographic bank assistants in each branch.

This assistance will initially be based upon a multiple-choice, question-and-answer formula, but we hope, in time, to upgrade this service to be more intuitive.

How will these developments help ActivoBank meet the needs of future clients?
Whether answering questions or performing transactions, our clients demand we provide services with agility and transparency. The developments I have outlined are essential components of this.

We understand how valuable our customers’ time is, and how time-consuming buying a house, applying for a loan or opening an account can be. While we still value the contribution of our brick-and-mortar operations, by offering these services online, customers are presented with a clear, time-efficient way of
conducting their business.

How do you think the needs of clients will evolve in the future?
A lot has been said about the importance of adopting an omnichannel approach to meet growing and diversifying customer demands. As mentioned previously, customers expect to be able to start any bank transaction on the website, check its status on a smartphone, and go into any branch for further information.

They don’t want to spend too much time searching for the right product; they want to feel special, and be offered customised products directly. Achieving the balance between simple, easy-to-explain products and customising them to meet clients’ expectations is difficult, but necessary. The data collected by banks can ultimately help financial institutions strike this balance.

Security will also be an issue. Protecting account data and privacy is an obvious requirement of any bank, but clients should be able to trust their bank without having to present an endless number of passwords to access their account.

Therefore, investing in alternative forms of authentication, such as biometrics, will continue to be a prerequisite of success.

As time goes on, clients will continue to demand more and more from their banks. Their needs will become intertwined with their expectations and desires, and they will expect banks to become more active in the community they’re part of.

Clients won’t just be looking for the best products – they’ll choose the most socially responsible, transparent and adaptable bank on the market.

Christine Lagarde: succeeding in a man’s world

“From day one at the IMF I’ve been visiting departments unannounced. It surprises people; they don’t expect top management to just walk in”

Christine Lagarde

Never afraid of breaking with tradition, Christine Lagarde has been ‘the first’ many times in her life. Her position at the forefront began when she was born on New Year’s Day 61 years ago in Paris, as the first daughter of two professors.

Whether due to destiny or coincidence, Christine Lallouette, now Lagarde, was a gender pioneer throughout her professional career.

With a sober but never unnoticed style, she brought Chanel and Hermès to a world of dark suits and briefcases, sitting at the head of negotiation tables in addition to covers from Vanity Fair to Time and Forbes.

The latter ranked her as the sixth most powerful woman in the world in 2016, five years after she took her current position as Managing Director of the International Monetary Fund (IMF), where she has since been re-elected for a second term.

With the discipline of resistance and endurance she learned in her teenage years as a member of the French synchronised swimming team, Lagarde grew as a global leader and gender activist.

“Let women shine, for goodness sake,” she tweeted in June. She now shakes hands with the Pope and Donald Trump, with Xi Jinping or Nigerian President Muhammadu Buhari. And no one, not even her critics, denies her ability to negotiate.


Skilled talker
Lagarde developed an impressive ability to negotiate during her 25 years with the international law firm Baker & McKenzie, where she was appointed in 1999 as the first female chairman in the company’s history.

Before long, she disrupted the public sector in the same way: in 2007, she became the first woman to lead the French Ministry for the Economy and Finance, a position from which former President Nicolas Sarkozy and current President Emmanuel Macron also jumped into major roles.

For Lagarde, the next step was the IMF. By the time the former director, Dominique Strauss-Kahn, was forced to resign amid allegations of sexual assault, Lagarde had acquired the necessary experience to take over the position.

Following Jacques Chirac’s invitation to his cabinet in 2005, the 2008 financial crisis brought an opportunity for Lagarde: during the turbulent times of the recession, she was, perhaps, in the right place at the right time.

The eyes of the world were focused on Europe’s instability, threatened by huge national debts across the bloc, including France’s. Lagarde, the only female minister across the G8 countries, performed well beyond domestic politics and earned an international reputation.

She was “treated practically like a rock star” at meetings, according to former IMF economist Kenneth Rogoff, speaking to The New York Times at the time.

Cyrille Lachèvre, co-writer of Lagarde’s biography and journalist at the French newspaper L’Opinion, described a particular scene: “When France was holding the rotation presidency of the European Union. Sarkozy, president at the time, and Lagarde met [US President] George Bush at Camp David. She had an impressive key role discussing the responses to the financial crisis.”

Lagarde’s ability to speak English, her second language, almost without a French accent enhanced her ability to communicate with world leaders. However, it was not always so easy: at the age of 17, she struggled with assignments during her one-year scholarship as an American Field Service exchange student at Holton-Arms School, a preparatory school in Bethesda, where Jackie Kennedy also studied.

Christine Lagarde in numbers:


Lagarde’s annual wage, including additional allowances


The year Lagarde was appointed Head of the IMF


Lagarde’s position on Forbes’ 100 Most Powerful Women 2016


The fraudulent payout Lagarde failed to prevent in 2008

Despite those difficulties, the French language was what later gave her a role in US history. During the Watergate hearings, Lagarde assisted a congressman on the House Judiciary Committee, who was by that time gathering information to impeach President Richard Nixon.

Helping him with French, Lagarde took part in the process that concluded with the only resignation from the US presidency in history. The experience was meaningful. “It was in that moment that she discovered her passion for laws,” said Lachèvre.

Lagarde remembers the time after her father’s death as a life lesson. “During that year at Holton-Arms with my host family and interning in Washington, I learned more, and it mattered more to me, probably, than any other year in my life,” she said in an interview with the Washington Post.

From ‘no maths’ to the IMF
Decades have passed since she begged, “please, no maths” in her yearbook testimonial, according to the Washington Post. Despite this, in her fifties, she became the head of the IMF.

She had also managed to maintain her earlier internationalist ambitions of becoming a cultural diplomat, according to her profile in a student newspaper, quoted by the Washington Post.

As she had done before, Lagarde interrupted the male-dominated system as a trailblazer, introducing a new title to the organisation: Madame Managing Director.

Jeffrey Sonnenfeld, Senior Associate Dean for Leadership Studies at Yale School of Management, underlined her strengths in the international landscape: “Lagarde is a remarkable leader in an unusual global portfolio; she can parachute and fit comfortably into different cultures whether it is in Asia, Europe or in the US.”

Compared with previous IMF chiefs, Lagarde approaches her role differently. “Lagarde doesn’t need the spotlight on her; she doesn’t have a grandiose ego or an ‘emperor arrogant’ style, as she has proved to be open to criticism. However, she can have a commandant presence when she needs it,” Sonnenfeld said.

Janet Yellen, US Federal Reserve Chair, described her French colleague in a column published in Time as one who has given the fund “a more human face by addressing issues like gender and income inequality and public health threats”.

Speaking to the Guardian, Lagarde defined her mission as looking “under the skin of countries’ economies [to] help them make better decisions and be stronger”. But even though she is seen as a more charismatic leader than her predecessors, many outside the power spheres disagree, since IMF ‘help’ normally implies unpopular adjustment policies.

Indeed, the IMF’s most controversial decisions under Lagarde’s administration have been related to Greece. Many people in the country oppose the austerity policies implemented since 2010, following the financial support from the EU and the IMF.

The fund itself acknowledged the contracting impact of some of the measures recommended, although Lagarde told Bloomberg that creditors “overestimated the ability of Greece to actually endorse and take ownership of measures that were needed”.

Sonnenfeld stressed that one of the main virtues of Lagarde’s leadership style is that “she is not a flamethrower”. However, some of her statements have sparked controversy.

For example, she experienced a backlash when she suggested Greeks were always trying to escape from taxes instead of paying back for the good times. But with a $467,940 wage, plus an additional allowance of $83,760 that is not subject to taxation, she became the object of harsh criticism.

That was in 2012, but Greece’s folder has remained on her desk. With a softer but still firm attitude towards the country, the IMF approved a $1.8bn support package in July, after a long period of negotiations.

However, this will only be carried out if the EU ensures debt sustainability, which could mean new measures in Greece to achieve further relief from European partners.

Keeping the pace
This is not the only subject that has kept Lagarde busy in recent months. Another event wiped the smile off her face in December last year, when she was found guilty of negligence over a fraudulent €403m ($476.3m) payout to the French tycoon Bernard Tapie when she served as finance minister.

Despite the criminal charges, Lagarde wasn’t given a prison sentence or a fine, nor was her position at the IMF threatened. On the contrary, she was supported by the IMF board and continued her second period, a rare feat in the fund’s history. Directors said in a statement they had “full confidence in the managing director’s ability to continue to effectively carry out her duties”.

During the turbulent times of the recession, Lagarde was, perhaps, in the right place at the right time. She performed well beyond domestic politics and earned an international reputation

Sonnenfeld sees the positive side of the defeat: “The trial was a tremendous test of character and resilience. She did not let herself be rattled by that, and the problem made her even stronger. The support she had from the board says a lot,” said the Yale professor.

Former IMF economist Peter Doyle takes a different view, arguing that Lagarde’s re-appointment is strictly to do with politics rather than her success in the office: “The people that reappointed her are Europeans, the largest bloc in the IMF board. They know if they were not to reappoint her, they would very quickly lose a European in the manager position… because there are pressures, for good reasons, for the post to be given to someone who is not a European.”

Doyle resigned from the IMF in 2012 after serving 20 years. In a letter to the board, he stated that appointments of managing directors over the previous decade had been “disastrous”, including Lagarde, who he said was “tainted” by the illegitimacy of the selection process.

Despite believing Lagarde is a “good politician and a talented individual”, he thought that “having her as the head of an organisation that does economics is like having an accountant as the leading surgeon in an operating room”.

With Europe consolidating its recovery from the financial crisis, Lagarde has been working on other potential threats for global growth and balance. This is almost what she hoped for her second mandate; at the beginning of the new stage she told Bloomberg it would be a time “more focused on preventive measures than on curative actions”.

Her intention, she added, was to be an “architect – assisting the policymakers to consolidate, strengthen and prevent crisis, rather than come in with a big hose and trying to extinguish fires”.

With this knowledge-sharing approach, as she named it, in January this year she used the World Economic Forum’s stage to call policymakers and business leaders to action as she described a “crisis of the middle classes in advanced economies”, with inequality fuelling populism around the world.

Later in the year, she turned red lights on again, warning that “the sword of protectionism [is] hanging over global trade”. Without naming US President Donald Trump or any politicians in Europe, she took a stand for the liberal tradition at the fund.

“Restricting trade would be a self-inflicted wound” to the global output, inflating prices and hurting the most low-income households, she said.

Along with these issues, Lagarde has been taking care of women’s economic empowerment, just as she set out to do when she first disrupted the masculine finance world.

“In gender-dominated environments, men have a tendency to show how hairy chested they are… There should never be too much testosterone in one room,” she told several media outlets.

Since then, she tried to push the subject further than words. For example, in a United Nations panel last year, Lagarde announced IMF actions aimed at closing the gender pay gap, including the strengthening of the fund’s policy advice to support female labour force participation, and further research on legal restrictions.

However, the remaining four years Lagarde has at the IMF may be too short for her to tackle a long list of renewed challenges around the world – not to mention the stigma she still sees associated with the organisation.

Curriculum Vitae

Born: 1956 |  Education: Institut d’Etudes Politiques d’Aix-en-Provence

1981: Having completed her studies in France and failing to get into the French Civil Service, Lagarde joined law firm Baker & McKenzie, specialising in labour, anti-trust, and mergers and acquisitions.

1999: Lagarde became Chairman of the global executive committee of Baker & McKenzie. She was the first woman to hold the position. Five years later, Lagarde became Chairman of the global strategic committee.

2005: This year marked the beginning of her career in the public sector, as Minister for Foreign Trade in Dominique de Villepin’s government. Just two years later she became France’s first female Finance Minister.

2011: Lagarde took over from Dominique Strauss-Khan – who had been accused of sexual harassment – becoming the 11th Managing Director of the IMF. Again, she was the first woman to hold the position.

2016 (February): Lagarde was re-elected to serve as the IMF’s Managing Director for a second five-year term, demonstrating her success in dealing with the global financial crisis at the front of the fund.

2016 (December): A French tribunal found Lagarde guilty of negligence in 2008, when she was serving as Finance Minister. The court said she failed to prevent a fraudulent payout. The IMF backed her despite the guilty verdict.

Crédito Real is providing finance for the unfinanced Mexican population

Crédito Real has always been a bold and innovative organisation. In 2012, it took the step of becoming a publicly traded company, and obtained a listing on the Mexican Stock Exchange (BMV) the same year.

Following this decision, the company expanded exponentially, achieving an accelerated level of growth that has allowed it to assume the leading position it now holds in the industry.

For its work, Crédito Real is held in high esteem by both customers and the wider business community. Indeed, the company was recently given the Social Responsibilty Award for the fourth consecutive year and named an ‘inclusive company’ by the Mexican Centre for Philanthropy.

It was also named a ‘great place to work’ by the Great Place to Work Institute, and became the best rated company for corporate governance according to BMV rankings.

We expect to win many more accolades in the years to come, as the company continues to deliver results for a large and complex array of clients and businesses, while also investing in new and intelligent products.

Fostering growth
Though Crédito Real aims to serve a large market, it has been praised in particular for meeting the credit needs of the middle and lower-income sections of the population – two groups that have typically been neglected by the traditional banking sector.

Crédito Real has been able to offer these demographics a flexible approach and varied products. As a result, the company reached a portfolio of roughly MXN 24.2bn ($1.3bn) in the first half of 2017.

A large part of Crédito Real’s success comes down to its model for payroll credit. In an innovative move, the company’s portfolio now includes solid assets that belong to governmental institutions.

This contribution of federal funds guarantees the service and payment of original credits within the portfolio. Other crucial moves by Crédito Real include its strategic acquisition of Instacredit, a personal loans company based in Costa Rica, and the purchase of Don Carro, a used car loans business in the US.

It has never been more important for banking institutions to ensure their operations are as responsible and orderly as possible

During 2016, the company focused on achieving the growth objectives set for the year despite a challenging environment marked by unusually high volatility in key macroeconomic indicators. Fortunately, the landscape started to show signs of recovery and greater stability towards the second half of 2017.

The beginning of this year was characterised by the strengthening of our balance sheet, the reduction of exposure to operational and market risks, and the quality growth of our credit portfolio in accordance with the company’s long-term goals.

These achievements have been built on the concrete foundation of an orderly and stable operation. This is clearly reflected in our non-performing loan ratio of 2.1 percent, which is one of the healthiest and lowest in the Mexican financial market.

Similarly, the company has received important support from its business partners, which is reflected in the expansion of our portfolio through high-quality assets. Also worth noting are the strict controls on loan granting that we implement as a company.

Market presence
Currently, around 27 percent of our credit portfolio comes from businesses outside Mexico: from Costa Rica with Instacredit, and the US with Don Carro’s five stores in Texas.

In February 2016, Crédito Real acquired 70 percent of the capital stock of Marevalley, a Panamanian holding company with several entities operating under the Instacredit brand.

Instacredit currently has a network of 70 branches: 56 in Costa Rica, 12 in Nicaragua and two in Panama, in addition to having more than 450 promoters.

Instacredit is a well-recognised brand across Central America, with more than 15 years of experience, particularly with granting loans to middle and low-income segments of the population – those which Crédito Real aims to reach. Among Instacredit’s offered products are personal loans, automobile loans, SME loans and mortgage loans.

The North American market has always represented great potential for Crédito Real, especially the Hispanic segment without credit history, which is a demographic close to 50 million people.

For this reason, Crédito Real started operations under the Don Carro brand at the end of 2015, and acquired 65 percent of AFS Acceptance’s capital stock. AFS Acceptance is a company composed of 400 distributors of used and pre-owned car loans, and is licensed to operate in 40 states across the US.

Our used car loans portfolio in the US now represents approximately 11 percent of the company’s total loan portfolio.

Corporate governance
In recent years, as a result of the 2008 financial crisis, it has never been more important for banking institutions to ensure their operations are as responsible and orderly as possible. Without consolidation across business practices, the sector risks another economic collapse.

Fortunately, the international community has come to understand the importance of adequate and transparent management in publicly traded companies. Solid corporate governance in every single area of the company is the foundation for the effective functioning of markets overall, as it promotes credibility and stability, and contributes to accelerated growth and value creation.

In 2017, Crédito Real’s portfolio reached


In this regard, Crédito Real has been an industry leader and an inspiration to others looking to improve their quality controls.

Since its inception as a debt issuer, and following its IPO in 2012, Crédito Real has focused on strengthening its internal controls to ensure the efficient operation of the company.

At the same time, the company ensures it complies with best corporate governance practices to safeguard the interests of its shareholders and other stakeholders. We believe that collaboration is key to promoting the company’s success, as well as that of the country.

As a result, Crédito Real’s corporate governance is made up of a framework of values, rules and statutes that constantly regulate the operation of the bodies responsible for generating value for the company.

These include the board of directors, four supporting committees (executive, audit, corporate practices, and communication and control) and a strict code of ethics and business conduct.

Furthermore, most of Crédito Real’s committees have independent directors, and each is specialised in a specific area of global and national financial markets.

Solid proof of the robustness of the company’s corporate governance is the award recently received from the BMV. Crédito Real was given the best rating among 80 issuers for corporate governance under the IPC Sustentable methodology.

Looking ahead
The future is very promising for Crédito Real. The company’s target market continues to have great penetration potential in Mexico, and its recent expansion into the US and Central America provides an opportunity to further strengthen its stratification and growth within its core business, which is focused on providing financial solutions to the population neglected by traditional banking institutions.

The new digital era constitutes a powerful tool for improving access to financial services. Crédito Real has done its utmost to embrace the fintech revolution, collaborating with business partners such as ReSuelve and Credilikeme in order to bring forth new financial solutions through digitalisation.

More and more fintech companies are gaining strength in the Mexican banking market, and Crédito Real is deeply involved with the movement. The fintech revolution is one that will not only enhance banking operations and accessibility, but the lives of customers too.

At the same time, Crédito Real is very close to accomplishing its objective of becoming the world’s largest non-bank financial institution serving the Latin American market.

This ambition is supported by the company’s unique business model, and the synergies generated by its expert partners in the operation of different businesses and markets.

Crédito Real will continue to build on its strength because of its people, for all those who depend directly or indirectly on it. Simultaneously, we will continue promoting equality, respect and growth in the banking sector.

Likewise, the company will continue to support its customers in elevating their quality of life through a distinguished service that is reinforced by ethics and constant innovation, which, above all, helps them to go beyond their limits.

With Indonesia’s Millennials entering the workforce, the housing market must adapt

As the world’s fourth most populous nation, Indonesia has a predominantly young population. Indonesia is currently in a demographic sweet spot, where more than two million people will join the working-age group each year over the next decade. While this will bring significant benefits to the Indonesian economy, its housing market will need to accommodate the growing demands of Millennials.

Millennials are the most important generation for Indonesian developers at the current time, as approximately half of this demographic is at the prime age to buy their first home. However, increasing property prices in many cities have outpaced income growth over the past five years, making housing unaffordable for many.

According to research by Morgan Stanley: “To stay competitive, Indonesian property developers need to adapt to address the needs of the Millennial generation, which has to deal with increasing home prices and affordability issues. Prices have somewhat stabilised in the past two to three years, but wage growth has yet to catch up.”

The report went on to say: “At more than five times annual household income, and with average mortgage rates around 10-11 percent, housing is out of reach for many buyers.”

There are several characteristics of the Millennial segment that make for interesting discussion. First, the Millennial generation (those between 23 and 37 years old) is one that will sustain Indonesia’s future. According to the Indonesian Central Bureau of Statistics, Millennials currently make up more than 50 percent of the productive age population (those aged 16-64).

Indonesia is predicted to reach peak productive age population between 2020 and 2030, with the portion reaching around 70 percent of the total population (see Fig 1).

Second, the Millennial segment is an attractive target market in the property industry. While their purchasing power is not yet strong, they effectively influence their parents in the purchase of property. Third, they are potential buyers as well as future markets; many Millennials are already working and may have formed a household. Success in conquering the Millennial segment is a door to a larger property market.

Despite the increasing impact of Millennials on the property market, some developers continue to pay little attention to this burgeoning segment. This is understandable due to the high capital requirements and small profit margins of the Millennial market. However, Millennials offer an opportunity for success that shouldn’t be disregarded.

As developers seek to penetrate the Millennial sector, they should not merely rely on features, facilities and access to sell property. Millennials are an active and experiential generation, and so creating an experience is tantamount to increasing their interest.

Developers need to consider not just how to build a residential area, but how to make the area come alive. This generation is smart and sociable; providing elements of education, aesthetics and entertainment are important to gaining their custom.

The Millennial generation prefers products that are appealing, practical and affordable. Therefore, property developers need to be innovative in creating properties with attractive designs and lifestyle support facilities – crucially, at affordable prices.

Millennial decision-making
When choosing where to live, Millennials place value on different factors than previous generations did. Maintaining an established lifestyle is important for this age group: they expect their place of residence to be near proper facilities, neighbourhood attractions and entertainment, green space, sports facilities, schools and hospitals.

Living close to work is important to this generation, as they want to minimise travel time to and from work to allow for more time with their families and friends and enjoying hobbies. Not only do Millennials value different things to older generations, but they also use different methods when searching for a new place to live.

Millennials are up-to-date with the latest technology, and so they choose to access information about homes on the market via gadgets such as smartphones. This increases the exposure of the products being offered by property developers.

Milliennials are also very information-literate. They are aggressively looking for property information, such as location, price comparison, developer credibility, building details, payment processing and developer track records. These factors combine to mean that, when choosing somewhere to live, this generation uses technology to access information about the area.

They can gather references from surrounding communities about basic needs, places of interest, restaurant ratings, healthcare and so on. For them, information found through the media is much more convincing than having to find out directly, and therefore plays a significant role in shaping Millennials’ decisions.

The Millennial generation is particularly critical, and is usually aware of a product’s advantages and disadvantages. Property is not cheap, so it needs to be presented in an objective and interesting way to be worth investment. Furthermore, Millennials value a high return on investment: they are careful to choose property that will have a positive outlook for the future.

The right timing and momentum is very important for this age group. They will not purchase a home or property during holiday season. Usually, they will buy a house when they want to get married, or after they are married with children.

Houses in Jakarta are too expensive for most Millennials, and so they have begun to look at the possibility of having their first home in a satellite city. Close and easy access to mass public transport and the absence of flooding issues are among factors leading Millennials to select a place of residence outside the capital city.

Catering to first-time buyers
The difficulties that the Millennial generation faces when purchasing property have been largely ignored by Indonesian property developers. As mentioned previously, few developers are focusing on Millennials as potential future buyers, and many developers are reluctant to invest in building products for the Millennial generation due to less promising returns in terms of profit and prestige.

Companies prefer to focus on expensive and luxurious housing developments with state-of-the-art facilities that will add to the their long-standing portfolio.

However, one Indonesian property developer that has turned its focus to meeting the residential needs of the Millennial generation is Paramount Land. Ervan Adi Nugroho, President of Paramount Land, explained that the company is committed to providing affordable residential housing and property for businesses, particularly start-up companies, and for Millennials.

“Unfortunately, this generation tends to assume that property is not a basic need in their lives. Yet they make up the largest share of the workforce in Indonesia today, which is estimated to be more than 22.5 million people,” Nugroho said.

Given the contribution that Millennials are making to the Indonesian economy, Paramount Land is committed to helping them join the property ladder by educating them on the importance of owning property early on. Hence, Paramount Land offers several residential clusters in Gading Serpong, the flagship township development of Paramount Land, which are suitable for first-time buyers. These areas include the likes of Milano Village, Napoli Village, Havana Village and Bermuda Village.

The Millennial generation prefers products that are appealing, practical and affordable. Property developers need to be innovative in creating such properties

In these residential clusters, which consist of 100-150 units per cluster, Paramount Land offers compact homes with homegrown concepts that are perfect for first-time buyers and Millennials.

Another advantageous feature of Paramount Land is the ease of payment: buyers can pay through incremental instalments or bank mortgages. With prices starting from IDR 700m ($52,435) per unit, first-time buyers can have a comfortable, affordable home in a premium area. “We deliver products that are in tune with Millennials’ earnings, therefore these products are well received by the market,” Nugroho said.

Paramount Land is known for developing communities where private residences and places of business co-exist in centralised areas. This allows Millennials to start their own businesses in close proximity to their homes.

“We will not only provide homes, but also provide opportunities for residents to open their own businesses near their homes,” said Nugroho. “We believe this development will boost entrepreneurial spirit as well as help to oil the wheels of the regional economy. Developers are expected to be creative and innovative in helping the government make breakthroughs among the critical Millennial market.”

Top 5 impacts of GDPR on the European financial services industry

Amid growing concerns surrounding the safety of personal data from identity theft, cyberattacks, hacking or unethical usage, the EU has introduced new legislation to safeguard its citizens. The EU General Data Protection Regulation (GDPR) aims to standardise data privacy laws and mechanisms across industries, regardless of the nature or type of operations.

Most importantly, GDPR aims to empower EU citizens by making them aware of the kind of data held by institutions and the rights of the individual to protect their personal information. All organisations must ensure compliance by May 25, 2018.

While banks and other financial firms are no strangers to regulation, adhering to these guidelines requires the collection of large amounts of customer data, which is then collated and used for various activities, such as client or customer onboarding, relationship management, trade-booking and accounting. During these processes, customer data is exposed to a large number of different people at different stages – and this is where GDPR comes in.

So, what does the introduction of GDPR actually mean for financial institutions, and which areas should they be focusing on? Brickendon’s data experts take a look at five key areas of the GDPR legislation that will have the biggest impact on the sector.

  1. Client consent

Under the terms of GDPR, personal data refers to anything that could be used to identify an individual, such as a name, email address, IP address, social media profile or social security number. By explicitly mandating firms to gain consent from customers about the personal data that is gathered – with no automatic opt-in option – individuals know what information organisations are holding.

Also, in the consent system, firms must clearly outline the purpose for which the data was collected and seek additional consent if firms want to share the information with third parties. In short, the aim of GDPR is to ensure customers retain the rights over their own data.

  1. Right to data erasure

GDPR empowers every EU citizen with the right to data privacy. Under the terms, individuals can request access to, or the removal of, their own personal data from banks without the need for any outside authorisation. This is known as data portability. Financial institutions may keep some data to ensure compliance with other regulations, but in all other circumstances where there is no valid justification, the individual’s right to be forgotten applies.

  1. Consequences of a breach

Previously, firms were able to adopt their own protocols in the event of a data breach. Now, however, GDPR mandates that data protection officers report any data breach to the supervisory authority of personal data within 72 hours. The notification should contain details regarding the nature of the breach, the categories and approximate number of individuals impacted, and the contact information of the data protection officer. Notification of the breach, the likely outcomes and the remediation must also be sent to the impacted customer without undue delays.

Liability in the event of any breach is significant. For serious violations, such as failing to gain consent to process data or a breach of privacy by design, companies will be fined up to €20m ($23m) or four percent of their global turnover – whichever is greater. Lesser violations, such as records not being in order or failure to notify the supervisory authorities, will incur fines of two percent of global turnover. These financial penalties are in addition to potential reputational damage and loss of future business.

  1. Vendor management

IT systems form the backbone of every financial firm, with client data continually passing through multiple IT applications. Since GDPR is associated with client personal data, firms need to understand all data flows across their various systems. The increased trend towards outsourcing development and support functions means that personal client data is often accessed by external vendors, which significantly increases the data’s net exposure. Under GDPR, vendors cannot disassociate themselves from obligations towards data access. Similarly, non-EU organisations working in collaboration with EU banks or serving EU citizens need to ensure vigilance while sharing data across borders. In effect, GDPR imposes end-to-end accountability to ensure client data stays well protected; it does this by compelling not only the bank but also its support functions to embrace compliance.

  1. Pseudonymisation

GDPR applies to all potential client data wherever it is found – whether it is in a live production environment, during the development process, or in the middle of a testing programme. It is quite common to mask data across non-production environments to hide sensitive client data. Under GDPR, data must also be pseudonymised into artificial identifiers in the live production environment. These data masking or pseudonymisation rules aim to ensure the data access stays within the realms of the ‘need to know’ obligations.


Given the wide reach of the GDPR legislation, there is no doubt that financial organisations need to re-model their existing systems or create newer systems with the concept of Privacy by Design embedded into their operating ideologies. With the close proximity of the compliance deadline, firms must do this now.

There are three steps that companies must now embark on: identify client data access and capture points; collaborate with clients to gain consent for justified usage of personal data; and remediate data access breach issues. Failure to do at least one of these now not only cause financial pain in the long run, but will also erode client confidence.

A study published earlier this year by Close Brothers UK found that an alarming 82 percent of the UK’s small and medium businesses were unaware of GDPR. Recognising the importance of GDPR and acting on it is therefore the need of the hour.


Sampath bank holds steady amid Sri Lanka’s economic storm

Overall, 2016 will be remembered as a challenging year for Sri Lanka. Disappointing performance in the agriculture, transportation and real estate sectors dragged GDP growth down, dwindling to 4.5 percent from 4.8 percent in 2015.

Paradoxically, however, rather than being held back, the banking sector has witnessed steady growth. Sampath Bank is a prime example of the kind of fresh approach that typifies the innovation driving growth against the odds.

In particular, the Sri Lankan economy has been held back as a result of muted growth in the agricultural sector. This comes down to a combination of factors, including erratic weather conditions, rising interest rates and an adverse global environment.

Adverse weather conditions also impacted inflation levels, pushing the rate upwards in the early part of last year before it came to a peak between May and June. These high inflation levels subsided as the year progressed, however, with inflation rates ending the year at 4.2 percent.

Overall, 2016 marked the fourth consecutive year in which inflation has hovered in the mid-to-low single digit territory.

Economic woes
The apparel industry – Sri Lanka’s second-largest foreign exchange earner – also came under pressure in 2016, amid increased uncertainty across key European markets following the unexpected outcome of the Brexit vote. The year saw a decline in imports too, as a result of the high duties imposed by the government to curb vehicle imports.

Meanwhile, ailing external reserves have prompted authorities to negotiate an external fund facility with the IMF, and enter into an ambitious reform programme.

The agreement will provide $1.5bn in parallel with reforms that seek to reduce the country’s fiscal deficit and rebuild foreign exchange reserves. It will also introduce a simpler, more equitable tax system in a bid to restore macroeconomic stability and promote inclusive growth.

On a positive note, while the Sri Lankan economy has been hit by a raft of challenges, 2016 has seen per capita income reach $3,870, putting the country firmly on course to reach its goal of becoming a middle-income economy by 2020.

Riding the storm
Despite being mired in an unstable economic arena, Sri Lanka’s banking industry not only emerged unscathed, but made substantial progress in 2016. Indeed, it has gone from strength to strength to become one of the fastest growing sectors of the economy, and stands out as particularly successful when compared to the banking and finance sectors of other countries in the region.

Illustratively, the quantity of new loans is on an upward trend, with total loans up by 17.5 percent in 2016. This has mainly been driven by an increase in banks lending to the private sector, with a particularly marked increase in loans and advances to construction, consumption, manufacturing, and financial and business services.

This strong credit appetite has led to a 12 percent rise in banking sector assets over the course of the year, while deposits grew by 16.5 percent.

Crucially, at the same time, there has been an industry-wide improvement in credit management strategies and financial discipline. For one, capital and liquidity levels remain well above the minimum regulatory requirement.

Furthermore, in a clear sign of the improving health of Sri Lanka’s banks, the sector-wide non-performing loan ratio declined to 2.6 percent in 2016 from 3.2 percent recorded at the end of 2015.

The accessibility of banking facilities has also been enhanced with the expansion of branch networks and ATM facilities.

Leading the way
The Sampath Bank vision is to be the ‘growing force’ in Sri Lankan financial services. Indeed, as a top-tier bank in Sri Lanka, Sampath Bank has epitomised the positive momentum seen in the banking sector.

As a rule, we always take a proactive stance towards improving strategic alignment to drive stronger growth and deliver the greatest impact on stakeholder value.

Central to a forward-thinking business model is a people-focused approach. Critically, our business is based on strong fundamentals, which, for the past three decades, has helped us to serve the people of Sri Lanka.

At present, the bank serves its customers via a broad network of 229 branches, 381 ATMs and 108 automated cash deposit kiosks.

For the year ahead, we have embraced a broader performance-driven strategy, which will heavily support services and sharpen their alignment with the bank’s core vision.

Central to a forward-thinking business model is a people-focused approach

Specifically, Sampath’s focus continues to be divided between the commercial and retail sectors. For the commercial side, we are strengthening our roots by adopting a two-pronged approach.

First, this involves increasing penetration in order to capture market share in selected retail segments, while simultaneously leveraging our unique solutions to be a trendsetter in the corporate sector.

In the medium term, the bank is also expanding beyond Sri Lanka, with new offshore operations across the region.

Sampath’s strategy ensures that, in spite of external challenges, the bank boasts above average growth across all key indicators. Indeed, we reached record profit levels for 2016, at LKR 9.1bn ($60.8m), the highest since the bank’s inception 30 years ago in 1987. Year-on-year growth in profits after tax was also exceptional, at 49 percent.

This performance was underpinned by an expanding deposit portfolio, improved CASA ratio and stellar asset growth. Notably, at 25.4 percent, our asset growth rate once again far exceeded the industry average of 12 percent.

In another important landmark, Sampath Bank’s total asset base surpassed the LKR 600bn ($3.9bn) mark to reach LKR 659bn ($4.3bn) at the end of 2016. This was achieved over the course of just 30 years – a far shorter period than most other banks – again underscoring Sampath’s remarkable growth.

Sampath’s loan book also grew by 21.3 percent, which compares well with industry credit growth of 17.5 percent in 2016. Crucially, Sampath Bank achieved this credit growth without compromising on credit quality.

The year also saw our non-performing ratio improve from 1.64 percent at the end of 2015 to 1.61 percent at the end of 2016, a level that is among the lowest across the whole industry.

Furthermore, as a result of our prudent cost management strategies, we were able to reduce our cost-to-income ratio to 47.8 percent by the end of 2016, bringing it below 50 percent for the first time in six years.

The bank’s strong fundamentals have supported strong returns for investors, as well as a steady rise in market value and a constant dividend payout
ratio of around 37 percent.

Driving innovation
Sampath Bank has built a reputation as one of the most innovative banks in Sri Lanka, thanks to the launch of several pioneering products in recent years. By embracing the digital world, the bank has been able to revolutionise the customer experience.

A broad shift towards more digital processes – such as for opening an account – is helping to enable seamless data transmission and the integration of processes with the core banking system.

A key initiative has been the launch of a new user-friendly online tool named the ‘e-Mandate’, which allows customers to complete all account opening forms online for the first time.

Another exciting step forward is the introduction of the online transaction upload system, which gives the electronic banking unit the ability to automate responses coming from the biller’s applications, as well as efficiency in handling reversals.

Sampath Bank in numbers

Profit 2016


Total asset base


Non-performing ratio


Cost-to-income ratio


Dividend payout ratio


As part of the digital shift, Sampath is also working to integrate banking into mobile technology, driving forward with the ‘missed call banking’ feature, which allows customers to receive information on their bank balances via their mobile phones.

What’s more, Sampath has also pushed the boundaries of digital banking with a new online real-time lending facility, dubbed the ‘Sampath instant loan’.

Introduced to Sri Lanka’s financial sector for the first time, this unique facility allows customers to obtain loans against their fixed deposits by simply submitting an instant loan application through the bank’s secure online platform.

Additionally, for the first time in Sri Lanka, contactless payments have been made possible with the Visa Paywave card, enabling dramatically faster processing of payments, and allowing customers to tap and pay quickly and conveniently in shops.

Digital transformation is also helping to support employees, who are being provided with new online tools such as the ‘e-Operational Guide’, which enables employees to search for documents including operational guidelines, circulars, directives and the e-library system.

Such developments are part of Sampath Bank’s efforts to embrace a continuous learning approach, and help employees to improve their knowledge and perform their jobs more accurately and effectively.

This unique approach, which leverages digital transformation, continuous learning and prudent risk management, is setting Sampath apart as the central growing force in Sri Lankan financial services.

Chinese regulators thwart $1bn Paramount Pictures deal

On November 7, Paramount Pictures confirmed that it had been forced to cancel a $1bn funding deal with China’s Huahua Media after failing to overcome regulatory obstacles. The agreement was announced earlier this year and would have provided Paramount with enough cash investment to finance a quarter of its films between now and 2019.

Viacom, the parent company of Paramount Pictures, expects the cancellation to have a negative net impact of $59m on its fourth quarter results. In response, it has sought alternative funding methods for scheduled film releases. Agreements are already in progress with new financing partners, including SEGA and Skydance Media.

The failure of Huahua and Paramount to push through the deal reflects stronger efforts by the Chinese Government to curb irrational overseas spending

Putting a positive spin on the cancellation, Paramount’s Chairman and CEO, Jim Gianopulos, said that the company now had a financing model in place that was better aligned with its strategic goals.

“Our focus on a more balanced slate – a mix of big, broad-audience films and more targeted and co-branded films made with greater fiscal discipline – demands a more flexible and tailored financing model going forward,” he said. “This structure positions us to capture more upside beyond 2019 as the new slate takes full effect.”

The failure of Huahua and Paramount to push through the deal reflects stronger efforts by the Chinese Government to curb irrational overseas spending. In March, Chinese conglomerate Wanda Group was forced to scrap the acquisition of US entertainment firm Dick Clark Productions following similar government pressure.

Investments in overseas film studios do not align with Beijing’s macroeconomic policies and are seen to run contrary to the interests of China’s own entertainment sector. Although the Chinese film industry does not carry the same cultural heft as Hollywood, it has huge growth potential.

Wolf Warrior 2, a patriotic action film part-funded by the state-owned China Film Group, became the second highest grossing film of all time in a single market following its release in July. Indeed, it is hardly surprising that the Chinese Government would prefer investment to go into its own film studios, rather than those based overseas.