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Regulators and industry must master fintech

A wave of disruption is coming -- learn to ride it

From right; United Overseas Bank's Susan Hwee, Ping An Insurance (Group) Company of China's Jonathan Larsen and Dianrong's Kevin Guo (Photo by Takaki Kashiwabara)

SINGAPORE Both regulators and industry officials lack the right analytical and data skills to cope with the wave of disruption washing over the financial industry, according to the technology officers at leading financial companies who attended the Nikkei Asia300 Summit.

Jonathan Larsen, chief innovation officer of Ping An Insurance (Group) Company of China, said there are "definitely no" people with up-to-date skills among the regulators, which is slowing down the pace of change for traditional institutions.

Citing a recent data theft case at U.S. credit reporting company Equifax, in which massive amounts of customer reports were stolen, he said "everything is unencrypted" inside company firewalls at most banks and insurance companies because their systems were built decades ago.

He compared this to a leading tech company. "If you look through Google's database, everything is heavily encrypted, and stealing that database will take you hundreds of years," he said.

Regulators should understand this distinction and drive the change from that traditional paradigm to a new paradigm, he said. "I am unaware of any regulator around the world [for which it] is so obvious that it should be done."

On the other hand, Susan Hwee, managing director and head of group technology and operations at Singapore's United Overseas Bank, said that "the issue of skill sets and human capital transcends all industries" and that "one of the future skills that we are looking for are people with superbly analytical skills or data sets."

"The amount of [customer] data that the bank has is actually a lot, but we probably use a fraction of it," she said. She added that data is very important for various jobs at a bank, from product management to credit approvals.

In terms of regulation, Kevin Guo, co-founder and co-chairman of China's online marketplace lending company Dianrong, which was founded in 2012, shared how his company has faced tightening regulation in China.

"We can see entrepreneurs set the flow of the fintech industry, but the regulator sets the ceiling," he said. China used to allow innovations to take place and fix problems once they arise, but recently the industry players need to predict all the risks in advance, slowing the pace of innovation. "No matter if the regulation is good or bad, you should accept it."

"When you tighten regulation, everything is done and no one wants to do the innovation and the economy will be affected in the next few years," he added.

"If you want to encourage the company, you need to release and give more space and room for innovation," he stressed.

As a result of tighter regulations, some Chinese startups are going to Southeast Asia, he said.

But he also said there is a positive effect from China's regulation of startups, pointing to regulatory limits on peer-to-peer transactions. "The regulator helps us set up roles and scales, and [once] a lot of players follow these roles, it is easier for them to survive," he said. "Sometimes the regulators don't just set up these roles for you to survive, but sometimes the result is not bad."

Ping An's Larsen said that his company, which is not state-owned, is working with China's local governments to pursue new opportunities. By using data, his company is working with municipalities to eliminate overbilling and fraud of state health care insurance. Since China is facing issues such as an aging population and an increased rate of diabetes and obesity, he said, expectations for health care services are increasing.

As for China, UOB's Hwee said that the country is experiencing "a very interesting development." Unlike smaller countries, China also "has the size and dynamics and logistics that need for them to develop in a very different way." She noted that Southeast Asia can make use of "tremendous learning opportunities" and ways to apply ideas coming from developments that are happening in China.

The speakers also talked about cultural differences between traditional banks and financial technology startups. Guo said "conflict is obvious" in terms of risk taking.

Asked how traditional financial companies should incorporate fintech skills, through hiring new people or M&As, Larsen said that one of the ways is working with incubators. "We have funds that we can make minority investments [in] and form new partnerships and access to new capabilities out there that way," he said.

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