MR. BENJAMIN KRITZ, The Manila Times Business Columnist and World News EditorBANKING as we understand it may very well be coming to an end.That is a daunting notion, but it is also an exciting one, particularly on a day when the credibility of the Philippine banking sector took a fatal blow with the utter travesty of former RCBC branch manager Maia Deguito’s conviction over the 2016 Bangladesh bank heist scandal.The banking oligarchy may be congratulating itself now for corrupting the Department of Justice and the court system to make Deguito the sole scapegoat, contrary to all moral and common sense, but they are likely to soon find they have only defended an anachronism; the world of finance is quickly passing opaque, rent-seeking and blindered “institutions” like RCBC behind, and it couldn’t happen to a more deserving class of people.That is one of the impressions one gets in talking to someone who is riding the crest of the financial technology (fintech) tsunami, instead of someone about to be buried by it, and it was one of my takeaways from a enlightening conversation I had earlier in the week with Michael Kent, co-founder and CEO of Azimo, a United Kingdom-based online money transfer company.Founded in 2012, Azimo’s original concentration was the world diaspora working in Europe — a customer base that includes a significant number of Filipinos, of course — and several healthy rounds of venture capital funding, the most recent being a $20-million investment led by Japan’s Rakuten Capital in January last year. This has allowed the company to expand at a furious pace. The firm recently launched Azimo Business, an electronic payments solution catering to SMEs, and has secured regulatory approval to open an office in Hong Kong, the first step into establishing a larger presence in Asia, according to Kent.Azimo is, in some ways, an archetype of the new banking paradigm. The customer interface is app-based, with Azimo essentially serving as a multicapacity facilitator in cooperation with such institutions and financial services as are necessary to deliver remitted funds on the receiving end. Azimo handles the transaction processing, KYC, forex requirements and money movement to partner institutions in the destination country — so far, Kent explained, Azimo is working with BDO, BPI, Metrobank, Mynt and several well-known pawnshop/money service providers here — so that, from a customer perspective, a few clicks on an app makes money appear at its intended destination seamlessly, in anywhere from just a few moments to a few hours, depending on the chosen delivery option.Except for the necessary and basically completely back-office-based money handling engagement of banking institutions, this entire commerce stream — which is already being diversified on a large scale into digital cash for purchases and savings, lending, and even investment products like insurance — flows outside the traditional business model of the banking sector, as Kent pointed out. The banking business is built on lending within careful, risk-managed boundaries that exclude most potential customers by design. The conventional customer acquisition path is to attract depositors, who can be gradually introduced to more sophisticated banking products as their resources grow; when banks were the only game in town, it was a reasonable assumption for them that this path was an actual aspiration for most people. In fact, it has been a fundamental principle underlying the government’s “financial inclusion” strategies — moving the needle on the low percentage of Filipinos with formal banking relationships (something under 30 percent now) is the designated measure of progress.Companies like Azimo, however, are rendering the whole idea of financial inclusion irrelevant by making it possible for individuals to carry out their personal business in an exclusive way. People no longer need to be “included” in a monolithic market, particularly one that has routinely ignored them until they meet its mid-20th century standards of risk and potential profitability.The wholesale abandonment by an entire market of what was once a seemingly inviolable business model is not an aberration limited to the banking industry, either, which should only serve as further evidence to somnolent, self-interested financial institutions (like RCBC, of which much more will be written in the coming days) that the problem isn’t going to go away. My conversation with Kent the other evening was conducted via whatsapp, in real time, across eight time zones, whereas just a few years ago this sort of communication was the sole province of traditional telecommunications firms. Neither Mr. Kent’s telecom provider nor mine earned squat from our 40-minute chat.To their credit, some banks here have recognized the shift in currents and are beginning to break out of the conservative, fintech-skeptical mode that characterizes the local sector. Unionbank, in particular, has been racing to establish digital dominance and embrace the new reality; BDO, BPI and the Metrobank group are all making creditable efforts as well, as are a few others. Doing so, however, is not really a choice, not if the banks expect to stay relevant. Those who understand this and develop solutions to meet new market demands will; those that do not, or do not do so quickly enough, will experience the failure they probably deserve.Ben.kritz@www.manilatimes.net
