In the second half of the two-part interview series with audax CEO Kelvin Tan, we continue the conversation on the impact of regulation on the digital banking landscape, gather his viewpoints on Web3 banking and DeFi, and discover his technology priorities, growth strategy and expansion plan for the company.
What digital banking features have your customers requested you to develop for them?
Digital banking solutions are evolving rapidly, with a focus on seamless end-to-end services that cater to customer needs while ensuring robust back-end functionality.
One key aspect is the incorporation of a streamlined know your customer (KYC) process, tailored to the regulations of each country where the bank operates. Features like instant loan approvals and portfolio management are increasingly standard for digital banks, as customers expect these functionalities to be integrated within a user-friendly app.
However, from a banking perspective, it’s not just about the app’s front-end experience. Banks must also focus on the back-end, ensuring the smooth operation of the entire digital stack.
This includes monitoring how frequently systems are tested, API response times, and security vulnerabilities. Automated vulnerability scanning and other backend features that customers don’t directly see are essential to maintaining the security and functionality of the platform.
In fact, discussions with clients often prioritise security. While configuration and functionality discussions might last a couple of hours, security and cloud discussions can stretch up to six hours, highlighting the importance placed on these aspects.
Security remains a key priority. Even the best app in the world is useless if it’s not secure. Regulatory bodies are quick to intervene if security protocols are insufficient.
While innovation is important, when forced to choose between security and a better user experience (UX), banks and regulators will almost always prioritise security. That said, innovation isn’t limited to UX—there’s significant innovation happening in the back-end systems.
Groundbreaking developments are more likely to emerge from new business models and advanced data usage for processes like underwriting.
The reality is that digital banking itself is still in its infancy, with major players like Revolut and Nubank being relatively young, only six or seven years old. The true potential of embedded digital banking, where banking services integrate seamlessly into everyday devices without being perceived as a bank, is still in its early stages.
A true digital bank is one that you don’t even know is a bank. The idea of a fully digital bank that operates in the background, like those seen in sci-fi movies, is still far from being fully realised.
In Singapore, there are currently five digital bank licenses—two full licenses and three focused on SMEs. Trust Bank, a subsidiary of Standard Chartered, operates under a digital banking license, and other players like SeaBank and MariBank are also active. However, Singapore isn’t necessarily leading the region in digital banking innovation. Countries like Vietnam have been early movers, and China is leagues ahead in terms of digital banking infrastructure and advancements.
What roles does regulation play in shaping the digital banking landscape?
Regulation plays a pivotal role in shaping the digital banking landscape.
For example, if regulations require customers to physically visit a branch to sign forms, even the best-designed app can’t overcome this barrier.
However, regulatory bodies are becoming more progressive, driven by the technological advancements in security over the last decade. Banks often work closely with regulators to educate them on new developments and ensure compliance, sometimes even presenting their digital platforms directly to regulators through their banking clients.
In terms of regulatory approaches across countries, there can be variations. Some regulators are more open to technological innovations, while others may be more conservative. This variance highlights the need for ongoing dialogue between banks, tech companies, and regulators to ensure that digital banking solutions remain both innovative and compliant.
What’s your view on Web3 banking and DeFi?
When discussing DeFi, particularly in financial services, it’s important to note that its adoption is still limited. Despite the industry being seen as a frontrunner in decentralised technology, few projects have moved beyond the proof-of-concept (POC) stage.
While DeFi offers potential, particularly in cross-border payments, no scalable business model has emerged yet. For example, while replacing Swift in payments has been discussed, no solution has convincingly made the case for large-scale adoption.
Outside of cross-border payments, we’ve yet to see another use case for DeFi that has achieved widespread adoption. There are challenges, such as high costs and regulatory hurdles, that continue to prevent DeFi from scaling. Personally, I remain watchful about Web3 and DeFi, mainly because there hasn’t been substantial adoption at scale. It’s a similar situation with AI—there’s a lot of talk about its transformative potential, but we’re yet to see many real-world use cases that extend beyond POCs.
The only entities significantly benefitting from the AI boom so far are GPU chip makers, and the founders of start-ups raising large sums of investment. Beyond productivity enhancements, which I’m a fan of (I love ChatGPT!), the jury is still out on whether AI or DeFi will fundamentally reshape the business landscape.
We do have clients interested in AI-related features, but they are still exploring what AI really means for them. Many businesses feel compelled to include AI in their RFPs because it’s a buzzword, but often, their understanding is limited. For instance, some believe basic automation qualifies as AI, like having an Excel spreadsheet with simple formulas.
That said, we’ve incorporated AI into our platform in practical ways. One example is our AI-driven testing bot. In most banks today, you only find out there’s an issue in the technology stack when something breaks or a customer complains. Our AI testing bot runs continuous automated tests on all customer journeys, 24/7. This allows us, and our client banks, to identify and resolve issues before the customer is even aware of them—essentially predictive maintenance for banking technology. This is a tangible AI use case that’s delivering real value.
While both AI and DeFi have the potential to change the way we do things, it’s still too early to say if they will fundamentally reshape the industry. For now, we’re seeing more experimentation and exploration than full-scale transformation.
What are your technology priorities for audax over the next two years?
My technology priorities for the next two years focus on expanding the platform’s use cases beyond retail and SMEs. I aim to introduce pre-built AI capabilities to allow our customers to leverage AI without building their own models.
For instance, creating a centre of excellence where we can aggregate insights from multiple customers would be ideal. This is something we are considering over the next three years, assuming we reach the necessary scale.
When I refer to expanding beyond retail and SMEs, I mean we aim to serve larger corporate clients. Digitising services for large corporations presents unique challenges, particularly due to the complexity of documentation.
In retail banking, it’s simple—customers manage their own money. For SMEs, there are layers of approval with multiple directors involved. With larger corporates, the complexity increases.
For example, a $1 transaction might require approval from a client, while a $50,000 transaction needs CFO approval. The complexity also extends to managing cash and trade, including cross-border transactions, optimising interest rates, and managing trade-related concerns like verifying the existence of warehouses. While some aspects, like letters of credit, have been effectively digitised, others, like international transfers for corporates, are still cumbersome.
There’s significant potential for improvement in these areas, but it will likely come after we’ve scaled our current operations. Currently, we are a one-year-old company, and within five years, we hope to have 30 or 40 clients.
Aside from AI and machine learning, we adopt an iterative approach to innovation. If a specific use case arises, we’ll incorporate new technologies as needed.
At the moment, AI remains central to enhancing productivity and automation, especially for analytics and drafting preliminary policies for banks before product managers finalise them. We’re using AI not to make decisions autonomously, but to streamline tasks and increase efficiency.
As for GenAI, it’s also viewed primarily as a tool for automating processes and enhancing productivity, particularly in document creation and knowledge management.
How do you see the development of the digital banking landscape evolving over the next five years?
I expect that digital banks will push incumbent banks to accelerate their development rapidly.
In countries where the banking sector is underdeveloped, digital banks will likely leapfrog ahead and capture a significant market share, potentially becoming leading banks.
A prime example of this is Nubank in Brazil, where the banking market was relatively fragmented. Nubank entered as a digital bank and grew to having 40 to 50 million users, making it the largest digital bank in Brazil and one of the largest in the world.
However, in countries where incumbent banks are already strong and increasingly digital and innovative—like Singapore—new digital banks may struggle to scale after the initial three to four years.
Whether these digital banks will be absorbed through mergers or acquisitions remains uncertain, but I predict that few will succeed in regions where traditional banks are performing well. This is the case in many countries with well-established banking systems.
What is your growth strategy and expansion plan for audax?
Regarding our target markets, we focus on Southeast Asia and the Middle East for our sales efforts. While we are open to opportunities from other regions, such as Europe, where we have received a few inquiries, our primary attention remains on these two regions due to their strategic fit and ease of support.
As for developing economies like Africa, we are not actively pursuing that market at the moment. While we’ve had one inquiry from Africa, we haven’t committed resources there due to potential logistical challenges in supporting clients from that region.
In the Middle East, we see a strong push toward innovation, driven by the desire to diversify away from oil-dependent economies. Government initiatives and leadership are fostering the development of new businesses, including a more advanced financial services sector. This is just the beginning of their push to modernise and become highly advanced.
I haven’t focused on Northeast Asia or East Asia yet. We did receive one inbound request from Japan, which I would be open to entertaining. However, for the most part, Korea’s banking scene is quite well developed. As for China, it’s a different story altogether.
Japan presents a potential opportunity because its banks are relatively outdated from a technology standpoint. However, changes in Japan tend to occur slowly, so I’m not certain if now is the right time to focus on that market. Nevertheless, if they reach out, I would be happy to have a discussion.
Read part I of the interview
In conjunction with Singapore FinTech Festival 2024, audax and Synpulse will present their joint whitepaper on the BaaS landscape and uncover the findings in a roundtable discussion to be held at the SC Ventures Singapore office on November 7.
