When Facebook’s Libra news broke like a tidal wave on the payments and commerce ecosystem a few weeks ago, there was no shortage of opinions about what it meant and whether or not it would take the world by storm. For Prajit Nanu, CEO at InstaReM, it was a singular experience – not because of what was said about the Libra platform itself, but because of something he learned about the world through watching its reactions.
“I think the most amazing thing about the Libra announcement was the fact that I suddenly realized so many people really don’t understand payments,” Nanu said in a recent PYMNTS conversation with Karen Webster.
The problems, he noted, have been well-covered by those who do know something about the industry. Regulators, particularly in the nations with the largest swaths of unbanked consumers, will say it offers users no easy way to cash in, cash out or reliably spend the Libra currency.
It’s a solution that is looking for a problem, instead of one that started with the problem and built a model from there. And the question of how to build a workable and innovative model in the developing world is one that has been on Nanu’s mind a lot – though for rather different reasons than it has been on Facebook’s.
InstaReM is currently preparing to apply for one of five (two retail, three wholesale) digital banking licenses that the city-state of Singapore announced it would be issuing earlier this month. InstaReM is the first to officially announce throwing its hat into the ring, though it has been speculated that Singapore Telecommunications Ltd., Grab and Razer may be likely to follow since the Monetary Authority of Singapore (MAS) announced the licenses.
Nanu was, for the time being, short on details about what InstaReM’s application will look like. But he noted that, as a market with a fairly well-developed local ecosystem, it is interesting what the Singapore authority is looking for with these licenses – and what the firm believes can be the beginning of a scalable model in the many global points it serves. MAS is absolutely insistent that it doesn't want to create an army of competitors to the existing structure, kicking off a race to the bottom, pricing-wise, for the same old digital suite of services.
“They want to create new business models and new infrastructure plays,” Nanu noted. “They want us to focus on true innovation.”
Building Real Innovation for Real Gaps
As of 2019, most consumers in most markets are familiar with the table stakes of digital financial services: instant onboarding, mobile banking apps and card control mechanisms. At this point, despite a lot of challenger banks rolling out offerings in these areas as “cutting edge” or “innovative,” the reality is they aren’t.
The offering is, at base, a souped-up, pre-paid card service offering, with some bells and whistles beyond the basic level of digital services. Not without uses, not unimportant and a transitional step into the market for some consumers, but also not really a next-level innovation. And more importantly, Nanu said, not really sticky or persuasive enough to become a consumer’s primary financial account – the one where they have their paycheck deposited. They might use these accounts here and there, for certain situational needs, but until these types of accounts are ready to grow up with their customers’ financial needs, they won’t achieve that primary financial relationship.
From the point of an up-and-coming digital financial services firm, Nanu said, the appeal of that digital banking license is obvious: it aids the firm in moving toward that end.
“The appeal of the banking license is it ensures the fact that they can provide the full spectrum of services,” he said. “The biggest question in terms of the challenger banks is how many of their customers are actually receiving [their] salary in that account.”
That full-service relationship is what unlocks the full value for both sides. The revenue in banking iterates from lending, he noted, and from the driver’s seat of the primary financial account holder, the bank can offer loan products in a more relevant and timely manner as needed – and with a much clearer insight into the consumer’s risk profile.
For InstaReM, the motivation is a little different, and springs from what the firm sees as two opportunities, into which Nanu was willing to give some brief insight. First, Singapore’s infrastructure is developed extremely well for local transactions, but as money starts traveling cross-border, it is not as well-equipped. And given InstaReM’s global expertise and experience in that area, the firm aims to fill a gap in the market. The opportunity, Nanu said, isn’t what the firm can do, but what it can help other players do with its platform.
“We don’t want to do this alone. Firstly, we don’t do lending, as that would be a bad idea since we don’t know anything about it,” he pointed out. “But we do know how to partner with those who do – and to really start construction on a new and exportable model for what digital banking can mean.”
The Wider Future
It’s no longer necessary to speculate about the future of banking, Nanu told Webster, because we already know. The branch as we know it is a dying institution, he noted: Digital banking isn’t going to exist as a concept that is separate from banking in general.
The question now, in Singapore and the rest of the world, is how to do it right – and what truly innovative digital financial services look like when one is beyond the digital table stakes.
There are a lot of answers. Some – like Libra – seem to be answers to questions no one is actually asking, Nanu noted.
But there are a lot of real answers that come from looking at the infrastructure that already exists – and wondering what can be built on top of it that doesn’t just push the field forward, but actually elevates it. That was behind InstaReM’s decision last week to push out its card-issuing platform to enable startups, FinTech companies and enterprises to launch their own branded cards. The vision, Nanu said, is to help firms power ecosystems, instead of slipping in services as one-offs.
“This isn’t about doing something simple anymore. This is about how do you do something groundbreaking,” Nanu told Webster. He noted that he’ll be back to share InstaReM’s vision of that in Singapore, just as soon as they finish that application.