What Do Obama and Citibank Have in Common?

Answer: The effective use of technology will determine their triumph or defeat. That’s at least one conclusion that we can draw from the recent Finovate Asia 2012, an event in Singapore focused on the intersection of tech brains and banking. Not surprisingly, a whole lot of bankers are paying attention to what startups and innovators are coming up with. Here are some noteworthy observations:

• More than 70 percent of demos were done on a mobile or tablet device.

• All but five of the Finovate Asia startups sell to banks as their business models.

• At least 12 of 35 companies are Personal Finance Management (PFM) related. Only one of the 12, PocketSmith, has a direct consumer model.

• A handful are trying to short-circuit the banks: Ayondo (Follow Traders), CurrencyFair (P2P FX), SocietyOne and Pendai (P2P Lending).

• Singapore’s OCBC has sent the greatest number of attendees (32 people) among all the banks, including senior staff CMO Madeline O’Connor. It is no accident that they are probably the most innovative bank in Singapore with initiatives like Frank and PlayMoolah.

Personally, I am mildly disappointed that the majority of companies sell to banks rather than try to disrupt them, but I can empathize that this may be the only viable model for now. The scene reminds me of the telco world circa 2005 – the finance world is still very much a walled garden created by the major banks. Banks are the only ones with infrastructure and data access, distribution, and regulatory compliance – all components needed for real financial innovation. And it begs the question – if and when will we see an iPhone of the banking world bring down the dam and open the floodgates? Is there going to be an “App Store” that will bring direct distribution of financial innovation? Will banks become basic infrastructure that offer nothing more than commoditized accounts, payments, and transfers (the ‘dumb pipes’ as we call the telcos today) that other innovators will simply build on top of? How would the banks stay relevant? All of these remain to be seen in the years to come. 3 finance startups to watch In the meantime, here are three of the most interesting companies from the Finovate Asia 2012 event: 1. Entrepreneurial Finance Lab (EFL)

Did you know your answer to an attitude question like “Is a big part of success dependent on luck?” can influence your loan default rate by 2 percent? EFL is a fascinating company that uses a set of psychometric tests to help banks assess the credit score for those who do not have enough traditional data. By helping banks ask potential borrowers questions that would reveal their attitude, ethics, and business skills - or even intelligence - it can help banks enhance their ability to predict the default rate so much that they can afford to give out twice as many loans while maintaining performance. EFL is founded by Harvard professors and MBAs with deep experience consulting for the World Bank and the United Nations. Having processed 44,000 loan applications across Latin America, and starting work in Indonesia, EFL is looking to help banks "bank the unbankable." 2. BankBazaar

BankBazaar provides a web-based engine and white-label solution for banks to process loans, insurance, and more. Their customers include some of the biggest Indian banks such as HDFC and ICICI. That’s the product they pitched on stage at least. What they chose to omit is that they are also a direct consumer portal providing financial product comparisons. BankBazaar.com is a consumer site, with 350,000 Facebook fans, where one can easily compare the insurance or mortgage offerings from different banks. Competing with India’s top dog PolicyBazaar, BankBazaar looks potentially like a MoneySupermarket (LSE:MONY.L - News) in the making. Singaporean startup MoneySmart.sg looks to be a player in the Southeast Asia region too. Singapore-based VC Walden invested $6 million in BankBazaar in 2011. 3. Pandai

Investor alert: These guys are looking for strategic investors and my money is on this one as the fastest-growing company at this year's show. Pandai, a new startup founded in March, offers an online marketplace for P2P lending, targeting a US$600 billion private lending market in China. Lenders can expect an interest rate of 12 to 15 percent per annum. Pandai has so far processed RMB 4 million in loans and has a default rate of ~1 percent so far. Successful models in the US such as Lending Club is processing over US$70 million per month in loans. Another P2P lender at the Finovate event, Australia’s SocietyOne, seems to be doing well in this area too. It’s worth noting that private lending offline is an established, lucrative and potentially lethal business that is often in a legal grey zone in China. The tale of China’s Wu Ying, a former hair-dresser who became one of the richest woman in China on the back of her not-totally-legal private lending venture, is a cautionary one - she was put on trial and sentenced to death. [Top image: CNBC]