Income inequality is widening across the world with rapidly ageing populations and the pandemic exacerbating the situation.
Low-income groups tend to be highly dependent on deposit savings, which leaves them vulnerable to inflation, especially when interest rates are low.
Furthermore, many from lower-income groups do not have the means to grow their wealth, due in part to a lack of know-how, no tools and resources to monitor markets, and little excess savings to invest.
Financial institutions across the world have also been unable to scale effective money management solutions to a large number of customers while fintechs, over the years, are still trying to fill the gap.
As more people shift their banking needs to digital platforms, the recently launched public-private open banking platform SGFinDex (Singapore Financial Data Exchange) might just be the catalyst to turn things around.
Top of the list is greater financial inclusion so that more people will have access to suitable and affordable digital products and services that are critical to reducing the wealth gap. In the past, people have had to rely solely on financial advisers for planning.
But the combination of data and technology has now made it possible to help anyone make their money work harder for them.
SGFinDex allows customers to easily consolidate their financial information across government bodies such as the Central Provident Fund (CPF) Board, Inland Revenue Authority of Singapore and banks in one place.
Their retrieved data will be transmitted to digital financial planning tools or applications from the seven participating banks or the national financial education programme MoneySense, to offer a seamless and efficient way of managing finances.
Ultimately, the individual is in the driver’s seat, with the ability to continuously assess his or her financial health easily and make informed decisions. For instance, customers can connect their finances and choose to disconnect if they change their minds. Data is refreshed only when they want to.
They will soon also be able to retrieve other financial information like insurance and shares via SGFinDex.
Democratisation of wealth
There is a very real opportunity now to narrow the income inequality gap by helping lower-income groups to better manage their money.
That is why DBS earlier this year launched its digital financial and retirement planning tool DBS NAV Planner, which can consolidate individuals’ finances across the industry, provide hyper-personalised advice and actionable insights to ensure they are adequately prepared for retirement.
More than 1.8 million customers have used DBS NAV Planner since April, with more than 400,000 able to turn their finances around, making them positive net savers.
The tool is popular among lower-income groups. Over half of the 1.8 million users earn $2,999 or less each month, while 23 per cent earn between $3,000 and $4,999.
Financial planning tools like DBS NAV Planner have got a big boost with the launch of SGFinDex, allowing more Singapore residents to consolidate their financial data from different sources for greater clarity of their balance sheets.
Before SGFinDex’s launch, more than 40,000 customers had already manually input their external holdings in DBS NAV Planner. This is largely due to the higher levels of trust towards banks in Singapore than seen in some markets.
Furthermore, the pandemic has accelerated the adoption of digital banking and money management tools. This has led many Singaporeans to go digital, jump-starting their investing journey via digital platforms. Those who are not so tech-savvy are not left out, as they can continue to seek guidance via face-to-face consultations.
Over time, consumers who are deemed “underbanked” – no access to credit cards, no long-term savings products and being underinsured – should decrease. As their financial knowledge grows, financial barriers will also be lowered.
Financial inclusion will then be enhanced, chipping away at the Gini coefficient (which measures income inequality) and income and social inequality in Singapore.
Now that a customer’s personal balance sheet can be captured more easily with SGFinDex, the onus is on banks to help consumers bridge gaps with a holistic financial planning offering at every income level, instead of selling solutions in silos.
The winds of change have arrived and those who misread the signs will be left behind. Consumers will seek out financial institutions that offer solutions that better serve their needs.
What distinguishes a great financial institution that can better serve customers from a good one?
I believe it is one that has built up a proprietary financial planning framework that ensures consistent delivery of advice to consumers, regardless of their preference for online, offline or hybrid channels.
This framework places a big emphasis on comprehensive financial planning and encourages consumers to maximise government schemes like the CPF and Supplementary Retirement Scheme, and at the same time, embraces the best practices and benchmarks from established organisations like the Financial Planning Association of Singapore and the Life Insurance Association.
Financial institutions should also harness big data analytics and artificial intelligence to understand financial behaviour and trends resulting in enhanced customer engagement.
With digital financial planning tools at customers’ fingertips, mapping out their financial journey and goals is no longer as difficult or cumbersome as it is often made out to be. The future they desire will become a reality.
• The writer is head of financial planning and personal investing, DBS Bank.
This is the last of a five-part series on key trends that will shape the future of banking.
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