Commentary: Fintech, Banking’s Great Disruptor. Or is it?

Incessant debate around fintech and digital disruption should not distract the banking industry from its core purpose of being a trusted manager of people’s money, says HSBC’s Jennifer Doherty.

SINGAPORE: Fintech and banking are often touted as competitors or rivals and there is much speculation about the industry’s future in the same way that music downloads disrupted the record industry and Uber is disrupting established transport companies.

But for all that it aspires to do, technology needs to be applied in a safe environment where customers’ data is protected.

It all boils down to trust.

HSBC’s 2017 global Trust in Technology report found when it comes to finances, people seek safety and prudence from those who manage their money above all else. Trust is the cornerstone of all relationships.

Banks have had decades to build extensive infrastructures, develop solutions for compliance and regulatory requirements, and most importantly, earn customer trust.

That is why for banks to stay relevant, they cannot lose sight of their core purpose: To safeguard and responsibly look after other people’s money.

But this doesn’t take away the need for banks to start deploying better technology to improve the customer experience.

And they are doing just that.

ENHANCING THE CUSTOMER EXPERIENCE WHILE KEEPING THEM SAFE

Banks are investing heavily in new technologies and spending is expected to continue to grow as banks seek to take advantage of new technology and digital solutions to make their operations more efficient, maintain competitiveness, as well as comply with regulators.

Some of these partnerships help banks work more effectively behind the scenes.

For instance, at HSBC, we have invested in a start-up which is developing technology that can sift through large amounts of financial transactions to pinpoint suspicious patterns. This will help us tackle financial crime more effectively, and ultimately keep our customers safer.

But the real failure is in not harnessing technology to enhance the customer experience.

The financial services industry is going through a period of extraordinary transformation. After centuries in which pen, paper and physical cash ruled banking interactions, digital technology is now bringing a new level of analysis, connectivity and transaction power literally to customers’ finger tips.

These changes have happened in just the last few years – and they serve a new generation of customers, who have grown up in the digital world.

Millennials demand convenient services and new ways of accessing them, wherever and whenever they want. They expect agile, rapid services operating in real time that are competitively priced and personalised.

ENTER FINTECH

Fintechs are entering the fray to respond to these needs and gaps in the industry.

Relations between these emerging fintech players and the established banking industry are sometimes portrayed as challenging, even combative. Some traditional banks worry that the fintech wave will disrupt the banking industry.

But the reality could not be further from the truth. In fact, banks and fintech companies are entering partnerships of collaboration, giving banks access to new technologies, and giving fintech companies access to funding and scale of market opportunity.

HSBC’s partnership with Tradeshift is one such example. We now have the capability to embed financing solutions on different supply chain platforms that our clients can leverage. This has made it easier for business customers to manage their accounts and their relationships with suppliers online, saving time and cutting down paperwork.

Big banks and fintech start-ups have a great deal to offer each other. Banks have a large customer base, stable infrastructure, assets and regulatory know-how. Start-ups provide out-of-the-box thinking, technical expertise, and agility to adapt quickly to change.

Together, they can be far more successful at improving the financial services and customer experience than if they compete against one another. And we'll witness far greater collaboration and integration in the coming years.

NEW OPPORTUNITIES

Over time, banks that can adapt, embracing the innovations and utilising technologies offered by the fintech industry stand to reap new opportunities, and even extend their share of the market.

Current fintech investments are reflecting the shift from disruption to collaboration, where, increasingly, investment is moving into new technology that collaborates and complements the existing technology and infrastructure, rather than those that are disruptive or work in silos.

Our approach at HSBC Group was to set up a Strategic Investments team, which scouts the start-up landscape, identifying companies which are potentially good investments, and which provide technology we can use.

We believe that when we act as both investors and customers, we get more value from new companies, and they get more value from their relationship with us.

This is critical to nurturing the kind of technological innovation that is necessary to make financial markets and systems more efficient, and to improve the overall customer experience.

In a move designed to help companies tap into a market where almost half a billion consumers use their mobile phones to pay for goods and services, HSBC became the first foreign bank in China to offer an omni-channel collections service that operated across all major digital channels.

The new solution allowed retailers in China to collect payments from customers on a diverse number of e-wallets such as Alipay, WeChat Pay, Apple Pay and UnionPay.

Clearly, the reality of doing business in the world’s leading mobile payment market mean that companies, particularly consumer-facing multinationals, have to acknowledge the preferences of their customers and give them the flexibility to choose how, where and when to pay.

The evolution of financial services is not a zero sum game. It is clear that banking will look quite different in the coming years than it does today – with regulation, technology, demographics and changing customer expectations.

In as much as financial technology is putting pressure on banks, it is a lot further away from a disruption.

The established banks are likely to remain key players - it is more a question of how banks can utilise the fintech innovations sprouting up around them.