It is easy to understand the importance of digital services when it comes to retail banking.
Paying bills via the internet and mobile phones are standard, these days. Indeed, writing a cheque seems so old school.
But is digitisation transforming capital markets? FinanceAsia has covered the impact of electronic trading and black pools but there have also been advancements in client portals and connectivity standards, and the truth is that investment banks have been uneven in their response to the digital disruption.
To be fair, banks around the world have been focused on new regulations, managing risk and cost-cutting. That hasn’t left much time or energy to focus on bank technology.
But in China, we are seeing how digital platforms are changing the face of lending. Consider Lufax and Lfex, the internet financial services arm of Ping An insurance group participating in the over-the-counter capital markets.
Lufax is nominally a peer-to-peer financial service provider with a business model similar to LendingClub in the US. Lfex focuses more on business-to-business lending. Many of the smaller and medium-sized companies that find it difficult to source financing from traditional financial institutions are turning to these digital platform.
Financial institutions should take note: it is a retail-styled digital solution that could cut into traditional debt capital markets funding. Lufax and Lfex are filling a void thanks to digital capabilities.
In Asia, P2P and B2B funding could easily grow to become a more acceptable and accessible financing source. Similarly, crowdfunding, most recognised by platforms such as Kickstarter, are becoming popular alternatives in the US for entrepreneurs to fund projects via donations from the general public. In Asia, crowdfunding has not taken off yet. That is a void that an upstart or an investment bank could choose to fill.
There are also digital opportunities that fit right into the traditional capital markets arena. Most of Asia’s investment banks will acknowledge that their significant clients have more than one investment bank relationship and therefore access to multiple web portals. It is likely to assume that clients would prefer to look at their investments in one screen-shot, rather than toggle through a variety of sites.
Providing a single point of access to not only a bank’s own products but competitors’ as well, is possible. Equities electronic execution platforms have been doing this for a decade. Will it become commonplace in over-the-counter derivatives and securities?
Accenture forecasts that web portals that aggregate more information and services across investment banks are inevitable.
While this may eliminate a degree of control from investment banks over their client relationships, clients will like it. Imagine an institutional portal that enables an investment bank client to: access prices from and execute against multiple counter-parties; access and consolidate research and price guidance from multiple sources; have a single consolidated view of transactions without having to view multiple sites.
The underlying concept is not, of course, a new one. In the late 1990’s, TheMarkets.com tried to create a single global portal for research and data models. The multi-broker portals currently provided by TradingScreen enable access to prices and execution across multiple banks. Thanks to digital technology, new sites could be even more comprehensive, complete with transaction capabilities and reporting.
WHAT IS IN IT FOR US?
The potential benefits for clients are clear. But there are also benefits for the investment banks. Analytics would give banks’ insight into what offerings work with particular clients, and which were expensive to serve.
Cross-bank analysis would provide a more accurate share-of-wallet picture than currently available. Furthermore, such a service would render maintaining these portals as industry utilities, reducing individual bank’s costs without cutting into areas that are truly differentiators.
A lower barrier to entry does, of course, imply the likelihood of increased competition. But banks cannot afford to stick their ostrich head in the sand. There are already upstart competitors – no Uber or Google or Netflix, to date – but it’s fair to predict they will be on the horizon. How many banks truly believed that Bloomberg terminals would be ubiquitous when they were first introduced?
The reality is non-traditional sources of funding are on the rise, particularly in Asia where small and medium-sized companies have found it difficult to raise money. Banks that cater to such companies with low-cost digital solutions can make up for the reduced fees and spreads per transaction thanks to higher volumes and greater frequency of transactions.
The real money will be in differentiation – as always, the banks that have the best value-added advice, which is likely to come, in part, from slicing and dicing the analytics, will be best placed.
Chin Wei Min is the managing director for the capital market industry in Asia-Pacific at Accenture.
