Fintech has increasingly become a familiar buzzword on everyone’s lips. No longer simply “financial technology”, fintech describes a heady mix of innovative technologies enabling financial services in new and better ways. Banks have of course been using technology to support their operations for decades, but the global explosion of fintech means that banks are now being faced with competition from outside their traditional realm of influence. Start-ups are capitalising on emerging technologies to challenge business models and disrupt the status quo of financial services.
While Asia has in some ways been conservative, banks cannot count on regulatory protection. In Hong Kong, for example, the government is looking at measures to support fintech. Secretary for Financial Services and the Treasury Chan Ka-keung said in October 2015 that regulatory authorities were considering relaxing restrictions on fintech start-ups.
The banks are not standing still but fintech innovation continues to set the pace
Thirty of the world’s biggest banks are now partnering on blockchain, the technology that underpins innovations such as Bitcoin. A small handful of banks are notably active. Yet in even the most proactive of cases we are yet to see significant trickle-down to enhance customer offerings.
Already we are seeing the emergence of fintechs beyond Asia that no longer require the support of traditional banks to enable the services they deliver. Fidor and Atom are both newly licensed digital banks operating in Europe with many other challenger banks close behind in having their licenses approved. It is only a matter of time before these mobile-first banks become the new normal.
Why banks are challenged to match this pace of change
Traditional banks must contend with the challenges of regulatory compliance, legacy operations and IT infrastructure, attracting and retaining quality staff, complex change management and sometimes sceptical senior leadership all of which make the complexity and cost of change very difficult.
The impact to today’s customers is limited. The vast majority still typically prioritise well-established brands, financial security and a competitive rate of return. But complacency by the banks is dangerous as this older customer base is starting to dwindle. The Facebook generation will reach peak earning potential within the next ten years. This new breed of customers take a less risk-averse approach, instead demanding anytime, anyplace tailored experiences facilitated by smart devices and ubiquitous internet access. The result will be a step change in demand for customer-centric experience that most banks will currently struggle to emulate.
So what should banks do?
Revolutionising the way banking services are accessed, delivered and experienced must start with internal change that prioritises the customer experience.
Looking globally to first mover banks such as Spain’s BBVA is helpful: Chairman and CEO Francisco González famously stated his desire to transform the bank into a technology company. This approach combined with a significant ongoing fintech investment strategy is already yielding strong results and will continue to be an interesting case study as time progresses. Twenty-six per cent of interactions from BBVA’s 13.3 million clients now occur through digital channels with as many as 6.7 million customers registered for mobile banking.
Banks need to decide on the right innovation model
Deciding on the best approach to fintech will not look the same for all banks. Should they build, borrow, invest, fund or buy? At EY we are working with increasing numbers of clients to ensure appropriate fintech strategies are formulated in the light of cultural fit, regulatory suitability, risk appetite, sustainability and the ability to deliver meaningful results.
Asia presents huge opportunities for growth that are severely limited by current banking models. The region has around half the world’s mobile internet users, rapidly emerging economies, hundreds of millions of underbanked consumers and levels of fragmentation that require innovative solutions currently beyond the reach of most banks.
Investment in fintech is urgent and requires a logical approach to achieve a clear point of differentiation. With the right strategy in place there remains much to gain for banks operating in Asia.
Charlie Alexander is Head of Financial Services Transactions, Asia Pacific, EY
Marc Entwistle is an IT Advisory Manager, Financial Services, EY.
EY is proud sponsor of FINNOVASIA.
The views reflected in this article are the views of the author(s) and do not necessarily reflect the views of the global EY organization or its member firms.