How Singapore banks can survive digital disruption
Experts uncover the degree of threat for banks.
In a recent interview with SGX, DBS CEO Piyush Gupta shared that the biggest threat facing the banking industry is not the risk of bad loans, aggressive competitors, or capricious economic cycles, but the rising competition from outside the traditional financial sector.
The likes of Alibaba, WeChat, Apple, Tencent, and Google offering financial services, predominantly around payments, he said, are disrupting the value chain in finance. He even warned that if banks do not respond suitably, the industry is in danger of becoming obsolete.
Asian Banking and Finance gathered some views from experts and emerging fintech firmshow banks can turn this threat into opportunity through strategic partnership.
Here’s what they had to say:
Tom MOUHSIAN, KPMG’s Head of Customer & Growth Practice for the ASEAN region
Obviously, digital disruption creates discomfort to traditional incumbents. It forces them to respond with agility to increasing levels of digital innovation, protect and defend the status quo and take countermeasures. However, with disruption comes Opportunity.
The commercial scale of the disruption in banking has not yet reached the scale to wipe out current players, but they are certainly shaken up. In today’s digital age, banks can easily see new digital solutions and concepts that are coming into the market and there is no one stopping them from taking appropriate actions other than themselves.
Not everyone has to be an ‘inventor’ and there is absolutely no shame in learning and leveraging in others’ skills and creativity.
This can mean learning to design customer-friendly functionality and user experience, building real-time and virtual customer service capabilities, personalising content of marketing campaigns, customising product features and pricing to fit individual needs, adopting new technologies and product ideas, absorbing vast amounts of external and internal data to produce informed actions, etc. None of these things are controversial or new.
The problem here is, banks are not quick enough to realise the value in developing such capabilities earlier, before they become focal points of externally led disruption. Bank who fail to catch up with digital disruption will thus lose out. On an optimistic note, banks have huge advantages, such as their established market presence and capital resources – things that start-ups have to establish from scratch.
Banks that embrace disruption now, while it is still not too late, will emerge as stronger organisations than they are today.
Gerben H. Visser, Co-Founder, The Singapore FinTech Consortium
Finance Technology (FinTech) has over the past few years been emerging from the “grass root” start up ecosystems into receiving signifcant awareness and more recently obtained traction within both the financial services industry at large, as well substantial attention from the respective government and regulatory agencies.
In our opinion, these emerging FinTech innovations and developments, should not be treated by the Banks as a threat, or approached in reactively manner with a defensive persepective.
But rather perceived as an multitute of opportunities to address some of the bankings’ core challenges and by act proactively the Banks should be able to capture untapped or underserved customer segments, launch more elegant online & mobile products and services and migrate legacy IT systems to more cost effective and flexible processing paltforms.
The financial sector had already previously relied on technology to bring new products to market. For example, the introduction of the ATM in the 60s represented a change of the way customers managed their financial lives. However, since 2008 the rate at which technology is being used within the financial sector has dramatically increased.
The boom of the FinTech sector can be explained by different factors. On the one hand, public trust in financial institutions has sharply diminished due to the economic impact of the financial crisis on businesses and households.
On the other hand, banks were faced with a more onerous regulatory framework which diverted their resources towards compliance, instead of delivering innovative and customer-centric solutions. Technology companies have leveraged on the opportunity arising from the public demand and the incapacity of banks to adapt quickly.
They entered the market by offering near-perfect substitutes to financial products that were otherwise historically provided by banks (e.g. loans, personal current accounts, currency transfers). However, and most importantly, the
FinTech industry can do so at a price point and via channels which are in line with new customers’ behaviour and the expectations of a digital age, something banks had difficulty in doing.
Aung Kyaw Moe, Founder and CEO of Southeast Asian payments company 2C2P
There is a narrative of an on-going and accelerating battle between Silicon Valley versus Wall Street. The trend is clear - financial technology companies are putting traditional banks under pressure.
Banks and financial institutions won’t die out – they will adapt and evolve. If one looks at the operations of a bank, there is in fact not much that is proprietary. Technology, software and back-end processes are typically provided by an external vendor.
Ultimately the customer will pick what’s a) most convenient, and b) what’s well available through their social networks. It could be a bank product, or it could be a non-bank vendor product, like a P2P money transfer app, for example.
As these vendors command more and more influence, they will erode the banks’ business.
Ultimately the biggest winners are consumers. Banks will enter into strategic partnerships with technology companies, chiefly because we are not hamstrung by legacy technology, regulations and other constraints, in turn improving the quality of service for customers as well as providing more convenient banking channels and products.
2C2P works with a number of banks, providing technology, innovation and expertise to banks, who in turn offer them to their customers. We are viewed as a collaborator and a strategic partner, and not really as a competitive threat.
Banks in developed countries (example Japan) are already collaborating with emerging FinTech companies to provide loans, infrastructure, factoring services and etc.
Vince Tallent, Chairman & CEO, fastacash.
Disruption is the status quo in almost every industry, even in banking and financial services. There are multiple players (be it the likes of Apple, Tencent, Google, or messaging and social apps or newer fintech players) who are expanding their position to deliver fintech services that better meet the needs of the consumer – currently these players are addressing single services but are expanding quickly to offer broader services.
Banks and financial institutions today have the benefit of sharing a trust with their consumers.
Banks need to capitalize on this while innovating and digitizing their services. That said, speed is critically important. Banks have typically tended to move slower due to their international decision making processes.
Tech companies move faster and understand what end users want from the perspective of the user’s experience – with our technology and focus on building an engaging user experience – we really make a difference – and deliver speed and reduce time to market for our partners.
We work with leading banks and financial institutions to help them to innovate and leverage social and mobile behaviors of consumers to deliver social payment services.
What Piyush Gupta’s comments reflect is that DBS’ leadership sees the need to adapt and innovate – providing their customers with the most convenient services possible. Such foresight is crucial to their competitiveness.
While banking is a few hundred years old, the industry has started the process of reinventing itself – most notably in the past decade.
Increasingly, we are interacting with our banks through online or mobile channels – the banks are beginning to offer more services through our mobile phones so that we can use our phones for services beyond checking bank balances, transferring money, etc.
What we have seen is that banks want to “innovate” as long as they are second to market –the tech companies have shown is that there is no time to be second. Piyush Gupta's comments about being completely irrelevant to customers' needs in the next 5 to 7 seven years is absolutely right if banks don’t innovate, but given the pace of change it will happen much sooner.
Case in point: my children – daughter (22), and my twin sons (16) will never step into a physical bank branch. They haven’t even heard of brands such as Natwest or Western Union. They have, however, heard of Whatsapp, Facebook, Viber, Skype, etc. Social and messaging apps are where the 16-25 year olds are living and breathing.
So there’s an opportunity for banks and FIs to work with the likes of a messaging app such as Whatsapp, WeChat, etc., or with other innovative technology players like fastacash that are able to bring social and messaging to payments. Time will tell which banks are embrace a partnership model with innovative tech companies and which banks only talk about doing it.